Direct Pay Bond Issuers May Call Early After Sequester of Credit

The Supreme Court’s recent denial of certiorari to the petition filed by plaintiffs in Indiana Municipal Power Agency v. United States lets stand the decision from the lower courts allowing many issuers of Direct Pay Build America Bonds to employ extraordinary call provisions that are applicable given a material change in the law governing BAB subsidies.

According to the courts, the federal government’s sequestration of a portion of BAB subsidies, pursuant to the 2011 Budget Control Act, is effectively a “material change” to I.R.C. §54AA and §6431. There had long been uncertainty how to interpret the legal mechanics ...