Posted in Finance, Accounting and Economics Terms, Total Reads: 403
Definition: Anticipation Notes
Anticipation Notes are short term bonds issued by municipalities to fulfill their future financing needs. This is a tool used by municipalities to bridge the gap between their income and expenses. Municipality issues the bond to fulfill its current cash needs related to cities or states and then pays of the security by using the cash that it is anticipating to receive in near future in the form of taxes or other revenue sources. These bonds usually have a maturity of one year or less and are zero coupon bonds.
1. Tax Anticipation Notes (TAN): TAN are issued by municipality or state on anticipation of following year’s tax revenue, to fund a cash expenditure needed before the receipt of tax revenues.
2. Revenue Anticipation Notes (RAN): RAN is issued by municipality or state on anticipation of revenue from project being financed. Revenues can be from various sources like sales, fees, etc.
3. Tax & Revenue Anticipation Notes: These notes are issued on anticipation of cash flows from both tax and revenue in the coming year. It has an additional benefit over other forms of Anticipation notes because of the extra coverage given by both Tax & Revenue income sources.
4. Bond Anticipation Notes: These bonds are issued with the anticipation of further issuing a long term bond to pay the proceeds of this short term bond.