Transcript Selling an Idea or a Product

James T. Gebhardt, Chief Financial Officer
[email protected]
Tracey Hitchen Boyd, Assistant Director of Finance
[email protected]
Seth Coulter,
Assistant Director of
Investments and Loan Administration
[email protected]
1.
2.
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4.
5.
Who We Are
SRF Overview
Critical Elements for Sustainable Finance
SRF Financial Assistance Models
The New York State SRF Model and Experience
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• The CWSRF was established by the 1987 Amendments to the federal Clean
Water Act to help municipalities finance publicly-owned facilities that reduce or
prevent water pollution. The CWSRF succeeded a federal grant program.
• The DWSRF was created by the 1996 Amendments to the federal Safe Drinking
Water Act, to provide financial incentives for municipalities and private entities for
drinking water infrastructure improvements.
• Federally authorized SRF’s are:
• Capitalized with federal and state grants (State matching grant requirement is
20% of the federal grant).
• Governed by Project Priority System & Annual Intended Use Plans.
• Designed to provide below market rate loan and other forms of assistance
• Designed to recycle capital into new loans as loans are repaid
• Funding lines limit which projects are funded
Source:: US EPA
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•Treatment Works Projects (examples)
- New, expanded or rehabilitated plants
- Sludge treatment facilities
- Collection, trunk and interceptor sewers
- Combined sewer overflows
- Stormwater pollution abatement
•Non-point Source Projects (examples)
- Capping and closure of solid waste landfills
- Remediation of contamination from underground storage tanks
- Water quality components of municipally owned brownfields
- Salt storage facilities
- Stormwater management facilities
•Estuary Conservation and Management Plans and Projects
Federal EPA
Grant
STATE
Add 20% State
Match
Revolving Loan Fund (includes
repayments, bond proceeds, interest, etc.
Repayments return to Fund
for future assistance
Assistance to Public Water System:
Treatment, Sources, Storage, Transmission
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• Water Supply Projects (examples)
- Rehabilitation or development of new drinking water sources
to replace contaminated supplies
- Facilities upgrade to improve quality of supply
- Storage facilities upgrade
- Installation or replacement of transmission or distribution mains
- Promotion of viability through consolidation of water supply services
- Purchase of a portion of another system’s capacity
• Watershed protection – Land Acquisition
1.
Institutional Framework
2.
Managing Institution (s)
3.
Resources
•
•
Financial Resources
Professional Resources
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• Legal Framework – Federal/State/Local Government Roles
• Judicial System
• Marketplace
•
Federal Government
– Establishes National environmental policy through
establishment of nationwide laws & regulations (Clean Water
Act of 1972)
– Currently provides pass-through funding to States to partially
capitalize Revolving Funds
– Federal Environmental Protection Agency (created in 1970)
administers the distribution of federal funds and monitors
compliance with program rules as established in federal law
– Federal Tax and Securities Laws and Regulations
– Regulatory Oversight (SEC, MSRB, IRS)
• State Government
– State designates agency to receive and administer
Revolving Fund dollars
– Provides matching funds to help capitalize Revolving
Funds
– Adopts state-level laws and regulations to articulate statespecific program rules and regulations within the Federal
framework
– Enforces federal and state environmental laws
– Enabling statute provides bonding authority to EFC
– Bonds are exempt from State Income Taxes
• Local Government
– Point of delivery for essential water quality-related services
– Best equipped to identify the needs of the local population
– Formally the beneficiaries of the Federal Construction Grants
Program
– Now eligible recipients of cheap capital through State
Revolving Funds
• State Local Finance Law Governs issuance of debt
• Power to raise taxes
• High degree of transparency
– Bonds are exempt from Local income taxes
•
Used by citizens and governmental bodies to interpret and
enforce environmental laws
• Also available to protect the contractual rights of investors
• Judicial decisions can influence priorities and practices of
lawmakers and SRF program administrators
•
•
Public infrastructure finance has historically used publicly issued bonds to
raise capital
Adds private capital to government revenues available for providing capital
for environmental infrastructure
Borrowing by some American Cities dates back to the Seventeenth Century
•
Well established marketplace comprised of:
•
–
–
–
–
–
–
Individuals and institutions looking to invest capital
Intermediaries (investment banks)
Ratings services
Regulators
Legal consultants
Fiduciaries (bond trustees)
• Secondary market provides investors with the ability
to buy and sell on an ongoing basis (liquidity)
• Essential to ensuring affordable capital and
enforcing efficient market pricing
• Issuer debt repayment supported by user fees or tax
revenues, further supported by general obligation
pledges to repay debt
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• Public Ratings issued by independent rating services based
•
•
•
•
on arms-length analysis of the debtors financial and
economic condition and bond security pledge
Annual Financial Reporting Requirements
Bond Counsel Opinion that debt obligations are validly
issued
Disclosure documents which provide full critical
disclosure to potential investors
Competitive bidding requirements
• Ongoing disclosure provides investors with updated
information
• Freedom of Information Act provides recourse to
investors that believe critical information has been
withheld
• Courts can act on citizen or bond trustee petition to force
debtor to honor debt obligations
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• Administers the Funds as delegated by federal and state
government
• Interacts with Stakeholders
• Brand Name in Financial Markets
• Provides feedback to Institutional Framework
• Examples:
– State Bond Banks: Maine, North Dakota
– Dedicated Special Purpose State Agencies: New York, Virginia,
Texas
– State Treasurer’s Office: Massachusetts, Michigan
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• Foreign Capital
- Terms and Conditions Influenced by External
Factors
- May Crowd Out Domestic Capital
• Domestic Capital
-
Terms and Conditions Determined by Local Factors
Avoids Exchange Rate Risk
Mobilizes Local Financial Resources
Stimulates Local Capital Development
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SRFs Rely on Domestic Capital
• Public capital provided by federal
capitalization grants and state matching
contribution
• Private capital mobilized through the
issuance of tax exempt bonds to
– Retail investors
– Investment management institutions
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• Administering Staff and Borrower Staff
– Financial
• Investment
• Credit
• Structuring/ Terms negotiation
• Disbursement & Debt Servicing
– Legal
• Finance
• Environmental
– Accounting
– Engineering
• Technical
• Program Planning
Financial Advisor - Assists in the bond sale. Including:
• Verifies cash flows
• Leads negotiations of bond sales to underwriting team (negotiated
sales)
• Investment of bond proceeds and debt service reserves
Underwriters - Sell bonds to investors at the best possible price (negotiated sale)
Bond Counsel - Assists with meeting all legal requirements related to the bond sale
and providing legal opinion for investors that the bonds are legally issued and binding
on the SRF managing institution
Underwriter’s Counsel - Represents underwriters and is responsible for full disclosure
of all material issues to prospective investors in the disclosure document
Bond Trustee - Takes all actions necessary to protect bondholder intercepts and seek
enforcement of payment obligation to bondholders, if necessary
Rating Agencies - Issues bond ratings which inform investors about credit strength
including bond security provisions and ability/willingness of the SRF managing
institution to make debt service payments over time
•
•
•
•
Investors - value - oriented
Government Officials – knowledge and support
Bankers - marketing
Users - willingness to pay
•
•
•
•
•
•
General Public
Federal and State Government
Borrowers (Local Governments and qualified private entities)
Advocacy Groups (environmental, economic development)
Investors
Public Finance Practitioners
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Model
Capital Requirements
Primary Benefits
Guarantee
Low
Market Access to weak and
untested local government
borrowers
Cash *
Moderate
Offers below market rate loans
with low administration overhead
Reserve **
Moderate
Matches below market rate loans
with maximum investment returns
Direct Loan *
High
Offers loans at zero to market
rates; low administrative overhead
* Favored by states with small capital allocations and high incidence of small rural communities
** Favored by states with large capital allocations
Financial Market
Loan
Repayment
in the event
of borrower
default
Proceeds
at SRF
Loan
Repayments
Bond
rates
Borrowers
SRF Guarantee
Federal Capitalization and State Matching Grants
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Federal Capitalization and State Matching Grants
SRF Program Equity
Reimbursement
SRF Bond
Issue
CWSRF
and
DWSRF
Loan
Repayments
Direct loans
Loan
Repayments
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SRF Bond
Proceeds
Federal Capitalization and
State Matching Grants
SRF Program Equity
Recycled
Reserves
Borrower Financings
Reserve Allocations
Bond debt service in
the event of default
Borrower
Repayments net of
interest subsidy
Interest Rate Subsidy
Bondholder Repayment
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Federal Capitalization and State Matching Grants
SRF Program Equity
CWSRF
And
Loan Repayments
DWSRF
Direct loans
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• Created in 1970 by an act of the State Legislature as a public benefit
corporation separate and apart from the State
• Governed by a board of directors that consists of three
ex-officio members
State Commissioner of Environmental Conservation
State Commissioner of Health
Secretary of State
and four private citizens, appointed by the Governor and
confirmed by the State Senate
• Administer the Clean Water and Drinking Water State
Revolving Funds (SRFs)
• Finance certain environmental programs on behalf of the State,
including State contributions to the SRFs
• Finance through the issuance of bonds, water management, solid
waste disposal, sewage treatment and pollution control projects
on behalf of private sector entities
• Provide technical assistance to public and private sector entities on
sewage treatment and collection, solid waster disposal, materials
recycling, hazardous waste abatement and pollution control practices
• Loans
– Short Term
• Up to 3 years for planning, design and early
construction
• Interest Free
– Long Term
• Bond Financed
– Investment grade
– Subsidized Interest of 50% or 33 1/3rd %
• Direct
– Non-Investment grade
– Hardship: Reduced rate to 0%
• Grants (DWSRF only)
• Guarantees (under consideration)
As of 9/30/04
Clean Water SRF
• New York Program established in 1989
• $2.5 billion in Capitalization Grants and
• $491 million State Match Contributions
• $8.45 billion in CWSRF Bonds
• 692 loans
• 1,235 projects financed
Drinking Water SRF (jointly administered by EFC and NYS Dept. of Health)
• New York Program established in 1997
• $374 million in Federal Capitalization Grants and
• $265 million State Match Contributions
• $965 million in DWSRF Bonds
• 163 loans, 122 grants
• 452 projects financed
Consists of:
• Participation at local government conferences
• Distribution of Intended Use Plan (IUP) to local government
officials and engineering, finance and legal professionals
• Program information, including project listing
and loan applications available on the EFC’s website
(www.nysefc.org)
• Community Assistance provided by dedicated staff throughout
the project development and loan development process
Consists of:
• Application Reviews and Assistance
• Loan Sizing
• Financial Engineering
• Credit Review
• Financing Contract Development
• Loan Closing and Investment Deployment
• Disbursement of funds and Loan Servicing for 20-30 years
NYSEFC 09/13/02
PROJECT & FINANCING TIMELINE FOR A TYPICAL CWSRF PROJECT *
Identify Need for &
Scope of Project
Identify All Funding
Sources
Develop Technical
Planning Report
IUP Listing
Develop M/WBEEEO Workplan
Begin
Environmental
Review
Develop
Professional Services
Agreements
Intermunicipal
Agreements **
Bond Resolution
Short-Term CWSRF
Proceeds Available
for Planning, Design
& Associated Costs
Submit Short-Term
CWSRF Application
& Applicable
Components
(See Application
Checklist)
Begin
Project
C-13
Apply to State
Comptroller for Sewer
District Approval 6 - 9
Months Prior to Loan
Application **
Short-Term
CWSRF Closing
Apply to State
Comptroller for Debt
Exclusion 1 - 2 Months
Prior to CWSRF
Application **
Short-Term
CWSRF Proceeds
Available for
Construction Costs
Develop
Plans &
Specifications
Begin
Design
Apply for Permits
Acquire Title for
Project Site
Permits Issued
Plans &
Specifications
Approved
Submit
Certification Of
Title To Project
Site
Long-Term CWSRF
Proceeds Available
IUP Pooled CWSRF
Application Deadlines
IUP Pooled CWSRF
Target Closings Dates
Winter Pool
Summer Pool
Submit
Engineer's
Certification of
Project
Completion
First Payment Made
Within 1 Year of
Project Completion
OR Within 2 Years of
the First Financing
Winter Pool
Summer Pool
Bid Project
Award
Construction
Contracts
Issue Notice To
Proceed
Submit Long-Term
CWSRF
Application &
Applicable
Components
Signed Project
Financing Agreement
&
Applicable
Documents
Long-Term CWSRF
Closing
Complete
Construction
CWSRF
Repayment
Begins
* The timeline for your project may look different from this example, depending on status of project progress and the type and timing of needed financings. This
timeline is organized to show the relative sequence of the process for an ideal scenario.
** if applicable for your project
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Six Factors Are Reviewed By EFC Staff:
1. Repayment history of prior or outstanding debts
2. Debt levels and fiscal management practices
3. Financial health (financial results of past
three years)
4. Strength of the local economy
5. Strength of local contract provisions such as:
- trust indentures
- intermunicipal agreements
- operating agreements
6. General Management Practices
• SRF loans are secured by legally ratified and
binding borrower bond obligations
• SRF borrower’s loan obligations require that
principal and interest payments equal borrower’s share
of EFC bond debt service requirement
• SRF Debt Service Reserve Fund (DSRF) is funded
at a level equal to at least one-third of the loan and
maintained at that level, and must be used if the
borrower fails to pay
• Reserve deficiencies are replenished from lien on
free-up from other borrower reserves
• The New York State SRF statute permits EFC to
intercept any state aid payments appropriated by
the legislature to the borrower
State aid is approximately $2.5 billion
• EFC may take legal action in the New York State
court system
• U.S. Treasuries, U.S. Government Guaranteed Securities
or Government Sponsored Enterprises such as Fannie
Mae and Freddie Mac
• Municipal Securities rated Aa/AA or better
• Collateralized Investment Agreements
• Forward Purchase Agreements
• Provided by each of the major rating agencies:
Moody’s
Standard & Poor’s
Fitch
Aaa
AAA
AAA
• Ratings based on oversized reserves, flow of funds
arrangement, pledge of local government bonds and NYS
SRF credit criteria and management
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MFI Loan Principal Balances by Moody's Rating as of 10/1/04
Aaa (3), $170,552,354, 8%
NR (160), $671,880,898, 33%
Aa (28), $364,857,487, 18%
Ba (1), $1,735,000, 0.1%
A (75), $488,143,035, 24%
Baa (64), $350,937,568, 17%
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M FI Loan Principal Balances by Pledge as of 10/1/04
State (3),
$36,955,000, 2%
Revenue (17),
$415,339,322,
20%
General Obligation
(311),
$1,595,812,020,
78%
49
M FI Loan Principal Balances by Type as of 10/1/04
Villag es (113 ),
$16 9 ,0 8 1,9 2 5, 8 %
Autho rities (17),
$4 15,3 3 9 ,3 2 2 , 2 0 %
To wns (13 3 ),
$56 8 ,9 0 3 ,4 78 , 2 8 %
Cities (4 3 ),
$2 3 8 ,78 3 ,6 10 , 12 %
State (3 ),
$3 6 ,9 55,0 0 0 , 2 %
Co unties (2 2 ),
$6 19 ,0 4 3 ,0 0 7, 3 0 %
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Fees Paid at Closing
Direct Expenses
1.00%
Program Administration
State Issuance Charge
1.10% (DW only)
(sliding scale (.14 - .70%)
Annual Fees
DW Administration
CW Annual Administration
.11%
.25%
Trustee
• Receive and apply the proceeds of bond issues in accordance with the Indenture
provisions
• Invest funds in accordance with EFC instructions
• Account for and distribute loan proceeds in accordance with requisitions from loan
recipients
• Preserve and service any collateral or security interest
• Allocate funds for debt service
Registrar
• Act as EFC’s agent in maintenance and record keeping associated with the
registration and transfer of registered bonds
• Issue and authenticate new bonds in the event of transfer or exchange
• Maintain bondholder accounts with continuous proof of principal outstanding
Paying Agent
• Pay principal and interest when due
• Service bondholder claims for non-payment
Loan Servicing Agent
• Receive Loan Recipients’ debt service payments and deposit to appropriate
account for payment to bondholders
• Receive other administrative fees charged to Loan Recipients and deposit
to appropriate accounts and invest funds at the direction of EFC
• Notify EFC of Loan Recipient defaults
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Institutional Framework
Time Constrained
Resources
Price Distortion
Political Inducement
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As of: Sept. 30, 2004
Drinking Water Equity Account
NYW
Financing
Indentures
Clean Water Equity Account
MFI
Total : $3,168,731,000 (Senior)
Bonds
DSRF (Senior)
$1,614,097,128
Total : $1,941,435,000 (Senior)
Bonds
DSRF (Senior)
$900,550,285
General
Reserve
De-Allocated Corpus Sub-Account
Deficiency
Reserve
Sub-Account
Deficiency Reserve
Sub-Account
MFI & Non-MFI
Subordinated
EFC Bonds
$595,680,000
Bonds
$4,351,500
DSRF
Clean Water
Equity Account
Drinking Water
Equity Account
Master Financing Indenture
Clean Water
Loans and DSRFs
Drinking Water
Loans and DSRFs
GENERAL RESERVE
ACCOUNT
Clean Water
Sub-Account
Drinking
Water
Sub-Account
Interfund borrowing allowable under the permitted investment provisions of the Acts
New York State Environmental Facilities Corporation
SRF Program Flow of Funds*
Sources and Uses of SRF Funds
Federal Capitalization Grants
Clean Water and Drinking
Water
State Matching Funds
Clean Water and Drinking
Water
NYSEFC MF I Bonds
or
NYSEFC NYCMWFA Bonds
M
a
s
t
e
r
S
t
a
t
e
R
e
v
o
l
v
i
n
g
Un-allocated Corpus Subaccount
De-allocated Reserve Account
Deficiency Reserve Account
New and Recycled Federal & State Moneys
Recycled Direct Recipient
Payments
Direct Financing
Agreements
T
r
u
s
t
Recycled Allocated
Reserves
Reserve Allocations
F
u
n
d
s
Leveraged
Financing
Agreements**
Interest Subsidy
Recipient Repayments Net
of Subsidy
A
g
r
e
e
m
e
n
t
NYSEFC MFI or NYCMWFA
Bondholders
* Simplified for graphic presentation purposes
** Recipient Repayments are made up of independent repayments from the MFI and NYCMWFA as described in this section.
Contingent Cash Flows
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