ORANGE COUNTY IN BANKRUPTCY : MUNICIPAL BOND LEXICON

Municipal bond: Also known as “munis” Debt instrument issued by state or local agency, with consent of the voters. Proceeds support general needs or special projects. to encourage investors, these bonds are exempt from federal income taxes and most from state and local taxes in the state or municipality where the bond is issued. Munis are not insured unless the issuing government or the investor buys it from a private underwriter.

Revenue bond: One of two main categories of munibonds. These are backed by revenues generated by a specific project or agency. Money from a toll road falls into this category.

Bond Rating: A way of assessing the likelihood of a bond issuer going into default. Ratings range from the top, AAA, where default is highly unlikely, to D, default likely. Anything rated B or below is not considered investment grade, and some institutional investors are prohibited from purchasing these securities. Before the current crisis, Orange County’s rating was blue-chip AAA.

General obligation bonds. The other main type of munibond. These are backed by the issuer’s power to levy taxes.

Mutual Fund: Investors’ money is pooled and used to purchase stocks, bonds, options, commodities or other securities. Municipal bond funds are popular because of their history of relative safety and tax-advantaged status.

Leverage: Increasing the return on an investment without increasing the investment, which is usually done with borrowed money.