Tender option bond structure could revive muni market

Author: Zoe Thomas | Published: 9 Jul 2014

Tender option bonds (TOBs) have been boosted by an innovative structure that takes advantage of securities law loopholes in the US. The rebirth of the product would be a positive sign for the municipal bond market that relies heavily on TOBs for fundraising.

An $8.545 million deal released by Merrill Lynch in June relies on a joint-venture structure to form the TOB. This avoids the restrictions on banks’ associations with covered funds contained in the Volcker Rule.

The transaction has received an AAA rating from Moody’s. The structure was also proposed by Securities Industry and Financial Markets Association (Sifma) which sent a letter detailing the structure to the Securities and Exchange Commission (SEC).

If SEC accepts it, the structure could be the saving grace for a $75...