In-Depth Look at Debt Structuring

In-Depth Look at Debt Structuring

23 Pages · 2012 · 774 KB · English

Debt Structuring. 2012 CPIM Academy . For GO new money issues, 3x test under R.C. 133.21 must be considered. 19 . obligations in a timely manner Generally speaking, interest can be capitalized (or borrowed) for a period.

In-Depth Look at Debt Structuring free download


  F INANCE 301: InDepth Look at Debt Structuring     2012 CPIM Academy FINANCE 301 Josh Mandel, State Treasurer of Ohio FINANCE 301 2012 CPIM Academy InDepth Look at Debt Structuring Review of Bonds & Bond Terms •Bonds (or notes) are obligations to repay a lender at a predetermined rate or rates of interest on a defined timeline •The components of any bond are: Par or Principal (its face value)Par or Principal (its face value)Rate or Coupon (the stated interest rate) Term or Maturity •Bonds typically pay interest every 6 months, or semi annually One year notes typically pay once, at maturity •Any combination of maturities and coupons may be used in a single bond issue 2 Finance 301 Common Types of Bonds & Notes •General Obligation Bonds –Bonds payable from real property taxes •Revenue Bonds – Bond secured by revenues from a s ystem New Communit y Authorit y y yy •Tax Increment Financing Revenue Bonds (TIF) – Bonds secured by payments in lieu of taxes •Bond Anticipation Notes – Short term notes issued in anticipation of a long term bond Usually issued in anticipation of general obligation bonds 3 Finance 301 Type of Sale: Competitive v Negotiated •There are two primary forms of sale: Competitive Sale Negotiated Sale– Most commonly used 36 4 Finance 301 Competitive Sale •Structuring and rating agency work falls to issuer and perhaps financial advisor •Issuer prepares a notice of sale and distributes it to the universe of potential bidders •Notice of sale sets the bid parameters: 36 Notice of sale sets the bid parameters:Date and time of sale Call provisions Maximum coupon Responsibility for expenses Minimum and maximum price to be bid Serial and term bond constraints Preliminary amortization schedule Flexibility to be maintained by issuer until bids are received 5 Finance 301 Competitive Sale •Bidding takes place through electronic platform •Award based upon lowest interest rate (either NIC or TIC) 36 6 Finance 301 Negotiated Sale •Issuer selects an underwriter or team of underwriters to represent them in the market •Underwriters work with issuer and advisors in structuring transaction, presenting credit to rating 36 agencies and premarketing and marketing transaction •Underwriters have an exclusive right to price and sell the securities 7 Finance 301 Negotiated Issuance Process 1The underwriter assists the issuer in the hiring of the other professionals who need to be involved, primarily the bond counsel 2Bond counsel and the underwriter will engage in the due diligence process with the issuer This is the gathering of legally required information that must be furnished to potential investors It recounts the issuer’s financial , economic , and demo graphic information amon gst ,, gp g other data 3Using this information, a Preliminary Offering Statement (POS) is prepared This document will be furnished to potential investors 4Most issuers get a credit rating from one of the three major agencies Investment grade rated bond issues have lower interest rates than those that are not rated 5Once all of the components are in place, the underwriter will begin marketing and pricing the bonds to potential investors through the POS 8 Finance 301 Negotiated Issuance Process 6Once the underwriter has found a combination of orders that provides the lowest interest costs to the issuer, the issue will be said to have priced Bonds sold with Coupons equal to Yield are “Par”bonds with the price equal to 100% of the Principal Bonds sold with Coupons less than Yields are “Discount”bonds with the price less than 100% of the Principalprice less than 100% of the Principal Bonds sold with Coupons greater than Yields are “Premium”bonds with the price greater than 100% of the Principal 7When the details have been finalized in the Official Statement the issue will close and the underwriter transfers the funds to the accounts of the issuer The Final OS is posted on EMMA and circulated to investors 8The issuer is then responsible for meeting the continuing disclosure requirements outlined in the OS 9 Finance 301 Rating Agencies •There are three major rating agencies: Moody’s, Standard & Poor’s, and Fitch All do

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