What Is a Certificate of Participation? Overview, 9 Facts

Certificates of Participation (COPs) are tax-exempt bonds issued by state bodies, typically backed by equipment or facility leasing revenue. Continue reading to learn all you need to know.

What Is a Certificate of Participation (COP)?

Certificate of Participation is a financial document frequently utilized when a local government or other government body issues bonds. Instead of paying interest on the bonds or guaranteeing the face value upon the completion of the project, the investor obtains a return based on the leasing income linked with the offering.

What Is a Certificate of Participation (COP)?

Utilizing this procedure may be quite advantageous for the municipality, as it removes limitations on the amount of debt that can be committed over the project’s duration.

Understanding a Certificate of Participation (COP)

A municipality or local government acquires real estate through a lease-financing deal. Under the terms of the agreement, the local government pays recurring payments for the acquisition and use of the property for the course of the yearly renewable contract.

Typically, a lease-financing contract is provided in the form of a certificate of participation. Typically, a local government will issue municipal bonds to finance a project using the revenues from bond investors.

A certificate of participation is an alternative to municipal bonds in which an investor purchases a portion of the upgrades or infrastructure that the government body wants to finance.

Typically, the authority utilizes the revenues from a Certificate of Participation (COP) to construct a facility that is leased to the municipality, therefore removing the municipality’s debt limit constraints.

Contrast the COP with a bond, in which the investor lends money to the government or municipality to finance these upgrades.

Qualified Projects

COPs have been predominantly utilized for transit expenditures, as transit operations frequently rely on capital assets, such as train stock, buses, or depots, that are well-suited for leasing agreements.

What Is a Certificate of Participation (COP)?

COPs may provide innovative financing possibilities for specific highway-related expenditures, such as automated toll collection or ITS technology, despite the fact that they are arguably less typically employed for road projects.


Typically, the COP process begins when a transportation agency orders cars or contracts for a facility, which a financial company agrees to fund and finish. The assets are subsequently leased to the transportation operator at terms adequate to reimburse the bondholders.

Thus, the Federal monies that were originally pledged to the original purchase are no longer required, enabling the transportation system to repurpose the funds for other projects and expedite their completion.

The option to pledge future Federal transit formula payments as partial security for leases underpinning COPs is one of the most recent advances in transit financing.

While it is not feasible to explicitly pledge such monies (doing so would undermine the tax-exempt status of the loan), commercial credit providers have considered such pledges as boosting the trustworthiness of the whole transaction, particularly due to the transportation system’s history of grant receiving.

It is feasible for the interest expenditure connected with lease payments to be compensated at an 80 percent matching rate by federal grants.

FTA’s Final Rule on Capital Leases provides the foundation for conducting federally-funded COP transactions (49 CFR 639, October 15, 1991; amended December 10, 1998).

COPs and Taxation

The certificate of participation is a tax-exempt lease-financing arrangement marketed to investors as bonds-like instruments. In a typical COP scheme, a trustee is appointed to issue securities representing a percentage interest in the right to collect lease-purchase payments from the local government.

Investors who engage in the program are issued a certificate that entitles them to a portion of the money earned by the lease-purchase of the property or equipment to which the COP is attached.

The lessor transfers the lease and lease payments to the trustee, who then supervises the proportional distribution of the payment to the certificate holders.

Special Considerations

Certificates of participation do not require voter approval and are issued faster than referendum bonds. Moreover, COP financing is more intricate and resembles bond financing in general. In addition to numerous fiscal agents, the COPs will require an underwriter.

What Is a Certificate of Participation (COP)?

The local government must adopt an official statement disclosing information to investors, and in the majority of situations, the government must contract with a third party to make ongoing disclosures in accordance with SEC Rule 15c2-12 and the Securities Exchange Act of 1934.

Banks also utilize COPs as credit instruments to solicit cash from other banks in order to alleviate liquidity. The issuance of participation certificates involving the pooling of credit assets with other banks is used to raise short-term capital.

Depending on the scenario involving interest rates, the rate at which these certificates can be issued will be negotiable.

What Is COP Debt?

Certificate of participation debt is denoted by the abbreviation COP. This sort of debt is issued by state entities and backed by equipment or property/facility leasing revenues.

This enables state authorities or local municipalities to finance projects within their authority without issuing bonds or long-term debt.

Why Would Someone Buy a Bond Over a Stock?

Investors who prefer bonds to equities are seeking a fixed and predictable income stream, which bonds provide at regular intervals.

In addition, if a bond is kept to maturity, the investor receives the principal amount in full. Bonds are a method for generating income while protecting the principal investment.

What Are the Advantages of Municipal Bonds?

Municipal bonds are tax-exempt, are used for good purposes such as the construction of municipal infrastructure, have a low default rate, and are a very liquid investment.

What Is a Certificate of Participation (COP)?


Certificates of Participation allow government organizations to fund capital projects without creating technically long-term debt. As the issuing of long-term debt is sometimes subject to voter approval and other state constitutional and legislative restrictions, this might be favorable.

A state organization created for a specific purpose issues tax-exempt bonds with maturities corresponding to the lease terms of assets acquired with the proceeds of the bond issuance. The state organization then rents transit equipment to one or more transit agencies.

The revenue stream required to finance the bond is provided by the underlying lease or installation sale contract.

The state entity subsequently “passes through” to the bondholders the resulting lease payments, which are typically made with a combination of formula grant monies and local matching share.


Participation certificate encourages participants to attend and be a part of more such events conducted by any organization. This document helps the recognize the people in a company. Making a testament of interest format isn’t mind-boggling as you may suspect.
Certificates of Participation. Certificates of Participation (COPs) are tax-exempt bonds issued by state entities usually secured with revenue from an equipment or facility lease. COPs enable governmental entities to finance capital projects without technically issuing long-term debt.
A certificate of participation (COP) allows investors to participate in a pro-rata share of a lease-financing agreement. A lease-financing agreement is used by a municipality or local government to acquire real property.
How to Make a Participation Certificate?
  1. Set Layouts. The certificate is something people preserve gently. …
  2. Company or Organization Details. At the top, specify the name of the organization organizing the event. …
  3. Certificate Title. …
  4. Description with Blank Space. …
  5. Authorize it.
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