What Is an Anticipation Note?

An anticipation note is a short-term obligation issued to meet temporary financing needs with the expectation that future cash flows will repay the note.

Understanding Anticipation Notes

Typically, an anticipation note is a short-term obligation that is issued for temporary financing needs by a municipality. The term is derived from the notion that funds to pay off the note are "anticipated" to be received in the near future. The repayment of 澳洲幸运5官方开奖结果体彩网:principal may be covered by a future longer-term bond issue, taxes, government grant, or other form of revenue. These notes normally have maturities of one year or less and interest is payable at maturity rather than semiannually. The notes are rated by 澳洲幸运5官方开奖结果体彩网:credit agencies (S&P☂ and Moody's) to provide investors with indications of repayment ไrisk.

Anticipation notes are used to meet the short-term cash flow needs of cities or states and provide a way to manage the timing mismatch between their revenues and expenses. There are four different types of anticipation no🅺tes:

1. 澳洲幸运5官方开奖结果体彩网:Tax anticipation notes (TANs), used in anticipation of future tax collections;
2. 澳洲幸运5官方开奖结果体彩网:Revenue anticipation notes (RANs), issued with the expectation that nontax revenue (such as federal or state aid) will pay the debt;
3. Tax and revenue anticipation notes (TRANs), which are paid off with a combination of taxes and revenue; and
4. 澳洲幸运5官方开奖结果体彩网:Bond anticipation notes (BANs), which function as 澳洲幸运5官方开奖结果体彩网:bridge loans and are issued when the municipality expects a future longer-term bond issuance to pay off the anticipation note at maturity.

Anticipation Note Example

Hurricane Sandy caused unprecedented damage in coastal towns in New Jersey and New York in 2012. One particularly hard-hit town, Long Beach, New York, which suffered $200 million in damage, issued a revenue anticipation note shortly after the storm to fund restoration work to the boardwalk area and a second million revenue anticipation note a couple of years later to finance additional repair work around the town. Both notes were repaid with Federal Emergency Management Agency (FEMA) disaster relief funds that the town had applied for and been promised.

The Bottom Line

Anticipation notes are a short-term (of less than one year) municipal obligation issued to meet temporary financial needs. Funds to pay of the principal of a note are referred to as "anticipated." The repayment of principal may be covered by future long-term taxes, government grants, principal repayments, bond issues, and other forms of revenue. There are different types of anticipation notes, depending on what instrument is expected to be used to service the debt.