What is the definition of Current Refunding in municipal finance?

The definition of Current Refunding in municipal finance refers to the use of new bond proceeds to pay off old bonds immediately or very shortly after the new bonds are issued. This financial strategy is often executed when interest rates have decreased since the original bonds were issued, allowing the municipality to take advantage of lower rates and reduce overall debt service costs.

In a Current Refunding, the new bonds are typically issued at a lower interest rate, which can provide immediate financial relief and improved cash flow for the issuing entity. This form of refunding is distinct from advanced refunding, where proceeds are placed in an escrow account to be used for bond repayment at a later date. The immediate aspect of Current Refunding is crucial, as it allows municipalities to manage their debt effectively and capitalize on favorable market conditions without unnecessary delay.

This understanding underscores the importance of recognizing the mechanics of how new bond proceeds serve to directly retire older debt obligations, offering both immediate financial benefits and strategic debt management for the issuing entity.