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March 15, 2012 Corporate Trust Services
Municipal Debt Essentials
Presented by:
Jose Matamoros, Vice President
The Bank of New York Mellon Trust Company, N.A.
THE BANK OF NEW YORK MELLON
THE BANK OF NEW YORK MELLON
Trustee or Agent…what’s the difference
• Simple to complex roles — levels of involvement depend on type of financing and security your holders require
• Paying Agent — payment of principal and interest to your bondholders
• Fiscal Agent — in addition to paying agent duties, perform certain administrative duties on Issuer’s behalf
− Primary recordkeeping/tracking of bond proceeds. Custodian of investments representing bond proceeds. Maintenance of reserve, project, and debt service funds.
− Monitor and collect compliance documentation or covenants required under the financing documents
• Trustee — in addition to Paying & Fiscal Agent duties, act as fiduciary for bondholders upon event of default
Other Functions
• Registrar – maintain registered security holder records (bond holdings) and register transfers from one holder to another
• Dissemination Agent (appointed under separate agreement) – receive obligated party’s ongoing required disclosure information from obligated party and forward it to the secondary marketplace
• Arbitrage Compliance Services – perform arbitrage requirements for borrowers who need to comply with the Tax Reform Act of 1986
Administrative Duties of a Trustee or Fiscal Agent
• Interaction with the Trustee…What does the trustee do for you…?
− Custodian/safekeeping of bond proceeds; administration and investment of funds established under the indenture; maintenance of accounting records
− Construction fund accounting; payment of requisitions as you build your project.
− Debt service billing and collection of revenues or payments for eventual payment to bondholders
− Monitoring of covenants and collection of compliance items
− Holding and monitoring the security and/or collateral supporting the bond issue
Establishment of Trust Funds & Accounts
Who holds what?
All driven by the governing documents
Some funds & accounts may be held by the Issuer
Many are held by the Trustee -Typically: Construction Fund, Bond Fund, Principal and Interest Accounts, Reserve Fund, Rebate Fund, Redemption Fund,…
Investment of Trust Funds
The investment of bond proceeds
Permitted investments - compliance with indenture
Settlement procedures and timing requirements of various investment types
Tracking market value of investments, such as County investment pool, GIC’s, or LAIF vs. standard investments
Arbitrage Rebate Requirements
A trustee is not an investment advisor … but may have resources within its organization
Administration of Trust Funds
All dictated by the governing document(s).
• Accounting processes…project fund, maintenance of Reserve, etc
• Tracking and transfer of interest earnings – project period vs. post completion
• Tracking of revenues, lease payments, etc. - the re-payment process …waterfall through funds (transfers between accounts)
• Disbursements - Project/Construction Payments, Costs of Issuance, Principal and Interest, Fees
• Receipts - Revenues (project revenues, taxes), Issuer/Obligor payments
How often do you need your statements; what about other departments and auditors? Internet or online access to view your activity and assets held in trust
THE BANK OF NEW YORK MELLON
The Construction or Project Fund Phase
• Payment of requisitions as you build your project
• Requisition disbursement requirements as dictated under the indenture or contract
− Authorized disbursements and signatures required
• Vendor payments and timing requirements – cash on hand vs. investments held
• Payments to vendors vs. reimbursement to issuer
• Completion certificates required under the indenture
SA.\1PLE
CONSTR UCI'ION FUND REQUISITION
REQUISITION FOR MONEY FROM THE CONSTRUCTION FUND
To: The Bank ofNew York Mellon Tmst Company, N.A., as Trustee
Re: City ofAnyto"" Build America Bonds
Requisition ~o. 1
The undersigned, on behalf of City of Anytown, hereby requests puym~ut, from the Construction Fund for the Bonds identified above. Please pay the total amount shown below to the order of the payee or payees named belo" -. The payee(s), the purpose and tbe a mount of the disbursemcnt requested, a.re as follows:
Payee Purpose Amount
City ofAnytOwn Reimbursement for project Sxxx.xx costs
Total $xxx.xx
I
All capital ized terms used h erein have the meanings given such terms in the Indenture of Trus t, between The Bank of ~ew York Mellon Trust Company, N.A. and the City of Anytown and relating to the abovc-ca.ptioned Bonds. The undersigned hereby certifies as follows:
1. Each of the items for wbicl1 payment is requested is a proper charge against the
l Coru.1ruction Fund, and is or was ucc~ssnry in connection with the Project.
2. None of the items for which payment is requested has been reimbursed previously from tbe Construction Fund.
d
l
,J BNY M EllON
J ]
3· All of the amount requi.,itioned will be used in a manner consistent with the Agreement.
Dated:
City ofAnytown} By. ~~~----~----~------------------------------Authorizcd Borrower Representative
i
By: _________________________
13NY MElLON
'.
THE BANK OF NEW YORK MELLON
Debt Service Process
• Courtesy billing, collection of tax revenue, lease payments, etc. for eventual payment to bondholders…
• Credits via interest earnings or capitalized interest
• Fixed vs. variable rate bonds
• Debt service schedules
• Sinking fund requirements
• Issuer/Obligor’s responsibility for timely payments, consequences of non-timely payments
• DTC Book-entry
Security/Collateral
• The Trustee typically holds and monitors the security and/or collateral supporting the bond issue
− UCC financing statements, insurance, credit facilities, property liens, etc
• Courtesy reminders of expirations
• May draw on credit facilities upon non-renewal
• May collect insurance proceeds in event of property damage
• May exercises liens and/or foreclose per security holders direction in event of default
Compliance Monitoring
• Trustee tracks certain covenant requirements under the Indenture
− Trustee’s role: follow document requirements, receive items from issuers/obligors, send courtesy reminders to issuers/obligors
• Tickler system to track what continuing documentation, reports and certificates you need to provide the trustee (they are built in protections for your bondholders, agreed upon prior to bond issuance)
− Insurance certificates vs. Statements of Compliance
− Budgets and preliminary budgets
− Rebate requirements
− Change in authorized signatories
− Copy of Annual disclosure reports
− Disclosure dissemination (if appointed as Dissemination Agent)
THE BANK OF NEW YORK MELLON
Bond Issuer Downgrade
•MBIA
•FGIC
•FSA
•Assured Guaranty
•AMBAC
•ACA
•XL
•CIFG
•Radian
•Berkshire Assurance (New)
Trustee Responsibilities During a Counterparty Downgrade
Bond Downgrade
•Review all documents (Indenture, Reimbursement Agreement, Bond Purchase Agreement) immediately forall bond issues affected by downgrade.
•Downgrade may not trigger any actions
•Gather information and relay to Issuer
•Continuing Disclosure- Bond Rating
Surety Bonds
•Is it a permitted Investment
•Investment Agreements
•Tight Window Period
•Put up collateral
•Liquidate GIC
Failed Remarketing I Bank Bonds Decision Tree
Die/ / S.S il"B' Cio59 DTC FAST'?
Rill reoosr roo% Ban,I; Bo.Jm?
CiJJ BH'I\\f HoJrJ 1-140-----l~ Ban.!; Bonos?
t.tc~t FAST ~sues Closl<ll 20C 3 OJ La1a Hav~ a EiO'artlet
Let:r 0' RepreseJttaUoo @UJTC
same Pay cars ror AIJ Boll<ts?
l& Bank 6o11C1Rars ~,\!arU:r?'
'IO
tl o
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same?
r~o
lsstrer to SUIIrnn & a !~let Eo:ta Of Repre€entaU on Ill DTC
i91aJIJ(er ur ot 'I'e.. Rep ar DTC? 1-------------~
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SIJI>rr.:.t Sp t Fcrrr 1o Bootl Operal!Oll6
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l?~.ll'on at DTC • Rerr.ar&.et:IJ Ba;arto:
Po&:loll at BooiJ Ops{tllllmll:)' CUSIP) • Ba.n~ 5anll 15arance
Pay Interest on AJ Boods at Bank Bond Rate via DTC
-------Notice 10 DTC Requared If T enns
(i.e. Payment Date) Have Changed
Special Himdling ----··
RM and Management 10 RevleW on a Case by Case Basis
Pay Rema..rketed Bonds at MMI!et Rate v1il DTC
Pay BaM Bonds at BanIt Bond Rate via Bond Ops Dummy CUSIP
Tltlfi cnan: JI. I'Clf' l ll..ISlr.liiYf!-~ anry anc1 aoe& n.a c::ons::::~ te g;JI cr ~~ D')' Tn.e Bank cr ~""YOlk Tl\J5I: ~y. NA C2C:OS The Baril of t..er ... Y oA: t.leUor' Cofpol"alkul. AU ~~ "I l l L·: liA f'. K O J·
THE BANK OF NEW YORK MELLON
Direct Pay Bonds (ARRA)
•Trustee or Paying Agent
•Build America Bonds discontinued on 12/31/2010
•School Districts still issuing Direct Pay Bonds
•Calculate Principal & Interest
•Issuer or Trustee/Paying Agent file form 8039 CP
•Post Issuance Compliance may be necessary
Re-turn f'or Credi-t Paymen-ts -to Issuers of' Quallf'led Bonds
That I s To Receiv e P~nt o f Cre dit ::tnd Cornrnunlcatlons ChOck box 11 A•nondod A:ob..•m ..!=..........0 2
5 e T et@pt'lOt'l e •·u .u n be. o r offi~ o r I @>Qal • ePt""@o~@lntauv~
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,.. Typ• o f I ssu e ~ Fo.· build Arnef"lc o bondtS and recovery zOf""'• e conomi c d•v•l opment b o nds. c h eck the o.ppl i c obl e b o.x <s•• lnG-tructiono) 11 ~ducotlonal rJ t-loQith unci t-to~clto. l .---J Tr-o.ng:cortutlor"'l rl Publi c S u. f e t rJ E n v h ·o nmo ntol ri t-lot..n~ing (J Utl l i tl o~ rl O t h e r
b F o r buUd Arnar teG bonds, r"eeov~ z.one aconornJc devetop~nt bondS_. a .nd specified tGX e r"edlt bonc:t.s. • n ter the Issue f)r lee C I'"\&CI< appl i cab l e box ~ -L _I vnnn.bl e r a t a bot,CI l j . J- •xeel r a t e bC:W'"\cJ
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Payment ot' Cre dit For F> ec lfl e d tAx c r Ad lt b o ndR w i th multi l A rnA turltiAs ~AA lnRtruct lonF>.
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l nto t·oat payment dot o ·t o vvl"lict"'l U"lio povmont o f c t-odit rol o"loo (MM/ 00/VVVV) /
l ntere•t poy-.bl• t o bondh o l d • r • o n th e lnter•:~t payment date . _ _ • • • . • For s p ecified tox c redi t bonds only, enter t he oppllcob l e c r edit rote determineel unde r Sec. 5 4 A (b)(3 )
_ . LJ 0
/
_ • . . (._] (_] '>'6
t-'-2-& r-oo - ....J
__] F o r tap •clfl • d tax c r edit bonds only , e ntet" the lnte..-est tho.t would b • pay able t o bondholder• o n the l n t e r •st: p oymon t doto cal c u l a t ocJ u o u'"lg tho o p p l icobl o c r o d rt r·a t o (ooo l r·--.ot ..-uc 't•ono) ~<>c
:2:0 Amo unt o f e r&dl1. poy rna n 't 1.0 b a r e ceive d as o f th& lnteraot payme nt dat e (eornr.:.l a t & o n l y line 2 0o. , 20b ,
2 0c , 2 0d , 2 0 •. or 2 0f):
o 8 \..l lld Arnorlc o b o nda. Ml..rl tlp l y l lno 1 9o by 36% (0 . 36) . :20•
b A oeovoi"Y ...::or"'o oeone>t,.,..IC dovol o r:u,.,..or"'\t bor"'\cJ O M u l tiQ>I y fi n o '1 90 by 4 5t;W. (0 4 5 ) 20b o N ew c l eo.n •·e n evvobl e e ner·gy b o nda e nter t he l eoaer· o f l ine 1 9o or 70% o f l i n e 1 9c ?0~
c::s Oualrl tocl o n o r·gy c ot-. a o r· v at lo n b o r-.cl o e n t o r tho loaaer o f ,.,,o 1 9o or 1'0~ o r IIn o 1 9 c: 20d Ouoll fl o el ....-on v •...u ::c• C:h J rY'IY bondo O •-rt o • t h O IQOO(u O l llnO(I '1 ()1 1 O r '1 9e 2 0 •
f OuDI I fiOCI CCh OOI C:O•"H !I1:,.UC tiO I"'' t:>Or"''CIO ont.O ,. thO l OGOOf' Of l1 n 00 1 90 O f' 1 9 C ~--~ 2: "'1 Actju o t m o nt t o p r·ovl o u o c r·o ellt poymonto (compl o t o lln o 2 '1o O A llno 2 '1 b onl y)
b
N e t
N o t 11'"\ C Feaee t o p..-evt o u e paymen t s (a'ttach explenat to n ) _
doer oooo t o ~r ovr ouo poym o n t o (on oen oxpl o not ion). 1~:; A mount o f c:: r o dlt poy rnont t o b9 roe9ivod . C OfT'Ib l n o olthQr llno :zoo. 20b, :zoe. 2 0d. 20o. or 2 0 f wit h u .-.. 2 1 o or IIno 2 1 b ::>2 I a 'thla t h e f lnDI l n 'te r ea't peymen't de'te ? _ _ • _ . If th& e ntity ld• ntlfl• d In Port I I O n o t. 1.h & I O:ou•~"" · c h ock
_ thl& box
Y o & L] N o- II I I
25 Enter· Cl l r oct depotJ:It Info rmati o n below:
Direct D epoeit
Aou<lng numbe r
A ccount t'"\urrtbo r
I [
I I I I I ~ b
I T ype: II ChOcking
I I I I lJ SOvlng&
I I I Signa ture and Consent
For- Pr-i v o o y A c::rt a nd Pupor-vvCM"k R o duo -t i o n A o l N o t:i oo. uoo lho sopo r-o t o ins ·truo ti o n s . N n ~?A i or
THE BANK OF NEW YORK MELLON
Redevelopment Successor Agencies
•Sent notice to make sure debt service and Trustee fees are in ROPS list
•Working closely with Successor Agencies and counties to ensure receipt of debt service funds
•Evolving
THE BANK OF NEW YORK MELLON
Defaults- Protecting the interest of your bondholders
• Defaults
− Payment Defaults, Covenant Defaults
− Cure Period
− Pursue remedial provisions under the indenture
• Event of Default
− Notices of default and bondholder communications
− Holder Direction
− Creditors’ committee
• Potential Remedies
− Acceleration of bonds
− Exercise of ownership on collateral held
Pre-closing… Before It’s Too Late
• Pre-closing . . . The issuer and trustee will have to work within this Indenture for the next 30 years, make certain the contract reads the way you want it to read. Things to consider . . .
− maintenance of security interest(s)
− establishment of sub accounts
− waterfall of revenue or lease payments
− document and invoice requirements surrounding disbursements for construction funds
− permitted investment language
− compliance requirements and documentation required
− covenant restrictions
Is all of the above realistic? If not, speak up before the bond sale date
Your relationship with your trustee…
• Many parties move on after the closing. The Issuer and the Trustee are actively involved for the life of the bonds.
• The trustee performs administrative functions on my behalf, which will directly reflect on me, the City/Agency and our bond holders. How am I selecting my trustee (my 30 year partner)?
• This long-term relationship should begin prior to the closing and early on in the document review process.
• I now have a five-inch thick closing transcript binder, with no pictures. How do I organize what is important for the next 20 to 30 years?
• What tools or resources or expertise does my trustee have which might assist me with what I need?
THE BANK OF NEW YORK MELLON
Questions?
Now,
Or anytime in the future:
• Jose Matamoros, Vice President 213-630-6457
The Bank of New York Trust Company, N.A.
700 S. Flower Street, Suite 500
Los Angeles, CA 90017
~~ THE BANI< OF NEW YORI< MELLON
