Troy Bernberg. Vice President, Public Finance April 29, 2016

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1 Navigating the New (municipal bond) World Troy Bernberg Vice President, Public Finance April 29, 2016

2 What ss new? (but What (b t th the same)) yr Treasury & Municipal Rates 11/2015 to Present AAA GO 10 yr 11/01/ /21/2016 Daily Treasury 10 0 yr 11/01/2015 /0 / / 04/21/2016 / 0 6 Daily aily Source: Thomson Reuters 2

3 What s (still) New? The Dodd Frank Wall Street Reform and Consumer Protection Act imposed a fiduciary duty on municipal advisors SEC & MSRB have put forth regulations including a Municipal Advisor ( MA ) rule Effective 7/1/14, MA rules defines the term and requires financial advisors and broker dealers to register as MAs A MA must be registered with the SEC & is subject to fiduciary i duties and other regulations 3

4 What s Changed? Before the MA Rule Self identified independent financial advisors were notheavily regulated as well as not licensed by any regulatory body. After the MA Rule All municipal advisors must be registered with the SEC and subject to fiduciary and other standards of conduct. Broker dealers could Broker dealers can continue to provide information about the provide this sort market or existing deals, such as of information without restriction. market rates, government rates and issuance activity. Broker dealers could provide Broker dealers may NO longer requested and unsolicited advice on provide advice to a municipal the issuer s specific needs, issuer on any deal they wish to objectives or circumstances. underwrite UNLESS they meet certain exceptions. 4

5 Obtaining Advise Requested or unsolicited advice, from an investment bank, may be provided to municipal entities as long as ONE of the following conditions is met: broker dealer is engaged for specific/future issuance(s); or the broker dealer is responding to an RFP or mini RFP ;or an advisory engagement already exists with another financial advisor that is independent of the broker dealer. Requested or unsolicited advice, from a financial advisory firm, may be provided as ithas inthe past; however, these firmsand individual must be registered with the SEC to do so. These regulations only apply to advisers and underwriters, not issuers, who are not required dto engage a municipal ii advisor. di 5

6 From Beginning to End Needs Identification & Prioritization Plan of Finance Implementation A municipal advisor and/or broker dealer may provide information at different times depending on circumstances. 6

7 Develop A Plan Identify and prioritize i i capital needs Capital Improvement Plan Feasibility Study Cost considerations labor& construction materials Timing Public engagement Election Construction season Grant cycle Source of repayment 7

8 Financing Options Election Required General obligation bonds Full llfih& faith credit of borrower Dedicated bond mill levy Most secure form of repayment Sales [and use] tax revenue bonds Bonds repaid from existing sales tax or new increased rate Slightly higher interest rate due to sensitivity of revenue stream to economic conditions No Election Required Lease purchase/certificate of participation financing Repaid by any legally available funds Requires asset valued at the amount of financing to be collateralized w/ leasehold interest or deed of trust Annual appropriation not considered multi fiscal year obligation Enterprise fund revenue bond Repaid from revenue of enterprise fund d( (e.g. water, wastewater, t storm water) Rate maintenance, additional bonds test (ABT) covenants may apply 8

9 Contents of RFP Transaction Features Structure Issuer Principal and interest Participants (bond counsel, payment dates & frequency FA, etc) Optional Redemption / prepayment Size Debt service reserve (DSR) Tax Status Repayment Source Funding/Closing Date Description Use of Proceeds Historical data Credit Rating Parity obligations Supplemental Information 3yrs audits current yr budget YTD financials (if available) Existing or drafted bond documentation Continuing disclosure status Municipal advisor status/available exemption 9

10 Implementation Municipal advisors /investment bankers assist in evaluating and overseeing best execution at the lowest cost of borrowing Bank placement (singleinstitution) institution) Competitive interest rates for 7 12 years with prepayment e flexibility; y;quick execution ecu and less esscostly. Public Offer (broad distribution) Locks in long term interest rates with 10 year call option; credit enhancement considerations; investor & continuing disclosure 10

11 Capital Market Access Competitive Sale MA is engaged to oversee the credit rating, credit enhancement, documentation and as well managea a competitive sale in which broker dealers bid for the purchase and marketing of the bonds, awarded on the basis of true interest cost (TIC). Negotiated Offering Borrower with or without a MA selects a broker dealer for the services noted above (with no MA), pre market and secure orders for the bonds on a pre determined date. 11

12 UMB Bank, n.a. na Celebrating over 102 years in business & 23 years in Colorado Ranked at top of Forbes Best Banks in America List since 2010 Financial solutions for local government include: Investment banking services: direct purchase private placement t bond underwriting Treasury Management: Payments, Receivables & Information Management Commercial, Purchasing, Payroll Cards & Prepaid Debit Cards Lockbox Services Fraud Prevention Merchant Services Investment services Corporate trust services 12

13 This communication is provided for educational and informational purposes only, and the municipal entity should consult with its internal advisors and experts regarding the information or material. UMB Bank, n.a. and UMB Financial Corporation are not liable for any errors, omissions, or misstatements. This is not anoffer or solicitation for the purchase or sale of any financial instrument, nor a solicitation to participate in any trading strategy, nor an official confirmation of any transaction. The information is believed to be reliable, but we do not warrant its completeness or accuracy. There are risks associated with all transactions involving investment securities. As with any investment, please read all offering information, prospectus, or any other required disclosures before initiating any transaction. Past performance is no indication of future results. The numbers cited are for illustrative purposes only. The opinions expressed in this are those of the author and do not necessarily represent the opinions of UMB or UMB Financial Corporation. Future results may vary. Investment Products are: Not FDIC Insured, May Lose Value, Not Bank Guaranteed. UMB Bank, n.a. na Investment Banking Division 1010 Grand Blvd Kansas City, MO

Emerging Debt Regulations and Best Practices

Emerging Debt Regulations and Best Practices Michael G. Sudsina (216) 215-7753 fax (216) 803-2280 mike@sudsina.com Stephen Szanto (440) 773-5090 fax (216) 803-2280 szanto@sudsina.com www.sudsina.com Page