What is an advance refunding?
A refunding is a refinancing of existing “refunded” bonds with new “refunding” bonds. Most refundings can be compared to the refinancing of a home mortgage, where a homeowner obtains a new mortgage with a lower rate to pay off an older, more expensive mortgage. Similarly, the issuer of refunding bonds often seeks to lower its interest payments by paying off bonds it has previously issued with newly issued refunding bonds that pay interest at a lower rate than the original refunded bonds. However, in some cases, an issuer may advance refund existing bonds for reasons other than interest cost savings, for example, where an issuer seeks to be released from covenants made when issuing the original bonds. An important difference between an “advance” refunding and a typical refinancing of a home mortgage is that, rather than paying off the old debt immediately upon incurring the new debt, the proceeds of the new refunding bonds are placed in an escrow account to be applied according to a pre
