"How far municipal bonds have come since I joined the bond business in 1963 and the first edition of The Fundamentals of Municipal Bonds was placed in my hands! Long-term issuance hit all of $10 billion a year, genaral obligation bonds constituted 95 percent of the municipal bond market, and 'they're safe, they're tax-free, and they don't fluctuate much' could almost have said it all. Fast forward a half century to the Sixth Edition which sheds lights on the $2.9 trillion in municipal bonds now outstanding. Writer Neil O'Hara has performed a feat of clarity and omniscience for SIFMA, explaining and fitting all the pieces, players, and moving parts of this ever expanding municipal bond market into a coherent whole. Read and underline, ye beginners at bonds, salty old pros, elected officials, attorneys at law, financial writers, quants, wonks, and believers in public investment in the physical underpinnings of our quality of life. Munis are the one tool you've got for lifting this magnificent country off its magnificent bottom. And here is literally everything you need to know to do it."
—Jim Lebenthal, Lebenthal & Co. LLC
"The Fundamentals of Municipal Bonds is an excellent survey of key topics in municipal finance that can be read from cover-to-cover by lawyers, bankers, professional investors, issuers, and others starting out in the municipal bond market. In addition to describing the roles of key participants in the issuance and trading of municipal securities, Neil O'Hara gives a useful overview of the most prevalent types of financings in cogent language. Major tax and securities law issues are brought up-to-date, and veterans of public finance will find the discussion of current topics, such as derivative products, a useful reference guide that makes difficult issues easily accessible."
—Robert Fippinger, Senior Counsel, Orrick, Herrington & Sutcliffe LLP
Writer’s Acknowledgments xi
CHAPTER 1 Overview of the Municipal Bond Market 1
Introduction 1
The Issuers 4
Municipal Bond Dealers 7
The Lawyers 10
Financial Advisors, Specialists, and Other Consultants 11
The Rating Agencies 12
Bond Brokers 13
The Credit Enhancers 13
The Trustees and Paying Agents 17
The Investors 17
Information and Technology 18
The Regulators 19
Other Participants 21
CHAPTER 2 The Basics of Municipal Securities 23
Description of Municipal Securities 23
Yield and Price 26
Types of Yields 28
Tax Exemption of Municipal Bonds 29
Types of Municipal Bonds 35
Short-Term Securities 36
Other Characteristics of Municipal Bonds 45
CHAPTER 3 The Issuers 55
Introduction 55
Authorities and Special Districts 56
The Theory of Municipal Debt: Pay-As-You-Use versus Pay-As-You-Go 57
The Uses of Municipal Debt 59
The Security for Municipal Bonds 61
The Financing Process 68
The Financing Documents 71
Structuring the Debt 81
State and Local Government Accounting 87
CHAPTER 4 The Primary Market 93
Issuance Trends in the Primary Market 93
The Basics of Underwriting 96
Negotiated Underwriting 101
Competitive Underwriting 105
Orders and Procedures 111
CHAPTER 5 The Secondary Market 117
Introduction 117
The Over-the-Counter Market 117
E-Commerce, Information, and Technology 119
Selling Municipal Bonds 121
The Basics of Municipal Bond Trading 123
Municipal Bond Trading 124
How a Trade Is Done 128
Municipal Futures 130
Providers of Data in the Municipal Market 131
Market Statistics and Indexes 132
MSRB Record-Keeping Rules 136
CHAPTER 6 Investing in Bonds 139
Introduction 139
The Basic Principles of Investing in Bonds 139
Measures of Yield and Return 143
Yield to Maturity and Price 145
Investment Objectives 147
Risk Factors 148
Investor Strategies 150
Taxation of Municipal Bonds 152
Other Investment Factors 161
Investor Categories 163
CHAPTER 7 Credit Analysis 173
Introduction 173
The Rating Agencies 175
The Rating Process 176
General Obligation Bonds 179
Revenue Bonds 197
Other Factors Affecting Credit 207
CHAPTER 8 Understanding Interest Rates 211
Introduction 211
Determinants of the Overall Level of Interest Rates 212
Term Structure of Interest Rates 216
Municipal Bond Rates 221
CHAPTER 9 Regulatory and Disclosure Requirements 225
Introduction 225
The Basis of Federal Tax Exemption 226
History of Federal Tax Legislation Affecting Municipal Securities 228
The Current Statutory Exemption 230
Application of Federal Securities Laws to Municipal Securities 233
The Municipal Securities Rulemaking Board 239
CHAPTER 10 Financial Products 247
Introduction 247
Interest Rate Swaps 247
Interest Rate Caps, Floors, and Collars 252
Other Swap Products 253
Managing the Asset Side 253
Credit Default Swaps 254
APPENDIX Municipal Securities Rulemaking Board Rule G-33 257
Glossary 265
Bibliography 283
Web Sites 283
Books and Publications 284
About the Writer 285
Index 287
