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By Georgina Walleshauser, Associate
It is typical for issuers with an upcoming refunding transaction to engage an escrow bidding agent. The role of a bidding agent usually consists of soliciting bids for open market securities (“OMS”) with the award being contingent on these securities providing a benefit compared to State and Local Government Securities (“SLGS”) at a threshold decided upon by the issuer. This type of engagement can create the appearance of a conflict of interest when the bidding agent’s fee is contingent upon the award of such securities. In such instances the bidding agent can be partial to an escrow being structured with OMS and any recommendation for the use of OMS versus SLGS can appear to be biased advice.
As we’ve discussed in several previous articles, escrow restructurings are becoming extremely popular in the current market. Issuers are able to benefit from replacing treasury securities with other eligible agencies or municipal securities. However, many issuers are unable to undergo such a restructuring either due to the language within their escrow agreement or because their current escrow holds SLGS. Notably, current SLGS rules prohibit unwinding SLGS securities for a benefit in yield.
As an alternative to the typical bidding agent engagement, it may make sense for issuers to hire an Escrow Advisor who could advise the issuer to either purchase OMS or SLGS depending upon the indicative results and possibility of a future restructuring. When serving as an Escrow Advisor, we are willing to perform our services for a flat fee regardless of whether the escrow is structured with SLGS or OMS. Blue Rose can seamlessly coordinate the purchase and settlement of either SLGS or OMS, depending on the best outcome to the issuer. If a SLGS solution is pursued, we can directly subscribe for SLGS for our clients rather than having an escrow agent or the trustee do so. Blue Rose will also review the escrow agreement for our clients and work with bond counsel to ensure language that provides the client with the flexibility to pursue a future escrow restructuring. As a result, we are able to eliminate any real or perceived conflict of interest in making recommendations to our clients on the most advantageous escrow strategy.
If you believe that you or your issuer client could benefit from engaging an Escrow Advisor, we encourage you to reach out to Sam Gruer or Georgina Walleshauser.
Sam Gruer, Managing Director
Roseland, NJ Office
973-671-1741
Georgina Walleshauser, Associate Buffalo, NY Office 952-746-6036 gwalleshauser@blueroseadvisors.com Connect on LinkedIn
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.
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