The Treasury Department has issued long-awaited proposed arbitrage regulations. While the new regulations do not apply until finalized by Treasury, issuers generally may choose to apply them to transactions occurring after September 16, 2013.
The new regulations propose a number of changes to the arbitrage rules, some issuer-friendly and some not. For example, an unfavorable change would base “issue price” on actual sales rather than the current “reasonable expectations,” and would generally require 25% of the bonds to be sold rather than the current 10%. In addition, an even broader and more ambiguous “anti-abuse” rule would be imposed. On the other hand, generally favorable changes are included for grant financings, “qualified hedges” and working capital financings.