A U.S. Treasury Put Agreement is a contractual obligation that
allows an issuer of tax-exempt bonds to own U.S. Treasury securities
while shifting all of the market risk and reinvestment risk to
a third party. In this way, the bond issuer enjoys all of the safety
of principal of U.S. Treasury ownership while eliminating all of
the market and reinvestment risks.
An issuer of tax-exempt bonds purchases a U.S. Treasury Security
(or Securities), and an associated Put Agreement. The combination
results in a highly secure investment with a guaranteed yield,
regardless of when the Treasury Security is sold. The Treasury/Put
Agreement yield is determined through a competitive bid process.
When funds are needed, the trustee simply sells the Treasury by
utilizing the Put Agreement, at the price calculated to provide
the guaranteed yield. The terms of the Put Agreement, allow the
bond issuer to withdraw any amount of money, at any time, without
any cost or penalty, for any program purpose.
Implementation of a Put Agreement is very straightforward. Winters & Co.
will prepare a draft bid form and, after approval by you, will
distribute this to the universe of potential bidders. This process
helps assure compliance with the Treasury regulations requiring
competitive bidding to demonstrate an "arms length transaction" and "fair
market value." The winning bidder will prepare all documentation
and distribute this to the interested parties for review and comments.
- The issuer owns U.S. Treasuries, always a permitted investment.
Put Agreement guarantees a fixed yield, or spread versus an
index rate, determined in advance.
- The Put Agreement eliminates
market risk and reinvestment risk.
- The fixed
rate provided by the Treasury Put structure can reduce administrative
- Funds are available at any time, without cost or penalty. as needed for program purposes