Debt Financing

County Tax Managers Meeting Presented by Joe Aguilar

Vavrinek Trine Day & Co., LLP

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Types of Debt

• GO Bonds• Certificates of Participation (“COPS”)• Mello Roos Bonds aka CFD’s• Revenue Bonds• Lease backed bonds• Redevelopment Bonds• Tax & Revenue Anticipation Notes (“TRANS”)• Financing Authority Bond Pools (“Mark Roos Pool”)

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Debt Compliance Tracking• Tracking Worksheet

• SEC Disclosure

• Arbitrage Rebate

• Pledged Assets

• Commitments & Guarantees

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Financing Those Bonds and Where to Start

• Start with the Financial Advisor then call Bond Counsel

• A New World is now watching Wall Street

• Recent municipal bankruptcies changes everything

• Low interest rates and a tight credit market

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Assemble Your Financing Team

• Never start with the Underwriter

• Devise a calendar and clarify when legal documents begin

• Lean on your Financial Advisor

• Get a good bank trustee

• Read your documents

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What to Look For in the Bond World

• Not all bonds are created equal, separate the “Plain Janes” from the complicated ones

• Not all bonds are your responsibility: obligatory vs. non-obligatory, what’s conduit debt?

• Variable rate debt or hedged debt have major issues

• Unspent proceeds are also at risk: remember Executive Life…no, you don’t remember…

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Things Happening Now

• Lots of debt being refinanced or restructured

• CFD’s and Assessment Districts may be drawing on reserve funds, watch for subsequent events

• Bond covenants on revenue coverage for enterprise operations & CRA bonds may come up short

• Credit providers (letters of credit) backing some of your bonds may be replaced by other entities, may not be the same deal

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Separate Your Thoughts:Things You Need to Understand versusThings You Need to Worry About

• Understand your disclosure requirements especially any significant events

• Understand the economics behind every bond issue

• Keep a master list of all items and supporting files for each bond issue

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Things to Worry About

• Variable rate debt with a default rate especially when weekly auction fails

• Bonds backed by a letter of credit when the bank no longer meets bond rating

• Insufficient assessment collections for making bond payments

• Potential draw on bond reserve fund

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Things You Need to Know

• Understanding complex debt ….why didn’t you know about that default rate

• Understanding assessment districts, purpose of bonds, project size, amount financed by debt vs. other sources

• Understanding conduit debt…housing bonds, hospital bonds and industrial bonds

• Tracking your defeased debt…how much debt outstanding at year end

• Do we owe arbitrage on any bonds?

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Tracking Your Bonds• Obligatory Debt• Non-Obligatory Debt• Conduit Debt• Defeased Debt• Note Disclosures:

1. Transaction date2. Purpose3. Debt Outstanding at balance sheet date4. Accounting Treatment

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SEC DisclosureSecondary Market

• 1994 Bond Transactions of $1 million or more

• $10 Million Debt Exemption• Dissemination Agent• Follow the Financial Statements• Material Events- key ones:

1. Rating change2. Change in security3. Using the debt service reserve fund4. Defeased bonds

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Pledges, Commitments& Guarantees

• Buildings & Equipment• Debt Service Reserve Funds• Debt Service Funds• Defeasance Escrows• Credit Enhancements• Revenue Ratio Covenants• Property Insurance

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Things That Will Happen More Frequently Tomorrow

• Bond defaults on non-obligatory debt and conduit debt

• Depletion of debt service reserve funds and insolvent surety providers

• Inability to restructure debt