Arbitrage Rebate Training - Texas Public Finance Authority Home

58 Pages·2013·2.13 MB·English

FIRST SOUTHWEST COMPANY
Arbitrage Rebate
Training
Texas Public Finance Authority
December 6, 2002
Randee Travis
Arbitrage Rebate Training
December 6, 2002
Arbitrage Terminology
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General Arbitrage Rebate Requirements
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Exceptions to the Rebate Requirements
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Arbitrage Rebate Training
December 6, 2002
Accounting and Allocation Rule
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Calculating the Rebate Amount
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IRS Enforcement
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TPFA’s Role in Maintaining Arbitrage
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Requirements
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Definition of Arbitrage for
Tax-Exempt Bonds
Investing tax-exempt proceeds in

taxable securities, resulting in a
profit or loss.
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What is Arbitrage?
December 1989 to December 1994
9.0000%
8.0000%
7.0000%
Positive
Bond Yield
Arbitrage
6.0000%
5.0000%
Negative Arbitrage
4.0000%
3.0000% Dec-89 Feb-90Apr-90 Jun-90 Aug-90 Oct-90 Dec-90 Feb-91 Apr-91 Jun-91 Aug-91 Oct-91 Dec-91 Feb-92 Apr-92 Jun-92 Aug-92 Oct-92 Dec-92 Feb-93 Apr-93 Jun-93 Aug-93 Oct-93 Dec-93 Feb-94 Apr-94 Jun-94 Aug-94 Oct-94 Dec-94
Money Market Rate Bond Yield
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Basic Purpose of the
Arbitrage Laws
Minimize benefit of investing bond
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proceeds; and
Remove incentives to:
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– issue more bonds;
– issue bonds earlier; or
– leave bonds outstanding longer than
necessary.
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In a Nutshell
Your job? Spend the proceeds!
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TPFA’s job? Maximize interest earnings
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Rebate – not a “bad” tax
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Earn as much as you can – up to the bond
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yield and spend proceeds as quickly as
possible
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Net Funding
TPFA projects interest earnings based on the
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estimated expenditure schedule
Size of the bond issue is reduced by the
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amount of the estimated interest earnings
Deviations in timing, amount of expenditures
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or in interest rates will cause variances in
project funds
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Net Funding Example
Interest Scheduled
Date Deposit @ 3% Draws
12/1/02 9,837,984.42 - 1,000,000.00
3/1/03 - 66,038.16 2,000,000.00
6/1/03 - 51,587.44 3,000,000.00
9/1/03 - 29,556.65 2,000,000.00
12/1/03 - 14,833.33 2,000,000.00
Total 9,837,984.42 62,015.58 10,000,000.00
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