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Practices:
Derivative Products/Swaps
Public finance market participants increasingly use derivative products to help issuers and investors reduce risk exposure, and to help issuers manage their proceed investments. Derivatives are among the most complex financial instruments, and in the public finance arena include various methods of repackaging fixed rate municipal bonds into tax-exempt variable rate instruments. If you are a tax-exempt issuer this “swap” transaction gives you access to the greater liquidity of the worldwide capital markets, and thus lowers your cost of borrowing. If you are a financial institution or other investor, derivative transactions help you build a low-risk portfolio of investments with strong earning potential. All parties to the transaction need legal counsel that recognizes their needs and gives even-handed help with documentation and analysis of the legal issues surrounding credit derivatives, swaps, and similar hedges.
Superbly Qualified
Ungaretti & Harris is superbly qualified to offer guidance that structures derivative and swap transactions to benefit both sides of the deal. We are intimately involved in the development and use of numerous derivative products, including swaps, options, synthetic securities, pooling arrangements and asset securitizations. You get the benefit of a firm whose credentials are established by a public finance team that:
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Served as swap counsel for the State of Illinois’ first $600 million swap transaction.
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Handled swap and derivative transactions for issuers nationwide, from California to Alabama and Florida.
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Acted as issuer’s or underwriters’ counsel in more than $10 billion in tax-exempt financing so far this decade.
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Has strong, working relationships with some of the industry’s leading underwriters – including JP Morgan, UBS, LaSalle Bank, Morgan Stanley, Merrill Lynch, Goldman Sachs and Citigroup.
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Offers counsel from a senior partner who wrote the first definitive text on the use of derivatives and who was a founder of the National Association of Bond Lawyers.
Comprehensive, Long-Term Service
Whether you are an issuer, underwriter or investor, you can look to our public finance lawyers for comprehensive service in structuring derivatives and swaps transactions. We work to define the common ground on which all participants can achieve their financial objectives, then play the key role in working with issuers and counterparties to:
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Review all documentation to ensure that it reflects every aspect of the swap transaction, including hedging agreements that reduce exposure to interest rate fluctuations.
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Secure any necessary board authorization to enter a swap arrangement, particularly when the issuer is a healthcare provider.
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Ensure that all elements of the transaction conform to the state law requirements of the issuer.
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Advise on the federal tax implications of the transaction – for example, if you want to swap tax-exempt bonds at a variable rate, the swap must be integrated into the transaction to calculate and account for the effect on net income.
Securitization Structures
Asset-backed securities have become a major component of capital market transactions, and we helped develop the first clearing agency and only book-entry depository for these loan securitizations. Our lawyers negotiate and structure the issuance of asset-backed derivative securities, including the acquisition of subordinated derivative variable rate securities where the underlying asset is fixed rate, tax-exempt bonds that are sold to Rule 2a-7 money market funds. Banks looking to outsource debt portfolios are just one example of the clients we work with to complete these complex deals, which also include the securitization of:
Pooling Arrangements
Pooling is one of the most innovative tax-exempt financing techniques available, and we regularly act as tax counsel in bond transactions that pool the financings of municipalities, healthcare providers, and other 501(c)(3) exempt organizations. For example, rather than be constrained by the $150 million limit on non-hospital bonds that healthcare organizations face, a pooling arrangement allows you to expand your financing capacity by undertaking a joint tax-exempt financing transaction with another healthcare organization. Chicago’s two largest academic medical centers participated in just such a mutually beneficial venture with our help, in a pooling arrangement that also involved a major university and a world-renowned zoological society. In another example, an Indiana hospital system recently secured $700 million in combined variable rate notes from three separate bond issuers in a transaction that we structured.
Experienced Guidance
Derivatives, swaps and pooling transactions are sophisticated strategies that require experienced guidance and a commitment to help all parties achieve their financial objectives. No matter which side of the deal you’re on, your organization can secure the most advantageous terms through our experience with these transactions. We will help you to minimize tax consequences, maximize investment return and achieve the public purposes of your tax-exempt financing.
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