4.8.3.2 Guaranteed Investment Contracts

Proceeds of bonds may be invested under investment agreements commonly known as guaranteed investment contracts (GICs), where the issuer is guaranteed a certain rate of return on the amount of bond proceeds being invested with an investment provider. GICs usually involve the portion of bond proceeds used to finance capital improvements or held as a reasonably required reserve fund. A GIC should permit an issuer enough flexibility to spend the money invested so that all tax requirements of the Code are met, such as the timing requirements of the hedge bond rules. Fees paid to the GIC broker are permitted to be used to increase the yield on the bonds to the extent permitted by the Regulations. However, certain bidding requirements and certifications are required in order to take such payments into consideration. For GICs that are expected to be entered into at the same time as the issuance of the bonds, bond counsel should be involved early in the bidding or negotiation process because the GICs may have collateral effects on the tax or bond analysis.