The FDA allows the borrower to systematically purchase permitted investment securities at a guaranteed, agreed-upon yield for the life of the fund. The long-term nature of the FDA combined with the certainty of the deposits makes a FDA suitable for a long-dated debt service fund and debt service reserve fund. The FDA’s guaranteed yield varies based on the permitted investment language. Typically, these agreements include government securities, agencies and highly rated commercial paper.
Below are some key benefits of a Forward Delivery Agreement:
The execution of GICs, FDAs and Repos are conducted through a competitive bidding process. This bidding process, which includes associated fees and provider requirements, is highly regulated by the Internal Revenue Service. The IRS regulations are designed to ultimately ensure the borrower receives a fair market yield.