What is the key purpose of a refunding bond issue?

The key purpose of a refunding bond issue is to replace existing outstanding bonds with new issuance. This process generally involves issuing new bonds at a lower interest rate to pay off existing bonds that have higher interest rates. By doing so, the issuer can reduce their interest expenses and improve their financial position.

Refunding can also offer a way to restructure the debt, such as extending the maturity or changing other terms of the debt. This approach is often used strategically to manage debt service costs and improve cash flow, making it a crucial tool for effective debt management.

While reducing overall debt, consolidating multiple debt instruments, or deferring interest payments may each have their benefits, they are not the primary objective of a refunding bond issue. The core intent is focused on refinancing existing debt, making the replacement aspect the defining characteristic of refunding bonds.