Series 52: 1.5.2. Tax-Exempt Commercial Paper

Taken from our Series 52 Top Off Online Guide

1.5.2. Tax-Exempt Commercial Paper

Tax-exempt commercial paper is a short-term promissory note issued by states and municipalities, usually backed by a line of credit with a bank. Maturities range from 1 to 270 days, and interest usually takes the form of an OID. Issuers typically pay the principal on maturing commercial paper by issuing new commercial paper. Such rollovers effectively permit long-term borrowing through the issuance of short-term loans.

Tax-exempt commercial paper has two advantages over anticipation notes.

First, it permits municipals to raise funds over the long-term without bearing the costs of repeatedly reissuing notes, which require the payment of legal fees and the costs of preparing official statements and competitive bidding processes.

Second, municipal notes generally must get prior approval from elected officials (and sometimes voters) before reissuing notes to replace maturing notes. With tax-exempt commercial paper, issuers hav

Since you're reading about Series 52: 1.5.2. Tax-Exempt Commercial Paper, you might also be interested in:

Solomon Exam Prep Study Materials for the Series 52
Please Enable Javascript
to view this content!