Over the last 10 years, the long-term new issue municipal market has averaged $226 billion per year, ranging from a high of $292 billion in 1993 to a low of $160 billion in 1995. In 2001, total long-term, new issue volume was $286 billion. Refunding volume, primarily a function of current and historical interest rates, is the largest variable in overall volume, although infrastructure needs, taxpayer sentiment, and tax and environmental legislation are also factors. New issue note volume tends to be smaller, averaging $43 billion per year over the last 10 years. There is approximately $1.6 trillion of outstanding municipal debt.

Currently, the structure for passing through tax-exempt income from single or multiple municipal bonds is a statutory or common law trust that is a partnership for federal tax purposes. The securities issued are generally secondary market synthetic floating-rate securities, or more commonly known as tender option bonds (TOBs). TOBs are variable-rate trust receipts created from fixed-rate bonds that have been deposited in a trust generally created under the laws of New York. The underlying bonds can be from various obligors with different types of bonds (e.g., general obligation, education, industrial revenue, etc.), different geographic locations, maturities and interest rates but typically with consistent minimum credit ratings. Typically, the assets to be securitized are identified prior to the close of the structure but may also be structured to permit expansion through the issuance of additional securities for the purpose of acquiring additional assets that satisfy specified eligibility criteria and subject to mandatory tender of the TOBs.

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