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Put Agreement

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.
  • The 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 costs.
  • Funds are available at any time, without cost or penalty. as needed for program purposes

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