Build America Bonds

Market Update (3/14/2011)

The Building American Jobs Act of 2011 (H.R. 992), introduced by Democrats of the House Ways and Means Committee this past Thursday, would reinstate Build America Bond (“BAB”) program with the following provisions …


Taxpayers Lose When BABs are Sold Out of U.S. … or… How Issuers Can Help U.S. Taxpayers by Utilizing Retail Order Periods (8/23/2010)

The Build America Bonds program has been well-received by both investors and issuers. With a 35% rebate on interest payments from the federal government, issuers of BABs have been able to realize significant savings than they would have otherwise.

One topic we have not seen addressed is the impact of the recent trend to market these bonds to foreign investors. While a larger and more diversified pool of investors should enable issuers to sell their bonds at lower yields, issuers should keep in mind that foreign investors are taxed differently than domestic buyers of taxable securities.

As of August 18, 2010, $124.15 billion Build America Bonds have been issued, $60.05 billion of that in 2010. That represents $9 billion sold to foreign investors in 2010, based upon Citigroup’s estimate that 15% of its BABs were sold internationally. At an average 5.63% coupon, with an average maturity of 28.8 years (using the Wells Fargo Build America Bond index), that $9 billion of BABs could accrue up to $14.59 billion of untaxed interest payments through maturity.


Build America Bonds Update: IRS Audits (6/7/2010)

In last week’s newsletter, we reported that the IRS indicated it plans to audit 1 in every 2 BABs transactions to ensure compliance. This week, Steven Miller, deputy commissioner for services and enforcement, said in an interview with the Bond Buyer stated that there is no percentage targeted.

Also reported in the Bond Buyer, municipal issuers and their bond lawyers are discussing whether the IRS’ compliance push on BABs Bonds will deter issuers from issuing the bonds in the future. Also under consideration is modifying the provisions of the bond purchase agreement in  negotiated sales to permit the issuer to terminate the deal if it discovers the underwriter did not publicly offer all of the bonds at the initial offering price.


Build America Bonds—Treasury Update (5/31/2010)

Over the past several weeks, the information has been released regarding investigations into BABs pricing and instances where subsidy payments may not be made. This information is of concern to both issuers as well as investors...


The Allure of BABs by Glenn Dellinger (3/22/2010)

There is a $75 billion and growing sector of the market that deserves the attention of accounts exempt from taxation. Judging from the wide spreads on the debt, too many of these investors – particularly high net worth individuals and their IRAs - have yet to take advantage of the extra yield offered by the sector without additional credit risk...

Glenn Dellinger is a contributor to Muni Market Update. The opinions expressed are his own.

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