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1 Apri l 2016 | Lourdes German
April 2016 | Lourdes German | [email protected]
Accessing Capital Markets For Capital Needs
2 Apri l 2016 | Lourdes German
AGENDA
I. When do Municipalities Access The Capital Markets?
II. How Are Municipalities Using Securities to Finance Infrastructure via the Capital Markets?
III. Conclusion & Questions
3 Apri l 2016 | Lourdes German
WHEN DO MUNICIPALITIES ACCESS THE CAPITAL MARKETS?
• When they want to raise funds for a capital project by borrowing from investors via the issuance of municipal securities (Bonds, Notes)
• When they want to borrow the funds on a tax-exempt basis
• When the IRS authorizes the borrowing for the purpose of the project
• When state law authorizes the borrowing & there is a public purpose
Municipality Investors
4 Apri l 2016 | Lourdes German
WHY ARE THE CAPITAL MARKETS IMPORTANT FOR MUNICIPALITIES?
• $3.8 Trillion of bonds outstanding for municipal infrastructure • Municipal securities are issued in all 50 States • Property Tax is predominant security for general obligation borrowings • Debt is often one long term liability that triggers municipal defaults & bankruptcy • Predominant investors and holders of municipal bonds are individuals
5 Apri l 2016 | Lourdes German
WHO OWNS MUNICIPAL SECURITIES?
0.00200.00400.00600.00800.00
1,000.001,200.001,400.001,600.001,800.002,000.00
IND
IVID
UA
LS &
HO
US
EH
OLD
S
MU
TUA
L FU
ND
S
MO
NE
Y M
AR
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T FU
ND
S
CLO
SE
D-E
ND
FU
ND
S
EXC
HA
NG
E-T
RA
DE
D F
UN
DS
NO
NFI
NA
NC
IAL
CO
RP
OR
ATE
B
US
INE
SS
ES
NO
NFA
RM
NO
NC
OR
PO
RA
TE
BU
SIN
ES
SE
S
GO
VE
RN
ME
NT-
SPO
NSO
RE
D
EN
TER
PR
ISES
STA
TE &
LO
CA
L G
OV
ER
NM
EN
T G
EN
ER
AL
FUN
DS
U.S
.-CH
AR
TER
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DE
PO
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Y IN
STI
TUTI
ON
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FOR
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ES
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U.S
.-AFF
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ED
IT U
NIO
NS
PR
OP
ER
TY &
CA
SU
ALT
Y IN
SU
RA
NC
E C
OM
PA
NIE
S
LIFE
INS
UR
AN
CE
CO
MP
AN
IES
STA
TE &
LO
CA
L G
OV
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NM
EN
T R
ETI
RE
ME
NT
FUN
DS
BR
OK
ER
S &
DE
ALE
RS
OTH
ER
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
6 Apri l 2016 | Lourdes German
HOW ARE COMMUNITIES USING MUNICIPAL SECURITIES TO ACCESS THE CAPITAL MARKETS?
Municipality Identifies Capital
Project State Law Authority
Confirmed Tax Exemption
Analysis
Debt Structure/Security
/Debt Capacity Confirmed
Method of Sale Chosen – Public
vs. Private Offering
Offering Documents
Announce Sale
Credit Analysis & Public
Underwriting
The Closing: Municipality
Receives Funds & Begins Project
Municipality Begins Repaying
Investors
Municipality
Investors
7 Apri l 2016 | Lourdes German
WHO ARE THE PARTIES TO A BOND DEAL?
Capital Markets Regulators: SEC, IRS, MSRB, FINRA
Bond & Disclosure
Counsel Financial Advisor
Underwriter / Broker Dealer
Bond Trustee &
Paying Agent
Rating Agencies
Depository Trust
Company
Investors
8 Apri l 2016 | Lourdes German
The Deal As It Enters the Capital Markets
11,000 Average New Municipal Bonds Deals Per
Year by Governments - “Primary” Market (~$400 Billion)
$3.8 Trillion Bonds Outstanding -The
“Secondary” Market (Approx.
~10,000,000 Trades Annually
Among Investors)
9 Apri l 2016 | Lourdes German
After The Bond Sale – Post-Issuance Compliance
Capital Project Event
Monitoring (Fire, Sale)
(IRS)
Change in Use & Use of
Proceeds Monitoring
(IRS)
Material Events
Disclosures & Annual Financials
(SEC, MSRB)
Credit Surveillance
(Private Sector)
10 Apri l 2016 | Lourdes German
EXAMPLES
11 Apri l 2016 | Lourdes German
Town of Shrewsbury Municipal Purpose Loan of 2008 Bonds
City of New Bedford 2008 State Qualified Bonds
12 Apri l 2016 | Lourdes German
City of Brockton Bond Financing Using Clean Renewable Energy Bonds – Zero percent borrowing relying on IRS Tax Credits
City of Woburn Bond Financing for School Construction via Massachusetts School Building Authority Revenue Bond Program
13 Apri l 2016 | Lourdes German
Berkshire Arts & Technology Charter School Bond Financing Using Qualified Zone Academy Bonds – Zero percent borrowing relying on IRS Tax Credits
MIT - Massachusetts Development Finance Agency Bond Financings for Campus Capital Construction
14 Apri l 2016 | Lourdes German
113 BRATTLE STREET CAMBRIDGE, MA 02138 @LANDPOLICY LINCOLNINST.EDU
DATE | PRESENTER | TITLE
Questions & Thank you!
LOURDES GERMAN
LINCOLN INSTITUTE OF LAND POLICY
15 Apri l 2016 | Lourdes German
Disclaimer
Any references to bonds or fixed income securities in this presentation are intended for educational purposes only. Any references to bonds or fixed income securities presented in this piece should not be construed as an offer, solicitation, or recommendation to buy or sell securities or other investment products, nor are they intended to be used as a general guide to investing, or as a source of any specific or general investment recommendation. Information related to bond official statements is presented for teaching and illustrative purposes to demonstrate how information appears within the official sales document prepared under securities laws in the context of the capital market transaction for the municipality.
