NEW YORK--(BUSINESS WIRE)--The creation of a new nonbanking entity sponsored tender option bond (TOB) structure is positive for the municipal market (and tax-exempt money market funds in particular), as TOBs have historically given these funds access to municipal securities. On Wednesday, Fitch rated the first nonbank-sponsored TOB trust.
The Volcker Rule prohibits banks from sponsoring trusts and providing certain services for the floating and residual certificates issued by traditionally structured TOBs. In this particular transaction, Mesirow Financial, Inc. (Mesirow), a nonbank financial services firm, will serve as the trustor, trust administrator, placement and remarketing agent for the TOB trust. Prohibitions under the Volcker Rule pertaining to proprietary trading and certain hedge fund and private equity activities do not apply to Mesirow because it is a nonbanking entity. Furthermore, we expect the floating certificates and residual certificates issued under this trust will be owned by nonbanking entities, as the certificates issued by this trust would fall under the definition of a covered fund under the Volcker Rule.
The Volcker Rule became effective on April 1, 2014 and currently requires conformance by July 21, 2015. With the creation of this new structure, banks may potentially have the option of transferring sponsorship of existing TOB trusts to nonbanking entities to bring existing trusts into compliance with the Volcker Rule.
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