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Escrow

• Is a fund held by a third-party custodian.

 
 Embedded terms in definition
 Held
 
 Referenced Terms
 Advanced refunding: Is the technique of replacing one bond issue by another. This typically occurs when a municipality can borrow at more favorable terms than the outstanding issue. The new issue's proceeds are used to purchase government obligations which are held in Escrow. The income and/or appreciation of these government securities is then used to service the outstanding debt. The escrow may be held until the first call date or maturity of the initial bond issue. If the escrowed funds retire the original issue at the first call date then the issue is pre-refunded. This retirement and replacement process of debt is also known as defeasance.

 Refunded bond: Also called a prerefunded bond, one that originally may have been issued as a general obligation or revenue bond but that is now secured by an Escrow fund consisting entirely of direct U.S. government obligations that are sufficient for paying the bondholders.

 Slugs: Are State and Local Government Series securities used for Escrow for advanced refunding. The image of these securities became marred when they were a focus point for yield burning cases.

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