Analyzing and Issuing Refunding Bonds
05/24/2016 | 3:35 – 4:50 | 1.5 CPE
Ivan Samstein, Chief Financial Officer, Cook County, IL
David Abel, Managing Director, William Blair
Peter C. Orr, Senior Managing Partner, Public Alternative Advisors
and President, Intuitive Analytics
To Refund or Not to Refund?

“Call Options” contained in most municipal bonds are valuable assets
with intrinsic financial value

This fact has often been overlooked in the market with negative
consequences:
 “Synthetic” Bond issues using swaps, where the entire benefit versus a
lower risk traditional structure was the foregone call option
 BAB transactions with a “make-whole” call where again the entire benefit of
some transactions (particularly in late 2010) was in the foregone call option

The market has undervalued Call Options consistently

In fact much of the refunding advice we have been given over the
years in the municipal market has proven to be misguided or wrong
Questions for Issuers to Consider for Refunding Bonds

Financial and Policy Objectives
 Should we pursue a refunding?
 Why are we pursuing the refunding if not for traditional interest cost savings?

Financial Savings / Results
 How will I allocate the savings to future years?
 If not taking a level savings pattern how does this fit with a long-term plan?
 If not for interest savings, goals should be clearly understood and
communicated along with how they correlate to a long-term forecast

Option Sensitivity
 Why refund these bonds now versus later?

Bond Structure and Escrow Efficiency
 How do my choices for optional redemption features affect future refundings?
 What is my optimal choice for my refunding escrow/reinvestment selection?
Analyzing and Issuing
Refunding Bonds
May 24, 2016
David Abel
William Blair
Call Features in the Tax-Exempt vs. Taxable Markets
Optional Redemption:
The right – but not the obligation – to prepay all or part of a bond before it matures
•
Purpose of Issuance
•
•
•
Tax-Exempt:
Corporate:
Property, Income and Sales Tax; User fees and Charges;
Proceeds of the next take-out financing; claim usually senior to equity
Purpose of a call feature
•
•
•
Projects too large to fund from operating revenues (intergenerational equity)
Strategic low-cost part of a balance sheet; typically shorter duration
Source of Repayment
•
•
•
Tax-Exempt:
Corporate:
Tax-Exempt:
Corporate:
Longer amortization; restructure; re-defining security; revenue calls
Shorter bullets; yield curve optimized at issuance, limited strategic value to the call
Market treatment of a call feature
•
•
Tax-Exempt:
Corporate:
Part of market culture from the beginning; interplay with market discount rule
Costly if needed; difficult to hedge; ARRA Programs encountered resistance
Refunding Basics & Terminology
•
Refunding Escrow
•
•
•
•
•
•
•
Trust account to hold investments to pay old bonds until their call date (30 days to 10+ years)
Funding is irrevocable; Cash flow sufficiency (verification report) traditionally required
Advance Refunding: Proceeds outstanding longer than 90 days; investments yield restricted
Current Refunding: Proceeds outstanding 90 days or less; investments can be non-restricted
Crossover Refunding: Escrow pays interest (alternatively) on the Refunding Bonds until the call date
Defeasance Thresholds
•
•
“LegaI” … Obligation to the refunded bonds are discharged with use of permissible investments
Usually direct obligations or directly guaranteed agencies (SLGs; Treasuries; certain agencies)
•
•
“Economic” … Refunded bonds remain a contingent obligation of the issuer
Investments may be higher yielding, however could introduce performance or liquidity risk.
Option Sensitivity
•
•
•
•
Applicable mainly to advance refunding decisions
How much additional savings value could yet accumulate if rates drop further
Policy framework to apply a uniform test (drop rates by X basis points, improve savings by Y%)
Need not be the same metrics everywhere on the yield curve (short bonds exception)
Advance Refunding economics changed dramatically over last 30 years
1980 – 2000 … Rates high enough that advance refundings were escrow-efficient
2001 – 2005 … Accommodative Monetary policy following 9-11
2006 – 2007 … Return to pre-2000 yield relationships
2008 – 2016 … Aggressive monetary policy following 2008 financial crisis
Negative Arbitrage
Cost-perfect Refunding Escrows
Refunding Policies
•
Savings criteria
•
•
•
•
•
•
Callable Refunding Bonds
•
•
•
•
Short calls (5 year); normal calls (10-year); non-call
Premium Callable; Trade-off between future call value versus PV Savings now
4% coupon versus 5% coupon bonds, conserving future optionality
Accepting new risks to create refunding savings
•
•
•
Early 1990’s the practice was to advance refund the entire original bond series
Refunding Efficiency - Net PV (after escrow loss) divided by GROSS PV (perfect escrow)
Option Sensitivity – By maturity/whole series, do savings increase by more than Y% on X bps drop
Policy for realizing actual debt service savings (early, middle, late)
Breakeven Test – Market Runoff Test (basis points the market can rise before a current call)
Use of non-defeasance eligible investments to increase escrow yields (and therefore savings)
Interest rate resets that did not similarly exist in the bonds being refunded
Preserving future financial flexibility
•
•
Tax-exempt refundable and extendable principal has value
Can it make sense to leave bonds (with savings) un-refunded in anticipation of a future restructure?
Example Refunding Efficiency and Break-Even Measures
Refundable Series; Callable in 2019
Maturity
Amount
12/01/17
12/01/18
12/01/19
12/01/20
12/01/21
12/01/22
12/01/23
12/01/24
12/01/25
12/01/26
12/01/27
12/01/28
12/01/29
12/01/30
12/01/31
12/01/32
12/01/33
12/01/34
12/01/35
1,740,000
1,800,000
1,860,000
1,930,000
2,030,000
2,130,000
2,240,000
2,350,000
2,470,000
2,590,000
2,720,000
2,820,000
2,930,000
3,050,000
3,200,000
3,360,000
3,510,000
3,670,000
3,840,000
50,240,000
Refunding Date
Future Call Date:
All Callable
5% Cpn Only
Coupon
3.500
3.500
4.000
5.000
5.000
5.000
5.000
5.000
5.000
5.000
3.750
3.750
4.000
5.000
5.000
4.625
4.500
4.500
4.500
Estimated
Gross PV%
[A]
Escrow Loss
(Neg. Arb)
[B]
Estimated
Net PV %
[C] = [A]-[B]
Per Maturity
Efficiency
[C] / [A]
Market
Run Away
(Basis Points)
154
119
106
100
97
99
104
127
138
143
131
121
112
106
102
99
7.09
10.16
12.94
15.44
17.65
19.28
20.47
10.77
9.44
10.33
17.53
17.13
13.07
11.18
10.39
9.60
3.68
3.68
3.68
3.68
3.68
3.68
3.68
3.61
3.61
3.62
3.68
3.68
3.66
3.65
3.65
3.65
3.41
6.48
9.26
11.76
13.96
15.60
16.78
7.16
5.83
6.71
13.85
13.45
9.41
7.52
6.73
5.94
48%
64%
72%
76%
79%
81%
82%
66%
62%
65%
79%
79%
72%
67%
65%
62%
13.18
16.61
3.66
3.68
9.52
12.93
70%
77%
12/01/16
12/01/19
44,840,000
20,060,000
4,270,115
2,592,913
After shifting the yield curve forward 3 years,
how much do rates rise and still be “decision
indifferent” as to refunding now versus later.
5% Coupon Refunding
Year
Par $m
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
1.715
1.805
1.895
1.995
2.090
2.195
2.305
2.420
2.540
2.670
2.805
2.945
3.090
3.240
3.405
3.580
4% Coupon Refunding
Coupon
Yield
Price
Y-T-M
"Kick"
Year
Par $m
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
1.060
1.160
1.280
1.390
1.500
1.610
1.720
1.830
1.970
2.120
2.250
2.320
2.370
2.420
2.470
2.520
2.570
2.630
2.690
103.908
107.569
110.914
113.998
116.799
119.314
121.544
123.491
124.877
125.829
124.503
123.795
123.293
122.793
122.296
121.801
121.308
120.720
120.136
1.060
1.160
1.280
1.390
1.500
1.610
1.720
1.830
1.970
2.120
2.445
2.669
2.844
2.994
3.126
3.242
3.346
3.445
3.535
0
0
0
0
0
0
0
0
0
0
20
35
47
57
66
72
78
82
85
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
0.075
0.080
0.080
2.015
2.100
2.180
2.270
2.360
2.455
2.550
2.655
2.760
2.875
2.990
3.110
3.230
3.355
3.495
3.635
Refunding Par
40,695,000
Bond Yield
TIC to Maturity
Escrow Yield
2.3022
2.8723
1.0474
Future Savings
Present Value
Average Annual Savings
PV% of Refunded Par
Refunding Efficiency
4,193,550
3,074,919
220,713
6.858%
64.086%
4's Vs. 5's
Coupon
Yield
Price
Y-T-M
"Kick"
Yield
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
1.060
1.160
1.280
1.390
1.500
1.610
1.720
1.830
1.970
2.120
2.300
2.420
2.520
2.670
2.770
2.870
2.970
3.080
3.190
102.916
105.598
107.980
110.120
111.999
113.617
114.976
116.080
116.667
116.860
115.109
113.959
113.010
111.605
110.679
109.762
108.854
107.866
106.888
1.060
1.160
1.280
1.390
1.500
1.610
1.720
1.830
1.970
2.120
2.426
2.635
2.799
2.980
3.104
3.214
3.314
3.411
3.500
0
0
0
0
0
0
0
0
0
0
13
22
28
31
33
34
34
33
31
Higher
Lower
0.050
0.100
0.150
0.250
0.300
0.350
0.400
0.450
0.500
-0.019
-0.034
-0.045
-0.014
-0.022
-0.028
-0.032
-0.034
-0.035
Vs Arb
Refunding Par
44,270,000
0.57
Bond Yield
TIC to Maturity
Escrow Yield
2.4899
2.8149
1.0474
(1.25)
Future Savings
Present Value
Average Annual Savings
PV% of Refunded Par
Refunding Efficiency
Vs Arb
Y-T-M
3,575,000
0.33
(1.44)
4,374,850
3,368,138
230,255
7.511%
63.040%
Option Sensitivity … Rates lower by 25 basis points (0.25%)
5% Coupons … 32.5% PV savings increase
4% Coupons … 29.8% PV savings increase
0.1877
(0.0574)
181,300
293,219
9,542
0.65%
-1.0%
Basic Tax Concepts
•
Basic Rules
•
•
•
•
•
•
Calculating the Bond Yield
•
•
•
Rule of thumb: If the Market thinks the bond prices to call, the IRS does as well
Arbitrage Yield is defined as the lowest possible interest cost (IE, premium callable bonds get called)
Allowable escrow yield
•
•
•
One advance refunding allowed in the “allocated life” of any bond maturity issued
Calculation of bond yield reflects the nature of premium callable bonds
Weighted average maturity (WAM)
Contributing accumulated debt service levy
Bonds must be called on the first available call date
Allowable yield for Premium Callable bonds; Inclusion of Bond Insurance
Negative arbitrage; things the market did when rates were higher and flatter
Refunding Amortization
•
•
•
•
Foot-print test; savings taken early, middle or late in the life of the issue
Federal and State Law compliance safe-harbors
Scoop-and-toss considerations
Multipurpose rules
Types of call features (Issuer’s option)
•
Par Calls
•
•
•
•
•
Make-whole Calls
•
•
•
•
•
Explicit Time and Price; continuous thereafter (American style)
Premium Callable; attractive to investors; avoid market discount treatment
What is “kick spread”, how does it affect refunding savings?
History of the inverse numeric call (the low back-end coupon trick)
Buying the bond back “at market” to remaining maturity, plus a premium
Index eligibility for taxable issues
Computing value “as if now a pre-refunded bond” to avoid advance refunding lockouts
ARRA/BABs injured subsidy (54AA) adjustments
Sidebar – Award metrics in competitive sales
•
•
•
Lowest True Interest Cost to Maturity
Lower coupons lose less “Yield to maturity” or “kick spread” to the TIC award.
Preponderance of 4% coupons are coming from competitive sales
Analyzing and Issuing
Refunding Bonds
May 24, 2016
Peter Orr, CFA
Public Alternative Advisors
Most new fixed-rate bonds are callable
•
•
55% for 20-year level debt service
75% for 30-year level debt service
$10M, 30 Year Level Debt Service
New research looks at which refunding criteria maximize
PV savings
Yield
Maturity
Date
Taxable
Borrower
Tax-Exempt
Borrower
SLGS Escrow
AAA MMD / Pre-Re
Call
Date
Time
•
•
•
•
Create future market scenarios of all relevant markets (above)
Calculate PV savings in each scenario
If refunding criteria met, present value savings to today
Sum results => Expected PV (EPV) Savings
Various Refunding Criteria
Comparison of EPV Savings
12%
10%
Low
Base
8%
High
6%
4%
2%
Orr, P., and de la Nuez, D. (2014). Analysis of Municipal Refunding Policies: A 50 Year Historical Approach.
Social Science Research Network
0%
We also searched for and found an optimal refunding criteria
Orr, P., and de la Nuez, D. (2014). Towards a Better Policy: Analyzing Municipal Refundings
with a Real-World Market Model. Social Science Research Network
1.
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16.
17.
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31.
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33.
34.
35.
36.
37.
38.
Slight Discount Bonds
Policy
Total
Perfect Timing
9.4%
Alternative Policy
5.2%
5% Savings, 100% Escrow Efficiency
3.5%
6% Savings
3.5%
90% Refunding Efficiency
3.3%
25bps Savings, 20% NegArb/Savings
3.2%
25bps Savings, 50% NegArb/Savings
3.2%
25bps Savings, 75% NegArb/Savings
3.2%
25bps Savings, 90% NegArb/Savings
3.2%
3% Savings, 20% NegArb/Savings
3.2%
3% Savings, 50% NegArb/Savings
3.2%
3% Savings, 75% NegArb/Savings
3.2%
3% Savings, 90% NegArb/Savings
3.2%
5% Savings
3.2%
5% Savings, 50% Escrow Efficiency
3.2%
5% Savings, 60% Escrow Efficiency
3.2%
5% Savings, 70% Escrow Efficiency
3.2%
5% Savings, 80% Escrow Efficiency
3.2%
5% Savings, 90% Escrow Efficiency
3.2%
5% Savings, 95% Escrow Efficiency
3.2%
3% Savings, 50% Delta
3.0%
85% Refunding Efficiency
2.9%
25bps Savings, 50% Delta
2.9%
4% Savings
2.8%
25bps Savings, 20% Delta+
2.8%
25bps Savings, 50% Delta+
2.8%
3% Savings, 20% Delta+
2.8%
3% Savings, 50% Delta+
2.8%
3% Savings, 100% Escrow Efficiency
2.8%
95% Refunding Efficiency
2.4%
NYS / MTA Table
2.4%
3% Savings, 95% Escrow Efficiency
2.3%
3% Savings
2.3%
3% Savings, 50% Escrow Efficiency
2.3%
3% Savings, 60% Escrow Efficiency
2.3%
3% Savings, 70% Escrow Efficiency
2.3%
3% Savings, 80% Escrow Efficiency
2.3%
3% Savings, 90% Escrow Efficiency
2.3%
100% Refunding Efficiency
1.8%
1/65-1/80
2.9%
1.0%
1.2%
1.2%
1.1%
1.2%
1.2%
1.2%
1.2%
1.2%
1.2%
1.2%
1.2%
1.2%
1.2%
1.2%
1.2%
1.2%
1.2%
1.2%
1.3%
1.1%
1.3%
1.2%
1.2%
1.2%
1.2%
1.2%
1.0%
0.9%
1.4%
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
0.8%
1/80-12/08
12.4%
7.1%
4.6%
4.6%
4.3%
4.1%
4.1%
4.1%
4.1%
4.1%
4.1%
4.1%
4.1%
4.1%
4.1%
4.1%
4.1%
4.1%
4.1%
4.1%
3.8%
3.8%
3.6%
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
3.1%
2.8%
2.9%
2.9%
2.9%
2.9%
2.9%
2.9%
2.9%
2.2%
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
Premium Bonds
Policy
Total 1/65-1/80 1/80-12/08
Perfect Timing
15.5%
8.6%
19.1%
Alternative Policy
7.3%
3.7%
9.3%
5% Savings, 100% Escrow Eff
5.6%
4.7%
6.1%
6% Savings
5.5%
4.7%
5.9%
90% Refunding Efficiency
5.5%
4.2%
6.2%
25bps Savings, 20% NegArb/Savings
5.3%
4.7%
5.6%
25bps Savings, 50% NegArb/Savings
5.3%
4.7%
5.6%
25bps Savings, 75% NegArb/Savings
5.3%
4.7%
5.6%
25bps Savings, 90% NegArb/Savings
5.3%
4.7%
5.6%
3% Savings, 20% NegArb/Savings
5.3%
4.7%
5.6%
3% Savings, 50% NegArb/Savings
5.3%
4.7%
5.6%
3% Savings, 75% NegArb/Savings
5.3%
4.7%
5.6%
3% Savings, 90% NegArb/Savings
5.3%
4.7%
5.6%
95% Refunding Efficiency
5.3%
3.7%
6.1%
85% Refunding Efficiency
5.2%
4.4%
5.6%
5% Savings, 95% Escrow Eff
5.2%
4.7%
5.4%
5% Savings
5.1%
4.7%
5.3%
5% Savings, 50% Escrow Eff
5.1%
4.7%
5.3%
5% Savings, 60% Escrow Eff
5.1%
4.7%
5.3%
5% Savings, 70% Escrow Eff
5.1%
4.7%
5.3%
5% Savings, 80% Escrow Eff
5.1%
4.7%
5.3%
5% Savings, 90% Escrow Eff
5.1%
4.7%
5.3%
3% Savings, 100% Escrow Eff
5.0%
4.7%
5.2%
4% Savings
4.8%
4.7%
4.8%
25bps Savings, 20% Delta+
4.8%
4.7%
4.8%
25bps Savings, 50% Delta+
4.8%
4.7%
4.8%
3% Savings, 20% Delta+
4.8%
4.7%
4.8%
3% Savings, 50% Delta+
4.8%
4.7%
4.8%
3% Savings, 50% Delta
4.7%
4.7%
4.7%
3% Savings, 95% Escrow Eff
4.5%
4.7%
4.5%
NYS / MTA Table
4.5%
4.9%
4.4%
3% Savings, 90% Escrow Eff
4.5%
4.7%
4.4%
3% Savings
4.5%
4.7%
4.4%
3% Savings, 50% Escrow Eff
4.5%
4.7%
4.4%
3% Savings, 60% Escrow Eff
4.5%
4.7%
4.4%
3% Savings, 70% Escrow Eff
4.5%
4.7%
4.4%
3% Savings, 80% Escrow Eff
4.5%
4.7%
4.4%
25bps Savings, 50% Delta
4.4%
4.6%
4.3%
100% Refunding Efficiency
4.1%
3.1%
4.7%
Copyright © 2014 Intuitive Analytics LLC. All Rights Reserved
140%
120%
Performance of Alternative Relative to Various Policies
Average over Data from 1/65 - 4/13
126%
124%
Premium
119%
Discount
100%
76%
80%
72%
64%
60%
64%
64%
57%
61%
62%
48%
56%
40%
20%
41%
43%
Orr, P., and de la Nuez, D. (2014). Analysis of Municipal Refunding
Policies: A 50 Year Historical Approach. Social Science Research Network
3%
3%
Savings Savings,
95% Esc
Eff
NYS /
MTA
Table
42%
34%
34%
85% Ref
3%
5%
5%
90% Ref
6%
Eff
Savings, Savings Savings,
Eff
Savings
50%
95% Esc
Delta
Eff
The Alternative refunding guideline has 2 provisions:
1. PV Savings Minimum
of 0.25%
2. Delta criterion
- Reduce yields by 25bps, PV
savings increases by less than X%
And the secret of the Universe is…
20%
If the PV savings of a bond increases by
more than 20% after yields drop by 25bps
(across the curve), leave bond alone
Real-World Example – 10 Bonds, 5% 16-25 Year Maturities
Bond # Coupon
1
5.0%
2
5.0%
3
5.0%
4
5.0%
5
5.0%
6
5.0%
7
5.0%
8
5.0%
9
5.0%
10
5.0%
Years to
1st Call
1
2
3
4
5
6
7
8
9
10
Maturity
(Years)
16
17
18
19
20
21
22
23
24
25
New
Yield
2.73%
2.76%
2.81%
2.83%
2.87%
2.90%
2.92%
2.96%
2.98%
3.02%
Current
PV Savings
24.9%
22.1%
19.3%
17.0%
15.0%
13.2%
11.7%
9.7%
8.0%
6.1%
Delta /
OCI
15.4%
18.4%
22.0%
26.1%
30.8%
36.3%
42.7%
52.9%
66.4%
89.5%
Refunding
Efficiency
93.9%
90.7%
85.9%
80.8%
75.5%
70.3%
64.7%
56.5%
48.3%
38.5%
4s vs 5s, where’s fair?
2044 Maturity, 4s vs 5s
1st and 2nd Gen Refunding Probabilities1
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2015
2016
2018
2019
2020
2022
2023
2025
2026
2027
2029
2030
2032
2033
2035
2036
2037
2039
2040
2042
2043
Call Date
1Using
7% NPV savings as the decision threshold for future refundings
4% 1st generation
5% 1st generation
4% 2nd generation
5% 2nd generation
With 1st gen refunding, the 5s Refunding Adjusted Yield
(RAY) looks more expensive then the 4s
• Roughly 1/3 of the bonds are eligible for advance refunding before
the call date
• With 1st generation refunding, RAY for the 4s is approximately 5bps
lower than the 5s
• However, the refunding bonds are callable after 10 years themselves
• 5s will offer greater 2nd generation impact than 4s given the earlier
refunding likelihood of 5s
1Indicates
1st generation refundings only
After adding 2nd generation refunding, the 4s and 5s
show to be comparably priced
• As expected, the impact of 2nd generation refundings on the overall
Refunding Adjusted Yield is greater for the 5s
• RAY is approximately 1bp lower with the 5s than 4s
• Other considerations (preference for early or later refundings) should
be the driving ones
Just a 20 year bond callable in 5 …or is it?
Probability of Refunding 5% 20NC5 Bond,
5% PV Savings Threshold
100%
90%
80%
70%
60%
50%
TE Adv Ref
40%
No Adv Ref
30%
Txbl Adv Ref
20%
EOR
10%
0%
0
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16 17 18 19 20
Year
Considerations for the
Investment of Bond Proceeds
May 24, 2016
Ivan Samstein
Cook County, IL
Reinvestment of Proceeds Affects Refundings

For refundings the reinvestment of bond proceeds directly affects savings

This has greatly limited the attractiveness of advance refundings in recent years

Decisions regarding reinvestment choices have also become more complex:
 When no negative arbitrage than State and Local Government Series (“SLGS”) are
optimal choice with reduced compliance burden amongst other benefits
 However, escrows have not been perfectly efficient for years
 SLGS window regularly closing as US Treasury flirts with debt limit
 Requires understanding of what choices you may have as you consider refunding
 Do not select any investment alternatives you do not fully understand all risks
 Understand changing regulatory climate in effect at time of a potential sale
Reinvestment of Proceeds Affects Borrowing Cost

This is true incidentally for refundings AND new money borrowing

In new money borrowing this is less often considered, but just as true: What will
interest on proceeds be during construction period versus bond interest paid?
 What is the total anticipated cost of negative arbitrage in the project fund during the
construction period?
 What is the break-even interest rate that rates can rise if the we sold a smaller
amount of bonds today, and subsequently sold additional issues in the future?
 What are other options for the staging of bond sales over the construction period that
may also be considered?
 Examples of issuers incurring negative arbitrage losses from 2010 BAB issues with
elongated spend down period that can approximate as high as 20%
Reinvestment of Bond Proceeds Should Follow
Traditional Investment Policy

Risk inherent in investing bond proceeds or any public funds need to be
understood

Incorporate steps into investment strategies to minimize these risks
 Credit Risk (Safety)- permitted investments should limit
 Market Risk (Liquidity)- importance of cash flows estimates
 Opportunity Risk (Yield) – safety first, liquidity second, than yield

Policies and Procedures are critical here as in other areas and should:
 Be correlated with Trust Indenture if applicable
 Information contained in Offering Document on Bond Sale
 Larger organizational investment policy
 All offices that may be involved in the process of reinvestment
Analyzing and Issuing Refunding Bonds