Escrow Structuring and Defeasance Services

SCM has a strong record of providing escrow solutions related to refunding or defeasance transactions.  We have helped issuers with escrow transactions ranging in size from $221,000 to $829,000,000. 

Our goal is to minimize or eliminate negative arbitrage by creatively using securities and/or structured products as permitted by relevant state statutes and the governing bond documentation.  SCM has recommended a range of available investment options to fund escrows, including open market securities (direct treasury obligations or agency securities), forward delivery agreements with treasury and/or agency securities, collateralized investment agreements, and AAA/Aaa rated uncollateralized guaranteed investment contracts (GICs). 

SCM works with each client to determine which type of investment to use.  We consider several economic factors prior to recommending the best strategy for structuring an escrow:

• the existing or projected bond yield,
• the amount of negative arbitrage, and
• the cashflow and duration of the escrow.

We also review the applicable bond documents and legislation that applies to the issuer, and discuss with the issuer, their advisors and counsel the need or requirement to do a legal defeasance versus an economic defeasance. 

Once the method of investment has been determined, we incorporate the investment terms into a term sheet, distribute the term sheet to potential investment providers, run a competitive bid process to determine the winning provider, and coordinate the closing of the escrow.