Qualified School Construction Bonds' First Exam: Risks and Benefits for Issuers and Investors

3 page (1917 word) report published Oct 26, 2009

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...The new Qualified School Construction Bond (QSCB) program, which was created in the American Recovery and Reinvestment Act of 2009 (ARRA), provides a new funding alternative for school districts and other U.S. governmental entities that borrow for primary and secondary school buildings. QSCB investors receive quarterly tax credits from the Federal government, which can only be used as a direct offset against Federal income tax liabilities. These tax credit coupons, which are set by the Secretary of the Treasury at the time of bond issuance, eliminate or significantly reduce the traditional interest paid by the issuer to investors. Like interest on taxable bonds, tax credits are considered Federal taxable income for investors. Issuers of QSCBs are obligated to repay the principal of the bond at maturity, as well as interest due on any supplemental coupon. Given the savings to issuers from paying little or no interest on QSCBs, Fitch believes issuers and investors will have significant interest...

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