Which type of debt instruments is commonly associated with a "take-out" agreement?

A "take-out" agreement is typically associated with refunding bonds. This type of agreement allows an issuer to replace one form of debt with another, usually taking advantage of more favorable terms or rates. Refunding bonds are specifically issued to pay off existing debt, effectively "taking out" the old obligation with new financing. This mechanism is often employed when interest rates have dropped or when there is a need to restructure debt for better cash flow management.

In contrast, deep discount debt is issued at a price significantly lower than its face value and does not involve take-out agreements. Demand bonds provide the holder the right to demand payment at any time, without necessarily linking them to the refinancing of existing debt. Certificates of participation represent a share in a lease agreement or a loan in which entities participate, rather than being tied directly to a refunding process. Therefore, refunding bonds align perfectly with the concept of a "take-out" agreement due to their nature of replacing or refinancing existing debt.