§697b Pooling of Debentures

Summary

The Administration can create and sell trust certificates that show ownership of all or part of debentures issued by state or local development companies and guaranteed by the Administration. Those certificates must come from a trust or pool made only of guaranteed debentures. The Administration may guarantee prompt payment of principal and interest on the certificates, but only up to the amount that the debentures in the pool cover. If a debenture is prepaid or defaults, the guarantee for the certificates is cut back by the same share. Interest on a prepaid or defaulted debenture is guaranteed only until the date it is paid. A certificate can be redeemed if every debenture in the pool is prepaid or defaults. Any payments the Administration must make under these guarantees are backed by the U.S. government. The Administration won’t charge a fee for the guarantee, though an approved agent may charge a fee for certain services. If the Administration pays a claim, it takes over the rights tied to the paid debentures. No state or federal law can block the Administration from using those ownership rights. The Administration must keep a central registry of all trust certificates, hire an agent (with bond or insurance) to run registration and issuance, require sellers to disclose terms and yield before sale, and can regulate brokers and dealers. Electronic or book-entry registration is allowed.