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 Escrow Structuring When bonds are either current or advance refunded, Sound Capital Management can assist with analyzing and structuring the escrow for the refunding bonds. We can produce a structure that is the most efficient at meeting the scheduled debt service payments and final payoff needs while complying with any yield restriction requirements. Sound Capital Management can also examine the efficiency of existing escrows to find out if savings opportunities are available. Restructuring opportunities can arise because of the pricing discrepancy that potentially exists between State and Local Government Series (“SLGS”) and open market securities. The Treasury Department always determines the interest rates for SLGS based upon the market movements of the prior day. In other words, if you ordered SLGS today, you would obtain interest rates based on yesterday’s Treasury bond market results. This one-day lag in pricing creates the potential for a pricing discrepancy between the SLGS program (more expensive) and open market securities (less expensive) or vice versa. This pricing discrepancy can be even more exaggerated on days when the treasury market “sells off” and interest rates increase, or conversely, on days the market rallies and interest rates decrease. Sound Capital Management has computer models in place that we use to quickly determine when the differential between current day and prior day interest rates is large enough to justify an escrow substitution. When market conditions are appropriate, we can sell the current escrow and purchase the new escrow simultaneously. We have helped create substantial savings in interest payments for many issuers through the process of selling an escrow comprised of SLGS and purchasing open market securities or vice versa. Sound Capital Management conducts the purchase of open market securities using an open bid process, which typically generates the highest true yield (lowest true cost) for our clients. We accept bids for open-market securities on an equal basis from both members of the underwriting group and other securities firms. |
