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The municipal bond market is a primary source of capital project funding for many NFPs. This chapter provides an overview of municipal securities and how they are issued, retired, and regulated. It also summarizes the guidance needed to account for and present bond-related activity in the financial statements, addressing, among other topics:
  • Issuance of bonds
  • Refunding and other extinguishment transactions
  • Interest capitalization rules
  • Balance sheet presentation
  • Special reporting situations
Typically, municipal bonds are issued by a government agency that then loans the proceeds to the NFP. In legal terms, the government agency is the “issuer” of the bonds and the NFP is the “conduit borrower” or “conduit obligor.” In this chapter, usage of the term “issuer” refers to the NFP conduit obligor, unless the context clearly indicates otherwise.
AAG-NFP Chapter 10 and AAG-HCO Chapter 7 are helpful sources of information regarding these matters. PwC’s Financing transactions guide (FG) contains comprehensive discussions of many general debt-related topics, much of which would apply to issuers of municipal bonds.
Frequently, issuers will use interest rate swaps to effectively convert fixed-rate debt to variable-rate debt or vice versa. This chapter also discusses NFP-specific guidance related to derivatives and the use of hedge accounting (see NP 11.8).
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