8.3.5 Arbitrage Rebate

Compliance with arbitrage rebate requirements and, if necessary, maintaining yield restriction compliance through yield reduction payments is a critical post issuance issuer responsibility. See Section 4.9, Arbitrage Rebate and Section 4.8.5, Yield Restriction; Yield Reduction Payments. Calculations of arbitrage rebate liability and the necessity for yield reduction payments are generally not easy and results may not be intuitive. Because of the technical requirements and complexities involved, public agency issuers generally engage an expert that specializes in arbitrage rebate to provide rebate calculation services.

Arbitrage rebate payments are required to be made every 5 years and upon the final payment of a bond issue. See Section 4.9, Arbitrage Rebate. For bond issues where a positive rebate liability is likely, however, issuers are generally well advised to have rebate calculations performed on an annual basis. Annual calculations not only help prevent surprises, but they can also provide precise accrued rebate liability calculations for reflection in the issuer’s annual financial statements and allow the issuer to set money aside for making the payments when due.