Muni Bonds Best Practices

Transcription

1 Muni Bonds Best Practices 05/23/2016 4:15 5:30 2 CPE B. Jonas Biery, Business Services Manager, City of Portland, Bureau of Environmental Services Jennifer Brown, Director of Finance, City of Sugar Land, TX Julia Harper Cooper, Director of Finance, City of San Jose, CA

2 Managing the Bond Sale Best Practices Debt Management Policy Selecting and Managing the Engagement of Municipal Advisors Selecting Bond Counsel Selecting and Managing Underwriters for Negotiated Bond Sales Managing the Bond Sale Jonas Biery City of Portland, OR

3 Debt Management Policy & Selecting the Finance Team

4 odebt Management Policy Policy establishes parameters for issuing debt, such as: Debt limits Eligible purposes (capital projects) Debt structuring Issuance practices Ongoing management (investment, disclosure, compliance) Also provides guidance regarding debt affordability and management of the CIP 4

5 oexamples of Debt Policy Control Points: The general City portion of the CIP, including debt service, shall be funded at no more than $1 per $1,000 in property taxes per year. Projects costing less than $1 million will not be funded with borrowings unless part of a larger group of related projects. Final maturity of the debt issued shall not be longer than the useful life of the capital asset acquired or constructed, and less than 20 years. New revenue sources should not be pledged toward a bond issue until there is an historical trend that establishes the credit-worthiness of the revenue stream. 5

6 BEST PRACTICE Selecting and Managing Municipal Advisors

7 oimportance of Selection/Hiring Order GFOA Best Practice Unless the issuer has sufficient in-house expertise and access to market information, it should hire a municipal advisor prior to undertaking a debt financing. Issuers should hire a MA and bond counsel before hiring other outside professionals, including UW Competitive selection process is recommended 7

8 o Role of the Municipal Advisor Role May Vary According To: The expertise of issuer staff Type of bonds Method of sale Scope of services Municipal advisor should assist with: Assessing the objectives of the financing Identifying strategies and priorities Selecting the method of sale that best fits the financing Evaluating other members of the external financing team Providing expert advice regarding the bond sale MA has a fiduciary responsibility to represent the Issuer, and only the Issuer, in debt financings. 8

9 omanaging Your MA Relationship Ongoing Communication of Priorities, Objectives and Expectations Match to specific issuer project/financing needs Active vs. passive Continuity of MA staff Continued education Use of Multiple MAs Project- or task-specific Pricing and/or post-pricing specialists 9

10 osnapshot: MA Rule Regulating Municipal Advisors effective July 1, 2014 MA Has an explicit federal Fiduciary Duty to Issuer Only MA may provide Advice to Issuers unless an exemption is met: Have an independent MA meaningfully engaged RFP/RFQ process Underwriter has been hired (and documented) GFOA Alert

11 BEST PRACTICE Selecting Bond Counsel

12 obp: Selecting Bond Counsel Selection of bond counsel should be based on merit and generally done through a Request for Proposals (RFP) process. RFP should address scope of services, term of contract, evaluation criteria and the selection process. Key Qualifications of Bond Counsel Include: Experience with similar financings: type, size, structure, state Specialized tax advice beyond normal bond counsel services Expertise in federal securities laws and regulations Be aware of relationships that might pose conflict of interest Determine if other specialty counsel is needed Disclosure Counsel Special Tax Counsel 12

13 BEST PRACTICE Selecting and Managing the Method of Sale of Government Bonds

14 ocompetitive vs. Negotiated Sales: Definitions Competitive Sale: Bond issue is prepared by the issuer and municipal advisor and then offered for sale to underwriters at specified date and time. Bonds are awarded to the firm that offers the lowest True Interest Cost (TIC). Bids usually submitted electronically. Negotiated Sale: The underwriter of the bonds is selected in advance of the sale and the pricing of the bonds (coupons, yields, spread) is negotiated by the underwriter and the issuer (with their municipal advisor). 14

15 obp: Selecting & Managing the Method of Sale State and local governments should sell their debt using the method of sale that is most likely to achieve the lowest cost of borrowing. Method of sale decision should be made based on a thorough analysis of the relevant rating, security, structure and other factors pertaining to the proposed bond sale. Unless the issuer has sufficient staff expertise and access to market information, GFOA recommends that issuers hire a municipal advisor prior to undertaking a debt financing. Method of Sale decision should be addressed in the issuer s debt or financial policies. 15

16 othe Method of Sale Decision Environment Issuers should not use a potential underwriter to assist in the method of sale decision. Under MSRB Rule G-23, a firm acting as an issuer s municipal advisor is not allowed to resign in order to serve as underwriter for the proposed bonds. Issuers should be aware of the key fiduciary relationships that do and do not exist between the municipal advisor, bond counsel, underwriter and the issuer. 16

17 othe Method of Sale Decision Environment Relationship between issuer and underwriter is one of common purpose but also competing objectives, especially at time of bond pricing. The underwriter is not the issuer s municipal advisor and has no legal fiduciary duty to the issuer. MSRB Rule G-17 requires underwriter to identify responsibility to deal fairly at all times with both issuers and investors, and disclose potential conflicts. 17

18 odetermining Method of Sale o o o o o o o o 18

19 BEST PRACTICE Selecting and Managing Underwriters for Negotiated Bond Sales

20 obp: Selecting Underwriters If a Negotiated Sale is Deemed Appropriate: Unless the issuer has extensive in-house bond pricing experience and access to current bond market data, issuers should engage the services of a municipal advisor to assist in the negotiated sale process (if not already done). Recognize that the role of the underwriter and the municipal advisor are separate roles and cannot be provided by same party. Select underwriters through a Request for Proposals (RFP) that rewards firms with demonstrated experience underwriting the types of bonds the issuer proposes to sell. RFP promotes fairness, objectivity and transparency 20

21 obp: Selecting Underwriters Key underwriter selection criteria may include: Relevant experience with type of bonds being proposed. Experience should include both the firm s investment bankers and underwriters ( the desk. ) The firm s distribution capabilities. Can the underwriter access institutional and retail buyers? Understanding of the issuer s financial situation and how to approach financing issues such as bond structure, rating strategies and investor marketing. Documentation of the underwriter s participation in the issuer s recent competitive sales or the competitive sales of other issuers in the same state. The proposed spread, or underwriter s discount, should be requested in the RFP, but should rarely be the primary decision criterion. Proposed spread is most useful in pricing negotiations, but not as a basis for selecting the underwriter. 21

22 Managing the Bond Sale

23 omunicipal Advisor: Competitive Sale Helps Determine Timing of Offering Assists in Structuring the Bond Issue Assists in Preparing the Preliminary Official Statement (POS), May Prepare POS, which is the disclosure document delivered to the investors who purchase the bonds Advertises Upcoming Bond Sale to Investor Community Verifies Accuracy of all Bids Received Makes a Recommendation to Issuer to Accept or Reject the Bid or Offer 23

24 omunicipal Advisor: Negotiated Sale Assists with Underwriter RFP and selection process Assists in Structuring the Bond Issue Assists in preparing the Preliminary Official Statement (POS), may prepare POS, which is the disclosure document delivered to the investors who purchase the bonds Advertises Upcoming Bond Sale to Investor Community Advises Issuer with Respect to Pricing Scale Advises Issuer on Day of Pricing with Respect to Any Proposed Changes in Response to Market Conditions (pricing changes, call features, discounts, premiums, etc.) Assists Issuer with Negotiation of Terms with UW 24

25 osales and Marketing: Key Activities Determine sale date based on market conditions & issuer needs Send marketing materials (i.e. the preliminary official statement, rating letters) to investors Market bond deal-- organize roadshow of meetings & investor calls to describe transaction Investor call: Underwriter schedules national conference call with a targeted investor group Internet conference: Similar to the investor conference call; method of reaching a large pool of potential investors Send an internal Sales Point Memo to the underwriting desk 25

26 ounderwriting Syndicate Key Factors: Size of the bond issue Structure (e.g., retail maturities and institutional maturities) Bond distribution goals (e.g., getting bonds to local investors) Attention from investment bankers and the ongoing development of financing ideas 26

27 osummary Remember fundamental relationship between buyer (underwriter) and seller (issuer) is one of competing objectives Finance officer s responsibility is to taxpayer and ratepayers to ensure costs of debt repayment are most favorable in short and long-term 27

28 Managing the Bond Sale Best Practices Cost of Issuance Incurred in Debt Transactions Pricing Bonds in Negotiated Sale Expenses Charged by Underwriters in Negotiated Sales Investment of Bond Proceeds Analyzing and Issuing Refund Bonds Using Credit Rating Agencies Jennifer Brown City of Sugar Land, TX

29 Costs of Issuance Incurred in Debt Transaction

30 odirect Costs of Issuance Financial Advisor/Municipal Advisor Bond Counsel State Agency/Attorney General Rating Agencies Auditor Fees Trustee/Paying Agent

31 ounderwriter s Discount Costs paid indirectly by the issuer to the Underwriter for services relating to selling the bonds to investors and managing elements of the transaction Paid from bond proceeds at closing Issuers don t write a check for these services

32 ofinancial Advisor Advise Issuer on Matters Relating to Sale o Has a fiduciary obligation to represent the interests of the issuer o Typically retained first; prior to selection of rest of team Selection based on result of an RFP or RFQ process o Define Fee Structure and Term of Contract o Fees can be Hourly, Fixed or % of Par value o Depends on complexity of transaction

33 olegal Counsel Bond Counsel bondholder interests o Opinion on issuer authorization to issue, legal & procedural o Opinion on federal tax exclusion o Responsible for preparation of financing documents o Bond Resolution/Ordinance o Trust Indenture o Assist in Official Statement preparation Disclosure/Tax Counsel- some issues Underwriter o Retained & paid for by Underwriter in Negotiated Sale

34 oother Costs Bond Trustee- Can Serve As: Paying Agent Escrow Agent Dissemination Agent Invest Bond Proceeds Escrow Verification Agent Auditor Rating Agencies Quotes can be obtained Fees Vary by Bond Size & Security Printing & Distribution Pricing & Verification Agent

35 BEST PRACTICE Pricing Bonds in a Negotiated Sale

36 ogfoa Recommendation GFOA recommends that state and local government issuers strive for the best balance between the yield for each maturity and the takedown to achieve the lowest overall cost of financing. What Does That MEAN?

37 oteam Members Communicate specific goals and expectations of roles to each member of the financing team Take steps to manage compensation to underwriters Require a range of cost for each component Set a cap on fees & expenses Obtain & review underwriter compensation for other recent similar sales

38 omarket Conditions Develop an understanding of the following: Market Conditions Key Economic Indicators Financial Indicators How does each affect the timing & outcome Obtain a pricing book from UW or FA Supply & demand for Muni Bonds Economic Indicator Release Schedule Interest Rates/ Indices for similar bonds Historic Benchmark Index Data

39 osyndicate/pricing Issuers play an important role in determining how bonds are allocated among syndicate members Work with underwriter to develop an appropriate pre-marketing effort to gauge & build investor interest Consensus pricing scale on day before Evaluate structural features of bonds that can affect True Interest Costs (Calls, OID) but limit future flexibility and result in greater borrowing costs Consider re-pricing at lower interest rates at the end of the order period, giving consideration to order flow & volume

40 Effective Pre-Pricing Process is Critical to Achieving the Lowest Interest Cost opre-pricing Call (1 day before pricing) with Issuer, Underwriter(s) and MA: Market conditions, competing transactions, supply, etc. Recommended bond structure and the pricing to go out with a scale the next day Coupons/Yields Call Features Plans for release of the wire, timing of the order period, etc. for the next day

41 oevaluation: After the Sale Review allotments of bonds to ensure issuer objectives are achieved Assess up-front costs of issuance: Was underwriter compensation fair given level of effort & market conditions? Pricing of Bonds: Overall TIC Maturity by Maturity Basis Develop a database from each issue sold

42 BEST PRACTICE Expenses Charged By Underwriters in Negotiated Sales

43 ogfoa Recommendation GFOA recommends that issuers establish at the beginning of the bond negotiation process what expenses will be directly paid by the issuer or as part of the underwriter spread. This should occur through discussions between the issuer (together with its financial advisor) and the underwriter.

44 o Underwriters Discount Spread Four Components of the Spread Takedown Management Fee Underwriting Risk Fee Underwriters Expenses Items commonly viewed as Issuers Expenses should be treated as Issuance Cost

45 ocommon Underwriter Expenses Reasonable costs underwriter s counsel Travel costs incurred as part of the transaction External data service fees for transmitting information on interest rates, takedowns, and priority of orders Interest/day loan costs Charges for communication, mailing, printing, and telephone expenses CUSIP fees

46 oissuer Expenses May be Capitalized as Costs of Issuance: Bond counsel fees Rating agency fees Financial advisor fees Printing of disclosure documents Trustee or fiduciary fees

47 oexpenses Commonly Viewed as Not Unnecessary, unreasonable or nonapproved travel and meals, Celebratory closing dinners/ mementos, Commuting costs to and from work by the underwriters staff, computer-or structuring charges, and undocumented clearing charges

48 BEST PRACTICE Investment of Bond Proceeds

49 ogfoa Recommendation Develop an understanding of the risks inherent in investing bond proceeds and incorporate steps into investment strategies for each fund to minimize these risks Credit Risk (Safety) Market Risk (Liquidity) Opportunity Risk (Yield)

50 oinvestment Policy/Plan Investment policy defines permitted investments to reduce credit risk Good cash flow estimates identify when funds need to be available Periodically update to reduce market risk Weight given toward preservation of principal first, liquidity second & yield last

51 orefunding Bond Proceeds State & Local Government Securities SLGS Ideal vehicle for refunding proceeds (when the SLGS window is open) Tailor maturities to payment dates Minimize Arbitrage Rebate issues Open Market Securities Can be a good option when SLGS window closes Must get 3 bids to comply for arbitrage purposes Bid documentation needed for arbitrage compliance

52 oinvestment of Bond Proceeds Individual Securities Investment Agreements Mutual or Pooled Investment Funds Money Market Funds

53 ocoordination between Staff Debt Management & Bond Proceeds Investment/ Spending Different bond proceeds may have varied investment goals & procedures Project Length & Cash Flow

54 odocumentation Needed Establishment of funds and accounts; Designation of eligible investment instruments; Credit risk should be very low Final maturity dates should be the focus rather than call dates or expected maturity dates Purchase of investments at fair market price; Permitted yields, such as those to comply with federal arbitrage requirements Outside professionals should be hired to ensure accurate arbitrage reporting and compliance Monitoring of arbitrage rebate liabilities and establishment of procedures to reserve liabilities for future remittance to IRS

55 BEST PRACTICE Analyzing and Issuing Refunding Bonds

56 o Optional Redemption Most tax-exempt municipal bonds have an optional call feature which allows issuers to repurchase bonds at a specified price on certain dates in the future Call date usually 8-10 years Notification: typically 30 to 60 days prior to call Call Time Price December 1, 2022 to November 30, December 1, 2023 to November 30, December 1, 2024 and thereafter 100

57 % "Rolling Down the Yield Curve" 5.00% 4.00% 3.00% 2.00% 1.00% Original Coupon Refunding Coupon 0.00%

58 o Types of Refundings: Current Refunding bonds sold within 90 days of Call Date of refunded bonds Escrow Yield unrestricted No limit to number of current refundings Refunding Bonds Bond proceeds used to fund Defeasance Escrow Defeasance Escrow Refunding Bonds June 1, 2016 Less than 90 days Call Outstanding Bonds Call 1999A Bonds September 1, 2016

59 o Types of Refundings: Advance Refunding bonds sold more than 90 days to the 1st Optional Call Date of refunded bonds Escrow yield restricted to arbitrage yield of refunding bonds 1 Advance Refunding allowed per IRS Regulations Refunding Bonds Bond proceeds used to fund Defeasance Escrow Defeasance Escrow Refunding Bonds June 1, 2016 More than 90 days Pay Principal & Interest due on Refunded Bonds until the Call Date Call Outstanding Bonds Call 2001A Bonds August 1, 2017

60 o Economics of Refunding Bonds Absolute difference in interest rates on old refunded bonds vs. new refunding bonds Remaining term and amount of refunded bonds Length of the escrow period Efficiency of the escrow Ability to earn the escrow yield limit Investment dates vs. refunded bond payment dates Cautions: Negative arbitrage (earnings) in escrow Extension of call date

61 BEST PRACTICE Using Credit Rating Agencies

62 oissues Covered Determine what will be in the ratings presentation More is better Develop relationship with credit rating analyst It s better to hear bad (or good!) news from you then others/press

63 oissues Covered Understand criteria used by rating agency for your credit Many methodologies are being updated Rating fees can be negotiated Know how rating agency will contact you if there is a rating change

64 oissues Covered Rating agencies may give you very little time to respond to a report, and will only allow factual changes Rating agency regulations are changing and employees must be careful with how they interact with and what they can accept from a government (some have even declined bottled water!)

65 Disclosure and Post Issuance Compliance Best Practices Understanding Continuing Disclosure Responsibilities Maintaining Investor Relations Program Using Website for Disclosure Web Site Presentation of Official Financial Documents Disclosure in OS Related to Pension Funding Obligations Understanding Bank Loans Julia H. Cooper Director of Finance, City of San Jose

66 o Disclosure Summary and Background SEC Rule 15c2-12 key regulatory rule Primary Market Disclosure Preparing Preliminary and Final Official Statement Continuing Disclosure Agreement ( CDA ) Developing CDA Understanding requirements in CDA

67 odisclosure Policies and Procedures Prepare written documentation to Identify key players (by title and name) Responsibilities of key players Identify key documents/reports Set up reminder system of when documents are due Memorialize the annual reporting requirements per the CDA Create centralized contact information Central phone number with voice mail address Ensure multiple employees with ability to access and respond to /voice mail inquiries check daily Develop process for speaking to entire market Encourage use of general for investors to communicate EMMA postings to speak to the market Identify one individual responsible for speaking on behalf of government regarding bonds

68 BEST PRACTICE Understanding Your Continuing Disclosure Responsibilities

69 obp: Understanding Your Continuing Disclosure Responsibilities Continuing Disclosure Agreement (SEC Rule 15c2-12) Timeframe Type of information to be provided Material Events For many governments, a Comprehensive Annual Financial Report (CAFR) may fulfill annual financial disclosure requirements If a government s CDA states that information will be provided that is outside the scope of the CAFR, that information may be included as a supplement to the CAFR when filing with EMMA

70 obp: Understanding Your Continuing Disclosure Responsibilities Governments should make annual filings as soon as annual audited financial information is complete GFOA recommends within 180 days after end of FY (180 Days does not equal 6 months!) Prompt filing reduces risk that information may be found inadequate or misleading because of subsequent events GFOA recommends that governments do NOT indicate on EMMA that they will provide information 120 or 150 days following the fiscal year

71 ounderstanding Your Continuing Disclosure Responsibilities Voluntary Disclosures after consult with internal and external legal counsel A government may wish to provide other financial information to investors (via web site and link in EMMA) that goes beyond what is specified in the CDA Examples of additional information that could be disclosed include Annual budgets, Financial plans, Revenue forecasts, Investment information, Monthly financial reports

72 obp: Understanding Your Continuing Disclosure Responsibilities Voluntary Disclosures key considerations if issuer chooses to post unaudited/interim financial information as part of voluntary disclosures: It must be clearly described as such on the document A government may wish to include additional disclaimer language regarding unaudited information Issuer s should design a system of internal controls to ensure the accuracy, completeness, consistency, and freshness of information posted

73 BEST PRACTICE Maintaining an Investor Relations Program

74 obp: Maintaining an Investor Relations Program GFOA recommends that governmental bond issuers consider developing an investor relations program. Benefits of developing a program: Better investor awareness of the credit Possible better pricing Assists with public s awareness

75 obp: Maintaining an Investor Relations Program Assists with providing full and comprehensive disclosure of annual financial, operating, and other significant information in a timely manner consistent with federal, state and local laws How to establish an investor relations program: Determine who should be responsible for external communications about the entity s debt issues Develop a Disclosure Board that will help determine what kind of information should be disclosed and provided to issuers Implement a process for handling investor calls

76 omaintaining Investor Relations Program Determine what information to post on web site Understand the appropriate concerns/requests of investors Identity issuances with the use of CUSIP numbers Use your web site and post a link to your financial info on EMMA Create documents in searchable PDF format Determine timing of the release of information related to any debt sales When a single investor poses a question, it should be answered in a manner so that all investors can know the information Keep a database of investors/interested parties Alert database members of upcoming bond sales, new information, etc.

77 BEST PRACTICE Using a Web Site for Disclosure

78 obp: Using a Web Site for Disclosure When using web sites to disseminate information electronically: Keep it simple Ensure proper security of web site Use proper disclaimers about information being presented Unaudited information Stale information SEC has embraced and promoted electronic disclosure

79 obp: Using a Web Site for Disclosure Governments and bond issuers use their web sites to disseminate information to the municipal securities market regarding: The entity s debt, The entity s financial condition, and Other related information Your web site is an integral part of effective communication with investors and the marketplace and should be a part of an investor relations program

80 obp: Using a Web Site for Disclosure Considerations for Web Site Disclosure: Information solely intended for investors should be segregated from other information and clearly identified as being intended for investors A formal process for reviewing and approving any information posted on the web site should be required to ensure accuracy, consistency, and completeness of the information Historical or outdated information should be marked and segregated from current information through the use of a library or archive accessible on the site

81 obp: Using a Web Site for Disclosure Considerations prior to posting on issuer web sites: Relating to the sale of bonds: Preliminary Official Statements (POS), Audited financial statements, Feasibility reports, and Other related documents to a bond sale Information to report post-sale of bonds: Continuing disclosure filings Already prepared budgetary information

82 obp: Using a Web Site for Disclosure Costs to consider are: Staff time to prepare information for electronic posting Software necessary to convert files to a searchable portable document format (PDF), and Effort and expense necessary to design, deploy and maintain a web page solely for disclosure

83 obp: Using a Web Site for Disclosure Issuers should be familiar with the SEC s Interpretive Release on Use of Electronic Media See Have all information that is posted on a government s web site reviewed by legal counsel

84 BEST PRACTICE Web Site Presentation of Official Documents

85 obp: Web Site Presentation of Official Financial Documents While posting financial documents on a web site is a tremendous resource to citizens and an important investor relations tool: Governments should be reminded that web site posting DOES NOT meet the continuing disclosure responsibilities for issuers of municipal debt set forth in Securities and Exchange Commission Rule 15c2-12

86 oemma Electronic Municipal Market Access System - Replaced Numerous NRMSIRs All Submissions Must Be Made Electronically in PDF- Readable Format Mandatory and Voluntary Submissions Numerous Resources on Site Regarding How to Use System State and Local Government Toolkit Toolkit.aspx

87 BEST PRACTICE Disclosure in Official Statements Related to Pension Funding Obligations

88 odisclosure of Pension Obligations Growing interest to investors and rating agencies Much of the information about a government s pension obligations can already be found in the CAFR and budget Issuers need to determine if their pension liabilities could affect their ability to make debt service payments

89 odisclosure of Pension Obligations Issuers should discuss with counsel how much information about their pension funding liabilities are material information to investors Are debt service payments and pension plan funding coming from the same revenue source? Is there potential down the road that pension plan funding could crowd out debt service payments? Is the priority of payment to the payment fund superior to debt service payments?

90 BEST PRACTICE Understanding Bank Loans

91 obp: Understanding Bank Loans Numerous questions to ask about these transactions Compared to Debt Issuance including the use of outside professionals to determine the validity of their use (see Best Practice) Different Types of Terms and Risks Fees Terms/Balloon Payments Unique prepayment/call provisions Does Government Have Authority to do a Bank Loan? Is the Bank Loan Competitively Bid? How Is the Loan Accounted For?

92 obank Loan Disclosures Disclosure of bank loan information is not required in and of itself, but issuer and counsel need to determine if the bank loan and the priority of repayment count as being a material issue for outstanding bond deals. Rating Agencies Encourage Voluntary Disclosure of Bank Loans Can Be Filed in EMMA

93 obank Loan Disclosures MSRB currently has Request for Comment on a Concept Proposal to Improve Disclosure of Direct Purchases and Bank Loans Comments due by May 27, Notices/RFCs/ ashx?n=1

94 obank Loan Disclosures Disclosure of bank loan information is not required in and of itself, but issuer and counsel need to determine if the bank loan and the priority of repayment count as being a material issue for outstanding bond deals. Rating Agencies Encourage Voluntary Disclosure of Bank Loans Can Be Filed in EMMA

95 Advisories and Alerts Use of Debt-Related Derivative Products Pension Obligation Bonds OPEB Bonds Green Bonds Jonas Biery City of Portland, OR

96 ADVISORY Use of Debt-Related Derivative Products

97 oadv: Use of Debt-Related Derivative Products Exercise Caution When Considering These Products Ensure Statues Permit Use of Swaps Staff Must Have Significant Market Understanding and Ability to Constantly Monitor Must be Able to Answer all Questions in GFOA Derivatives Checklist New Regulations: Issuer MUST USE a Swap Advisor that is Independent From Swap Dealer Understand the Risks Interest Rate Counterparty For Example, 2008 Financial Crisis!

98 Pension Obligation Bonds and OPEB Bonds

99 oadv: Pension Obligation & OPEB Bonds Governments Should Not Issue POBs or OPEB Bonds Items to Consider: Are you legally able to issue? Bonds should not be considered a substitute for prudent pension plan funding Plan costs and investment earnings are difficult to predict Monitor and understand that market changes could impact this type of structure Rating agencies ay view POB/OPEB issuance negatively

100 Green Bonds

101 o Green Bonds Growing and emerging market with uncertain expectations Important to understand costs, risks and potential benefits Considerations Project eligibility Monitor and manage use of proceeds Independent opinion/attestation Develop standards for ongoing reporting Uncertain pricing benefit

102 Muni Bonds Best Practices