Reinvestment Services

SCM offers advisory services to clients who are in the process of considering their options for the reinvestment of bond proceeds such as construction/project funds, capitalized interest funds, debt service funds, and debt service reserve funds.

Planning an Investment Strategy

SCM is a leading bidding agent for the reinvestment of bond proceeds. We work closely with our clients to understand their investment objectives and develop an investment strategy that meets the legal requirements and bond document parameters.

SCM keeps several objectives in mind when advising a client on the investment of bond proceeds.

Security – preserve invested principal and interest earnings
Liquidity – access funds at any time, in any amount
Yield – receive a fixed (or variable) rate of return

Selecting an Investment Product

SCM advises on virtually every investment product available to issuers. Three products in particular are most effective at meeting the above objectives and are typically included as “Permitted Investments” in bond indentures:

In addition to the high level of security, liquidity, and yield that these products provide, our clients have been particularly pleased with their ease of use.

Utilizing a Competitive Bidding Process

SCM runs a competitive bidding process that meets IRS regulations, allows qualified providers an equal chance of winning, and produces the best results for our clients.

Approach

Engaging SCM early in the debt issuance process ensures that an issuer is adequately prepared to address and manage the investment of their bond proceeds. Throughout the investment decision and procurement process SCM works in collaboration with the client, bond counsel, and the underwriting team to address the legal definition of eligible investments in the bond documents and ensure that a full range of investment options is available to the issuer so that the issuer can optimize its investment opportunities. SCM is highly experienced at conducting the investment procurement process to ensure that a smooth transaction is completed in an expedient manner. The duration of the process typically takes two and a half weeks from start to completion.

Scope of Services

Each engagement includes several distinct steps, including the following:

Step I: Due Diligence

SCM performs an investment review of both the legal and financial aspects of investing the bond proceeds. We look for opportunities to maximize investment earnings and ensure compliance with the IRS rules and regulations.

Step II: Determine the Most Appropriate Investment Product

For each bond-related fund, we outline which investment products are best suited for it and present our findings to the issuer. Although the issuer makes the final decision on which product to use, SCM provides recommendations on the most suitable course of action based upon our thorough knowledge of the investment markets and the issuer’s investment objectives. At this time, we also give advice on planning and accounting for any potential arbitrage rebate liabilities. We encourage our clients to understand the rebate implications of their investment choices.

Step III: Term Sheet Preparation

After the issuer decides which investment to use, SCM obtains all necessary investment information and legal documents from the issuer. Based upon the information contained in those documents, we draft a term sheet for the competitive solicitation of the recommended investments. The term sheet, or bidding document, outlines all the terms and conditions that the investment provider will need to adhere to during the bidding phase and throughout the term of the investment contract. SCM discusses each and every term in the bidding document with the issuer to ensure a full understanding of the nuances of the proposed investment.

Step IV: Bidding and Closing

Upon approval of the term sheet, SCM collects bids from qualified investment providers and presents the highest, most suitable bid for approval by the issuer. This is a competitive process where providers are not allowed to review other bids and SCM derives no benefit from the outcome of the bidding. After the investment has been awarded, we coordinate the closing phase for the investment by reviewing the documents prepared by the investment provider and ensuring timely review by the other parties involved.

Types of Funds Invested

Capitalized Interest Funds
Construction Funds
Contingency Funds
Bond Funds
Debt Service Reserve Funds
Escrow Funds
Float Funds
Repair and Replacement Funds