Glossary of Municipal Securities Terms

STANDBY BOND PURCHASE AGREEMENT

A form of liquidity for bonds, usually an agreement with a third party such as a bank in which the third party agrees to purchase variable rate demand obligations tendered for purchase in the event that they cannot be remarketed. Unlike a letter of credit, a standby bond purchase agreement contains termination events and is not an unconditional obligation to purchase variable rate demand obligations and does not guarantee the payment of principal and interest by the issuer. See: LIQUIDITY FACILITY; STANDBY LETTER OF CREDIT; TENDER OPTION BOND; VARIABLE RATE DEMAND OBLIGATION. Compare: CREDIT ENHANCEMENT; LETTER OF CREDIT.

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