hedge bond
(3) Hedge bond (A) In general For purposes of this subsection, the term “hedge bond” means any bond issued as part of an issue unless— (i) the issuer reasonably expects that 85 percent of the spendable proceeds of the issue will be used to carry out the governmental purposes of the issue within the 3-year period beginning on the date the bonds are issued, and (ii) not more than 50 percent of the proceeds of the issue are invested in nonpurpose investments (as defined in section 148(f)(6)(A) ) having a substantially guaranteed yield for 4 years or more. (B) Exception for investment in tax-exempt bonds not subject to minimum tax (i) In general Such term shall not include any bond issued as part of an issue 95 percent of the net proceeds of which are invested in bonds— (I) the interest on which is not includible in gross income under section 103, and (II) which are not specified private activity bonds (as defined in section 57(a)(5)(C) ). (ii) Amounts in bona fide debt service fund Amounts in a bona fide debt service fund shall be treated as invested in bonds described in clause (i). (iii) Amounts held pending reinvestment or redemption Amounts held for not more than 30 days pending reinvestment or bond redemption shall be treated as invested in bonds described in clause (i). (C) Exception for refunding bonds (i) In general A refunding bond shall be treated as meeting the requirements of this subsection only if the original bond met such requirements. (ii) General rule for refunding of pre-effective date bonds A refunding bond shall be treated as meeting the requirements of this subsection if— (I) this subsection does not apply to the original bond, (II) the average maturity date of the issue of which the refunding bond is a part is not later than the average maturity date of the bonds to be refunded by such issue, and (III) the amount of the refunding bond does not exceed the outstanding amount of the refunded bond. (iii) Refunding of pre-effective date bonds entitled to 5-year temporary period A refunding bond shall be treated as meeting the requirements of this subsection if— (I) this subsection does not apply to the original bond, (II) the issuer reasonably expected that 85 percent of the spendable proceeds of the issue of which the original bond is a part would be used to carry out the governmental purposes of the issue within the 5-year period beginning on the date the original bonds were issued but did not reasonably expect that 85 percent of such proceeds would be so spent within the 3-year period beginning on such date, and (III) at least 85 percent of the spendable proceeds of the original issue (and all other prior original issues issued to finance the governmental purposes of such issue) were spent before the date the refunding bonds are issued.