"Defendants ‘Robo-Reset’ these rates in order to keep the bonds in the hands of their holders, and thus alleviate the need for defendants to remarket the bonds,” Edelweiss claimed.
In the early 2000s, issuers sold between $30 billion and $60 billion of such debt annually, often in conjunction with interest-rate swaps, according to Thomson Reuters Deals Intelligence.
In 2008, they sold more than $115 billion in such paper as they refinanced both auction-rate and insured floating-rate debt, as the auction market froze and insurance companies were downgraded. Since then issuance has dwindled, totaling $7 billion in 2018. The total size of the outstanding VRDO market has been estimated at $150 billion.
The case is City of Philadelphia v. Bank of America Corp., 1:19-cv-01608, U.S. District Court, Southern District of New York (Manhattan).
This article was provided by Bloomberg News.