R-002-17 Adopting the City of Colton Debt Policy and Procedures

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City of Colton Debt Policy and Procedures Adopted by City Council February 7, 2017 13 APPENDIX A GLOSSARY OF TERMS ADVANCE REFUNDING A procedure whereby outstanding Bonds are refinanced with the proceeds of a new Bond issue prior to the date on which outstanding Bonds are callable. Typically an Advance Refunding is performed to take advantage of interest rates that are significantly lower than those associated with the original Bond issue. At times, however, an Advance Refunding is performed to remove restrictive covenants or conditions required by the original legal documents. In an Advance Refunding, the refunded Bonds are called or mature 90 days after the issuance of the Refunding Bonds. (See also Current Refunding). ARBITRAGE The gain which may be obtained by borrowing funds at a lower (often tax - exempt) rate and investing the proceeds at higher (often taxable) rates. The ability to earn Arbitrage by issuing tax - exempt securities has been severely curtailed by the Tax Reform Act of 1986, as amended. BOND A security that represents an obligation to pay a specified amount of money on a specific date in the future, typically with periodic interest payments. BOND COUNSEL An attorney (or firm of attorneys) retained by the issuer to give a legal opinion concerning the validity of the securities. The Bond Counsel's opinion usually addresses the subject of tax exemption. Bond Counsel may prepare, or review and advise the issuer regarding authorizing resolutions or ordinances, trust indentures, Official Statements, validation proceedings and litigation. BOND INSURANCE Bond Insurance is a type of Credit Enhancement whereby an insurance company indemnifies an investor against a Default by the issuer. In the event of a failure by the issuer to pay principal and interest in-full and on-time, the insurance company has promised to make such payments. Once assigned, the municipal Bond Insurance policy generally is irrevocable. The insurance company receives an up-front fee, or Premium, when the policy is issued. CAPITAL LEASE The acquisition of a capital asset over time rather than merely paying a rental fee for temporary use. A Lease-purchase agreement, in which provision is made for transfer of ownership of the property for a nominal price at the scheduled termination of the Lease, is referred to as a Capital Lease. CAPITALIZED INTEREST Bond proceeds which are reserved to pay interest on a Bond issue for a period of time early in the term of the issue; also called funded interest. This also refers to the interest to be so paid.