Policy Changes and Management
Studies in Fiscal Federalism and State–local Finance series
The previous chapter discussed the process in which state and local governments sell municipal securities to finance their capital and operating activities. This chapter provides greater detail into the specifics and structure of those securities. Municipalities sell debt issues by combining individual bonds along the term structure into a debt issue, called a serial debt issue. Serial debt issues attract a range of investors that have varying maturity preferences. A municipal bond issue with a principal amount of $10 million consists of 2000 bonds with a principal value of $5000 each. On serial issues, a portion of the total principal of the debt issue is scheduled to mature at regular intervals over the life or term of the issue. The schedule (dates and amounts) of the principal maturities of the issue is referred to as the principal maturity schedule. Table 7.1 shows a typical maturity schedule for a serial debt issue. On a $10 million bond issue, $2 million matures annually over a five-year period, so the entire bond issue is retired five years after the date of issuance. All 2000 individual bonds, therefore, do not have the same final maturity date; they mature annually over the five-year period at roughly equal intervals (e.g. 400 bonds mature each year). The principal amount of $2 million is retired (repaid) each year for the next five years.
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