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Texas Bills Would Ban CABs

Texas lawmakers are considering two bills that would ban capital appreciation bonds with the aim of reducing the risk of deferred interest costs for local governments, particularly school districts in fast-growing areas of the state.

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Comments (1)
Premium CABs can be abused, but as far as I've seen over twenty-five years, not in Ohio. So what's the difference? Ohio requires any year's annual debt payment to stay within three times more or less any other year's debt payment for new money issues. Because they are best sold non-callable, most of us keep them within the first ten years of the issue, the traditional non-call zone. Placing reasonable limits on annual payment variations is a much better alternative than outlawing a certain type of security. Today's markets reward creativity and flexibility, which should be encouraged, but within common sense guidelines. PCABs, when used right, are often the far better choice for certain situations.
Posted by bradp2 | Thursday, March 21 2013 at 9:27AM ET
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