Arbitrage Rebate Services
Our team has provided arbitrage rebate and yield compliance services to issuers throughout the United States since 1989.
What is Arbitrage Rebate?
For an issuer of tax-exempt debt, arbitrage is the difference between taxable earnings on investments acquired with bond proceeds and tax-exempt borrowing costs, as detailed in Sections 103 and 148 of the Internal Revenue Code.
If the investment rates exceed the yield on the tax-exempt bonds, the excess earnings must be rebated (paid) to the IRS.
In general, an issuer is required to make an arbitrage rebate payment, if any, on a bond issue every five years. The IRS imposes penalties for the failure to comply with these arbitrage limitations.
AREAS OF PRACTICE:
The IRS requirements to meet a spending exception and other exceptions from rebate
The yield restriction “trap” for Project Funds
Interim calculations to prepare and budget for future payments to the IRS
The Causey Approach
Our boutique services are tailored to the needs of each client and their bond issues.
We approach each engagement with a keen eye toward strategies for reducing the clients’ overall rebate liability. If the facts of the deal permit, we evaluate alternative approaches that could realize significant savings for the client
In the current high interest rate environment, we take a proactive approach to helping our clients manage their arbitrage rebate liabilities. We discuss, among other things:
The IRS requirements to meet a spending exception and other exceptions from rebate
The yield restriction “trap” for Project Funds
Interim calculations to prepare and budget for future payments to the IRS
Together with our investment advisory team, we also provide a complimentary assessment of the client’s investment policies and recommend strategies to reduce arbitrage rebate liability and, in a number of cases, avoid the arbitrage rebate limitations on earnings.
Our clients include large issuers with debt totaling $1 billion to $11 billion. We often work with state and local governments, school districts, transportation agencies, utility systems, charter schools, universities, hospitals, multifamily housing, and other not-for-profit borrowers.
We are the leading firm in complexities such as variable rate bonds, interest rate swaps, amortization of upfront guarantee fees, multi-generational transferred proceeds, universal cap considerations, multipurpose allocation analyses, and commonly pledged reserve funds.
Because rebate calculations vary in complexity, our competitive pricing structure takes into account the actual efforts required to complete the analysis.