Certificate of Participation (COP) - Investopedia

A certificate of participation (COP) is a type of financing where an investor purchases a share of the lease revenues of a program rather than the bond ... Bonds MunicipalBonds Bonds FixedIncomeEssentials TreasuryBonds MunicipalBonds CorporateBonds ConvertibleNotes WhatIsaCertificateofParticipation(COP)? Acertificateofparticipation(COP)isatypeoffinancingwhereaninvestorpurchasesashareoftheleaserevenuesofaprogramratherthanthebondbeingsecuredbythoserevenues.Certificatesofparticipationaresecuredbyleaserevenues. Acertificateofparticipation(COP)canalsobereferredtoasaparticipationcertificate. KeyTakeaways Acertificateofparticipation(COP)allowsinvestorstoparticipateinapro-ratashareofalease-financingagreement.Asopposedtobondparticipation,COPspayinvestorsvialeaserevenuesasopposedtobondinterest.COPsareacommonlyfoundinmunicipalfinancingasanalternativetomunibonds. UnderstandingtheCertificateofParticipation Alease-financingagreementisusedbyamunicipalityorlocalgovernmenttoacquirerealproperty.Undertheagreement,thelocalgovernmentmakesregularpaymentsovertheannuallyrenewablecontractfortheacquisitionanduseoftheproperty.Alease-financingcontractistypicallymadeavailableintheformofacertificateofparticipation. Amunicipalgovernmentwilltypicallyissuemunibondsfromwhichtheproceedsfromthebondinvestorswillbeusedtoundergoaproject.Thecertificateofparticipationisanalternativetomunicipalbondsinwhichaninvestorbuysashareintheimprovementsorinfrastructurethegovernmententityintendstofund.TheauthorityusuallyusestheproceedsfromaCOPtoconstructafacilitythatisleasedtothemunicipality,releasingthemunicipalityfromrestrictionsontheamountofdebtthattheycanincur.TheCOPcontrastswithabond,inwhichtheinvestorloansthegovernmentormunicipalitymoneyinordertomaketheseimprovements. COPsandTaxation Acertificateofparticipationisatax-exemptlease-financingagreementthatissoldtoinvestorsassecuritiesresemblingbonds.InaCOPprogram,atrusteeistypicallyappointedtoissuethesecuritiesthatrepresentapercentageinterestintherighttoreceivepaymentsfromthelocalgovernmentunderthelease-purchasecontract.Investorsthatparticipateintheprogramaregivenacertificatethatentitleseachinvestortoashare,orparticipation,intherevenuegeneratedfromthelease-purchaseofthepropertyorequipmenttowhichtheCOPistied.Theleaseandleasepaymentsarepassedthroughthelessortothetrustee,whooverseesthedistributionofthepaymenttothecertificateholdersonapro-ratabasis. SpecialConsiderations Certificatesofparticipationdonotrequirevoterapprovalandalsocanbeissuedmorequicklythanreferendumbonds.Inaddition,COPfinancingismorecomplexandgenerallyresemblesbondfinancing.AnunderwriteroftheCOPswillberequired,aswillvariousfiscalagents.Anofficialstatementprovidingdisclosuretoinvestorsmustbeapprovedbythemunicipalgovernmentand,inmostcases,thegovernmentmustcontracttomakecontinuingdisclosurestoSECRule15c2-12undertheSecuritiesExchangeActof1934. COPsarealsousedascreditinstrumentsbybankstoraisefundsfromotherbanksinordertoeaseliquidity.Short-termfundsareraisedbyissuingparticipationcertificateswhichinvolvesharingcreditassetswithotherbanks.Therateatwhichthesecertificatescanbeissuedwillbenegotiabledependingontheinterestratescenario. CompareAccounts AdvertiserDisclosure × TheoffersthatappearinthistablearefrompartnershipsfromwhichInvestopediareceivescompensation.Thiscompensationmayimpacthowandwherelistingsappear.Investopediadoesnotincludealloffersavailableinthemarketplace. Provider Name Description RelatedTerms HousingBondsDefinition Housingbondsaredebtsecuritiesissuedbystateorlocalgovernmentstoraisemoneyforaffordablehousingdevelopment. more NegotiableDefinition Negotiablereferstothepriceofagoodorsecuritythatisnotfirmlyestablishedorwhoseownershipiseasilytransferablefromonepartytoanother. more IndustrialRevenueBonds—IRBs Municipaldebtsecuritiesissuedbyagovernmentagencyonbehalfofaprivatesectorcompanyandintendedtobuildoracquirefactoriesortools. more WhatIsaVariable-RateDemandBond? Avariable-ratedemandbondisamunicipalbondwithfloatingcouponpaymentsthatareadjustedatspecificintervals. more HousingAuthorityBonds Ahousingauthoritybondisissuedbyastateorlocalgovernmenttofinancetheconstructionortherehabilitationofaffordablehousing,ortohelplow-incomeindividualsbuyahome. more SpecialTaxBondDefinition Aspecialtaxbondisatypeofmunicipalbondthatisrepaidwithrevenuesderivedfromataxthatisleviedspecificallyforthatpurpose. more PartnerLinks RelatedArticles FixedIncomeEssentials WherecanIbuygovernmentbonds? InvestingEssentials TheInvestopediaGuidetoWatching'Billions' Taxes ThinkTwiceBeforeBuyingTax-FreeMunicipalBonds RealEstateInvesting Rent-to-OwnHomes:HowtheProcessWorks MunicipalBonds HowAreMunicipalBondsTaxed? DebtManagement WhatYouNeedtoKnowAboutBankruptcy