Dear Mr. Forsyth:
You requested the opinion of this office concerning whether political subdivisions may invest in collateralized mortgage obligations ("CMOs").
As you know, R.S. 33:2955 sets forth a list of permissible investments for political subdivisions. Subsection 2955 (A)(1)(b)(iii) provides as follows:
Notwithstanding the foregoing list of investments, in no instance shall a political subdivision invest in obligations described in (i) and (ii) of this Subsection which are (a) collateralized mortgage obligations that have been stripped into interest only or principal only obligations, (b) inverse floaters, or (c) structured notes. For the purposes of this Section "structured notes" shall mean securities of U.S. government agencies, instrumentalities, or government-sponsored enterprises which have been restructured, modified, and/or reissued by private entities. (Emphasis supplied)
A question similar to yours was presented and answered in Op.Atty.Gen. 95-442, as follows:
"2. Does Section R.S. 33:2955A(1)(b)(iii) allow local governments to invest in securities which are not collateralized mortgage obligations stripped to principal or interest (only) or zero coupon securities issued directly by a U.S. government agency, instrumentality, or government sponsored enterprise?
As long as the investment is a bond, debenture, note, or other evidence of indebtedness issued or guaranteed by "federal agencies and . . . are backed by the full faith and credit of the United States of America . . ." [LSA-R.S. 33:2955 (A)(1)(b)(i)] or is a bond, debenture, note, or other evidence of indebtedness issued or guaranteed by "U.S. government instrumentalities, which are federally sponsored . . ." [LSA-R.S. 33:2955 (A)(1)(b)(ii)], and the investment is not a collateralized mortgage obligation which has been stripped into interest only or principal only obligations, an inverse floater or a structured note, it is a permissible investment under the Act 1126."
Accordingly, it is the opinion of this office that political subdivisions may invest in those CMO's which are in accord with the provisions of R.S. 33:2955.
Trusting this adequately responds to your request, I remain
Yours very truly,
RICHARD P. IEYOUB Attorney General
BY: ________________________________ MARTHA S. HESS Assistant Attorney General
RPI/MSH/