Arbitrage Rules
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Arbitrage Bonds |
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Materially Higher Yield |
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General investments |
1/8 of 1% |
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Refunding escrow |
1/1,000 of 1% |
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Any investment of replacement proceeds |
1/1,000 of 1% |
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Program investment (not student loan) |
1.5% |
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Qualified student loan |
2% |
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Tax-exempt debt obligation |
No yield restriction |
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Exceptions to the Yield Restrictions |
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Temporary Periods |
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Expenditure test |
85% of bond proceeds spent on capital projects within three years of issuance |
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Time test |
Issuer obligation to spend at least 5% of proceeds on capital project within six months of issuance |
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Due diligence test |
Issuer has reasonable expectation that 100% of proceeds will be spent and project will be completed |
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Additional Exceptions to Yield Restrictions |
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Exception for reasonably required reserve fund |
Least of these three: •10% of principal or issue price •Maximum annual debt service •125% average annual debt service |
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Exception for a minor portion |
Lesser of 5% or $100,000 may be invested without yield res |