Scope of Services
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Bond Document Review Process
Initially, the Tax Agreements, Official Statements and other relevant documents
are reviewed. The Tax Agreement prepared by bond counsel provides information
about the bond proceeds and other funds that could be subject to rebate and
elections relating to rebate exceptions. These documents provide the information
which enables us to complete an independent verification of the bond yield.
Since the bond yield is the basis for arbitrage liability, ensuring that all
amounts are accounted for in accordance with the Code is extremely important.
Amounts used to pay the original issue discount, premiums and qualified guarantee
payments are needed to complete this process.
Verification that each issue is subject to the rebate requirements.
Through the document review process, outlined above, and the pattern of bond
issuance, we are able to identify which issues are subject to rebate. If the
client qualifies for a rebate exception, this information is included in our
reports and documented for the clients' records.
The recalculation of the yield on each bond issue.
Yield calculations performed prior to closing often do not contain all requisite
figures, resulting in inaccurate calculations for rebate purposes. Since the
bond yield is the basis for rebate computations, it is essential that it is
computed accurately. The bond yield may be adjusted for qualified guarantee
payments, original issue discount and premiums. This effort certifies we are
presenting accurate information and enables us to issue our unqualified opinion.
The reconciliation of all sources and uses of funds.
The professional opinion of the firm can only be issued after we have reconciled
the source and application of all proceeds and replacement proceeds through
the various bond accounts. Once deposited, our rebate computation process provides
a concise accounting of each use of the proceeds. Our report format provides
for an effortless reconciliation of all project disbursement and investment
income which can be reconciled back to the General Ledger. This important control
ensures that no proceeds have been overlooked and allows for the elimination
or segregation of non proceeds that may otherwise effect the correct computation
of the arbitrage liability.
Processing of Investment and Disbursement Data
Amtec computes rebate from listings of bond proceeds disbursements from
each bond and capital account.
These listings can be in the form of written or typed reports or bank statements.
These listings can also be processed from spreadsheets saved to diskette or
The calculation of the yield on all investments, subject to rebate, for
the five year period.
Each annual computation includes the allowable bond yield, the actual yield
on investments and the rebate liability which is expressed as a positive or
negative dollar amount. Positive amounts denote the actual rebate liability
and negative amounts provide the amount of additional income that may be earned
before a rebate liability is incurred. Each report is cumulative and commences
with the date of closing through each annual calculation date and finally to
the fifth anniversary date of the bonds, when at least 90% of the rebate liability
must be paid to the IRS. Amtec applies rebate computation credits as they are
earned and each annual report is future valued to the rebate payment date. The
future valuation of the rebate amount provides the most accurate picture of
the rebate liability on a prospective basis. Failure to report the future value
amount may grossly underestimate the final rebate amount that would be paid
several years hence.
Investment Portfolio Evaluation
Along with the disbursement listings, we gather information on the unspent
bond proceeds and investments. We value each investment for every calculation.
We follow the regulatory valuation requirements and select the most advantageous
valuation method for our clients. The most advantageous valuation is the one
which produces the smallest amount of rebate. We use care in these determinations
to ensure market value fluctuations do not give rise to erroneous rebate returns.
Solving for Rebate - Future Value Computation Methodology
Once we have completed these steps, we solve for the rebate amount by account,
if more than one account has been established for an issue.
Amtec utilizes the future value methodology, as required by the Regulations,
to determine the rebate amount. Each rebate amount, either positive or negative,
is determined along with the rate of return of the investment portfolio for
each fund. The portfolio returns should be consistent with the computed yield.
We solve for the rebate for each account within a specific issue. Once each
piece has been solved and reconciled, the entire report is consolidated and
the rebate amount is identified.
The consolidation produces a blended rate of return and rebate amount for all
accounts within an issue. We also provide the individual computations for each
fund so our clients can easily determine which funds are generating arbitrage
profits and which are generating losses.
Rebate Exception Testing
Once we have determined the rebate amount, we continue to test for exceptions
Often, there are projects within a multipurpose issue which may qualify for
a spending exception. We identify the projects which have qualified for an exception
from rebate and adjust the rebate consolidation to reflect these changes.
Other Compliance Benchmarks
For most new money transactions, issuers must certify that they intend to spend
85% of the proceeds within three years of the date of the issue. Occasionally,
this time frame is not achieved and the proceeds become subject to yield restrictions
or reduction payments at the onset of the fourth bond year. Unspent proceeds
beyond the three-year temporary period are subject to yield restriction or yield
reduction payments. We provide the required regulatory computation methodology
adjustment, which ensures that proceeds unspent at the end of the temporary
period receive yield reduction computations.
Amtec's Professional Opinion
The annual rebate report is a formal document issued together with the professional
opinion of Amtec. Our opinion cites the various computation methodologies used
to arrive at the rebate amount. If the issue qualifies for a rebate exception
or we were required to treat proceeds differently, each process is identified.
Proceeds subject to rebate exception, yield reduction and yield restriction
are clearly defined in our final documentation and are reflected on each annual
Should a rebate liability exist on the computation date, which is generally
five years after the closing, Amtec prepares the required transmittal documents
for IRS reporting. The completed documentation and letter of instructions would
be provided in advance of the payment due date.
Each of the steps, outlined above, provides an important computational control.
The reconciliation of the disbursements and investment income to the General
Ledger, the blended investment yield on the bond portfolio investments and the
final results of our computations are reviewed by Amtec's senior staff before
each rebate report is delivered. These steps ensure that the results of our
computations are consistent with the issuer's accounting records, investment
experience and the Regulations.
Scope of Service Summary
Each Amtec Rebate Report Includes:
- A computation of the bond yield (arbitrage or restricted yield);
- The expiration date for temporary periods or spend down periods;
- The next rebate or spend down computation date;
- The rebate liability, expressed as a positive or negative number;
- The yield on all investments which generated the rebate amount for
the five year period;
- The production of rebate reports, indicating the above stated information,
and issuance of the Amtec Opinion which is delivered to the client;
- The preparation of an executive summary identifying the methodology
employed, conclusions and appropriate instructions about when to rebate required
- The preparation of IRS Form 8038-T and accompanying documentation,
should a rebate payment be required;
- Consultation as necessary regarding arbitrage related matters;
- We will discuss the results of our Report with you, your auditors,
and the IRS, if requested;
- The certification that all computations performed are in accordance
with Section 148 of the Internal Revenue Code; and
- The guarantee of complete and accurate computations by Amtec.
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