Which statement best describes the escrow account for refunding bonds?

The statement that best describes the escrow account for refunding bonds is that it is held by a third-party escrow agent until the call date. This is a common practice in the management of refunding bonds to ensure that the funds are securely managed and that the obligations are met in accordance with the terms established during the bond issuance.

When bonds are refunded, an escrow account is typically created to hold the proceeds from the new bonds issued and the funds are invested in low-risk securities until they are needed to pay off the old bonds. This structure helps protect the interests of the bondholders, as it guarantees that the necessary funds for the repayment of the original bonds will be available at the time of redemption. Using a third-party escrow agent adds an additional layer of security and oversight, ensuring that the funds are appropriately managed for the specified purpose, which is crucial for maintaining trust and confidence among investors.

In contrast, while it might seem reasonable to consider that the issuer could manage such accounts directly or that they could be liquidated upon bond issuance, these approaches do not align with the established practices that ensure accountability and proper fund management in refunding transactions.