The Handbook of Municipal Bonds

Foreword xxxi

Christoper “Kit” Taylor

Preface xxxiii

About the Editors xxxix

Contributing Authors xli

PART ONE The Sell Side: The Originators of Deals 1

CHAPTER 1 The Central Place of States and Local Governments in American Federalism 3

Richard Briffault

The States 7

The Complex Structure of American Local Government 12

From Dillon’s Rule to Home Rule 17

Forms of Local Government 19

Metropolitan Governance 21

Summary 23

CHAPTER 2 An Overview of Investment Banking 25

Herman R. Charbonneau

Overview of Public Finance Banking 25

Regional Broker-Dealer Firms 29

Strategic Advantages for the Regional Firm 31

Disadvantages Faced by the Regional Firm 34

Importance of a Well-Defined Plan 35

Recent Challenges 39

The Outcome of Regional Banking Efforts 41

CHAPTER 3 Role of the Financial Advisor 43

William H. Wood

Overview of Financial Advisors and Their Roles 43

Financial Advisors in Negotiated Transactions 44

Financial Advisors in Competitive Transactions 45

Securities Dealers as Financial Advisors 45

Independent Financial Advisors 46

Pricing of Financial Advisory Services 46

Details Regarding the Financial Advisor’s Functions 47

Typical Advisory Services Provided In Connection with an Interest Rate Swap 48

How to Hire a Financial Advisor 49

Summary 50

CHAPTER 4 Method of Sale in the Municipal Bond Market 51

Jun Peng, Kenneth A. Kriz, and Tracy Neish

Method of Sale 52

Debate on the Method of Sale 57

Historical Data on Use of Sale Method 62

Summary 66

CHAPTER 5 The Role of Bond Counsel in Public Agency Financing 69

John L. Kraft

History of Bond Counsel 69

Review of Bond Counsel Opinion 70

Further Tax Developments 75

Disclosure and Securities Laws 75

Recent Developments 76

CHAPTER 6 The Role of Counsel to the Underwriters 79

Mary G. Wilson

Structuring 80

Securities Laws 80

Underwriting Documents 85

Review of Other Bond Documents 87

Blue Sky 88

Opinion 88

Summary 89

CHAPTER 7 Summary of Federal Tax Requirements for Tax-Exempt Bonds 91

Perry E. Israel

Arbitrage 93

Private Activity Bonds 108

Other Miscellaneous Rules, Including Refundings 120

Conclusion 125

CHAPTER 8 The Role of the Municipal Bond Trustee 127

James E. Spiotto

The Nature of the Bond Trustee’s Duties and Responsibilities 127

The Municipal Bond Trustee Preclosing 132

Administration of the Transaction by the Bond Trustee 135

Selected Challenges and Issues for

Municipal Trustees Postissuance 137

Summary 144

Chapter 9: The Last Resort for Financially Distressed Municipalities 145

James E. Spiotto

Historically, Bankruptcy Has Been a Mechanism of Debt Adjustment in Other Countries 149

Brief History of Municipal Bankruptcy Legislation in the United States 150

Existing Municipal Bankruptcy Provisions 153

Initiation of Chapter 9 Proceeding and Effect on Bondholder Rights and Remedies 156

Unique Features of Chapter 9 161

The Required Maintenance of Municipal Service during a Municipal Bankruptcy 163

Labor Contracts Are an Important Element of the Municipal Budget Whose Status in Chapter 9 Has Been a Subject of Discussion 164

Statute Governing the Rejection of Collective Bargaining Agreement in Corporate Context 165

“Special Revenues” Pledged to Bondholders 166

Payments to Bondholders Are not Preferences 168

Use of Letters of Credit as Backing for Municipal and Conduit Obligations 169

Plan of Adjustment for Municipality Time, Content, Impairment of Claims and Acceptance 170

Postpetition Disclosure and Solicitation 174

Acceptance of the Plan 175

Confirmation of Plan 176

Appendix: Chapter 9 Cases Filed as of February 8, 2007 180

CHAPTER 10 Subnational Infrastructure Finance in the Emerging Markets: A Financial Guaranty Perspective 191

Thomas H. Cochran, Anthony Pellegrini, David Stevens, Richard Torkelson, and David White

The Development and Growth of Locally Denominated Contractual Savings Pools and Credit Markets 192

The Devolution Revolution: Decentralization and/or Privatization Is Continuing in Virtually All Emerging Markets 195

Developing Financially Sustainable Subnational

Infrastructure Credits in the Emerging Markets 198

Conclusions 222

CHAPTER 11 The Role of the Rating Agencies 223

Edward A. Rabson

Moody’s Investors Service 224

Standard & Poor’s 227

Fitch Ratings 231

Summary 233

CHAPTER 12 Municipal Bond Refundings 235

William H. Wood

Refunding Overview 235

Reasons to Sell Refunding Bonds 236

Issues Relating to Structuring a Refunding Bond Issue 238

When Should an Issuer Refund Prior Bonds? 242

Refundings and Derivatives 244

Competitive versus Negotiated Sale 246

Conclusions 246

CHAPTER 13 Public-Private Partnerships 247

Robert H. Muller

History 248

The Process of Privatization 252

Summary 261

PART TWO The Sell Side: Distribution and Market-Making Roles 263

CHAPTER 14 The Role of the Underwriter 265

Christopher J. Mier

The Underwriter’s Role in Context 265

When Does the Underwriter Become Involved in the Process? 266

The Lead-Up to Pricing 268

Summary 271

CHAPTER 15 The Roles of Traders and Brokers 273

JonPaul Zaptin

Traders 273

Types of Traders 277

Watching the Taxable Markets 278

Trading Discipline and Mental Attitudes 278

Who Becomes a Trader? 279

Brokers 280

A Word on E-Commerce 281

Summary 281

CHAPTER 16 Municipal Arbitrage and Tender Option Bonds 283

Bart Mosley

Relative Value—What “Should” a Municipal Bond Be Worth? 284

How Municipal Arbitrage Works 286

Where Does the Municipal Yield Curve’s Steepness Come from? 292

Conclusion 294

Appendix: Tender Option Bonds in a Nutshell 296

CHAPTER 17 Interest Rate Swaps and Their Application to Tax-Exempt Financing 299

Eric H. Chu, Craig Underwood, Thomas B. Fox, Jon A. McMahon,Roger L. Davis, Stephen A. Spitz, Albert Simons III, and George G. Wolf

What Are Swaps and How Do They Work? 300

Types of Swaps and Other Hedges 305

Uses and Benefits 311

Business Risks 315

How to Acquire a Swap 317

Legal Issues 323

Tax Issues 326

Documentation and Negotiation 333

After the Close: Posttrade Management 337

Appendix: Glossary of Key Terms 340

CHAPTER 18 The Regional Firm: Its Customers, Traders, and Institutional Salespeople 345

Mychele Lindvall

Understanding “Regional” 345

Trading 347

The Regional Institutional Salesperson and Their Customers 351

The Skills of the Salesperson 353

CHAPTER 19 Changing Roles of Buyers and Sellers of Municipal Bonds: One Participant’s View 355

William J. Darusmont

Communications and Technology 357

The Legal Opinion and Indenture of a Municipal Bond 357

The Role of Credit Agencies 358

Changes in Tax-Exempt Status 358

Pricing Transparency 359

The Buyers of Municipals 359

Sellers of Municipal Bonds 360

The Future as Prologue 362

CHAPTER 20 The Depository Trust Company and Real-Time Price Transparency 365

Sylvan G. Feldstein and David Ratner

The Depository Trust & Clearing Corporation 365

Summary 370

CHAPTER 21 i-Deal/Ipreo: The Transaction Platform 373

Allen Williams

The Evolution of New-Issue Technology 373

Order Entry 374

The Issuer and Prospectus Delivery 375

The Future 375

Summary 379

PART THREE Compliance Issues 381

CHAPTER 22 The Municipal Securities Rulemaking Board 383

Paul S. Maco and Jennifer Webster Taffe

Organization of the MSRB and the Scope of Rulemaking Authority 385

Professional Qualifications, Supervision, Recordkeeping and Compliance 386

Uniform Practice Rules 388

Municipal Market Transparency and the MSRB 390

Fair Dealing and Suitability 391

Municipal Securities Information Library 393

Market Integrity 394

Additional Information Regarding MSRB 396

CHAPTER 23 The Role of the Securities and Exchange Commission 397

Paul S. Maco and Cristy C. Edwards

Framework of the Federal Securities Laws 399

Application to Municipal Securities 407

Rule 15(c)2-12 420

CHAPTER 24 Sarbanes-Oxley and the Securities and Exchange Commission 425

Paul S. Maco

The Act 426

Conclusion 446

CHAPTER 25 Using Auditing Techniques to Develop Investment Adviser Compliance Procedures 447

Kevin Reilly

Getting Started 448

Understanding the Process 448

Document the Process 453

Review the Process 454

Revise the Process Documentation 456

Summary 456

CHAPTER 26 Rule 2a-7: Legal and Research Issues for Tax-Exempt Money Market Funds 459

Stephen A. Keen and Leslie K. Ross

Definition of a Tax-Exempt Money Market Fund 460

General Requirements of Rule 2a-7 462

Eligible Securities for Tax Exempt Funds 469

Diversifi cation of Tax Exempt Funds Under Rule 2a-7 477

Application of Rule 2a-7 to Municipal Securities 482

Postacquisition Constraints Imposed by Rule 2a-7 496

Summary 498

PART FOUR Fixed Income Analysis of Municipal Products 501

CHAPTER 27 Evaluation of Municipal Bonds 503

Gerard Brennan

The Need for Evaluations 503

Tools of Evaluation 504

Adjusting for Different Types of Municipal Bonds 507

Other Considerations 507

The Future of Municipal Bond Evaluation 511

CHAPTER 28 Valuation of Municipal Bonds with Embedded Options 513

Frank J. Fabozzi, Andrew Kalotay, and Michael P. Dorigan

Underlying Principles 514

Overview of Bond Valuation 514

Valuation Model 516

Specific Adjustments to the Valuation Model for Municipal Bonds 527

Tax Adjustments to the Model 528

Horizon Price 532

Other Values Calculated from the Model 533

Relative Value Analysis of Municipal Bonds 534

Summary 535

CHAPTER 29 Analyzing and Evaluating Tax-Exempt Indexed Floaters: Investor and Issuer Perspectives 537

Yingchen Li

Breakeven Equation for the Issuer 537

Risk Analysis of LIBOR-Indexed Floaters 538

Other Percent LIBOR-Indexed Floaters 539

Percent BMA-Indexed Floaters 540

CMS and BMS 541

Percent CMS-Indexed Structures 541

Risks of Percent CMS and Percent BMS 542

Summary 543

CHAPTER 30 Municipal Inverse Floating Rate Securities 545

Cadmus Hicks

Description 545

Tax Treatment 546

Computations 547

Accounting Treatment 550

Tender Option Bonds 551

Summary 551

CHAPTER 31 Analyzing Portfolios Daily 553

Paul R. Daniels

A Four-Level Framework for Portfolio Assets 554

Credit-Level Analysis 555

Basic Holding-Level Analysis 557

Total Return Performance 562

Simulations 564

Portfolio Structure: Compliance and Targets 566

Reporting 567

A Secret Formula? 567

Summary: 20 Ingredients for Success 568

CHAPTER 32 Discovering Relative Value Using Custom Indices 571

Daniel J. Garrett

Intuitive Patterns 571

Empirical Patterns 572

Discovery 572

Caveats and Disclaimers 575

Conclusion 575

CHAPTER 33 Municipal Bond Swaps 577

Evan C. Rourke

Description of a Bond Swap 577

Tax Swapping 577

Other Types of Municipal Bond Swaps 579

Summary 580

CHAPTER 34 The Tax Treatment of Municipal Bonds 581

Martin J. Mauro and Philip Fischer

Federal Tax Treatment of Municipal Bonds 581

Calculating the Effective Tax Rate on Interest Income from Out-of-State Municipal Bonds 585

Summary 588

PART FIVE The Buy Side: Institutional Investors 589

CHAPTER 35 Managing a National Municipal Bond Fund 591

Alexander Grant

The Investor Who Buys the Fund 592

National versus State-Specifi c Funds 593

Total Rate of Return 594

Managing a Fund by Relative Value 595

Issues of Coupon and Structure 596

Traditional Buyers versus the Arbitrageurs 597

Conclusion 598

CHAPTER 36 Managing a High-Yield Municipal Fund 599

Wayne Godlin, Jim Phillips, Bill Black, Barnet Sherman, Mark Paris, and Seth Horwitz

High-Yield Borrowers 600

High-Yield Municipal Bond Fund Track Record 601

Credit Analysis 603

Sector Allocation 603

Trading Opportunities 604

Story Bonds 606

Opportunity Bonds 607

Credit Improvement and Enhancement 607

Derivatives 608

The Use of Benchmarks 610

High-Yield Municipal Fund Infrastructure 610

Summary 611

CHAPTER 37 Managing Municipal Bonds for Property and Casualty Insurance Companies for Total Return 613

Karen Szerszen

Business of Property and Casualty Insurance Companies 613

Combined Ratio 614

Total Return versus Benchmark 616

Regulatory Factors 616

Tax Risk 618

Credit Risk 619

Interest Rate Risk 622

Conclusion 623

CHAPTER 38 The Role of Hedge Funds in the Municipal Market 625

Jonathan A. Fiebach

Ratio Curves 626

Hedge Fund Activity 628

Conclusion 631

CHAPTER 39 Managing Municipal Bond Portfolios for High-Net-Worth Investors 633

Thomas P. Dalpiaz

A Living, Breathing Human Being 633

Emotional Ups and Downs 634

Transparency 634

Education 634

The Starting Point 634

The Client’s Existing Situation 635

Uncovering Client Objectives 636

What Is the Client Really Trying to Achieve in the Bond Market? 636

Articulating Objectives and Setting Parameters 637

Performance Measurement 638

Uncovering Value in the Municipal Bond Market 640

Confronting Interest Rate Risk 640

Confronting Credit Risk 642

Confronting Call Risk 642

Confronting Liquidity Risk 643

Yield Curve Analysis 644

Bond Swapping 644

Using Balance in Portfolio Construction and Reconstruction 645

Portfolio Distributions 646

Municipal Bonds: A Most Necessary Investment 646

CHAPTER 40 Municipal Credit Default Swaps 647

Frank J. Fabozzi

Single-Name Municipal CDS Contract 648

Uses of Municipal CDS by Portfolio Managers 652

Second Generation of Credit Default Swaps 654

Summary 655

CHAPTER 41 Municipal Collateralized Debt Obligations 657

Rebecca Manning, Douglas J. Lucas, Laurie S. Goodman, and Frank J. Fabozzi

CDO Basics 658

Muni CDOs 662

Summary 663

CHAPTER 42 Performance Attribution of Municipal Bonds 665

Daniel J. Garrett

Which Approach for Municipal Bonds? 666

What Doesn’t Work for Municipal Bond Attribution 667

The Better Approach for Municipal Bond Attribution 670

Mathematics of Returns-Based Attribution 672

Examples of Returns-Based Attribution for Municipal Bonds 677

Client Stories: Applying Municipal Bond Attribution 684

Summary 686

PART SIX Credit Analysis 689

CHAPTER 43 The Role of the National Federation of Municipal Analysts in Promoting Better Disclosure 691

Lisa Good, Gerry Lian, Tom Weyl, Gregory A. Clark, and Gregory Aikman

Summary of NFMA Initiatives 692

The Special Importance of Disclosure 693

A Detailed Look at the NFMA’s Recommended Best Practices 697

Procedure for Developing RBP Documents 698

The Mechanical Steps Used to Develop an RBP Document 701

Current Issues and Challenges Facing the NFMA 702

CHAPTER 44 A History of Modern Municipal Defaults 707

James E. Spiotto

Analysis of Defaults of Municipal Debt in the United States 707

Lessons Learned from Troubled Municipal Financing 719

Summary of Lessons Learned 726

Rules for Survival 727

Appendix: The Structure for Oversight and Emergency Financing 728

CHAPTER 45 New Issues in Municipal Accounting 733

David R. Bean and Dean Michael Mead

Structure of Governmental Financial Statements 734

Information Presented in Basic Financial Statements and RSI 735

Summary 764

CHAPTER 46 Managing a Buy-Side Municipal Bond Research Department 767

Richard A. Ciccarone

Assessment of Challenges 768

Summary 777

CHAPTER 47 The Role of an Activist Bond Analyst 779

Arthur E. Schloss

Activist Bond Analyst’s Approach to Improving Stressed or Deteriorating Credits 779

Watchful Waiting 782

Asset Preservation 783

The Conference Call 783

Covenant Waivers/Consultants 784

Project Sale to External Buyer 785

The Debt Service Reserve Fund 786

Deleveraging 786

Conclusion 788

CHAPTER 48 How to Analyze General Obligation Bonds 789

Sylvan G. Feldstein and Terry J. Goode

The Issuer’s Debt Structure and Security for General Obligation Bonds 790

The Issuer’s Budgetary Operations 796

The Issuer’s Revenue Structure 801

The Economy 802

The More Important Debt Ratios 806

Conclusion 807

CHAPTER 49 General Analytical Framework for Assessing the Credit Worthiness of Revenue Bonds 809

Sylvan G. Feldstein

Limits of the Basic Security 810

Flow-of-Funds Structure 810

Rate, User Charge or Dedicated Revenue and Tax Covenants 811

The Priority of Pledged Revenue Claims 811

The Additional Bonds Test 811

Other Relevant Covenants and Issues 812

CHAPTER 50 How to Analyze Airport Revenue Bonds 813

William E. Oliver and Daryl Clements

Airport Ownership Structures 813

Passenger Demand Characteristics 814

Competition 816

Use and Lease Agreements 816

Gate Control 817

Airport Management 818

Conclusion 818

CHAPTER 51 Land-Secured Bonds 821

Ronald L. Mintz

Advantages of Land-Secured Bonds 821

General Characteristics of Land-Secured Bonds 822

Credit Criteria 824

Role of the Developer 832

Disclosure 835

The Land-Secured Bond Market 835

Bond Structures 842

Conclusion 843

CHAPTER 52 Hospital Bond Analysis 845

Lynn Cavallaro

National Level Overview 846

Local Level Review 850

Hospital Level Review 851

Transaction-Specifi c Risks 856

Examples of Hospital Downgrades 857

Conclusion 858

CHAPTER 53 Single-Family Housing Bonds 861

Kurt van Kuller

The Appeal of Single-Family Bonds 861

SF Bond Issuance Record in 2006 864

Credit Strength of SF Bonds 867

A Unique Basket of Call Options 871

Prepayments in SF Bonds 872

Municipal Prepayment Speeds 874

Other Ways of Handling Prepayments 879

PAC Bonds 879

Discriminating between PAC Bonds 880

Passthroughs 881

Lockout Bonds 881

Crosscalling 882

The Ten Year Rule 884

Universal Cap Regulations 886

The Unused Proceeds Call 886

Optional Redemptions in Single-Family Bonds 888

Pricing Single-Family Bonds 889

Concluding Remarks 891

CHAPTER 54 Multifamily Bonds 893

Kurt van Kuller

Multifamily Bond Market Parameters 893

AMT Penalizes the Sector 895

Multifamily Supply Outlook Positive 897

Volume Cap Constrains Bond Issuance 897

Great Diversity of Issuers 897

Abundance of Project Types 899

Multifamily Bonds: Default Rates 901

Multifamily Default Cycles 902

An Array of Credit Enhancements 904

The Low Income Housing Tax Credit 905

FHA Insurance 905

Risk Sharing: Superior FHA Program 908

GNMA Backed Multifamily Bonds 909

Project-Based Section 8 911

FHA Section 8 Mark-to-Market 913

Section 236 Interest Subsidy 914

“Affordable Housing” Projects 915

Tax Opinion Risks 916

Multifamily Bond Redemptions 916

Prepayments in Multifamily Bonds 918

Other Call Options in Multifamily Bonds 920

Conclusion 921

CHAPTER 55 Tax-Exempt Electric Utility Debt 923

Gary M. Krellenstein and Paul R. Bockwoldt

Structure of the U.S. Electric Industry 925

Cost of Electricity 933

Charges for Service 934

Credit Considerations 935

Summary 939

CHAPTER 56 How to Analyze Startup Continuing Care Retirement Community Bonds 941

Edward C. Merrigan

Accommodation and Service Options 941

Residency Contracts 943

Ownership, Governance, and Management 946

Demand Analysis of Independent Living Units 947

The Analysis of Advance Fee Deposits and Monthly Service Fee Prices 950

Assisted Living Unit and Nursing Care Bed Demand Analysis 950

Utilization and Fill-Up Expectations 951

Financial Statement Analysis 951

Ratio Analysis 952

Legal Security Features and Covenant Considerations 953

Continuing Disclosure 954

Summary 955

CHAPTER 57 How to Analyze Tobacco Bonds 957

Gerry Lian

Background 957

Analysis of Structural Risk 964

Analysis of Corporate Credit Risk 965

Analysis of Cash Flow Risk 968

Analysis of Litigation Risk 971

Conclusion 978

CHAPTER 58 Toll Road Analysis 981

Robert H. Muller

History 981

Key Analytical Factors 984

Conclusion 993

CHAPTER 59 Water and Sewer Bond Analysis 995

Brian Winters

Structure 996

Management 997

Economic Base 997

Financial Ratios 998

Bond Security 1000

Environmental Issues 1002

Other Considerations 1002

Conclusion 1002

PART SEVEN Special Security Structures and Their Analysis 1005

CHAPTER 60 Evaluating Tax-Exempt Commercial Paper 1007

Maria C. Sazon

Overview of Commercial Paper 1007

Repayment of Commercial Paper Notes 1008

Analyzing Various Sources of Repayment for Commercial Paper 1009

Analyzing Commercial Paper without Enhancement 1011

Summary 1012

CHAPTER 61 The Use of Letters-of-Credit in Connection with Municipal Securities 1015

Todd P. Zerega

Overview of LOCs 1016

Considerations in Reviewing a LOC-Backed Security 1019

Conclusion 1023

CHAPTER 62 How to Analyze Tax, Bond, and Grant Anticipation Notes 1025

Sylvan G. Feldstein and Frank J. Fabozzi

Two Major Purposes of Notes 1025

Security Behind Tax and Revenue Anticipation Notes 1026

Information Needed Before Buying Tax or Revenue Anticipation Notes 1027

Summary 1029

CHAPTER 63 How to Analyze Refunded Municipal Bonds 1035

Sylvan G. Feldstein

Pure versus Mixed Escrow Funds 1035

What are the Reasons for Refundings? 1036

Two Types of Refunded Bonds 1037

Determining the Safety of the Refunded Bonds 1038

CHAPTER 64 Pollution Control Revenue, Industrial Development Revenue, and Conduit Financing Bonds 1041

Gary Krellenstein

Security 1042

Restrictions on Issuance and Refunding of PCR/IDR Debt 1044

Call Features 1047

Summary 1048

CHAPTER 65 How to Analyze FHA-Insured Mortgage Hospital Bonds 1049

Sylvan G. Feldstein

FHA Hospital Mortgage Insurance 1050

Credit Risk 1051

The “Prudent Man” Evaluation Approach 1053

Summary 1054

CHAPTER 66 How to Analyze Higher Education Bonds 1055

Bradley D. Mincke

The Institution 1056

Use of Bond Proceeds 1057

Security 1058

Degrees and Programs 1060

Student Demand 1060

Management and Governance 1064

Faculty and Staff 1065

Tuition and Financial Aid 1066

Financial Statements 1067

Endowment Funds 1072

Plant and Facilities 1073

Fundraising Abilities 1074

Definitions of Certain Terms 1074

Continuing Disclosure 1074

Conclusion 1075

CHAPTER 67 Analyzing Human Service Provider Bonds 1077

Ruben Selles

Milestones in the Development of Human Service Providers 1078

Risk Factors Associated with Human Service Providers 1081

Summary 1083

CHAPTER 68 How to Analyze the Municipal Bond Insurers and the Bonds They Insure 1085

Donald King Cirillo

What Is Municipal Bond Insurance? 1085

Municipal Bond Insurance Benefi ts 1087

Additional Benefi ts of Bond Insurance 1089

Types of Municipal Bond Insurance 1090

Municipal Bond Insurance Providers 1091

Other Municipal Bond Insurance Providers 1092

Reinsurance 1093

Telling the Difference 1094

Financial Factors 1096

Other Financial Factors 1097

Other Businesses 1098

Conclusion 1099

CHAPTER 69 Student Loan Financing: Risk Evaluation Tax-Exempt and Taxable Markets Converge 1101

Diane R. Maurice and Ankur Goyal

Tax-Exempt Issuers and Privatization Trends 1103

Systemic Shift-Risk Transference 1107

Guaranteed versus Private Loans 1108

Risk Profi le Evolves 1109

Summary 1109

Appendix: Recent Investigatory and Legislative Developments 1111

CHAPTER 70 Analysis of Tribal Casino Bonds 1119

Megan Neuburger, Michael Paladino, Jessalynn Moro, and David Litvack

Issuer Credit Factors 1120

Bond Structure and Security Features 1126

Summary 1128

CHAPTER 71 Understanding Variable Rate Demand Obligations 1129

Mitchell Savader

How VRDOs Work 1129

The Need for Cash 1130

The Role of Bond Insurance 1131

CHAPTER 72 State Credit Enhancement Programs for School Districts and Municipalities 1133

Harold B. Burger

Types of State Credit Enhancement Programs 1134

Assessing State Credit Enhancement Programs 1135

Credit Enhancement Program Advantages and Disadvantages 1136

Summary 1139

CHAPTER 73 The ABCs of Charter Schools 1141

Mitchell Savader

Understanding Charter Schools 1141

The Charter 1142

The Relationship between Demand and Financial Success 1144

Summary 1146

CASE STUDIES OF INNOVATIVE AND OTHER SECURITY STRUCTURES CASE STUDY 1

New York City Uses Taxable Municipals After 9/11 for Budget Relief and Affordable Housing 1149

Emily A. Youssouf

CASE STUDY 2 9/11, Subprime Loans, and the Magnolia Park Apartments Bond Default 1153

Michael J. Ross

CASE STUDY 3 Newport News Issues an Energy Savings COP 1161

A. Theodore Palatucci

CASE STUDY 4 Tax-Exempt Airport Finance: Tales from the Friendly Skies 1165

James E. Spiotto

CASE STUDY 5 Toronto’s Highway 407 1185

William E. Oliver

CASE STUDY 6 Disney’s California Adventure and Tax-Exempt Bonds 1191

Hilary E. Feldstein

CASE STUDY 7 Super Bowl XXXII Helps Resolve Bond Default 1195

Bill Huck

CASE STUDY 8 A Tax-Exempt Prepay Natural Gas Purchase Bond 1201

Sandra McDonald

CASE STUDY 9 Universal Studios Road Financing: First with Special Assessment Bonds and Second with Tax Increment Financing Bonds 1207

Hilary E. Feldstein

CASE STUDY 10 California’s Workers’ Compensation Insurance Crisis and the Financing of the California Insurance Guarantee Association 1211

Anthony H. Fisher

CASE STUDY 11 Dreamworks Tries to Issue Tax-Exempt Bonds 1215

Rich Saskal

CASE STUDY 12 Financings of the Medical University Hospital Authority of South Carolina 1217

Joseph A. Spiak

CASE STUDY 13 Niagara Falls Memorial Medical Center 1223

Herman R. Charbonneau

CASE STUDY 14 Aruba Airport Authority Airport Revenue Bonds 1227

William E. Oliver

CASE STUDY 15 Yankees versus Mets: A Subway Series 1233

Mitchell Savader

CASE STUDY 16 Good Swap, Bad Swap 1237

Peter Shapiro

CASE STUDY 17 Westminster-Canterbury of the Blue Ridge Continuing Care Retirement Community 1241

Marie S. Pisecki

CASE STUDY 18 Preserving Housing Affordability with Taxable Municipals 1249

Emily A. Youssouf

CASE STUDY 19 Massachusetts Sells LIBOR Index General Obligation Bonds with an Interest Rate Swap 1253

Sylvan G. Feldstein and Patrick Landers

CASE STUDY 20 Developing Hudson Yards with a $2 Billion Bond Issue 1257

James McSpiritt

CASE STUDY 21 Seminole Tribe Bets on Taxability 1263

Joseph Krist

APPENDIX A

A Pictorial History of Municipal Bonds 1269

Sylvan G. Feldstein and Peter O’Brien

APPENDIX B

Glossary of Terms 1291

Mitchell Savader

Index 1297