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SLGS FORUM 2013

SLGS FORUM 2013. August 8, 2013 Louisville, KY David Cholst Chapman and Cutler LLP and Andy Mathes Farr, Miller & Washington, LLC. 3397001. Investing Bond Proceeds. Arbitrage Federal Guarantee Prudence Yield. Prudent Choices . Treasuries (incl SLGS) Agencies Insured Deposits

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SLGS FORUM 2013

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  1. SLGS FORUM 2013 August 8, 2013Louisville, KY David CholstChapman and Cutler LLP and Andy MathesFarr, Miller & Washington, LLC 3397001

  2. Investing Bond Proceeds • Arbitrage • Federal Guarantee • Prudence • Yield

  3. Prudent Choices • Treasuries (incl SLGS) • Agencies • Insured Deposits • Collateralized Debt • Pooled Arrangements • Mutual Funds • Highly Rated Debt (GICS)

  4. Guidelines • State Law • Indenture Requirements • Insurer Requirements • Investment Policies • Tax Restrictions

  5. Arbitrage Rules • Rebate • Yield Restriction

  6. Exceptions to Yield Restriction • Temporary Periods • Reasonably Required Reserve or Replacement Fund • Bona Fide Debt Service Funds

  7. Exceptions to Rebate • Spending Exceptions • Small Issuer Exceptions

  8. Basic Arbitrage Requirement • Fair Market Value Requirement

  9. SLGS – Always O.K. SLGS deemed purchased for fair market value

  10. Type Traded on Established Securities Market • T + 1 Trading for Treasuries • T + 3 Trading for Muni's • Over $100,000,000 Maturities

  11. Bidding • 3 Bids Required • Fair Process Required • Bid Rigging once rampant

  12. Federal Guarantee • No more than 5% of the proceeds can be: • Invested in Insured Deposits • Used to make federally guaranteed loans

  13. Exceptions: • Temporary Period • Bfdsf • Advance Refunding Escrow • 4 R Fund

  14. FDIC Insurance • Not Optional • $250,000 Per Insured Per Bank

  15. Prudent Strategy(may violate tax law) • Purchase many CDs • Each from a different bank • Each with a par amount below $250,000

  16. Collateral • Treasuries – O.K. • Federal Home Loan Bank ?

  17. What Is A Loan?

  18. IRS Actions on Federal Guarantee • We don’t really know • Anecdotes

  19. IRS Correspondence Exam • Included Question: • If you know of a problem tell us!

  20. Issuer Told IRS 149(b) Violated • IRS issued no change letter

  21. Different Issuer Submitted VCAP • No response yet • [UPDATE POSSIBLE] • No other known IRS review

  22. If Insured Deposits Are To Be Avoided • What to use? • Treasuries • SLGS • Agencies • Be careful with Commercial Paper

  23. Demand Deposit SLGSTime Deposit SLGS • Safe • Liquid • Rate is low but reasonable • Easy

  24. SLGS May Be Used • Escrows (for T.E. Bonds) • Project Funds • Reserves • Debt Service Funds • Commingled Funds

  25. SLGS May Not Be Used • Window closed • Taxable bond proceeds (unless refunds T.E. Bonds) • Amounts unrelated to Bonds (unless commingled)

  26. Alternatives If SLGS Unavailable • Open Market Treasuries • With bidding • Without bidding • Riskier Investments • FDIC Insured Deposits (if allowed)

  27. How long does the SLGS program remain suspended, on average? 3 Weeks? 2 Months? 5 Months?

  28. The Good, The Bad and The Ugly What are the available options when the net yield of Treasuries will be negative (net of expenses)? Money Markets Cash Buy them anyway

  29. Questions

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