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Realizing the Benefit of an Existing Escrow Through a Tender Offer

By: Georgina Walleshauser


There continues to be a disparity in the current market between pre-refunded municipal bonds and Treasury securities. Most escrows that were established at some point over the last several years contain either State and Local Government Securities (SLGS) or Open Market Securities (OMS) that have appreciated in value substantially due to a dramatic decrease in interest rates. At the same time, the value to investors of the defeased bonds has also increased, but not nearly as much. During the height of the market’s reaction to the COVID-19 pandemic, we witnessed a significant decoupling of the value between so-called pre-refunded bonds and the underlying Treasury securities held in escrows. While this abnormality has abated somewhat, there still remains a market-based opportunity for issuers and borrowers to realize a cash benefit by simultaneously purchasing/cancelling their prior, defeased bonds and liquidating the securities held in their escrow.

To capture this benefit, an issuer would purchase all or some of their own pre-refunded bonds either privately or through a public tender offer.  At the same time, they would sell the Open Market securities or liquidate the SLGS held in the escrow. Each of these transactions have their own risks and benefits; however, in both cases, once the transaction closes there is no risk to the issuer because the remaining bonds will continue to be defeased. We currently are working with several issuers on this type of restructuring to create a transaction that optimizes savings and minimizes any potential risks. If you believe that you or your issuer could benefit from this type of transaction, we encourage you to reach out to your Blue Rose advisor.


About the Author:


Georgina Walleshauser, Associate


Georgina Walleshauser joined Blue Rose in April 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.


Georgina can be reached at: gwalleshauser@blueroseadvisors.com

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Blue Rose Capital Advisors is an independent financial advisory firm that does not engage in underwriting activities. We are registered with the Securities and Exchange Commission (SEC) and Municipal Securities Rulemaking Board (MSRB) as a Municipal Advisor. Because we have not engaged in underwriting activities in our history, we generally qualify as an Independent Registered Municipal Advisor (IRMA).