View frequently asked questions (FAQ) for Ohio Public Facilities Commission.

General Questions

What does it mean when a bond is "tax-exempt"?

Tax-exempt means that the interest paid on the bond is exempt from federal income taxes and from Ohio personal income taxes. Not all state of Ohio bonds are "tax-exempt". For additional information about the tax status of specific bonds, read the "Tax Matters" section of the official statement for those bonds.

What does it mean when a bond is "taxable"?

Taxable means that the interest you earn on the security is not exempt from federal income taxes and may or may not be exempt from state personal income taxes. For additional information about the tax status of specific bonds, read the "Tax Matters" section of the official statement for those bonds.

What are some of the key features of municipal bonds?

Interest Rate - the issuer pays interest to bond investors in exchange for the use of the loaned money. The interest rate is a percentage of the principal (the amount borrowed/invested), accruing over a specified period (typically, semiannually). Interest rates vary depending on the term and prevailing bond market conditions and may be fixed or variable. Fixed interest rates are set on the pricing date.

Price - the price is the amount investors are willing to pay for a bond initially or in the secondary market. Price is based on certain variables, including current market yields, supply and demand, credit quality, term to maturity, and tax status. Price and yield move in opposite directions. When market yields increase, the price or value of a bond decreases, and vice versa.

Yield - the yield generally refers to the rate of return an investor earns on the bond based on the price and interest rate. Yield can be calculated in different ways to reflect differing assumptions and investors should consult their brokers or financial advisors to learn more about yield.

Maturity Date - maturity date refers to the date when the principal on the bond is scheduled to be repaid to the investor.

Redemption Provisions - some bonds contain provisions that allow the issuer to redeem or "call" all or a portion of the bonds or notes, at specified prices, prior to their stated maturity date. Bonds with redemption provisions are often called when current market interest rates are lower than the rates on the bonds.

Ratings/Credit - a credit rating is an evaluation of an issuer's credit quality based primarily on its current and projected financial and economic conditions. Most municipal bonds are rated by one or more of the three major rating agencies: Fitch Ratings, Moody's Investor's Service, and Standard & Poor's. Investors are advised to obtain and review the credit reports associated with a bond offering prior to making an investment decision.

Denominations - fixed interest rate bonds are typically sold in a minimum denomination of $5,000 and whole multiples thereof.

Debt service - refers to the payment of principal and interest on outstanding bonds.

What are some risks involved in investing in municipal securities?

Credit Risk - risk that the issuer is not able to pay the scheduled principal and interest on a full and timely basis. A change in the credit rating on bonds after they are issued can affect their value.

Interest Rate Risk - Interest rate risk is the risk that changes in market interest rates may increase or decrease the market value of a bond. When interest rates decrease, the price of fixed-rate bonds and notes increases, and when interest rates increase, the price of fixed-rate bonds and notes decreases.

For a more thorough discussion of the risks associated with a particular municipal security, you are strongly encouraged to read the associated official statement and consult a licensed financial professional.

What if I want to sell my municipal security prior to maturity?

Most municipal securities may be sold prior to maturity with the assistance of a brokerage firm. If an investor sells a municipal security prior to maturity, he or she may receive more or less than the original price depending on prevailing market interest rates, supply and demand, and perceived credit quality of the bond or note, among other variables. In addition, the investor should consult a tax advisor for any tax implications.

What is a preliminary official statement (POS)?

The POS is an informational disclosure document released prior to the sale that describes the proposed new issue of bonds prior to final determination of the maturity amounts, interest rates and offering prices/yields. The POS contains preliminary information on the terms and conditions of the bond sale including the purpose, security features, and discloses economic, financial and legal information applicable to the issue. The POS should be used by potential investors to evaluate the structure and credit quality of the bonds.

What is the official statement (OS)?

An OS is an informational disclosure document released after the pricing of the bonds and includes all of the information contained in the POS (including any needed updates) in addition to filling in the final maturity amounts, interest rates, and offering prices/yields.

What is the pricing date?

The pricing date is the day the interest rate, yield, and price for each maturity of a bond issue are established. The pricing period can last one, two or more days.

What is the retail order period?

The retail order period typically takes place one or two days before the institutional order period and gives retail investors an opportunity to place orders on a first priority basis.

What is the difference between buying a bond in the "primary" market versus the "secondary market"?

New bond issues are sold in the primary market. In a new issue, most of the terms are set, including the initial price and interest rate, and the bonds are sold to investors, with the issuer receiving the proceeds of the sale. The initial sales commission (called the 'takedown') is paid to the broker-dealer by the issuer, such as the state of Ohio.

A secondary market transaction does not involve the issuer, but is a transaction between two investors - a buyer and a seller. Secondary market transactions involve a brokerage firm which acts either as a intermediary between the buyer and seller, or as a buyer or seller itself. Buyers pay sales commissions to brokerage firms to compensate them for their services in facilitating the transaction. Market conditions, such as prevailing interest rates, supply and demand, and credit quality, among other variables, determine the price, which may differ from the original price.

What is a refunding bond?

A refunding bond is a bond issued to retire existing bonds, typically done to achieve cost savings by replacing existing higher interest bonds with new lower interest bonds.