Advance Refunding

AAA

DEFINITION of 'Advance Refunding'

1. A bond issuance used to pay off another outstanding bond. The new bond will often be issued at a lower rate than the older outstanding bond.

2. A bond issuance in which new bonds are sold at a lower rate than outstanding ones. The proceeds are then invested, and when the older bonds become callable they are paid off with the invested proceeds.

INVESTOPEDIA EXPLAINS 'Advance Refunding'

1. Advance refunding is most often used by governments seeking to postpone their debt payments to the future instead of having to pay off a large amount of debt in the present.

2. Municipal bonds are traditionally exempt from federal tax, but if a municipal bond is issued in an advance refunding it is no longer tax exempt. This is because municipal bonds tend to have lower rates, and municipalities could potentially use advance refunding to issue unlimited amounts of debt at low rates and invest in higher rate investments.

RELATED TERMS
  1. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  2. Government Security

    A bond (or debt obligation) issued by a government authority, ...
  3. Bond

    A debt investment in which an investor loans money to an entity ...
  4. Municipal Bond

    A debt security issued by a state, municipality or county to ...
  5. Refunded Bond

    Bonds that have their principle cash amount already held aside ...
  6. Refunding

    The process of retiring or redeeming an outstanding bond issue ...
Related Articles
  1. The Basics Of Municipal Bonds
    Bonds & Fixed Income

    The Basics Of Municipal Bonds

  2. Weighing The Tax Benefits Of Municipal ...
    Taxes

    Weighing The Tax Benefits Of Municipal ...

  3. Advanced Bond Concepts
    Bonds & Fixed Income

    Advanced Bond Concepts

  4. Bond Basics Tutorial
    Retirement

    Bond Basics Tutorial

comments powered by Disqus
Hot Definitions
  1. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  2. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  3. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  4. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  5. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  6. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
Trading Center