Department of State Treasurer

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Henry Bridges
6 years ago
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1 Department of State Treasurer Financing Water and Wastewater Projects by Benny Bowers NC Department of State Treasurer Jim Hansen RBC Centura

2 Trends - Marketplace From day to day don t know how much or at what rate can place good issues Water and Sewer much easier placed than COP or Hospital or Airport etc Insurance is not worth much in most instances This is mostly an aberration of lack of liquidity but some recognition of risk Ratings / Unit Credit

3 TRENDS-WATER & SEWER REGIONALIZATION AND CONSOLIDATION Encouraged by:» Economics» DENR - Compliance issues Creates Concerns/Challenges» Credit» Cooperation speaks for itself» Complexity

4 TRENDS-WATER & SEWER EXAMPLES (1)EXISTING SYSTEMS - Lead Borrower Raleigh;Brunswick County +Credit?Participating Units (2)NEW SYSTEM/NEW AUTHORITY Piedmont Triad Regional Water Authority?Credit?Participating Units (3)CONSOLIDATION Cape Fear Public Utility Authority - Merger of County and Wilmington Systems?Credit some? as to how look like in future OS past year of City and County and Feasibility of Combined New Authority

5 TRENDS-WATER & SEWER Credit a real concern in new Authority for Piedmont Triad Regional Water Authority LGC reviewed actual true plan of repayment for each of the participating units. Bank purchased ($22,178,485) bank wanted resolution and sign-off on amount obligated for each of units. Third party comfort (review) of reasonableness of units to provide Authority with revenues to support debt.

6 ROLE OF THE LGC Approves Almost all Debt For Local Units Actually Prepares Offering Material and Competitively Sells General Obligation Bonds (G.O.) Promotes Sound Financial Management

7 LGC LGC meets first Tuesday of every month Bids and major permits Essentially finalized documents are necessary before LGC consideration Completed application (28 days prior to LGC meeting for Installment Purchase)- Call for Early Assistance (please have preconference before bids/rfp sent to Banks).

8 Debt Issuance Procedures PRELIMINARY CONFERENCE WITH LGC» Size & scope of project; need/benefit» Review of Engineering Studies/Plans» Exhibit A--- for Large Financings (Revenue Bonds)» Tentative Determination of Feasibility (108 C) a) Fiscal & Accounting Procedures audit report b) Debt Levels increasing? c) Existing Debt Service Requirements d) Can Additional Debt Service Be Supported? e) Method of Finance f) utility rates; tax rates» Other Capital Plans» Determine whether to proceed or not

9 LGC--FEASIBILITY Required finding by statute Feasibility LGC Form 108C» (G.O./IP small borrowings-below $6-$8 million) Feasibility A third-party review of projections or full-feasibility study (public) is required for borrowings greater than $6-$8 million dollars for water and sewer

10 General LGC Guidelines Desire the majority of the projects to have been bid (over 70%) All Major Permits must be in-hand to be financed Try not to finance beyond the replacement life of the asset All financing sources must be committed

11 ENTERPRISE FINANCING ALTERNATIVES GENERAL OBLIGATION BONDS (ANY AMOUNT-LOW COST - VOTE) INSTALLMENT PURCHASE/BANK PURCHASE (SMALL, SECURITY) PUBLIC REVENUE BONDS (LARGE (REVENUE PRODUCING) FED/STATE LOAN PROGRAMS (PRIORITY/?SMALL AMOUNT/SUBSIDY) COP (Generally not used lien problem)

12 GENERAL METHODS FOR LARGER BORROWINGS PUBLICLY OFFERED REVENUE BONDS (Can do small bank purchases if documents for revenue bonds in placeonce large enough to publicly offer revenue bonds, no need for IP) GENERAL OBLIGATION BONDS

13 General Methods For Borrowings below $8,000,000 General Obligation Bonds State/Federal Revolving Loans USDA Revenue Bonds Installment Purchases (bank purchased)

14 General Obligation Bonds Requires a Referendum Limited to 20 years normally (may go further for enterprise) Normally level principal versus level debt service. Can wrap for overall level principal in the aggregate Highest credit lowest interest rate Can use for non-revenue producing projects No Covenants (unlike Revenue Bond) 3months Referendum/3 months for OS and Sale

15 INSTALLMENT PURCHASE BANK PURCHASE Sale Negotiated with a Bank Generally Smaller-Amounts (Bank-Qualified) Maturities Up to 15 Years (perhaps 20) Very Competitive Interest Rates (to G.O.) for bank purchases Six-Eight Week Process No Referendum-- Hearing Issuance Costs Very Low Like Privately Placed Revenue Bond No OS

16 STATE/FEDERAL REVOLVING LOANS Subsidized Interest Rate Term up to 20 years Interest Rate 1/2 Bond Buyers Index, capped at 4% (level principal normally) Secured by System Revenues Amount Available Limited No Referendum Awarded March & September

17 USDA REVENUE BONDS NORMALLY LIMITED TO LOW INCOME OFTEN GRANT AND LOAN VERY LONG FINAL MATURITY RATE NOW OFTEN CLOSE TO MARKET HAVE BEEN SOME LARGE FINANCINGS ($70,750,000 Neuse Regional Water and Sewer Authority-2006) Regionalization USDA NOW MUCH MORE WILLING TO DO REVENUE BONDS (G.O. in past) Streamline Doc for USDA/Bank purchase

18 USDA REVENUE BONDS LGC must approve interim construction bonds (BANs) along with revenue bonds USDA will not purchase until project is completed Therefore have USDA commitment, bids and 108C prior to LGC approval BANs privately placed bank Bonds purchased USDA 40 years (level P&I) Rate Market Rate

19 PUBLIC PLACEMENTS-LARGE PROJECTS GENERAL OBLIGATION BONDS REVENUE BONDS USDA SOME TREND TOWARD BANK PURCHASE POSSIBILITIES

20 REVENUE BONDS PUBLICLY PLACED No Referendum Pledge of System Revenues (Story Bond) Feasibility Study/Assessment of System Negotiated Sale with an Underwriter 3-6 Month Process Interest Rate less than COP 25 Year Term Rarely Give Security Interest COP s and Revenue Bonds Do Not Mix Well Self-supporting system-feasibility-covenants

21 Revenue Bond Bond Covenants Rate Covenant Net Revenues X Debt Service 2. Covenants to maintain self-supporting system--reporting 3. Limitations on sale of assets, additional debt etc.

22 NORTH CAROLINA WHERE GOOD GOVERNMENT IS A HABIT

Issuing Debt in NC: Public & Private Financings Local Government Commission Application Procedures

Issuing Debt in NC: Public & Private Financings Local Government Commission Application Procedures Tim Romocki NC Local Government Commission NC Department of State Treasurer General Guidelines LGC BACKGROUND