The Committee on Uniform Security Identification Procedures (CUSIP®) came up with its alphanumeric protocol in the late 1960s to streamline the dizzying amount of paperwork piling up in the back offices of securities dealers. Despite a few changes since then, the same technology is used today.
CUSIPs are a key ingredient in performing a public finance debt profile in an automated way using electronic data sources. Knowing how and when CUSIPs are issued and general CUSIP practices is a vital part of understanding what might be going on with the raw data when numbers fail to foot.
In the tax-exempt market, new CUSIPs will generally be created with:
- a primary market, new public bond offering
- partial refunding - refunded portions are assigned new CUSIPs
- new securities issued against a trust such as a tender option bond program
- bonds partially remarketed
- bonds insured in the secondary market
The CUSIP rule of thumb is that if the character/terms of an entire CUSIP change (refunded or remarketed) no new CUSIP will be issued. If a portion of a CUSIP changes it gets more complicated as described below.
Refundings
In the case of a full refunding of a bond no new CUSIP will be assigned to the refunded bond – that’s the simple case. In the case of a partial refunding, things get hairier. Usually in the event of a partial refunding the original CUSIP will be replaced by two new CUSIPs, one each for the refunded and unrefunded portions. The exception to this rule (NYC is notorious for this given its many partials) is the CUSIP of the unrefunded portion may be re-used even after multiple partial refunding. In rare cases the original CUSIP won’t change and will simply serve the function of the unrefunded CUSIP.
Remarketing
If a bond is fully remarketed the CUSIP won’t change. If portion of a CUSIP is remarketed, the unremarketed piece keeps the same CUSIP and a new CUSIP is assigned to the remarketed portion. The new portion is likely to have a new interest rate mode.
Secondary Market Insurance
Whether full or partial, a new CUSIP will be issued in the case of secondary market insurance. In general, these CUSIPs will not be relevant when performing an issuer balance sheet analysis and should be tossed out. If you don’t, the same debt will be double-counted.
For information on how to use only original CUSIPs for a complete balance sheet analysis, see here or give us a ring.
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