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 Repurchase Agreement A fully flexible “Full Flex” Repurchase Agreement is a term repurchase agreement between a municipality and a financial institution such as a commercial bank, insurance company or broker/dealer, (the “Provider”) in which the Provider guarantees a rate of return on the bond proceeds deposited by a municipal issuer. Full-Flex Repurchase Agreements are structured to meet an issuer’s particular investment criteria related to security, yield and flexibility. As such, Full-Flex Repurchase Agreements have proven to be exceptionally well suited to meet the unique economic, tax and legal requirements associated with the investment of tax-exempt bond proceeds. The Full-Flex Repurchase Agreement provides a municipality with guaranteed fixed yield, full flexibility to withdraw funds and collateral consisting of direct U.S. Government Obligations. We will work with you to structure an agreement that will obtain a yield greater than the bond yield while maintaining complete liquidity and maximum security. The Full-Flex feature eliminates exposure to interest rate volatility inherent in the fixed investment rate, should your cash needs deviate from the projections. The market risk associated with a structured portfolio is eliminated in a Full-Flex Repurchase Agreement should projected draws be faster than anticipated and the sale of a security is required. In addition, reinvestment risk is eliminated should the project proceed slower than expected and funds are required to be reinvested in the future. Most importantly there is no risk of principal. Should the Provider be unable to perform, the direct U.S. Government Obligations may be liquidated. To insure return of principal and accrued interest, the Provider provides collateral each day in an amount equal to 102% - 105% (the highest percentage that will keep the earnings rate above the bond yield) of the outstanding principal and accrued interest. An independent third party custodian will notify you of the required amount of collateral and value of such collateral at the close of business each day. The actual agreement is in the form of a Repurchase Agreement issued by the Provider, utilizing a PSA Master Repurchase Agreement, Master Repurchase Agreement Supplemental Terms and a Tri-party Custodial Agreement. To ensure a legal competitive process we will prepare a term sheet and distribute it to a group of eligible providers along with excerpts of the Preliminary Official Statement and indenture. The number of bidders will generally range from eight to twelve. |
