CENTRAL FLORIDA CHAPTER, FGFOA
Best Practices in Debt Management:
Update on Bank Placement and Bond Financing
Options
February 6, 2015 3:00pm – 4:40pm
Winter Park, Florida
Presented by:
Jeffrey T. Larson, President
Larson Consulting Services
jlarson@larsonconsults.com
407-496-1597
Best Practices in Debt Management
Presentation Outline
Section
INTRODUCTIONS
FGFOA Chapter
What is the Project? And Traditional Financing Options
1
FINANCE PLAN – Key Considerations
2
MUNICIPAL BOND MARKET – Update on Credit Enhancement
3
DEBT MANAGEMENT - Developing A Financing Plan – Bank vs. Bond Options
4
A REVIEW OF RATING AGENCY CONSIDERATIONS
5
TYPICAL ISSUES AND RECOMMENDATIONS
6
QUESTIONS & ANSWERS
APPENDIX
•Speaker’s Bio
•Debt Management Policy’s Typical Features
7
8
Pg2
Section 1
DEBT MANAGEMENT
What is the project?
Pg3
What is the Project?
1.
2.
3.
4.
5.
6.
Initial Questions
Amount: _____________________________________
Timing: ______________________________________
Priority, and Source of Request? __________________
_____________________________________________
What assets would be financed?
_____________________________________________
Corresponding term of debt?______________________
_____________________________________________
General Fund or Enterprise Fund Project?
_____________________________________________
Other Considerations:
Fixed Rate Versus Floating Rate,
Covenants, Prepayment Ability, O&M Needs,
Others
_____________________________________________
_____________________________________________
Pg4
DEBT MANAGEMENT
Traditional Financing Options
Pg5
Financing Options
A. Pay-As-You-Go Options
Advantages:
Disadvantages
No Interest Expense
No Other Costs of Issuance
______________________
______________________
______________________
? Timing
? Size of Project
? Project Feasibility
? Current Availability of Net Excess Revenues
______________________
______________________
______________________
Pg6
Financing Options
B. Lease Option
Why Lease?
Obsolescence
______________________
______________________
Examples of
Leased Assets
Telephones, Computer Equipment, Others
______________________
Buy Option
Why Buy?
Examples:
Valued, long term asset, control
______________________
______________________
Water and Sewer lines, County Building, City Hall,
Proprietary Equipment, Public Safety;
Design/ Build, Lease To Buy, 6320 Options
______________________
Pg7
Financing Options
C. Short-Term Vs. Long-Term Market Options
These variables change, but typical rules of thumb
have been:
1.
BAN’s, TAN’s GAN’s
Purpose:
Short-Term bridge financings, in anticipation of greater project
definition, or long term “financing” solution or receipt of seasonal
revenue source
Term: 6 months to 3 years.
Important Issue:
Typically need long term “take-out” source also approved/arranged
when bridge is structured. May result in two closings and higher cost
of issuance. Need to review bond/loan covenants to avoid “additional
bonds test” violations.
Pg8
Financing Options
2. Bank Financing Options
Bank Credit Facilities to short term notes (including BAN’s) to medium term notes – traditionally
available up to 10 years, sometimes longer. Some banks and bank leasing “affiliates”
have gone out 20 years. Bank’s lending capacity/appetite subject to change. Dynamic,
changing environment, no longer a “vanilla” or easy process.
Advantages: Reduce legal/financing costs and fees; “easier process,” privately placed. “Bank
qualified” status, or “Public Use” are keys to understand. Short form RFP process helpful.
Disadvantages: Bank qualified vs. Non Bank Qualified. Shorter term, tax risk, repayment
restrictions, “bank credit culture,” rate reset mechanism, beware embedded “fixed rate”
via swaps. Illiquid. Tax appetite and liquidity changes. Lenders may require varying degrees
of a depository/investments and/or banking services relationship.
“Bank Qualified” means:________________________________________________
____________________________________________________________________
“Public Use” means:____________________________________________________
____________________________________________________________
“Prepayment Penalty” means: ___________________________________
____________________________________________________________
Pg9
Financing Options continued
3. Bond/Capital Markets Option:
Advantages: Available up to 30+ years. If over $10 million and over 10 years,
traditionally has been most attractive. Lower interest rates offset higher cost of
issuance. Was traditionally a very broad market, with ready access, and multiple “credit
enhancement options”. Bond Insured/credit enhanced options have changed
drastically over last 3 years! Emergence of Build America Mutual (“BAM”), and
return of National Public Finance Guarantee as AA rated bond insurer has been
very welcome. Importance of Issuers proactively obtaining and maintaining
minimum “A” category underlying credit ratings. Single issue and “pooled loan
program” options also exist, but many changes here also due to liquidity and provider
downgrades. Availability of State/Federal subsidized Loan programs.
Disadvantages: Higher cost of issuance, more involved issuance process (i.e. bond and
offering documents.) Secondary, ongoing disclosure issues. Requires Finance Team.
Since Summer 2008 “Market Freeze”, investor base has shrunk by 40-50%, down
to three current AA bond issuers. Bank AAA/ AA Letter of Credit capacity either
non-existent or prohibitively expensive.
Pg10
Financing Options continued
Typical “Finance Team” Members include:
●
●
●
●
●
●
●
●
●
●
●
●
●
City/County/Authority/District Staff (“Team Captain”)
Financial Advisor (now regulated by SEC & MSRB)
Project Consultant
Investment Banker/Underwriter(s)
Bond Counsel
Underwriter’s Counsel/Disclosure Counsel
Rating Agencies
Credit Enhancement Providers ( Bank LOC or Bond Insurer)
Consulting Engineers/Feasibility & Rate Consultants
PPP Partners
Public Sector Partner
Grant Providers
Other
Pg11
Section 2
FINANCE PLAN
Key Considerations
Pg12
Financing Plan
A. General Fund Versus Enterprise Fund-General Questions
 Available net revenues for debt service
 Is this a cash flow contributing project or enterprise?
 Existing versus new revenue sources?
B. Details on Financing Plan?
 Role of Credit Enhancement (Bond insurance, letter of credit, etc.)
 Rated versus non rated
 Repayment Plan
 Construction Schedule (Capitalized interest, investment program)
 Historical and projected debt service coverage levels
 “Reliability “of pledged revenues
 “Sunset “on pledged revenues
 Do we need a Referendum? (general obligation,
sales tax, county surtax, etc.)
Pg13
Financing Plan
B. Details on Financing Plan? (continued)




If enterprise, existing rate structure? (rate study/feasibility
study, do we have “believable” and dependable projections,
with a margin for error; sensitivity analysis)
Increased Opportunities for Public/Private/Public Partnerships
Examples: Public/Private: ________________________
Public/Public: ________________________
Contingencies
 Project completion risk
 “Lease up” or cash flow ramp up period
 “Sleep at night” account, Restricted Surplus Fund
 “Trust but verify”
Tax issues - TEFRA 1986
1) Ability to borrow
2) Substantive project (no ghost $)
3) “Arbitrage” considerations; Spend-down estimates!
4) “Public Purpose”
Pg14
Section 3
MUNICIPAL BOND
Market Update on Credit
Enhancement
Pg15
Municipal Bond Market
History and Market Update
25
20
15
BBI
Fed Funds
10
5
0
Pg16
Municipal Bond Market
History and Market Update
8
7
6
5
4
BBI
Fed Funds
3
2
1
0
Pg17
Historical Credit Spreads to AAA MMD
10-Year Maturity Spreads to AAA MMD
2008 to Current
4.00%
3.50%
At the start of the
credit crisis in
October 2008,
spreads began to
rise well above the
AAA MMD,
reflecting concerns
with underlying
credit quality.
3.00%
BBB Spread
A Spread
AAA Ins Spread
AA Spread
2.50%
198 bps
2.00%
1.50%
107 bps
1.00%
24 bps
0.50%
0.00%
Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11
Municipal Markets: A Changed Landscape
Credit Support at a Higher Cost
Federal Programs
• Letter and lines of credit conditions have
changed
• Tougher credit terms
• Shorter duration
• Fewer providers
• Higher costs
• New programs authorized under Stimulus
Act of 2009 have come and gone
• Direct subsidy (BABs, Recovery Zone)
• Tax Credit (BABs, Energy, Education)
• Tax subsidy (Recovery Zone Facility Bonds)
• Bank Qualified Bonds ($30 million to $ 10
million)
• AMT holiday
Investor Municipal Credit Sensitivity
Economic & Market Conditions
• Credit analysis is much more important to
the investor
• Demise of bond insurers
• Focus on fiscal health of state & local
governments
• Rating agencies
•
•
•
•
•
•
•
Fed posture
Domestic economy
Commodity prices
Middle East instability
Japanese economy
End of QE3
Growth of middle market buyers importance
Credit Enhancement & Ratings
Credit Ratings Symbols
Moody's
S&P
Fitch
INVESTMENT GRADE
SPECULATIVE
GRADE
SPECULATIVE
AAA
AAA
Aa
AA
AA
A
A
A
Baa
BBB
BBB
Ba
BB
BB
B
B
B
Caa
CCC
CCC
Ca
CC
CC
C
C
C
D
DDD
DEFAULTED
DEFAULT
IN
Aaa
DD
D
*Does not include Kro II bond rating agency.
Pg20
Credit Enhancement & Ratings
Bond Insurers
ACA Financial Guaranty Corp.
AMBAC
Fall 2004 Rating
A
AAA/Aaa/AAA
Update Ratings/Outlook
NR / NR / NR (RunOff Only)
Bankruptcy Filing – November 2010
(In Suspense)
Assured Guaranty Corporation (AGC)
Assured Guaranty Municipal (AGM) (ex FSA)
N/A
AA, Stable (S&P) / A3, Negative (Moodys)
Fitch (NA)
Berkshire Hathaway Assurance Corp.
N/A
AA+ (Stable) / Aa2 (Stable) / AA
(Not Active)
Build America Mutual (BAM)
N/A
AA, Stable (S&P)
CIFG Assurance (Assured Guaranty)
AAA
BB (Dev) / Ba3 (Dev) / NR
FGIC
AAA/Aaa/AAA
NR / NR / NR (In Suspense, Book to MBIA)
FSA
AAA/Aaa/AAA
NA; Part of Assured Guaranty
MBIA
AAA/Aaa/AAA
B (Neg) / Ba3 (Negative) / NR
National Public Finance Guar. Corp
(f/k/a MBIA Insurance Corp. of Illinois)
N/A
AA-, Stable (S&P)/ A3, Stable (Moody’s), NR
Radian Asset Assurance Inc.
N/A
BB- (Dev) / Ba1 (Dev) / NR
Syncora Guarantee Inc.
(f/k/a XL Capital/Security Capital)
AAA/Aaa/AAA
NR / NR/ NR (Regulator told to suspend claims
payments)
Source: Bond Buyer; Insurer Websites, Ratings are in order of S&P / Moody’s / Fitch. Subject to change.
Larson Consulting Services, January 2015
21
Section 4
DEBT MANAGEMENT
Developing A Financing or
Refunding Plan Options
Pg22
Bond Issuance Process
Steps to a Bond or Bank Issue
(1)
Post Sale Activities / Investments
Bond or Bank Closing
Bond Sale and Marketing
Rating Agency/Credit Enhancement
Preparation of Documents
Selecting the Method of Sale
Structuring the Debt Issue
Selection of Debt Instrument
Assessment of Capital Needs
(1) Slight changes if a Bank Placement
Pg23
Fiscal Objectives
Prior to Finance/Project Team being selected or engaged to proceed,
Issuer Staff should develop understanding of:
•
Scope of Project
•
Timing of Need
•
Status of Internal Approvals
•
City/County Manager/Authority/District’s Objectives,
Requirements, Sensitivities
•
Elected Officials’ Objectives, Concerns, Mandate
Pg24
Fiscal Objectives
Following Finance Team Engagement, Finance
Officers/City/County Manager, should:
1.
Go over key objectives with Finance Project Team
2.
Determine more specific financing parameters such as:
• Pledged Revenues
• Legal Challenges
• Timing
• Existing and Proposed Financial Covenants
• Performance Parameters and Objectives Regarding
Costs, Capital Costs, Ratings, Credit Enhancement
3.
Finance Director’s Comments and Recommendations
From Bond Issuance, Refunding and Bank Placement
Recent Experiences
Pg25
Options (1)
BANK PLACEMENTS
• Prefer “essential service”
credits
• Some lenders only go out 7 to
10 years, fewer 15 to 20 years
• BQ vs. Non BQ
• Covenants & Considerations
• Easier, Quicker
• Tax Issues
• Acceleration Issues
BOND ISSUES
• Longer Term
• Best for “AA” rated issues
• Improving options on Credit
Enhancement
• Call Provisions
• More time, more complicated,
more thorough
• Select Good Team
(1) Subject to change based on changing market conditions.
Pg26
Bank Placement Issues
•
•
•
•
•
•
•
•
•
Parity Issue or Junior Lien
Documentation
RFP Process, Banking Relationships
Capital Adequacy
Refunding Flexibility, “Make Whole” Clause
Tax Risk
DSRF
Acceleration Issues
Increased Security from Rating Agencies
Pg27
Bond Issues
• If AA- or Better, Market Open
• If A+ or Less, More Analysis on Credit Structure,
Cost-Benefit Analysis on Bond Insurance
• DSRF vs. DSR Surety
• BAM in Florida is a welcome addition to Assured
Guaranty, “Return” of MBIA/ National Public
Finance Guarantee
Pg28
Update on Recent Bank Placement Financing(1)
Short Term “Bank Qualified” Results (“AA/A” Credit)
5 Year Indicative Fixed Rates: 0.92% to 1.35%
10 Year Indicative Fixed Rates: 1.99% to 3.21% ( 50 b.p.)
5 Year Taxable Rates: 1.55% to 2.65%
(1) Estimates, subject to issuer, credit structure, market conditions.
Pg29
Update on Long Term Bank Placement
Indicative Rates
BQ
NonBQ
15 Years:
2.72% to 3.75%
20 Years:
3.19% to 4.10%
15 Years:
3.02% to 4.10%
20 Years:
3.44% to 4.35%
(1) Estimates, subject to issuer, credit structure, market conditions.
Pg30
Recent Bond Market Rates (1)
April 2014
January 2015
Year
Tax Exempt Rate
“A” Rating with Assured
Tax Exempt Rate
“AA-” Rating
1
0.58%
0.58%
5
1.86%
1.75%
10
3.00%
2.51%
20
3.85%
3.21%
30
4.02%
3.31%
(1) Yields also impacted on premium versus discounted bonds.
Pg31
Financing Options continued
Value of AA vs A Rating
• Approximately 3 to 10 basis points per year
• On a $20,000,000 Bond, 30 year Typical Florida
Municipal Financing
– Average Annual Debt Service Savings Est: $55,000
– Total Debt Service Savings:
Est: $1,650,000
• Eliminate bond insurance premium (est. $500,000)
Pg32
Section 4
BEST PRACTICES IN DEBT
MANAGEMENT:
A Review of Rating Agency Considerations
Pg33
Importance of Ratings
A. What is a Rating and Why Does It Matter?
B. Key Rating Considerations
C. How to Prepare for a Rating Presentation or
Annual Surveillance Review
Pg34
What Is a Rating?
• Forward-looking independent assessment of credit quality
• Letter representation of the likelihood of full and timely repayment
over the life of a specific financial obligation
• Based on issuer’s ability and willingness to pay on time
• Ability to pay - quantitative
• Willingness to pay – qualitative, historical actions and policies
Pg35
Why Do Ratings Matter?
• A bridge between issuer and investors
• Increased investor knowledge and acceptance
• Higher underlying ratings = lower interest rates =
lower annual debt service costs
Pg36
Four Keys to Credit Analysis
•
•
•
•
Economy
Debt and other long-term liabilities
Financial performance
Management and administration
Pg37
Economy
•
•
•
•
•
•
•
Jobs, jobs, jobs
Economic diversity
Taxpayer mix
Income and wealth
Labor force characteristics
Quality of life attraction
Tax burden
Pg38
Debt and Other Long-Term
Liabilities
•
•
•
•
Evaluation of debt against economic resources
Debt affordability guidelines
Routine evaluation of capital and debt needs
Debt structure – know your risk
Pg39
Pension and OPEB
•
•
•
•
•
Nature of the benefit
Historical funding commitment (or lack thereof)
Magnitude of the liability
Assessing the burden on resources
Management actions
Pg40
Financial Profile
• Support of near- and long-term obligations
• Focus on general fund and other discretionary
sources
• Consistency of results
• Sound reserve levels
Pg41
Reserves and Liquidity
•
•
•
•
•
Establishment of a Rainy Day Fund
One size does not fit all
Parameters on use of available balance
Automatic replenishment
Balance sheet composition
Pg42
Management and Administration
•
•
•
•
•
Tenured management with relevant job experience
Institutionalized and prudent policies
Focus on budgeting practices
Efficient decision making process
Taxpayer, political, and labor environment
Pg43
Budgeting Practices
•
•
•
•
•
•
Long-term financial planning
Reasonable assumptions
Maximize structural solutions
Develop “what if” scenarios and contingency plans
Regular interim budget reviews
Mid-year adjustments
Pg44
Fiscally Prudent or Popular?
•
•
•
•
•
•
Productive relationship with labor
Employee benefits
Evaluate delivery of municipal services
Cooperation of elected officials
Effective communication
Disclosure practices
Pg45
The Rating Process
• Offering and legal documentation
• Data and management discussion
• Rating committee, communication and
•
•
dissemination through the financial newswires
Appeal process, if necessary
Surveillance
Pg46
Section 6
TYPICAL ISSUES AND
RECOMMENDATIONS
Pg47
Post Bank / Bond Activities
• Actual Versus Projected Results
• Accounting Issues
• Keep “Interested Parties” Informed Via
City/County Website or Dissemination Agent
i.e., (DAC) Authority/District Web Page






Investors
Underwriter(s)
Financial Advisor
Rating Agencies
Bond Insurers/Banks
Elected Officials
Pg48
Bond Closing/Post Sale Activities
Investments
 Transactional Versus Managed
 Investment Contracts
 Arbitrage Considerations
Investment Options
 GICs, Flex Repos
 Laddered Portfolio – Competitively Bid
 LGIP, Money Market Fund, Prime Fund, or
Equivalent
 (Qualified Public Depositories – QPD’s)
Pg49
Recommendations
1.
Plan well, look at your options, get organized and then run hard.
2.
Hire a good core team at the beginning of the process.
3.
Don’t be afraid to ask questions.
4.
Create clear and measurable objectives, review.
5.
Set up an achievable timetable, with appropriate input, and seek
help from the core team members to help manage process (Good
cop vs. Bad cop.)
6.
Keep elected officials comfortable with process – use “KISS”
principle language.
7.
Let results speak for themselves – don’t be afraid to summarize
good news.
Pg50
Section 7:
Questions?
Pg51
Section 8
APPENDIX
• Speaker Bio
• Summary of Typical GFOA Model Debt Management Policy
Pg52
Jeffrey T. Larson
President, Larson Consulting Services
Tel: 407.496.1597
jlarson@larsonconsults.com
Based in Orlando, and as President of Larson Consulting Services (“LCS”), an independent SEC and MSRB registered financial advisory
firm, Jeff has successfully closed a wide range of municipal project finance and corporate financings totaling over $6 billion. Florida projects have
ranged from negotiating and structuring transportation/road improvement programs, higher education project financings, multiple utility acquisitions,
extensive water and wastewater capital expansions, investments support services, economic development and redevelopment initiatives, utility
enterprise restructurings, refinancing and restructuring, downtown redevelopment, CRA TIF financings, debt and lease purchase private placements,
multiple public/private partnership project finance issues, multiple phased Charter School financing, and a $240 Million University / Developer PPP
Project financing. In May of 2011, Jeff and FMAS was asked by the AAAm rated FL SAFE Local Government Investment Pool (“LGIP”), to serve
as its Administrator and Executive Director. He has served many Florida governments since 1992 as an Investment Banker, Financial Consultant,
Administrator, or Financial Advisor.
Prior to establishing LCS and FMAS, Jeff managed D.A. Davidson’s Southeast Regional Investment Banking Office. Prior to joining D.A.
Davidson, Mr. Larson was the S.E. Regional Director Investment Banking and Consulting Services with Kirkpatrick Pettis, the investment banking
arm of Mutual of Omaha, the Managing Director for Stifel Nicolaus/Hanifen Imhoff, and a Vice President, Investment Banking for SunTrust Capital
Markets in Orlando, Florida. Recruited by these firms, he specialized since 1992 in Florida with the structuring and marketing of a variety of public
finance and capital markets products. Prior to that, he spent ten years with C & S/Sovran in Atlanta and Barclays Bank PLC in Atlanta and San
Francisco as a corporate finance, large corporate/Fortune 500, and Middle Market Banker.
Mr. Larson received his MBA degree on an academic scholarship from Emory University, Atlanta, Georgia, in 1982. As part of his MBA
graduate work, Mr. Larson worked, studied and taught in Germany and Austria and was a Fulbright Scholar at the Johannes Kepler University in Linz,
Austria. He received an A.B. in Business Administration with honors in 1980 from Franklin & Marshall College, Lancaster, PA. Mr. Larson is an
Independent Consultant and Registered Representative with PMA Securities, The Distibutor for the AAA LGIP, FL SAFE. His professional licenses
with the State of Florida, FINRA (previously the National Association of Securities Dealers (NASD)), and MSRB include a Series 7 General
Securities, Series 63, Series 53 Municipal Principal, and Series 24 FINRA General Securities Principal licenses.
Jeff is a frequent speaker at industry conferences including the annual FGFOA, FCCMA, Florida Bond Buyer, FICPA, Florida
Redevelopment Association (FRA), Florida Bar Association, Florida League of Cities, Ernst & Young Professional Development Conference,
FGFOA Webinars, FINRA, Regional FGFOA Chapter meetings, FGFOA Career Seminars, Smith’s National Investor Conference, Annual FGFOA
Institute (School of Governmental Finance) and Special District conferences on topics ranging from “the Bond Issuance Process”, “Best Practices in
Debt Management”, “Best Practices in Investment Management”, “Planning and Capital Financing”, to “Public-Private Partnership Financings.” Jeff
has also served as a member of the FGFOA Annual Conference Program Committee for over 15 years.
51
Larson Consulting’s Team of Professionals provide financing solutions for
many types of clients in Florida, the Southeast, and across the country. We
specialize in a number of practices in which we have significant expertise.
Our primary areas of focus include the following:
• Infrastructure Financings
• Special Districts and Land
Development
• Higher Education
• Resort Communities
• Housing Agencies
• CRA & TIF Improvement
Districts
• Tribal Finance
• Healthcare Finance
• Charter Schools
• Growth Management and
Capital Planning
• Developer Project Negotiations
• Arbitrage Support
•
•
•
•
•
•
•
•
•
•
•
•
•
Pg54
Workforce Housing
Project Financings
Utility Financings
Public Private Partnerships
School Districts
Project Consulting Services
Lease-Purchase Financings
Internet-Based Public Sales
Alternative Energy
Rural Water
State Governments
Utility Acquisition Analysis
Refundings and Restructurings
Debt Management Policy Elements (1)
Purpose of DM Policy / Debt
Categorize Debt
Limitations
Type of Debt
Structure Features
Method of Sale
Selection of Professionals
Refundings
Defeasance
Compliance
Capital Improvement Plan
Investment of Debt Proceeds
Disclosure/Investor Relations
(1) Examples are available from comparable Florida
governments, see Jeff Larson, or FGFOA website.
Pg55
Purpose of DM Policy / Debt
•
•
•
•
•
•
Policy
Sets forth parameters for
issuing and managing debt
Recognizes long-term binding
commitment to full and timely
repayment of all debt
Adherence helps maintain
sound debt position
Protects credit quality
Enhances quality of decisions
Evidence of community’s
commitment to sound financial
management and controlled
borrowing practices
Debt
• Acquisition, maintenance,
replacement or expansion of
physical assets (including land)
• Useful life of pledged asset of
at least 5 years
• Not used for projects solely
because insufficient funds are
budgeted – capital versus
operations and maintenance or
working capital (there are
exceptions)
Pg56
Categorize Debt
Self-Supporting
•
Payable exclusively from non-general fund revenues
•
Governmental debt – average annual debt service
(“AADS”) coverage 1.1X – 1.25X
•
Proprietary fund or special assessment debt – AADS
coverage 1.1X – 1.50X
•
Project Financing – 1.50X to 2.00X coverage
•
No interfund contributions from general fund to make up
an operating shortfall
Non Self-supporting
•
Doesn’t meet criteria above
Pg57
Limitations
A.
Legal
•
State Constitution
•
Local Charter, By-laws, Resolution or Ordinance or Covenant
B.
•
•
•
•
C.
Public Policy
Purposes of debt
Types of Debt
CIP (Accounting Standards)
Policy goals
•
Economic Development
•
CIP Financing
•
TIF
•
Public/Private Partnerships
•
Growth versus existing clients
Financial
•
Direct debt ratios i.e., debt per capita, debt to taxable property value
•
Debt service coverage
•
Rated vs. Non-Rated
•
Term or source of borrowing
Pg58
Type of Debt
A.
Short-Term
H.
Taxable
B.
Long-Term
I.
BAN, TAN, GAN, RAN
C.
General Obligation
J.
Interfund Borrowing
D.
Revenue Debt
K.
State Revolving Loan Funds
E.
Variable Rate
L.
Pool Loans
F.
Leasing
M. Special Assessments/MSTU/MSBU
G.
Conduit
N.
Lines / Letters of Credit
Kiss principle for public presentations - use understandable comparables i.e.,
Mortgage
Pg59
Structure Features
A. Level Principle & Interest
G. Derivatives
B. Back Loading Principal
H. Redemption Provisions
or “Wrap-Around”
(optional, mandatory, extraordinary)
C. Call Provisions
I.
Capitalized Interest
D. Maturity
J.
Interest Only
E. Credit Enhancements
K. Credit Ratings/Bond Insurer
F.
Financial Covenants
Pg60
Method of Sale
A. Competitive
B. Negotiated
C. Private Placement
Pg61
Selection of Professionals
A. Financial Advisor, as needed
B. Bond Counsel, Disclosure Counsel
C. Underwriter(s), Lender(s), Lessors(s)
Pg62
Refundings
A.
Current refunding
B.
Advance refunding
C.
“Synthetic”, Delayed
D.
Demonstrated Savings
E.
Extending Maturity
F.
Other Reasons to Refund
• Restructure Utilities (Leesburg)
• Update Covenants (Tamarac, Dunedin)
• Free-Up Reserves (FAU)
Pg63
Defeasance
A. Use of cash or other asset interest to
satisfy scheduled payments of principle
and interest
B. Trustee
C. Open Market Securities
D. “Economic” and “legal” defeasance,
Verification Agent
Pg64
Compliance
A. Arbitrage
• Yield restrictive earnings
• Spend within 3 years
B. Federal & State Law
C. Reporting
D. Covenant Compliance
E. Grants
Pg65
Capital Improvement Plan
5, 10, 15, 20 – Year Plan
• Each Department
• Timing
• Funding
• Impact on future debt
• Partnerships
• Comprehensive Plan Requirements
Pg66