Series 50: Direct Pay BABs

Direct Pay BABs

Build America Bonds come in two types, depending on how the federal subsidy is paid: a direct payment or a tax credit. With a Direct Pay BAB, in lieu of tax-exempt status for the bonds, the federal government reimburses the issuer 35% of the interest it pays every six months to investors. For instance, an issuer that offers a BAB at 6% interest will be reimbursed 35% of that coupon payment, or 2.1%. Thus, in es