Bond Anticipation Note (BAN)
What Is a Bond Anticipation Note (BAN)?
A Bond Anticipation Note (BAN) is a short-term interest-bearing security issued in advance of a bigger, future bond issue. Bond anticipation notes are more modest short-term bonds that are issued by corporations and governments, like neighborhood municipalities, wishing to produce funds for impending projects.
Understanding Bond Anticipation Note (BAN)
A note is a debt instrument issued by a borrowing entity to bring funds up in the short-term. Notes are interest-bearing securities, promising periodic interest payments to lenders and principal repayment toward the finish of the instrument's term life. These payments are generally produced using a defined revenue source. Notes generally mature in one year or less, in spite of the fact that notes of longer maturities are likewise issued. One form of a note that is issued by a governmental body to fund its short-term need is a bond anticipation note.
Bond anticipation notes (BAN) are short-term debt securities issued by a municipal or state government to fund another project. These notes are issued in anticipation of long-term financing which when issued is utilized to retire or pay off the BANs. A government that is due to start work on another project might choose to issue long-term bonds to finance the project. Nonetheless, the issuance of these bonds may not be imaginable prior to the send off of the project due to certain legal, regulatory, or compliance procedures that could create a setback for giving new bonds. To continue with work on the new project and to have the funds important to finance the project, the governmental issuer might choose to issue short-term bonds as a source of financing in the interim.
The responsible bodies utilize the bond anticipation notes as short-term financing, with the expectation that the proceeds of the bigger, future bond issue will cover the anticipation notes. Bond anticipation notes might be utilized when the issuer needs to defer a bond issue, or on the other hand in the event that the issuer wishes to consolidate several projects into one bigger issue. At the point when the long-term bonds are issued, the proceeds are utilized to make the interest and principal payments on the bond anticipation notes. In effect, the payments on BANs are secured by a future long-term bond issuance. To put another way, a bond anticipation note is a municipal issue that gets against the proceeds of a forthcoming long-term bond issue.
Bond anticipation notes are in many cases utilized for of launching funding efforts for new projects, like building parkways, scaffolds, or sewage systems. When the project is begun, the bigger bond issue might create an adequate number of funds to cover the bond anticipation notes in a short period of time. Frequently, the notes are reimbursed in something like one year of issue.
BANs are considered money market securities and are rated by Moody's Investment Grade (MIG). Bond anticipation notes are generally considered to imply a moderately okay exposure, and, due to their short time horizon, investors ought to assess the basis of the notes and determine on the off chance that there will be sufficient momentum and interest in the project. Investors can find BAN opportunities through nearby brokers, municipalities, and other financial institutions.