Certificates of participation (COP) provide an alternative to what?

Certificates of participation (COP) serve as an innovative financing mechanism used by governmental entities to raise funds for capital projects. They provide an alternative to traditional debt financing by allowing governments to finance projects without issuing standard bonds.

In a COP structure, the issuer sells certificates to investors and uses the proceeds to fund a specific asset. The key distinction lies in the fact that buyers of COPs do not hold a direct claim against the issuer. Instead, they share in the lease payments made by the governmental agency as part of the financing arrangement. This structure allows governmental units to avoid some of the complexities and constraints associated with issuing conventional bonded debt.

This alternative can be particularly attractive for projects that might not meet the strict requirements for traditional bond financing and enables governments to access necessary funds while spreading the financial risk among a broader base of investors.