Calculating a Refunding Savings with Mun-Ease

By Wrasman, Brent | Government Finance Review, June 1994 | Go to article overview

Calculating a Refunding Savings with Mun-Ease


Wrasman, Brent, Government Finance Review


Mun-Ease, the Municipal Bond Manager[TM], is GFOA's microcomputer-based software program designed to meet the debt-management needs of governmental entities, financial advisors, bond counsel and accounting firms. The program is presented from the issuer's perspective rather than that of the investor.

Making a Bond Issuer's Life Easier

Mun-Ease makes possible an extensive set of municipal bond-related calculations, including true interest cost (TIC), net interest cost (NIC), arbitrage yield limit (AYL), excess earnings for rebate purposes and internal rate of return (IRR) on the investment portfolio. The database structure of Mun-Ease can contain existing, planned or test bond issues, which may be serial bonds, term bonds with mandatory redemption features, zero-coupon bonds and variable-rate bonds.

The variables used to build Mun-Ease databases include the dated date, delivery date, coupon date, principal payment dates, term dates, expected retirement dates, principal amounts of maturities, coupon rates, call price, credit enhancements, underwriter discount, original issue discount and miscellaneous costs.

With a new project that needs long-term funding, Mun-Ease has the capability to correctly size a bond issue, taking into account the many variables that determine the size and structure of a new issue. These variables include the amount and timing of construction costs, accrued interest, debt service reserve fund, capitalized interest, underwriter discount, contingency funds, credit enhancements and other issuance costs.

Mun-Ease also contains many features that assist a user with accounting requirements of multi-purpose bond issues. The software enables a user to prorate debt service among capital projects, cost centers or joint financings either on a cash or accrual basis. It is capable of tracking debt service allocation by recording the amount of each maturity of each bond issue that is allocated for each project.

This article will illustrate how Mun-Ease capabilities can be used to analyze the cost-effectiveness of a potential bond refunding--just one small slice of a bond issuer's life.

Exhibit 1

ORIGINAL
BOND PRODUCTION REPORT

       Dated: 08/01/1988
   Delivered: 09/14/1988
First Coupon: 01/01/1989

                                                             Coupon   Price/
Series MaturityDate   Term Date    Call Date     Principal    Rate    Yield

 1     07/01/1990     07/01/1990   07/01/1990    6,265,000    6.400   100.00
 2     07/01/1990     07/01/1990   07/01/1990    1,570,000    6.400   100.00
 3     07/01/1991     07/01/1991   07/01/1991    6,785,000    6.600   100.00
 4     07/01/1991     07/01/1991   07/01/1991    1,675,000    6.600   100.00
 5     07/01/1992     07/01/1992   07/01/1992    7,295,000    6.800   100.00
 6     07/01/1992     07/01/1992   07/01/1992    1,790,000    6.800   100.00
 7     07/01/1993     07/01/1993   07/01/1993    7,795,000    7.000   100.00
 8     07/01/1993     07/01/1993   07/01/1993    1,915,000    7.000   100.00
 9     07/01/1994     07/01/1994   07/01/1994    6,285,000    7.100   100.00
10     07/01/1994     07/01/1994   07/01/1994    2,055,000    7.100   100.00
11     07/01/1995     07/01/1995   07/01/1995    6,250,000    6,900   100.00
12     07/01/1995     07/01/1995   07/01/1995    2,215,000    6.900   100.00
13     07/01/1996     07/01/1996   07/01/1996    7,205,000    7.000   100.00
14     07/01/1996     07/01/1996   07/01/1996    2,370,000    7.000   100.00
15     07/01/1997     07/01/1997   07/01/1997    7,625,000    7.100   100.00
16     07/01/1997     07/01/1997   07/01/1997    2,545,000    7.100   100.00
17     07/01/1998     07/01/1998   07/01/1998    8,030,000    7.250   100.00
18     07/01/1998     07/01/1998   07/01/1998    2,730,000    7.250   100.00
19     07/01/1999     07/01/1999   07/01/1999    8,420,000    7.400   100.00
20     07/01/1999     07/01/1999   07/01/1999    2,920,000    7. … 

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