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Abstract: 

In a period when investors are seeking safer portfolios that include bonds, yet many state and local governments are facing revenue shortfalls, investors may be concerned about how their “munis” are holding up, what the personal tax consequences of a defeasance might be, and whether new forms of tax-exempts have created new tax dangers for bondholders. This article explores the differing approaches taken to defeasance in the municipal and corporate debt markets. The article also explores whether the recent surge in taxable municipal debt, largely resulting from the provisions in the American Recovery and Reinvestment Act (ARRA) of 2009 providing for the issuance of Build America Bonds (BABs), has resulted in any substantial changes in how the municipal market approaches defeasance. Has the introduction of new purchasers into the municipal market resulted in any changes to the defeasance provisions in municipal securities?

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Affiliations:  1: DLA Piper.