Just as the Treasury Department and Internal Revenue Service are moving to overhaul and simplify their arbitrage rebate rules, a new company is offering a software package to help untangle their often confusing language.
The Arbitrage Advisor, the latest entry in the municipal bond software arena, was developed jointly by bond counsel Kutak Rock and a new company, New Jersey-based Lyndsay & Ward Inc.
The program, which is based on the Microsoft Windows operational system, is designed to help municipal finance professionals analyze the legal and economic aspects of refunding bond transactions. Arbitrage Advisor costs $750 per user.
Unlike most software packages, the program does not help issuers calculate the cost of refinancings, expenditures, and investments.
Instead, it pulls together information from the IRS regulations and combines it with explanations and legal interpretation by lawyers at Kutak Rock.
Most other software packages offer no legal interpretations of the arbitrage regulations, several bond lawyers and software developers said.
"As the tax code becomes more complicated, it's more important for everyone to understand the regulations," said Robert Evan Ward, a co-founder of Lindsay & Ward.
Arbitrage Advisor deals only with arbitrage regulations relating to refinancings, but additional versions of the program will address other aspects of the arbitrage code, such as regulations for new-money transactions, Ward said.
"We envision a series of products," said John D. Lindsay, co-founder founder of Lindsay & Ward.
Ward said Arbitrage Advisor's developers are confident demand for the product will stay strong regardless of market conditions. A number of municipal strategists forecast a rise in interest rates in 1993 that could cause refundings to decline from this year's record levels, but the developers are not concerned lower interest rates will dampen demand.
"Refunding isn't something that is going to go away," Ward said, adding that other factors besides interest rates can determine whether refundings occur.
For example, an issuer could decide to refund bonds to change bond documents or restructure debt, he pointed out.
Other issuers may seek to do their research in advance and then wait until the opportune time to refinance, he added. "In this business, the wise man plans for the future." said.
The programs will be updated to reflect any changes in the regulations. The arbitrage research software would require periodic updates as the government alters its arbitrage regulations, Stern pointed out.
The Arbitrage Advisor includes information on Treasury and IRS laws, regulations, rulings, and judicial decisions published through Nov. 15, 1992.
The program is written to provide an overall understanding of the rules and to suggest ways to legally avoid IRS restrictions involved in a successful refunding through analysis and cross-referencing, said John Musselman, a partner with Kutak Rock.
The program is divided into 12 sections, including information on analysis of prior bonds, refunding bond yields, and post-issuance compliance, and exceptional refunding circumstances.
A glossary in the program defines highlighted terms in the text, and footnotes refer users to specific sections of the IRS regulations from which information is culled. The program also notes Kutak Rock interpretations of the controversial regulations, directing users to their own bond counsel for more specifics when necessary.
In addition, Arbitrage Advisor allows users to add notes so the program can include specifics of a user's bond offerings.
The program is designed for use by law firms that specialize in bond and tax law, investment bankers, issuers, and financial advisers, Musselman said.
Some software manufacturers and bond lawyers question whether the new software package is needed.
"I don't know that there is a need. Arbitrage is a fairly narrow area," but "it could be worthwhile," said Elliot Stem, a partner with Ruden, Barnett, McClosky, Smith, Schuster & Russell, in Fort Lauderdale, Fla.
Stern and others added that information about arbitrage is readily available and not as obscure as other areas of the tax law.
Stern was previously employed by the Treasury Department, where he helped write the May 1989 arbitrage rebate regulations that have since been modified.
He has developed two software packages that help users perform calculations to size and structure bond offerings and figure out rebate expenses.
Richard Chirls. a partner at Orrick Herrington & Sutcliffe in New York, said, "[The Arbitrage Advisor is] really a research tool as opposed to a mathematical tool. The information does exist in different sources and a lawyer could research it in normal books and with a computer."
"I have my own research tools right here," he added.
"I can see that there's a need for someone providing help in a user-friendly environment," said John Dillavou, a consultant who developed a comprehensive bond financing software program for the Government Finance Officers Association.
In response to a concern of Dillavou's, Musselman said Kutak Rock will not charge an additional fee for any legal questions on the software. "In the normal course of business, Kutak Rock responds to questions from clients or anyone concerning tax-exempt finance," he said.
But if a user's questions become very specific and go beyond pertaining the software, Kutak Rock will discuss charging a fee, he added.