What is a 'Certificate of Participation - COP'

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 being secured by those revenues. Certificates of participation are secured by lease revenues.

A certificate of participation (COP) can also be referred to as a participation certificate.

BREAKING DOWN 'Certificate of Participation - COP'

A lease-financing agreement is used by a municipality or local government to acquire real property. Under the agreement, the local government makes regular payments over the annually renewable contract for the acquisition and use of the property. A lease-financing contract is typically made available in the form of a certificate of participation (COP).

A municipal government will typically issue muni bonds from which the proceeds from the bond investors will be used to undergo a project. The certificate of participation is an alternative to municipal bonds in which an investor buys a share in the improvements or infrastructure the government entity intends to fund. The authority usually uses the proceeds from a COP to construct a facility that is leased to the municipality, releasing the municipality from restrictions on the amount of debt that they can incur. The COP contrasts with a bond, in which the investor loans the government or municipality money in order to make these improvements.

A certificate of participation is a tax-exempt lease-financing agreement that is sold to investors as securities resembling bonds. In a COP program, a trustee is typically appointed to issue the securities that represent a percentage interest in the right to receive payments from the local government under the lease-purchase contract. Investors that participate in the program are given a certificate which entitles each investor to a share, or participation, in the revenue generated from the lease-purchase of the property or equipment to which the COP is tied. The lease and lease payments are passed through the lessor to the trustee, who oversees the distribution of the payment to the certificate holders on a pro-rata basis.

Certificates of participation do not require voter approval and also can be issued more quickly than referendum bonds. In addition, COP financing is more complex and generally resembles bond financing. An underwriter of the COPs will be required, as will various fiscal agents. An official statement providing disclosure to investors must be approved by the municipal government and, in most cases, the government must contract to make continuing disclosures to SEC Rule 15c2-12 under the Securities Exchange Act of 1934.

COPs are also used as credit instruments by banks to raise funds from other banks in order to ease liquidity. Short-term funds are raised by issuing participation certificates which involves sharing credit assets with other banks. The rate at which these certificates can be issued will be negotiable depending on the interest rate scenario.

RELATED TERMS
  1. Certificated Stock

    Certificated stock generally refers to commodity inventory that ...
  2. Silver Certificate

    A silver certificate was a form of legal tender issued by the ...
  3. Currency Certificate

    A currency certificate grants the right to change a sum of one ...
  4. Cage

    The cage is the department of a brokerage firm that receives ...
  5. Retirement of Securities

    Retirement of Securities is the cancellation of stocks or bonds ...
  6. Municipal Bond

    A municipal bond is a debt security issued by a state, municipality ...
Related Articles
  1. Insights

    What Is a Silver Certificate Dollar Bill Worth Today?

    Although a silver-certificate dollar bill no longer can be exchanged for silver, the date, grade and unique features make certain certificates very valuable.
  2. Financial Advisor

    Why You Should Invest In Municipal Bond ETFs

    These versatile instruments have become popular with investors in higher tax brackets and fill a specific niche in the wide selection of fixed-income offerings.
  3. Investing

    A Look at the Pros and Cons of Muni Bonds

    Considering muni bonds? Here's a look at their pros and cons.
  4. Investing

    Do Municipal Bond Mutual Funds Offer a Tax Incentive?

    Learn about individual municipal securities and municipal bond funds, whose principal stability and tax-free yield appeal to high-income investors.
  5. Financial Advisor

    How to Find the Best Bets in Muni Bonds

    Approach investing in municipal bonds the same as you would investing in stocks.
  6. Investing

    4 Tax-Free Muni Bond ETFs to Consider

    Tax free municipal bond ETFs are an excellent way to build wealth slowly. Here are 4 you should consider.
  7. Investing

    Think Twice Before Buying Tax-Free Municipal Bonds

    Municipal bonds are relatively safe, tax-exempt securities--but they are not without drawbacks. Due diligence is required.
  8. Investing

    What Is A Municipal Bond?

    A municipal bond is a debt instrument used by a city, state, county or other local government authority to raise money for a project. Municipal bonds, often called munis, are considered a debt ...
  9. Investing

    Muni Bonds, Taxable Bonds or CDs: Which is Best?

    Here's how to tell if municipal bonds are a better investment than taxable bonds or CDs.
  10. Investing

    Taxation Rules for Bond Investors

    To sum-up there are three types of bonds: government bonds, municipal bonds, and corporate bonds. Find out how each of these bonds are taxed and what you can do as an investor.
RELATED FAQS
  1. What Is a Triple Tax-Free Municipal Bond?

    Learn how a triple tax-free municipal bond is like any corporate bond, but provides an additional incentive for investors ... Read Answer >>
Hot Definitions
  1. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  2. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  3. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  4. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  5. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  6. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
Trading Center