We have been engaged by more than 25 issuers or conduit borrowers of synthetic fixed rate advance refunding bonds to provide escrow monitoring and/or calculation agent services. These engagements involve the periodic re-computation of the arbitrage yield based on an actual facts analysis regarding the variable rate payments made and received, as well as the evaluation of alternative approaches that would cause the yield on the restricted investments to be modified to a rate no greater than the re-computed arbitrage yield. We consult with the issuer/borrower and their bond counsel regarding the benefits and risks associated with each alternative and, if requested, then prepare cash flows to assist in the implementation of the selected yield modification plan.
In the event the re-computed yield on the bonds exceeds the yield on the escrowed securities, we evaluate alternative approaches, if any, that might allow the issuer/borrower to modify the escrow and capture as much of the resulting negative arbitrage as is recoverable given market conditions and retainable under the Tax Code.
Our calculations are prepared with varying frequency given the particular facts and circumstances concerning a given bond issue. We provide three- to five-day turnaround of our final report upon receipt of the necessary information for a given evaluation period.