Basis Points - SLGS Window Remains Closed with New Debt Ceiling
Minneapolis, MN | November 9, 2021 | Basis Points Newsletter
By: Georgina Walleshauser, Associate
The U.S. government’s debt limit was raised to $28.9 trillion on October 15, 2021 to resolve a pending debt ceiling crisis. This amount was intentionally set at a level estimated to last only up to two months. In recent years, the government has previously chosen to suspend the debt ceiling for a period of time to eliminate any debt ceiling issues for a period of time ranging from one to two years. Prior to that, Congress used to raise the debt limit by a significant amount with the expectation that it would allow the country to go about borrowing for several years. Both measures are taken in order to control spending. This more recent action of raising the debt limit is somewhat different in that it is only expected to last until early to mid-December of this year.
When the government’s outstanding debt amount approaches the debt limit, the Treasury has typically taken it’s “extraordinary measures” to create room for debt under the debt ceiling – including the suspension of selling State and Local Government Securities (SLGS). This action was taken this year at the end of July. In the past, when the debt limit was raised or suspended, what would typically occur is the Treasury would no longer need the extraordinary measures and the SLGS window would reopen. This did not happen after it was raised on October 15th, likely because the Treasury is trying the make the new debt amount last as long as possible to give Congress more time for finding a more permanent solution.
While the SLGS window is closed, issuers will continue to need to purchase alternative “open market” securities for escrows that otherwise would have been eligible to be funded with SLGS. These open market escrow portfolios generally consist of U.S. Treasuries and Agencies, with parameters for eligible securities varying by indenture. Blue Rose regularly serves as a bidding agent for open market escrows, which can prove more cost-effective than SLGS even when the SLGS window is open depending on the size and duration of escrow cash flows. If you are undertaking a refunding or defeasance transaction, we encourage you to reach out to us with indicative escrow cash flows.
About the Author:
Georgina Walleshauser, Associate | 952-746-6036
Georgina Walleshauser joined Blue Rose in 2017. As an Associate, she is responsible for providing analytical, research, and transactional support to senior managers serving higher education, non-profit, and government clients with debt advisory, derivatives advisory, and reinvestment services. She also prepares debt capacity modeling, credit analysis, and market analysis to support the delivery of comprehensive, strategic, and resourceful capital planning tools to our clients.
Megan Roth, Marketing Generalist