Secondary Market Derivatives—Tender Option Bonds: A Primer

Stevie D. Conlon

Municipal Finance Journal, 2003, vol. 24, issue 3, 33 - 46

Abstract: This article reviews some of the legal issues considered when examining secondary market municipal derivative products—or tender option bonds (TOBs). It considers simple, unadorned TOBs, credit-enhanced TOBs, short-term TOBs, credit-swap TOBs, pooled-bond TOBs, municipal-lease TOBs, as well as new structures brought to market. It discusses the long-term underlying municipal bond, the conditional put, the multimodal variable rate mechanism, the liquidity facility, and the inverse holder—elements that are common to all TOBs. It also examines the federal and state tax implications of ownership, taking note of new guidance recently issued by the IRS.

Date: 2003
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