Bond defeasance can become confusing and counterproductive if the right procedures and securities aren't identified and vetted early in the process.

Key Decisions

When you elect to refund or pay-off your fixed rate bonds prior to the scheduled call date or maturity date, you must purchase government or agency securities and place them into escrow to satisfy the remaining bond cash flows. While the purchase of these securities may seem simple, there are key decisions you must make:

  • Subscribing to SLGS vs. purchasing government obligations in the open market

  • Defeasing to the call date or maturity date

  • Competitive bid vs. negotiated placement

  • Whether or not to include a “float” contract

  • Eligible securities (Treasuries, FNMA, FHLMC, FHLB, AIDs, REFCORP Interest Strips, etc.)

  • Timing of the bid and award

  • Selection of bidders

How We Help

KPM Financial works with you and your counsel to:

  • Assemble a working group for the defeasance,

  • Identify the documents that will need to be executed in order to complete the defeasance,

  • Participate in working group calls to ensure the defeasance closes on time,

  • Confirm the types of securities available for purchase,

  • Bid the portfolio or provide pricing transparency on negotiated portfolios,

  • If you desire to achieve Safe Harbor under Treasury regulations:

    • Determine whether the cost of open market securities is lower than SLGS (i.e. – higher yield)

    • Provide a Certificate of Bidding Agent to you that will be relied upon by Tax Counsel.