What Is a Municipal Note?

A municipal note is debt issued by state and local governments to finance capital expenditures, such as construction projects. Municipal notes are appealing to investors because they mature in one year or less, offer fixed income, and are often exempt from income taxౠ at the federal and/or state levels.

Understanding a Municipal Note

When local or state governments decide to raise funds to finance a project that would benefit the region, they typically opt for municipal notes. Municipal notes are short-term 澳洲幸运5官方开奖结果体彩网:debt securities issued with maturity terms o💧f 12 months, although maturities can range from three months to th༺ree years. 

A city gov𝄹ernment, for example, may issue a municipal note to raise capital to finance a new park in the city. Municipal notes are usually issued in anticipation of tax receipts, revenue, or proceeds from a bond issue.

Special Considerations 

Whereas a majority of municipal bonds make interest payments semiannually, municipal notes tend to make only one payment upon maturity, which includes both interest and p🍸rincipal payment obligations.

Municipal notes usually pay lower coupons than corporate notes with similar maturities, but because the yield is tax-free, the after-tax basis may be higher for a municipal bond. Municipal notes are exempt from federa🔯l income taxes and sometimes from state and local taxes as well.

Investors can determine the risk of investing in a particular municipal note by examining the ratings issued by Moody's and by Standard & Poor's. Moody's gives municipal notes three possible ratings: MIG 1 (best quality), MIG 2 (high quality), and MIG 3 (adequate quality). 澳洲幸运5官方开奖结果体彩网:Standard & Poor's uses a four-tiered rating system: SP-1+, SP-1, SP-2𓃲, and SP-3. Only the first three are considered worth investing in. SP-3 mun🐬icipal notes are considered speculative.

Types of Municipal Notes

Bond Anticipation Notes

澳洲幸运5官方开奖结果体彩网:Bond anticipation notes (BANs) are issued in anticipation of long-term financing, which when issued is used to retire or pay off BANs. A borrowing entity that is due to commence work on a new project may decide to issue long-term bonds to finance the project. However, the issuance of these bonds 🃏may not be possible prior to the launch of the project due to certain legal, regulatory, or compliance procedures that could cause a delay in issuing new bonds. 

In order to proceed with work on a new project and to have the funds necessary to finance the project, the governmental issuer may decide to issue short-term municipal notes🐽, BANs, as𝓡 a source of financing in the interim. When the long-term bonds are issued, the proceeds are used to make the interest and principal payments on the BANs.

Tax Anticipation Notes (TAN)

The interest and principal payments of 澳洲幸运5官方开奖结果体彩网:tax anticipation notes (TANs) are secured by future tax revenue. TANs are issued by states or municipalities to finan🎃ce current operations before tax revenues are received. When the issuer collects the taxes, the proceeds are then used to retire th൲e tax anticipation notes.

Revenue Anticipation Notes (RAN)

澳洲幸运5官方开奖结果体彩网:Revenue anticipation notes (RANs) are municipal notes whose interest and principal payments are secured by the anticipated non-tax revenue of a pro🔯ject. When the project is completed and starts generating revenue at a future date, the revenue is used to pay off the RAN.