Appendix E. Glossary of Terms

See Refunding.

A report issued by a governmental entity that includes the entity’s audited statements for the fiscal year as well as other information about the entity meeting specific standards established by the Governmental Accounting Standards Board (GASB).

Assessments are charges upon property owners to pay the costs of facilities or improvements that benefit the property.

Payment of the amount assessed (together with interest if not paid upon assessment) is secured by a direct fixed lien on the property.

See Section 1.4.7 Assessments and Section 3.3.7.1– Assessment Bonds.

Debt obligations anticipated to be paid from the proceeds of to be issued debt obligations. See Notes and Section 3.7.3 Bond Anticipation Notes; Grant Anticipation Notes.

Investment Related: Professionally managed investment funds such as bond mutual funds or exchange traded funds. 

Issuer Related: In general, a bond fund is a type of governmental fund, including a debt service fund and capital project account fund. See Governmental Fund.

A bond fund is typically established by a bond trustee to secure and administer bond proceeds and other amounts for a debt issuance. A bond fund may include other types of funds and accounts such as a debt service reserve fund, capitalized interest fund, escrow fund, and administrative expense account.

Either the resolution of the issuer’s governing board approving the issuance of bonds and the execution and delivery of related documents, or the document providing for the issuance and specifying the terms of and security for bonds.
See Indenture/Bond Resolution (General, Supplemental, and Series).

The portion of an issuer’s total tax-supported debt represented by outstanding bonds. Bonded debt can be calculated in several manners:

Direct Debt or Gross Bonded Debt – The sum of the total bonded debt and any short-term debt of the issuer. Direct debt may be incurred in the issuer’s own name or assumed through the annexation of territory or consolidation with another governmental unit.

Net Direct Debt or Net Bonded Debt – Direct debt less sinking fund accumulations and all self-supporting debt.

Overall Debt or Total Overall Debt or Total Direct and Overlapping Debt – Total direct debt plus the issuer’s applicable share of the total debt of all overlapping jurisdictions.

Net Overall Debt or Total Direct and Overlapping Debt – Net direct debt plus the issuer’s applicable share of the net debt of all overlapping jurisdictions.

Overlapping Debt – The issuer’s proportionate share of the debt of other local governmental units that either overlap it (the issuer is located either wholly or partly within the geographic limits of the other units) or underlie it (the other units are located within the geographic limits of the issuer). The debt is generally apportioned based upon relative assessed values.

The person or entity having a true and legal ownership interest in a municipal bond. See Beneficial Owner.

A form of registration of the ownership of registered bonds in which the owners of bonds are not entitled to the receipt of printed bonds. Rather, the terms of the bonds are specified by the indenture or bond resolution or by the form of a single bond delivered to a securities depository, generally, The Depository Trust Company (DTC), and the beneficial ownership of bonds is determined by entries on the registration books of the registrar or by the records of members of the securities depository.

The sale of a bond issued in book entry form is evidenced by a receipt provided by the broker-dealer to the investor and not by the issuance of a new registered bond with the owner’s name.

1. A person or firm that is engaged in the business of effecting securities transactions for the account of others. A broker engaged in the business of effecting such transactions in municipal securities is known as a “municipal securities broker.”
2. Commonly used to refer to a registered representative or a municipal securities representative who interacts directly with a customer.

Compare Dealer.

See Compound Interest Bond.

A certificate representing an undivided interest in the payments made by a public agency pursuant to a financing lease or an installment sale agreement. See Sections 1.3.1 Lease Revenue Bonds and Certificates of Participation and 3.6.3 Certificates of Participation.

See Certificate of Participation (COP).

A bond that generally has a number of interest coupons attached to it and that is transferable merely by delivering it to its new owner

Each coupon is a negotiable instrument representing interest to be paid on the bond for a specified period, usually 6 months. To receive an interest payment on a coupon bond, the holder must detach the coupon and present it at the office of the trustee or paying agent—or at the holder’s own bank if the bank is willing to provide the service of presenting the coupon for payment.

Coupon bonds are sometimes referred to as bearer bonds, because payment may be made to any bearer of the bond or coupon, rather than to a particular registered owner.

Compare to Registered Bond.

An evaluation by a rating agency of the ability of the issuer of debt to make timely payments of principal and interest. See Section 5.6, Credit Ratings and Nationally Recognized Statistical Rating Organization (NRSRO).

A bond on which interest payments are made to the bondholders on a periodic basis. Compare Compound Interest Bond.

See Closing Date.

The first date from which interest is deemed to accrue on a bond.

The dated date is typically printed on the front of the bond and can be before or as of the closing date, but not after the closing date.

A person or firm engaged in the business of effecting securities transactions for that person’s or firm’s own account. Dealer is defined in the Securities Exchange Act of 1934. Compare Broker.

See Introduction and Section 4.3, What Is An Issue of Debt?

Exceptions to the Constitutional debt limit recognized by California courts. The principal debt limit “exceptions” are the following:

1. Current Fiscal Year Exception
2. Annual Appropriation Exception
3. Lease Exception (Offner-Dean Lease Exception)
4. Special Fund Exception
5. Contingent Obligation Exception
6. Obligations Imposed by Law Exception

See Section 1.2.4, Exceptions to the Debt Limit.

See Reserve Account (Bond Reserve Account or Debt Service Reserve Account).

See Pooling of Debt Issues.

See Closing Date.

The face amount of a bond—generally its original principal amount. Usually the denominations are $5,000 or any integral multiple of $5,000. In some short term or variable-rate financings, denominations may be multiples of $100,000 or in multiples of $5,000 in excess of $100,000. Bonds privately placed with institutional investors generally have large minimum denominations. See Section 5.5, Private Placements.

For compound interest bonds, denominations may be expressed in terms of either the original principal amount (in which case they may be odd dollar amounts) or compounded maturity or conversion amount (in which case they will commonly be multiples of $5,000).

A municipal security that entitles the issuer to receive direct pay subsidies. New issues of direct subsidy bonds were eliminated by the “Tax Cuts and Jobs Act”215 enacted in December 2017. See Chapter 4 – Federal and State Tax Law Requirements.

The amount, if any, by which the sale price of a bond is less than its principal amount or par value. See also Underwriter’s Gross Spread (Underwriter’s Discount).

Original issue discount (OID) is the amount by which the principal amount or par value of a bond exceeds the offering price to the public at the time it is originally sold, or if sold in a private placement, the price to its first purchaser.

An agent appointed under a continuing disclosure agreement for the purpose of filing annual reports and event notices with the Municipal Securities Rule making Board’s (MSRB) Electronic Municipal Market Access (EMMA) system and state information depositories. See EMMA and Section 8.4, Continuing Disclosure.

The period over which an asset may reasonably be expected to yield economic benefit to its owner.

Because economic factors can render property useless for its intended purpose long before the property deteriorates physically, the economic useful life of an asset is often different from its physical life. The maturity of an issue of bonds generally may not exceed 120% of the weighted average useful life of financed facilities if interest on the bonds is to be tax exempt. In determining the economic useful life for this purpose, a safe harbor is available by reference to periods prescribed by the Internal Revenue Service under its Asset Depreciation Range (ADR) system.

See Section 4.4, Capital Expenditures Financings.

The Electronic Municipal Market Access (EMMA) system is a centralized online source for free access to municipal disclosures, market transparency data and educational materials about the municipal securities market operated by the Municipal Securities Rule making Board (MSRB). Among other things, EMMA serves as the official source for official statements and other primary market disclosure documents for new issues of municipal securities as well as the official source for continuing disclosures for outstanding issues of municipal securities for which the issuer or obligated person has entered into a continuing disclosure agreement as contemplated under SEC Rule 15c2-12.

“Eligible costs” generally refers to the costs that issuers can pay or be reimbursed for with the proceeds of a particular type of bond under the Internal Revenue Code of 1986 or under the statutes and authorizations pursuant which particular bonds are issued. Eligible costs will vary from issue to issue, but generally include direct costs of issuance such as costs paid directly to financial and legal advisors, trustees, paying agents, rating agencies and other professional services; underwriter’s fees and expenses; and project costs such as the costs of acquiring, constructing, and/or renovating the proposed project.

See Costs of Issuance, Proceeds/Sale Proceeds/Investment Proceeds/Gross Proceeds/Net Proceeds. See Chapter 4, Federal and State Tax Law Requirements, Section 4.6, Governmental Bonds/Private Activity Bonds, Section 4.7 Qualified Private Activity Bonds, Section 5.3.3, Documentation for a Negotiated Public Offering and Section 5.4.2 Underwriting Fees and Expenses.

The person or firm retained, customarily by the issuer, to express an opinion (generally printed as an appendix to the Official Statement) on the economic feasibility of a facility, enterprise, or lending program to be undertaken with the proceeds of an issue.

Feasibility consultants are retained for a wide variety of different types of financings, ranging from large, single projects such as a hydroelectric power plant to lending programs such as a multi-developer single family mortgage revenue program. The objective of a feasibility report is to provide an assessment of one or more aspects of the economic feasibility of the purpose of a financing. The views of the feasibility consultant are taken into account by the credit rating agencies and investors in the process of marketing the bonds.

The provisions of an indenture or bond resolution under which pledged revenues are periodically allocated in a specified priority to accounts, if any, for operating expenses, debt service, the bond reserve account, redemption of bonds before maturity, other reserves, surplus, etc. See Section 2.4.3, Funds and Accounts; Flow of Funds.

A California city without a voter-approved charter. Compare Charter City.

See Proceeds/Sale Proceeds/Investment Proceeds/Gross Proceeds/Net Proceeds.

See Revenues/Gross Revenues/Net Revenues.

The price at which a new issue of municipal securities is offered to the public at the time of original issuance. This price is sometimes referred to as the “public offering price.”

The initial offering price may be at a discount to par, par, or a premium to par.

An instrument or debt instrument is a paper or electronic obligation that enables the issuing party to raise funds by promising to repay a lender in accordance with terms of a contract. Types of debt instruments include notes, bonds, debentures, certificates, mortgages, leases or other agreements between a lender and a borrower. These instruments provide a way for market participants to easily transfer the ownership of debt obligations from one party to another.

An intercept program is a program by which bond documents permit the bond trustee to intercept revenues from a third party that would otherwise flow to the issuer in order to pay debt service on the bonds. The most common such program in California relates to motor vehicle license fee revenues, which are normally collected by the state and distributed to cities and counties under a formula. Under California Government Code Section 37351.5 (for cities) and Section 25350.55 (for counties), cities and counties can elect to have certain lease obligations (such as COPs) secured by a pledge of motor vehicle license fee revenues. If the issuer then fails to make a lease payment when due, the trustee can notify the State Controller and obtain funds directly from the issuer’s account within the State Motor Vehicle License Fee Fund to make the lease payment.

See Derivative and Section 2.3.3, Interest Rate Swaps and Synthetic Structures.

A charge paid to the bondholder by the issuer for the use or borrowing of money. The interest rate is the interest charge expressed as a percentage of principal (which generally corresponds roughly to the amount borrowed) accruing over a specified period (generally a year) so long as the debt remains unpaid.

Interest may be paid or may compound at intervals different from the period used to express the interest rate. For example, interest on current interest fixed rate bonds generally is expressed as an annual rate, but is paid twice per year, with each payment being one half of the amount that would accrue over an entire year. Interest on compound interest, fixed-rate bonds generally is compounded twice per year and paid at maturity. Interest on variable-rate bonds accrues at a rate that changes from time to time (perhaps as often as daily), but each such rate is nevertheless generally expressed as a percentage per year.

The amount of interest that has accrued over a period shorter than the payment or compounding interval may be determined by one of several different rules. For example, if interest accrues “on the basis of a 360-day year of 12 30-day months,” the amount of interest that has accrued since the last payment or compounding date is calculated assuming that 1/12 of 1 year’s interest accrues for each complete calendar month and 1/360 of 1 year’s interest accrues for each additional day. On the other hand, if interest is calculated on the basis of a year of 365 days and the actual number of days elapsed, the amount of interest accrued since the last payment or compounding date is calculated assuming that 1/365 of 1 year’s interest accrues each day.

Generally, interest on fixed-rate bonds is calculated on the basis of a 360 day year and interest on variable-rate bonds is calculated on the basis of a 365 day year.

See Section 2.2.2, Term and Interest Rate Mode.

See Guaranteed Investment Contract (GIC).

See Proceeds.

Investors are persons or firms who purchase bonds. They are in effect loaning their money (the amount of their investment) to the issuer of the bonds in exchange for the issuer’s obligation to repay them with interest. Investors are often thought of in two broad classes: institutional and retail.

An institutional investor is a mutual fund, insurance company, bank, or other financial institution that buys bonds, usually in very large blocks (sometimes in the tens of millions of dollars). Institutional investors have professional staffs whose purpose is to analyze credit risk, monitor investments, and manage the investor’s assets.

A retail investor is an individual who purchases bonds, usually in small blocks— as small as $5,000. Retail investors vary from the quite unsophisticated investor with a small amount of savings (often colloquially referred to as the “widows and orphans”) to so called “high net worth” individuals who may have significant holdings and experience in the bond market.

One or more bonds initially delivered by an issuer in a substantially simultaneous transaction and which are generally designated in a manner that distinguishes them from bonds of other issues.

Bonds of a single issue may vary in maturity, interest rate, redemption, and other provisions.

For federal income tax purposes, the meaning of the term issue may depend upon the context in which it is used and may differ from definitions used under state law or in bond documents. For example, bonds of different issuers sold at substantially the same time, payable from substantially the same source of funds, and sold under a common financing plan may be a single issue for certain federal tax purposes.

Amounts a government owes to a person, group or vendor outside the government. (definition from GASB’s An Analyst’s Guide to Government Financial Statements.)

The London Interbank Offered Rate (LIBOR) represents the average rate at which a leading bank can obtain unsecured funding in the London interbank market, it is based on the rates that Banks believe they can borrow at and is not based on actual transactions. LIBOR has served as a benchmark or index used globally as the standard to price or set interest rates on a variety of financial instruments in the variable-rate municipal market. Due to the nature of the rate setting process, LIBOR will be discontinued by the end of 2021. See SOFR.

See Underwriter’s Gross Spread (Underwriter’s Discount).

An independent, self-regulatory organization established by Congress in 1975 having general rulemaking authority over municipal securities market participants (generally brokers and dealers).

The MSRB is required by federal law to propose and adopt rules in the areas of professional qualification standards, rules of fair practice, record keeping, the scope and frequency of compliance examinations, the form and content of municipal bond quotations, and sales to related portfolios during the underwriting period.

Members of the board include: securities firm representatives, bank dealer representatives, municipal advisors and public members. All market participants subject to MSRB jurisdiction are required to register with the SEC. Its jurisdiction does not extend to issuers of municipal securities. In recognition of the existing regulatory structure in place for banks and securities firms, the MSRB does not have inspection or enforcement authority.

A credit rating agency is required to register as a Nationally Recognized Statistical Rating Organization (NRSRO) with the United States Securities and Exchange Commission (SEC). See Section 5.6, Credit Ratings and Credit Rating Agency.

A measure of the interest cost of an issue derived by adding together all interest payments for the term of the issue and dividing that sum by the sum for all bonds of the amount of each bond multiplied by the number of years it is outstanding.

If the bonds are to be issued at a discount, the amount of the discount is added to the interest total as if it had been paid by the issuer. If the bonds are to be issued at a premium, that amount is subtracted from the interest total. The formula is as follows:

NIC = Total Interest Payments + Discount (or – Premium) /
Bond Year Dollars

The denominator, bond year dollars, measures the amount of bonds outstanding over the time they are outstanding. Bond years equal the number of bonds outstanding (in $1,000 denominations) multiplied by the number of years they are outstanding. One bond year is one $1,000 bond outstanding for one year. Bond year dollars are the number of bond years multiplied by $1,000 for each bond.

NIC is distinguished from the True Interest Cost (TIC) measure in that the NIC does not take into account the time value of money.

The NIC is sometimes used to compare bids at a competitive sale. Compare True Interest Cost (TIC).

See Revenues/Gross Revenues/Net Revenues.

A short term obligation of an issuer to repay a specified principal amount on a certain date, together with interest at a stated rate, usually payable from a defined source of anticipated revenues. Notes usually mature in one year or less, although notes of longer maturities are also issued. See Bond Anticipation Notes (BANs), Commercial Paper (CP), Tax and Revenue Anticipation Notes (TRANs).

The statute under which a particular governmental entity is organized.

This term is used to describe an act that specifies the manner of organization and the powers of a single agency, authority, or district named in the act, rather than the type of statute under which, for example, any city or county could cause to be created an agency of the type described in the statute.

See Discount.

Par or par value refers to the principal amount of a bond.

A bond may be purchased at par, meaning the price of the bond is equal to its principal amount; below par, meaning the price is below its principal amount; or above par, meaning the price is above its principal amount. See also Discount and Premium.

To grant a security interest in or lien on an asset to provide security for the repayment of bonds or the performance of some other obligation.

A pledge may cover an existing asset (such as a reserve account) or a stream of revenues to be received in the future (such as the income of a defined enterprise). See Security and Source of Payment.

This term encompasses two different concepts: pooled financings (including both blind pools and dedicated pools), and composite issues. See Section 3.7.7, Pool Bonds.

Open Pool (Blind Pool) Issue

A reference to bonds that are issued to finance projects not identified at the time of bond issuance. If some but not all of the users are identified, the pool is partially blind.

Closed Pool (Dedicated Pool)

An issue the proceeds of which are to be used to finance loans to, or projects for, entities that are identified and committed to the financing at the time the bonds are issued.

The amount by which the price of a bond exceeds its principal amount or par value.

A redemption premium is the premium an issuer is required (by the terms of a bond) to pay to redeem (call) the bond before its stated maturity.

See also Discount.

Proceeds are comprised of sale proceeds and investment proceeds. Sale proceeds are the amount paid by the ultimate purchasers (not including an underwriter) of a new issue, excluding any accrued interest.

The term gross proceeds refers to all of the monies relating to an issue, which are subject to arbitrage limitations and rebate under the Tax Code. Gross proceeds include sale proceeds, investment proceeds, and any other monies pledged to pay debt service and expected to be used to pay debt service, including monies in a sinking fund and monies in a reserve account.

See Section 4.8.2, Bond Proceeds.

The sale of bonds (generally through an underwriter) to the general public (or a limited section of the general public).

The issuer may market a proposed public offering either via a competitive sale or a negotiated sale.

See Section 5.2, Competitive Sales and Section 5.3, Negotiated Public Offerings and Competitive Sales.

An alphanumeric grade (assigned to an issue of municipal securities by a nationally recognized rating agency) that represents the rating agency’s opinion of the issuer’s or obligor’s ability to meet debt service payment obligations in a timely manner. See Section 5.6, Credit Ratings and Credit Rating/Credit Rating Agency.

An issue of bonds (the refunding bonds) to pay debt service on a prior issue (the refunded bonds).

See Section 3.7.6, Refunding Bonds.

See also Defeasance.

Advance Refunding
A refunding in which the refunding bonds are issued more than 90 days before the date upon which the refunded bonds will be repaid. Compare to Current Refunding.

Crossover Refunding
A refunding in which the revenues originally pledged to secure the refunded bonds zcontinue to be applied to pay the refunded bonds until the refunded bonds mature or are redeemed.

On the date the refunded bonds are paid in full, the pledged revenues “cross over” and are thereafter pledged to pay the refunding bonds.

During the period when both the refunded and the refunding bonds are outstanding, the escrow containing the proceeds of the refunding bonds pays interest on the refunding bonds. Then on the crossover date, the escrow pays the principal of the refunded bonds.

Current Refunding
A refunding in which refunding bonds are issued not more than 90 days before the date upon which the refunded bonds will be paid.

A bond for which the name and address of the legal owner is required to be listed on the bond registration books of the trustee or a registrar.

Generally, interest payments on a registered bond are made by check or wire sent to the registered owner. The registered owner may not be the beneficial owner of the bond, but rather a nominee for the beneficial owner. Registered bonds are often held in the name of a securities depository or in the name of a nominee for a securities depository, such as The Depository Trust Company, which then keeps a record of the broker-dealers whose clients are the beneficial owners of the bonds.

Compare Coupon Bond.

The person or entity in whose name a municipal security’s ownership is registered under the bond contract. See Bondholder. Compare Beneficial Owner.

Literally, offering again.

This term is used in two contexts. First, it is used to describe the offering of bonds by the underwriter to the public. For example, the initial offering price to the public is often referred to in shorthand as the reoffering price. Second, the term reoffering is used to describe a form of remarketing in which an issuer exercises the right to require bondholders to mandatorily tender their bonds for reoffering to the public, customarily in the context of a conversion from a variable-rate to a fixed-rate.

See Pricing/Repricing.

An account from which monies may be drawn to pay debt service on an issue if pledged revenues and other amounts available to satisfy debt service are temporarily insufficient. See Section 2.4.4, Debt Service Reserve Fund. See also Surety.

The filing of information with the SEC in accordance with the Securities Act of 1933 as a prerequisite to selling or marketing securities.

Most bonds issued by or on behalf of state or local governmental entities are exempt from these registration requirements.

See Section 6.1, Federal Securities Laws.

A financing in which the proceeds of the issue are deposited in an insurance reserve fund that is used to pay liability claims against participating entities as claims arise.

The fund is invested and, depending upon the investment earnings and the claims paid, may require additional deposits from participating entities.

Typically, an entity separate from the participating entities, such as a joint powers authority, is the issuer of the bonds and is responsible for the administration of the insurance reserve fund, including the investment of the fund and the payment of claims (although a separate entity may administer these functions through a contractual arrangement with the issuer). Insurance is provided to participating entities (which may be cities, counties, and other public entities) that pay premiums for the coverage. The premiums paid by the participating entities constitute the revenue source for the repayment of the issue.

A term used in connection with variable-rate bond financings whereby the issuer or conduit borrower agrees to repurchase with its own funds bonds that have been tendered but not yet remarketed without procuring a third-party liquidity facility. See Section 2.3.2, Credit Enhancement and Liquidity Support. Compare Liquidity Facility.

See Underwriter’s Gross Spread (Underwriter’s Discount).

See Underwriter’s Gross Spread (Underwriter’s Discount).

Property tax revenues above the base year level in a redevelopment project area. See Section 3.3.7.3, Redevelopment Agencies.

The treatment for federal income tax and State of California personal income taxes of interest on bonds issued by a public agency. The requirements for the favorable tax treatment of bonds issued by state and local governments are contained in 26 U.S. Code §103. See Section 3.5, Tax Treatment of Municipal Bonds.

1. A provision in an indenture or trust agreement under which the investor has the right, on specified dates after required notification, to surrender the securities to the issuer (or someone acting on the issuer’s behalf, such as a tender agent) at the predetermined price (usually par). This is sometimes referred to as an “optional tender” or “put option.”

2. An instrument issued by a financial institution that permits the purchaser to sell, after giving required notice, a specified amount of securities from a specified issue to the financial institution on a predetermined future date or dates (the “expiration date(s)”) at a predetermined price (the “strike price”).

3. An agreement made by the parties to a particular transaction under which the purchaser has the right to surrender the securities to the seller at a specified price on a specified future date or dates.

A measure of the interest cost of an issue that accounts for the time value of money. The TIC is sometimes also called the internal rate of return or the net effective interest rate.

The TIC for an issue is the annual discount rate which, when used to discount all debt service payments on the issue to the date of initial delivery of the issue, using a compounding interval equal to the interest payment periods for the issue, results in the aggregate present value of the debt service payments being equal to the original purchase price (including accrued interest) of the issue. For the purpose of calculating the TIC, sinking fund payments for any term bonds are considered principal payments. Because there is no algebraic formula for the direct computation of the TIC, it must be determined either by successive approximation on a computer or calculator or by using present value tables.

The TIC is often used to compare bids at a competitive sale.

Compare Net Interest Cost (NIC).

The difference between the purchase price paid to the issuer for a new issue and the sum of the prices at which the bonds are initially offered to the investing public by the underwriter.

To the extent that the initial offering prices are subsequently lowered by the underwriter, the full amount of the spread may not be realized by the underwriter. The spread is usually expressed in points or fractions thereof. The spread generally consists of:

• Management Fee. A fee paid to the managing underwriter for handling the affairs of the syndicate, including, in the case of a negotiated sale, structuring the issue and negotiating with the issuer
• Expenses. Any advertising and printing costs to the underwriter, underwriter’s counsel’s fees and expenses, travel expenses, MSRB fees, CDIAC fees, and other similar expenses.
• Takedown. Normally the largest component of the spread, similar to a commission, the take down represents the income derived by the selling broker or dealer from the sale of the bonds. If bonds are sold by a member of a syndicate, the seller is entitled to the full takedown (also called the total take down). If bonds are sold by a dealer, which is not a member of the syndicate, the seller receives only that portion of the take down known as the concession or dealer’s allowance, with the balance (often termed the additional take down) retained by the syndicate.
• Risk. This is the amount of compensation for risks incurred by the underwriter in underwriting the bond issue, relating to the difficulty of marketing the issue, bond market conditions, and the amount of bonds remaining to be resold after the execution of the bond purchase agreement. There is rarely a risk component in the underwriting spread.