S&P - Public Finance Criteria (2007). - The Global Clearinghouse

Secondary Market Derivative Productsthe difference between the interest generated by thebonds and the auction rate and any applicable fees.Moreover, inverse floater holders bear the riskof receiving no interest if the auction rate and thefees claim the entire interest paid by the bonds forthe auction period. The highest maximum auctionrate should be clearly set forth in the custody ortrust agreement.While auction floaters are purchased as a hedgeagainst rising short-term interest rates, inversefloaters are purchased as a hedge against decreasinginterest rates. In the event that interest rates turnagainst them, holders of either class of receipts maypurchase the other class of receipts in the openmarket and link them together to receive the underlyingbond interest rate, less applicable programfees. Auction floater/inverse floater programs mayalso give the inverse floater holders the right to purchaseauction floater receipts at par through amandatory tender. The purchase price for tenderedauction receipts is deposited with the custodian atthe time that notice is given or paid in immediatelyavailable funds on the tender date. If an inversefloater holder fails to pay the purchase price on thetender date, the mandatory tender is canceled thusa dual rating is not warranted. ■www.standardandpoors.com229