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Reinvestments
(Escrows & GICs)

Reinvestments (Escrows & GICS)


James Engel leads Kensington’s Reinvestment Practice, advising borrowers on the procurement and termination of  permitted investment solutions and municipal financial products to reduce negative arbitrage within tax-exempt and taxable financings. Many bond issues, as well as some loans, involve proceeds being set aside in trust until they are (i) spent, (ii) used to fund a defeasance escrow, or (iii) used for debt service. Reinvestment of such funds is typically restricted by the parameters of a Trust Indenture or other financing document. When existing financings are refunded or defesased, Kensington assists clients with the termination of investment agreements and securities portfolios, including providing Fairness Opinions for bond counsel.

Kensington supports its clients by answering the essential questions necessary to maximize customized individual investment criteria. Our detailed approach ensures that every investment agreement is structured to take into consideration all aspects of a client’s investment needs including: safety of principal, liquidity, time horizon, costs to implement and yield. James leverages his experience hedging, trading and as a provider of reinvestment agreements to provide unmatched advice to Kensington’s clients.

Procurement Services:

A primary goal when investing bond proceeds is to minimize the interest rate differential between the bond yield and the proceeds reinvestment yield safely within the guidelines of any investment policy and specific bond covenants. Keeping bond proceeds in a bank account, money market fund or investment pool may satisfy liquidity needs, but may ignore the need to maximize yield. Investment return is often an essential part of project funding along with preservation of investment principal.

Acting as Bidding Agent and/or Independent Registered Municipal Advisors (IRMA), Kensington represents the borrower, coordinating with other financing professionals including bond attorneys, insurers, rating agencies, trustees and underwriters to evaluate specific constraints and requirements associated with the investment of bond proceeds. As Bidding Agent, we support the borrower with the following typical services:

  • Evaluation of permitted investments defined in the financing documents
  • Assessment of borrower policies, requirements (e.g., liquidity, return, safety of principal) and risk tolerance
  • Education on available investment solutions and structuring advice
  • Preparation of all bid material and coordination with bond professionals
  • Bid execution, coordination of documentation and closing
  • Fairness Opinions/Bidding Agent Certificates

Common
Reinvestment
Solutions

  • Uncollateralized Deposits (GIC)
  • Forward Delivery Agreements
  • Security Portfolios
  • Collateralized Deposits (REPO)
  • Float Agreements

Typical Proceeds to Invest


Reinvestment solutions can be used to service the following types of funds:

  • Escrows
  • Construction Funds
  • Project Funds
  • Capitalized Interest Funds
  • Reserve Funds
  • Debt Service Funds
  • Collateral Funds

Termination Services


When refunding or defeasing a bond issue or financing it is important to maximize the value of any investment agreements or portfolios that invest bond proceeds on the refunded bonds to maximize savings created by the refunding bonds. Kensington leverages its valuation expertise to provide comprehensive termination advisory services, assisting clients terminate existing agreements and provide fairness opinions with respect to termination pricing.

We review investment agreement documentation thoroughly to determine the appropriate termination mechanics and methodology. Attention to detail, combined with an in-depth understanding of the procurement, hedging and valuation of investment agreements allows Kensington’s clients to achieve maximum results.

Contact James Engel for additional information or reinvestment advisory and IRMA services. Kensington provides additional support services including Dodd-Frank compliance, valuation & monitoring, and derivative education.