Advance Refunding Documents

What Is an Advance Refunding Document?
A refunding is a refinancing of existing "refunded" bonds with new "refunding" bonds. Similar to a homeowner who obtains a new mortgage with a lower rate to pay off an older, more expensive mortgage, an issuer of refunding bonds often seeks to lower its interest payments by paying off bonds it has previously issued with newly issued refunding bonds that pay interest at a lower rate than the original refunded bonds.

In an advance refunding, rather than paying off the old debt immediately, the proceeds of the new refunding bonds are placed in an escrow account to be applied according to a predetermined schedule to the future payment of principal and interest on the old refunded bonds. The advanced refunding of a bond can also change the bond’s terms, including altering the timing of repayment of principal on the bond, the bond’s credit rating and the current value of the bond. An advance refunding document provides the terms of how and when a municipal bond that has been advance refunded ultimately will be paid.

Learn more about Advance Refunding Documents here.

How Can Advance Refunding Documents Be Accessed?
The MSRB’s Electronic Municipal Market Access (EMMA^®) website provides free access to advance refunding documents. Users may also obtain an electronic feed of advance refunding documents, together with official statements, through an MSRB subscription.

How Can Investors Use Advance Refunding Documents?
The advance refunding document sets out important terms of how and when a bond that has been advance refunded ultimately will be paid. The escrow account for the refunded bonds is typically established under the advance refunding document, with the document describing how funds in the escrow account will be invested prior to being used to pay the refunded bonds.