Glossary of Municipal Securities Terms


The terms of the bond contract, sometimes referred to as “call or prepayment provisions,” giving the issuer the right to redeem or call (an “optional redemption”), or requiring the issuer to redeem or call (a “mandatory redemption”), all (an “in-whole redemption”) or a portion (a “partial redemption”) of an outstanding issue of bonds prior to its stated date of maturityBonds may be redeemed at a specified price, usually at par or accreted value in the case of original issue discount bonds or zero coupon bonds (a “par call”) or above par or accreted value (a “premium call”), plus any accrued interest to the redemption date. Issuers may be limited to redeeming bonds on interest payment dates (an “any-interest-date redemption”) or may be permitted to redeem bonds on any date (an “any time or continuous call”).

Optional redemptions often can be exercised only on or after a specified date, typically for a municipal security beginning approximately ten years after the issue date. Some types of mandatory redemptions occur either on a scheduled basis (made in specified amounts or in amounts then on deposit in the sinking fund) or whenever a specified amount of money is available in the sinking fund (“sinking fund redemptions”). In addition, the occurrence of certain one-time or extraordinary events specified in the bond contract (an “extraordinary redemption”) may trigger an optional (an “extraordinary optional redemption”) or mandatory redemption (an “extraordinary mandatory redemption”). An extraordinary redemption may be triggered by, among other things, bond proceeds remaining unexpended by a specified date (an “unexpended proceeds redemption”), a determination that interest on the bonds is taxable (a “tax call”), a change in use of a project financed with bond proceeds that would cause interest on the bonds to become taxable (a “change in use call”), a failure of the issuer to appropriate funds needed to pay debt service on lease rental bonds or certificates of participation that are subject to appropriation (an “appropriation or non-appropriation call”), or the destruction of the facilities from which the bonds are payable (a “calamity or catastrophe call”).

In a partial redemption of an issue, the maturities from which bonds will be redeemed (a) may be selected in maturity or inverse maturity order, or (b) may be made from all or selected maturities in a manner designed to maintain a desired debt service payment characteristic with respect to the bonds that remain outstanding (a “strip call”), or (c) may be selected in the discretion of the issuer or conduit borrower. Where a particular maturity of an issue is subject to partial redemption, the specific bonds to be redeemed may be selected by lot or (if the bonds are certificated) in numerical or inverse numerical order.

Search the Glossary


Browse Terms by Letter