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...