HomeMy WebLinkAboutOCSD 18-16 (REPEALED) REPEALED BY
OCSD 20-12
RESOLUTION NO. OCSD 18-16
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE
ORANGE COUNTY SANITATION DISTRICT ADOPTING A
BOARD OF DIRECTORS DEBT POLICY
NOW, THEREFORE, the Board of Directors of Orange County Sanitation District,
DOES HEREBY RESOLVE, DETERMINE AND ORDER:
Section 1: The Board of Directors Debt Policy, attached hereto as Exhibit "A"
be adopted.
Section 2: Any change in the Policies and Procedures set forth in the Board of
Directors Debt Policy must be approved by the Board of Directors prior to implementation.
Section 3: This Resolution shall take effect immediately upon its adoption.
PASSED AND ADOPTED at a regular meeting of the Board of Directors held
September 26, 2018.
Gr o C e ourn, PLS
Board Chairman
ATTE T.
i'
Kelly A. L
Cler oft Board
OCSD 18-16-1
r � �� _
, � = r- � �
_ �
� I � � �
��
� :� i ,
'�
� � �
� �- �-; � �
_ - . � �„ �
V
�� : �.• � �
_ � �.
■ � - _
■ � � � `
STATE OF CALIFORNIA )
1 SS
COUNTY OF ORANGE )
I, Kelly A. Lore, Clerk of the Board of Directors of the Orange County Sanitation
District, do hereby certify that the foregoing Resolution No. OCSD 18-16 was passed and
adopted at a regular meeting of said Board on the 26th day of September 2018, by the
following vote, to wit:
AYES: Barnes; Bernstein; Brothers (Alternate); Collacott; Deaton;
Ferryman; B. Jones (Alternate); Beard (Alternate); Kim;
R. Murphy; Nguyen; Parker; Sebourn; Shawver; F. Smith;
Steel; Wanke; Withers; and Yarc
NOES: None
ABSTENTIONS: None
ABSENT: Peotter; Peterson; Shaw; T. Smith; Tinajero; and Wagner
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal
of Orange County Sanitation District this 26th day of September 2018.
Kelp A. Lore, MMC
Cldr_k of tVBoard of Directors
Orange County Sanitation District
OCSD 18-16-2
IND O�
FINANCIAL MANAGEMENT POLICY AND PROCEDURE
Subject: Debt Policy Index: Finance Administration
Number: 201-3-1
Effective Date: October 1, 2018 Prepared by: Financial Management
Division
Supersedes: September 17, 2008 Approved By: Board of Directors
1 0 PURPOSE:
The foundation of any well-managed debt program is a comprehensive debt policy.
A debt policy sets forth the parameters for issuing debt and managing outstanding
debt, and provides guidance to decision makers regarding the timing and purposes
for which debt may be issued, types and amounts of permissible debt, methods of
sale that may be used and structural features that may be incorporated. The debt
policy should recognize a binding commitment to full and timely repayment of all
debt as an intrinsic requirement for entry into the capital markets. The goals of a
debt policy are to ensure that a government maintains a sound debt position, and
that credit quality is protected, and is intended to comply with applicable California
Government Code Sections prescribed by California Debt and Investment
Advisory Commission (CDIAC) to ensure all the debt issuance is consistent with
the Sanitation District's debt policies and all the required reports are submitted to
CDIAC on time.
OBJECTIVES:
Each debt issuance must accomplish the following objectives:
a. Accelerate the delivery of projects. Debt financing allows the delivery of
projects on an accelerated basis;
b Spread cost over the useful life of an asset. Debt financing allows the
District to spread the cost of a project over its useful life rather than paying
for it at one time;
c Smooth out annual cash flow. Debt financing spreads the cost of a project
over a period of years, thereby smoothing out the Sanitation District's cash
flow;
OCSD 18-16-3
d Optimize overall financial resources. To enable existing cash to be invested
at a rate higher than the cost of borrowing;
e Refundings: It may become desirable for the District to issue bonds or other
securities to refinance outstanding obligations. The reasons for refinancing
include:
i) To Achieve Debt Service Savings. In general, the net present
value savings generated by the refunding bonds shall be at
least 3% of the refunded bond amount.
ii) For Programmatic Reasons. Such as: restructuring outstanding
debt, changing the type of debt instruments originally used,
retiring a bond issue, removing covenants/pledges that have
become restrictive, or retiring debt prior to maturity.
f. The debt policy must be viewed as an integral component of its overall
financial practices and in the context of the Sanitation District's capital-
intensive expenditure plans. The Sanitation District's issuance of debt must
be generally consistent with its planning goals, capital improvement
programs and budget. The Sanitation District's financial practices, including
the issuance of debt, must be designed to assure sufficient resources to fund
all of its operating and capital requirements in all foreseeable circumstances.
Advantages of a debt policy are as follows:
1 1 enhances the quality of decisions by imposing order and discipline, and
promoting consistency and continuity in decision making;
1 .2 rationalizes the decision-making process;
1 3 identifies objectives for staff to implement;
1 .4 demonstrates a commitment to long-term financial planning objectives;
1 .5 is viewed positively by the rating agencies in reviewing credit quality;
1.6 minimize debt service and issuance costs;
1 7 ensure full and timely repayment of debt;
1 8 maintain full and complete financial disclosure and reporting and adequate
internal controls;
1 9 ensure use of debt is consistent with the Sanitation District's policies and
OCSD 18-16-4
the proceeds will be directed to the intended use;
2.0 ORGANIZATIONS AFFECTED:
General Manager's Department, Financial Management Division, General
Counsel, bond rating agencies, financial advisors, bond underwriters, bond
counsel, and external independent auditors.
3.0 REFERENCES:
3.1 December 2015 Five-Year Strategic Plan
3.2 2017 Facilities Master Plan
3.3 Government Finance Officers Association publication "A Guide for
Preparing a Debt Policy".
3.4 "Moody's on Municipals- An Introduction to Issuing Debt" by Moody's
Investor Services.
3.5 Handbook for Muni-Bond Issuers by Joe Mysak, published by Bloomberg
Professional Library.
4.0 POLICY.•
4.1 Limitations on Indebtedness-
4.1.1 The Sanitation District's debt capacity will not exceed legal
limitations, such as coverage requirements or additional bonds tests
imposed by existing bond covenants.
4.1.2 Before any new debt is issued, the impact of debt service payments
on total annual fixed costs will be analyzed. In accordance with
existing COP indenture agreements, Net Operating Revenues must
be at least a 1.25 coverage ratio to the maximum annual debt
service.
4.1.3 The District will restrict long-term borrowing of capital improvements
that provide long-term benefits to the District.
4.1.4 Proceeds from long-term debt will not be used for current on-going
operations.
4.1.5 The decision to incur new indebtedness should be integrated with
the Sanitation District's biennial Operating Budget and Capital
OCSD 18-16-5
L�
Improvement Program Budget. The annual debt service payment
shall be included in the Operating Budget.
4.1.6 The Sanitation District will integrate its debt issuances with the goals
of its Capital Improvement Program by timing the issuance of debt to
ensure that projects are available when needed.
4.2 Types of Debt-
4.2.1 The District may use short-term debt to cover temporary or
emergency cash flow shortages. All short-term borrowing will be
subject to Board approval by resolution.
4.2.2 The District may utilize Board approved intra-agency loans rather
than outside debt instruments to meet short-term cash needs. Intra-
agency loans will be permitted only if an analysis of the affected
Revenue Areas indicates funds are available and the use of these
funds will not impact current operations. The principal, along with
interest at the prevailing rate as established by the Sanitation
District's Treasurer, will be paid to the lending Revenue Area.
4.2.3 Commercial Paper- The District may issue short-term debt in the
form of Commercial Paper.
4.2.4 Revenue Bonds- The District may issue as special obligations
various types of revenue securities including notes, warrants, interim
debentures, bonds, and temporary bonds. Securities issued as
special obligations do not constitute outstanding indebtedness of the
District nor do they exhaust its legal debt-incurring power. Bonding
should be limited to projects with available revenue sources, whether
self-generated or dedicated from other sources such as user fees.
Adequate financing feasibility studies should be performed for each
revenue issue. Sufficiency of revenues should continue throughout
the life of the bonds.
4.2.5 Certificates of Participation- Certificates of participation are
essentially leases which are sold to the public. The lease payments
are subject to annual appropriation. Investors purchase certificates
representing their participation in the lease. Often, equipment or
facilities being acquired serve as collateral. These securities are
most useful when other means to finance are not available under
state law.
4.2.6 Refundings-A refunding is generally the underwriting of anew bond
issue whose proceeds are used to redeem an outstanding issue.
OCSD 18-16-6
�l
4.2.6.1 Prior to beginning a refunding bond issue, the District will
review and estimate of the savings achievable from the
refunding. The District may also review a pro forma
schedule estimating the savings assuming that the
refunding is done at various points in the future. Following
are the conditions under which the District will consider
refunding outstanding bonds:
4.2.6.1.1 Net present value savings are at least three (3)
percent of the par amount of the refunded
bonds. Net present value savings of less than
three (3) percent of refunded bonds are
acceptable when compared to savings that
could be achieved by waiting for more favorable
interest rates and/or call premiums.
4.2.6.1.2 Net present value savings exceed the costs of
issuing the bonds.
4.2.6.1.3 The bonds to be refunded have restrictive or
outdated covenants.
4.2.6.1.4 Restructuring debt is deemed to be desirable.
4.3 Debt Structure-
4.3.1 Debt will be structured to achieve the lowest possible net overall cost
to the District balanced against potential risks given market
conditions, the urgency of the capital program, and the nature and
type of security to be provided. Structuring options shall also
consider available opportunities related to maximizing earnings and
minimizing costs while complying with all Arbitrage regulations,
including the timing of issuance and current market conditions.
4.3.2 The term of District debt issues should not extend beyond the useful
life of the project and generally should not extend beyond 30 years
unless there are compelling factors which
p g make it necessary to
extend the term further.
4.3.3 For the issuance of new money debt, the District should consider the
appropriate amount to be sold based on the overall debt- versus
revenue-funding targets as part of its long-term capital plan and prior
to each issuance of new money debt.
4.3.4 New money debt issued by the District should be structured to
provide for either level principal or level debt service on an individual
issuance or aggregate debt service basis. Deferring the repayment
OCSD 18-16-7
of principal should be avoided except in select instances where it will
take a period of time before project revenues are sufficient to pay
debt service. Ascending debt service should generally be avoided.
4.3.4.1 The District should consider target financial ratios
(including debt service coverage) and future financial
flexibility when determining the structure of its new money
debt.
4.3.5 Variable Rate Obligations- When appropriate, the District may
choose to issue variable rate obligations, or securities that pay a rate
of interest that varies according to a predetermined formula or results
from a periodic remarketing or auction of the securities.
4.3.5.1 The maximum level of net variable rate obligations
incurred shall not exceed 150% of the level of available
invested reserves. The percentage is intended to reflect
the inherent relationship between taxable and tax-exempt
interest rates based on the highest marginal federal
income tax rate. Such percentage should be adjusted as
the highest marginal federal income tax changes.
4.4 Credit Objectives-
4.4.1 The Sanitation District's goal is to maintain or improve its bond
ratings. To that end, prudent financial management policies will be
adhered to in all areas.
4.4.1.1 The District should monitor the Sanitation District's current
and projected key financial ratios (e.g., debt service
coverage, debt-to-equity, net floating rate exposure,
reserve level) in comparison to those of other similar
municipal entities. These ratios should be updated and
compared prior to the issuance of new money debt or the
restructuring of existing debt. The District will consider
these ratios in its financial management policies.
4.4.2 Rating Agencies -
4.4.2.1 Full disclosure of operations will be made to the bond
rating agencies. District staff, with the assistance of the
financial advisors and bond counsel, will prepare the
necessary materials for and presentation to the rating
agencies.
4.4.2.2 The District will maintain a line of communications with the
rating agencies (Moody's, Standard & Poor's, and/or
OCSD 18-16-8
Fitch), informing them of major financial events at the
District as they occur. The Comprehensive Annual
Financial Report (CAFR) shall be distributed to the rating
agencies after it has been accepted by the Board of
Directors.
4.4.2.3 The rating agencies will be notified when the District
begins preparation for a debt issuance. After the initial
contact, a formal ratings application will be prepared and
sent along with the draft of the Official Statement relating
to the bond sale to the rating agencies. This application
and related documentation should be sent several weeks
prior to the bond sale to give the rating agencies sufficient
time to perform their review.
4.4.2.4 A personal meeting with representatives of the rating
agencies will be scheduled at least once every three years
or whenever a major project is initiated.
4.4.3 Credit Enhancements- are mechanisms which guarantee principal
and interest payments. They include bond insurance and a line or
letter of credit. A credit enhancement, while costly, will sometimes
bring a higher rating from the rating agencies and a lower interest
rate on debt, thus lowering overall costs. Credit enhancements will
only be used when net debt service is reduced by more than the cost
of the enhancement. During the debt issuance planning, the
Financial Advisor or Underwriter will advise the District which credit
enhancements if any, should be purchased.
4.4.4 Dedicated Revenue Sources- In order to ensure the most
favorable credit ratings, District revenues are dedicated to debt
service in the following order:
4.4.4.1 Ad valorem property tax.
4.4.4.2 Sanitary sewer service charges.
4.4.4.3 Other revenues.
4.5 Method of Sale -
4.5.1 The District will select a method of sale that is the most appropriate
in light of financial, market, transaction-specific and issuer-related
conditions, and explain the rationale for its decision.
4.5.1.1 Competitive Sales- Debt obligations are generally issued
through a competitive sale. The District and its financial
OCSD 18-16-9
advisor will set the terms of the sale to encourage as many
bidders as possible. By maximizing bidding, the District
seeks to obtain the lowest possible interest rates on its
bonds.
4.5.1.2 Negotiated Sales- When certain conditions favorable for
a competitive sale do not exist and when a negotiated sale
will provide significant benefits to the District that would not
be achieved through a competitive sale, the District may
elect to sell its debt obligations through a private or
negotiated sale. Such determination may be made on an
issue-by-issue basis, for a series of issues, or for part or
all of a specific financing program upon approval by the
Administration Committee.
4.6 Methods of Selecting Consultants-
4.6.1 Financial Advisor- The District will retain an external independent
financial advisor, selected through a competitive process and
renewed at the discretion of the Administration Committee. The
financial advisor contract will be administered by the Sanitation
District's Financial Management Division. The utilization of the
financial advisor for a particular bond sale will be on a case by case
basis upon recommendation by the Director of Administrative
Services and approval by the Administration Committee. pursuant to
a financial advisory service contract.
4.6.2 Underwriters- For negotiated sales, underwriters will be required to
demonstrate sufficient capitalization and experience related to the
debt issuance. The selection of underwriters may be for an individual
or series of financings or a specified time period.
4.6.3 Bond Counsel- The District will retain external bond counsel for all
debt issues. All debt issued by the District will include a written
opinion by bond counsel affirming that the District is authorized to
issue the debt, stating that the District has met all state constitutional
and statutory requirements necessary for issuance, and determining
the debt's federal income tax status. Bond counsel will be selected
through a competitive process administered by the Sanitation
District's Financial Management Division. The selection process will
require comprehensive municipal debt experience.
4.6.4 Disclosure Counsel- The District will retain, when appropriate,
Disclosure Counsel for debt issues. Disclosure Counsel will be
responsible for ensuring that the official statement complies with all
applicable rules regulations and guidelines. Disclosure Counsel for
a particular transaction may also serve the District as bond counsel
OCSD 18-16-10
on the same issue. Disclosure counsel will be selected through a
competitive process administered by the Sanitation District's
Financial Management Division. The selection process will require
comprehensive municipal debt experience.
4 7 Disclosure and Arbitrage Compliance-
4.7.1 The District will follow all State and federal regulations and
requirements regarding bond provisions, issuance, taxation, and
disclosure.
4.7.2 The District will monitor compliance with bond covenants and adhere
to federal arbitrage regulations. Any instances of noncompliance will
be reported to the Administration Committee.
4.7.3 The District will maintain good communications with bond rating
agencies about its financial condition and will follow a policy of full
disclosure in every financial report and bond prospectus (Official
Statement).
4.7.4 Official Statements accompanying debt issues, CAFRs, and
continuous disclosure statements will meet, at a minimum, the
standards articulated by the Municipal Standards Rulemaking Board
(MSRB), the Government Accounting Standards Board (GASB), the
National Federation of Municipal Analysts, the Securities and
Exchange Commission (SEC), and Generally Accepted Accounting
Principles (GAAP). The Financial Management Division will be
responsible for ongoing disclosure to all Nationally Recognized
Municipal Information Depositories (NRMSIRs) designated by the
SEC and for maintaining compliance with disclosure standards
promulgated by state and national regulatory bodies.
4.7.4.1 Quarterly compliance reports to NRMSIRs.
4.7.4.2 Copies of CAFR and updated tables from the Official
Statement to NRMSIRs within six month of year end.
4.8 Administration and Internal Control Procedures -
4.8.1 Expenditure of Proceeds- Whenever reasonably possible, proceeds
of the Sanitation District's debt shall be held by a third party trustee
which will release such proceeds upon written requisition signed by
the Director of Administrative Service Department Administrative
Services, or authorized designee.
4.8.2 Requisition of Bond Proceeds- To reimburse the District for
expenditures incurred, bond proceeds requisitions will be prepared
by staff and will include summary expenditure data listing the
OCSD 18-16-11
projects funded and related dollar amounts, all totaling to the
requisition amount.
4.8.3 Investment of Debt Proceeds- Proceeds raised in a debt financing
shall be invested in a manner that is consistent with the bond
indenture, and pursuant to the Sanitation District's Investment
policy for investments not address by the indenture.
4.8.4 Continuing Disclosure- The District shall remain in compliance with
Securities and Exchange Commission (S.E.C.) Rule 15c2-12 by
filing its annual financial statements and other financial and
operating data for the benefit of its bondholders within the period
required by each Continuing Disclosure Agreement.
4.8.5 Reporting and Filing Requirements- The District shall comply with
the applicable reporting and filing requirements in California
Government Code Section 8855.
4.8.6 Federal Tax Compliance- The District shall comply with any federal
tax requirements, including without limitation, private use tracking,
arbitrage and rebate compliance.
5.0 DEFINITIONS:
5. 1 ACCRUED INTERST- In the sale of a new issue of municipal bonds, the
dollar amount, based on the stated rate or rates of interest, which has
accrued on the bonds from the dated date, or other stated date, up to but
not including the date of delivery. When a bond is purchased in the
secondary market, the dollar amount, based upon the stated rate of interest,
which has accrued on the bond from the most recent interest payment date,
up to but not including the date of settlement. Accrued interest is paid to
the seller by the purchaser and is usually calculated on a 360-day year basis
(assumes each month has 30 days).
5.2 ADDITIONAL BONDS TEST- Refers to legal test found in resolution or
ordinance securing bonds; governs ability to issue additional bonds having
the same lien on pledged revenues. Usually expressed as a ratio in which
historic earnings meet certain levels of future debt service coverage.
5 3 ADDITIONAL OBLIGATIONS TEST- Refers to legal test found in the
resolution which governs an agency's ability to issue additional obligations
having the same lien on pledged revenues. The Sanitation District's
additional obligations test is expressed as a ratio in which historic earnings
must meet or exceed certain levels of future obligation service coverage.
OCSD 18-16-12
54 AD VALOREM TAX- A direct tax based "according to value" of property.
Counties and school districts and municipalities usually are, and special
tax districts may be, authorized by law to levy ad valorem taxes on property
other than intangible personal property. Local government bodies with
taxing powers may issue bonds or short-term certificates payable from ad
valorem taxation.
5.5 ADVANCE REFUNDING- A transaction in which new debt is issued to
provide monies to pay interest on old, outstanding debt as it becomes due,
and to pay the principal on the old debt either as it matures or at an earlier
call date. An advance refunding occurs before the maturity or call date
(more than 90 days before the maturity or call date) of the old debt, and
the proceeds of the new debt are invested until the maturity or call date of
the old debt. Most advance refundings result in defeasance of debt.
56 AMORTIZATION- The process of paying the principal amount of an issue
of bonds by periodic payments either directly to certificate holders or to a
sinking fund for the benefit of certificate holders. Payments are usually
calculated to include interest in addition to a partial payment of the original
principal amount.
5 7 ARBITRAGE- Classically, the simultaneous purchase and sale of the
same or an equivalent security in order to profit from price discrepancies.
The most common occurrence in the public sector involves the investment
of the proceeds from the sale of tax-exempt securities in a taxable money
market instrument that yields a higher rate, resulting in interest revenue in
excess of interest costs.
5 8 ARBITRAGE REBATE REQUIREMENTS- Arbitrage profits (interest
revenue in excess of interest costs) from investment bond proceeds that
are invested in taxable instruments must be rebated to the U.S. Treasury
Department.
5.9 AVERAGE COUPON- Weighted average interest cost of an issue.
5.10 BANK INVESTMENT CONTRACT- A separate account at a financial
institution that functions like a guaranteed investment contract, whereby
the contract is designed to provide guarantees of principal and interest on
funds deposited for a specified period.
5.11 BASIS POINT- Yields on municipal securities are usually quoted in basis
points where one basis point is equal to 1/100 of one percent.
5.12 BOND- Written evidence of the issuer's obligation to repay a specified
principal amount on a date certain (maturity date), together with interest at
a stated rate, or according to a formula for determining that rate. Bonds
OCSD 18-16-13
are distinguishable from notes, which mature in a much shorter period of
time.
5.13 BOND COUNSEL-An attorney (or firm of attorneys) retained by the issuer
to give a legal opinion on the legality and security of the issue and its tax
exemption or taxability. Typically, bond counsel may prepare, or review
and advise the issuer regarding, authorizing resolutions or ordinances,
trust indentures, official statements, validation proceedings, and litigation.
5.14 BONDED DEBT- The portion of an issuer's total indebtedness as
represented by outstanding bonds.
5.15 BOND INSURANCE- An insurance policy purchased by an issuer or an
underwriter for either an entire issue or specific maturities, which
guarantees the payment of principal and interest. This security provides a
higher credit rating and thus a lower borrowing cost for an issuer. Bond
insurance can be purchased directly by the District prior to the bond sale
(direct purchase) or at the underwriter's option and expense (bidder's
option).
5.16 BOND RESOLUTION OR ORDINANCE- The document or documents
representing action of the issuer authorizing the issuance and sale of
municipal bonds. Issuance of the bonds is usually approved in the
authorizing resolution or ordinance, and the sale is usually authorized in a
separate document known as the "sale" or "award" resolution. All of such
resolutions, read together, constitute the bond resolution, which describes
the nature of the obligation and the issuer's duties to the bondholders.
5.17 BROKER- A person or firm, other than a bank, which acts as an
intermediary by purchasing and selling securities for others rather than for
its own account.
5.18 CALLABLE BOND-A bond which permits or requires the issuer to redeem
the obligation before the stated maturity date at a specified price, usually
at or above par by giving notice of redemption in a manner specified in the
bond contract.
5.19 CAPITALIZED INTEREST- Interest paid on long-term obligations during
the period of time required to complete and prepare an asset for its
intended use is capitalized as part of the acquisition cost of an asset.
5.20 CERTIFICATES OF PARTICIPATION-Obligations of a public entity based
on a lease or installment sale agreement. These are not considered debt
under Article 13 of the California Constitution.
5.21 CERTIFICATE HOLDER- The owner of a municipal certificate of
participation to whom payments of principal and interest are made.
OCSD 18-16-14
Generally certificates are registered, and the owner is the person whose
name is noted on the certificate register.
5.22 CERTIFICATE REGISTER- The listing of names and addresses of the
current registered owners of the certificates, as maintained by the trustee
or certificate registrar.
5.23 COMPETITIVE SALE- The sale of bonds through sealed bids.
5.24 COST OF ISSUANCE- The expenses associated with the sale of a new
issue of municipal securities, including such items as underwriter's spread,
printing, legal fees, and rating costs.
5.25 COVENANTS- The issuer's enforceable promise to perform or refrain from
performing certain actions. With respect to municipal bonds, covenants
are generally stated in the bond contract, resolution, or indenture.
5.26 COVERAGE-The ratio of pledged revenues available annually to pay debt
service obligations, as compared to the annual debt service obligation
requirement. This ratio is one indication of the margin of safety for debt
service obligations.
5.27 CREDIT ENHANCEMENT- The availability of additional outside support
designed to improve an issuer's own credit standing. Examples include
bank lines of credit or collateralized funds.
5.28 CURRENT REFUNDING- A refunding transaction in which the proceeds
of the refunding debt are applied immediately (no more than 90 days from
issuance) to redeem the debt to be refunded. This situation differs from an
advance refunding, where the proceeds of the refunding bonds are placed
in escrow pending the call date or maturity of the debt to be refunded.
5.29 CURRENT YIELD- The ratio of the annual dollar amount of interest to the
purchase price of a bond, stated as a percentage.
5.30 CUSIP NUMBERS (COMMITTEE ON UNIFORM SECURITY
IDENTIFICATION PROCEDURES) - Identification numbers assigned
each maturity of a bond issue, and usually printed on the face of each
individual bond in the issue. The CUSIP numbers are intended to facilitate
identification and clearance of municipal securities.
5.31 DEBT LIMIT- The maximum amount of debt which an issuer of municipal
securities is permitted to incur under constitutional, statutory, or charter
provisions.
5.32 DEBT PER CAPITA- Bonded debt divided by population.
OCSD 18-16-15
5.33 DEBT SERVICE OBLIGATION- The amount of funds necessary to pay
principal and interest, and the required contributions to an amortization
sinking fund for term certificates on an outstanding obligation. Debt service
obligation on certificates may be calculated on a calendar-year or on a
fiscal-year basis.
5.34 DEBT SERVICE RESERVE FUND- A fund usually amounting to principal
and interest payments for one year and used only if pledged revenues do
not generate sufficient funds to satisfy the debt service requirement. The
reserve fund is typically funded in whole or in part from the proceeds of the
debt issuance. The size and investment of the reserve fund are usually
subject to arbitrage regulations.
5.35 DEBT SERVICE SCHEDULE- A table listing the annual payments
necessary to meet debt service requirements over the period of time the
bonds are to be outstanding.
5.36 DEFAULT- Failure to make timely payment of principal and interest or to
comply with other features of the indenture.
5.37 DEFEASANCE- Eliminating bonded indebtedness off an issuer's books
through creation of a portfolio of allowable securities sufficient to make all
debt service payments on pre-refunded, outstanding bonds.
5.38 DIRECT DEBT- The debt that a governmental agency incurs in its own
name.
5.39 DISCOUNT- The amount by which par value exceeds the price paid for a
security which generally represents the difference between the nominal
interest rate and the actual or effective return to the investor.
5.40 DOUBLE-BARRELED BOND- Traditionally, a bond secured by a defined
source of revenue plus the full faith and credit of the issuer. The term is
occasionally, although erroneously, used to refer to bonds secured by any
two sources of pledged revenue.
5.41 DOWNGRADE- The lowering of a bond rating by a rating service. A
downgrade would be considered if the issuer encountered major financial
difficulties or an economic decline, which may be viewed by the rating
service as reducing the credit quality of the bond issue.
5.42 EFFECTIVE INTEREST RATE- The actual rate of interest earned by the
investor on bonds purchased, after allowing for premiums, discounts, or
accrued interest over the period of the investment.
5.43 FEASIBILITY STUDY-A report by an independent expert on the economic
need and practicality of a proposed debt program.
OCSD 18-16-16
5,44 FINANCIAL ADVISOR- Performs analysis as to the appropriateness of a
bond sale and, if the governing body of the agency determines that a bond
sale is necessary, they then assist in its planning and preparation.
5.45 FLOATER- A security sold with a variable rate that changes at intervals
ranging from daily to annually.
5.46 FULL FAITH AND CREDIT- The pledge of a government's general taxing
power to pay off its debt obligations.
5.47 GENERAL OBLIGATION BONDS- Bonds which are secured by the full
faith and credit of the issuer. General obligation bonds are secured by a
pledge of a portion of the ad valorem taxing power. Such bonds constitute
debts of the issuer and require approval by election prior to issuance.
5.48 GUARANTEED INVESTMENT CONTRACT (GIC)- A group annuity
contract designed to provide guarantees of principal and interest on funds
deposited with an insurance company for a specified period.
5.49 HIGH GRADE BONDS- Top-rated bonds, usually triple-A.
5.50 INDENTURE- Legal document describing the terms and conditions of a
bond offering, the rights of the bondholder, and the obligations of the issuer
to the bondholder. The document is alternatively referred to as a bond
resolution or deed of trust.
5.51 INTEREST RATE SWAP-An agreement between two parties to exchange
future flows of interest payments. Swap payments may be based on actual
bond payments and/or based on various market indices.
5.52 INVERTED YIELD CURVE- When short-term rates are higher than long-
term rates.
5.53 INVESTMENT GRADE- The broad credit designation given bonds which
have a high probability of being paid. Such bonds, have few, if any,
speculative features and are rated by the rating agencies in one of their top
four categories, ranging from triple-A to BBB and Baa.
5.54 ISSUER- A state, political subdivision, agency, or authority that borrows
money through the sale of bonds or notes.
5.55 JUNIOR LIEN BONDS- Bond with a subordinate claim against pledged
revenues.
5.56 LETTER OF CREDIT- An agreement, usually with a commercial bank, to
guarantee demands for payment upon compliance with conditions
OCSD 18-16-17
established in the agreement. Bank letters of credit are typically used as
additional sources of security and liquidity with variable rate obligations.
5.57 LIQUIDITY-The ability to convert assets, such as investments, readily into
cash.
5.58 MATURITY- The date on which the principal amount of a security is due
and payable to the certificate holder.
5.59 NEGOTIATED SALE- The sale of a new issue of municipal securities by
an issuer through an exclusive agreement with a previously selected
underwriter or underwriting syndicate. A negotiated sale should be
distinguished from a competitive sale, which requires public bidding by the
underwriters. Primary points of negotiation for the issuer are the interest
rate and purchase price, which reflect the issuer's cost of offering its
securities in the market.
5.60 NET INTEREST COST(NIC) -Traditional method of calculating an issuer's
borrowing cost. NIC is derived by adding the total volume of interest
payments for the entire offering and dividing by the amount of certificates
outstanding times the years they are outstanding.
5.61 NET PRESENT VALUE SAVINGS- Present value of gross savings
discounted at the refunding bond yield to the closing date plus accrued
interest less any contribution from a reserve or debt service fund and
anticipated loss investment earnings.
5.62 NOTES- A written, short-term promise of the issuer to repay a specified
principal amount on a certain date, together with interest at a stated rate,
or according to a formula for determining that rate, payable from a defined
source of anticipated revenue. Notes usually mature in less than five
years. Notes are used to cover seasonal cash flow needs or interim
financings.
5.63 OFFICIAL STATEMENT (OS) - A document published by the issuer who
generally discloses material information on a bond issue, including the
purpose of the bond issue, how the bonds will be repaid, and the financial,
economic, and demographic characteristics of the issuer. Investors may
use this information to evaluate the credit quality of the bonds.
5.64 ORIGINAL ISSUE DISCOUNT (OID) - The discount from par at which a
new issue comes to market. For tax-exempt bonds, the capital gain
represented by the OID is deemed tax-exempt by the IRS.
5.65 OVERLAPPING DEBT- The issuer's share of the debt of other local units.
OCSD 18-16-18
5.66 PAR VALUE- The principal amount of a security, which must be paid at
maturity. Par value is also referred to as the face amount of a security.
5.67 PARITY BONDS- Separate bond issues that have the same lien against
P g
pledged revenues.
5.68 PAY-AS-YOU GO BASIS- The financial policy of a municipality that
finances all capital outlays from current revenues rather than from
borrowing.
5.69 PAYING AGENT- The entity responsible for the payment of principal and
interest on municipal obligations on behalf of the issuer. The paying agent
is usually a bank or trust company.
5.70 PLEDGED REVENUES- Funds obligated for the payment of debt service
and other deposits as required by the bond contract.
5.71 PRELIMINARY OFFICIAL STATEMENT (POS)- A preliminary version of
the official statement which is used by the issuer or underwriter to describe
the proposed issue of municipal bonds prior to the determination of an
interest rate and offering price. The preliminary official statement is a
marketing tool used to gauge buyer's interest in the issue and is relied upon
by potential purchasers in making their investment decisions.
5.72 PREMIUM-The amount by which the price paid for a security exceeds par
value, generally representing the difference between the nominal interest
rate and the actual or effective return to the investor.
5.73 PRINCIPAL- The par value or face amount of a bond payable or issue of
bonds payable on stated dates of maturity.
5.74 PRIMARY MARKET- The market for new issues of municipal securities.
5.75 PRIVATE PLACEMENT- An original issue of municipal securities sold
directly to an institutional or private investor by way of a negotiated sale
rather than through a public offering.
5.76 RATE CONVENANT- A bond indenture provision requiring rate changes
necessary to meet annual debt service payments.
5.77 RATING AGENCIES- Credit quality evaluation of an issuer's securities
made by independent rating services. The three primary rating agencies
with regard to municipal debt are Moody's Investors Services, Standard &
Poor's Corporation, and Fitch.
OCSD 18-16-19
5.78 RATINGS- Evaluations of the credit quality of obligations usually made by
independent rating services. Ratings generally measure the probability of
the timely repayment of principal and interest on municipal obligations.
The higher the credit rating, the more favorable the effect on the
marketability of the security.
5.79 REDEMPTION- A transaction in which the issuer pays an outstanding
obligation at a specified price, usually at or above par prior to the specified
maturity date. Also known as a call.
5.80 REFUNDING- Selling a new bond issue for redemption or defeasance of
an outstanding bond issue. There are generally two reasons for refunding:
to reduce the issuer's interest costs or to remove a burdensome or
restrictive covenant imposed by the terms of the bonds being refinanced.
5.81 REGISTRAR: The person or entity responsible for maintaining records on
behalf of the issuer for the purpose of noting the owners of registered
obligations. The paying agent frequently performs this function.
5.82 REVENUE BONDS- Bonds payable from a specific source of revenue and
which do not pledge the full faith and credit of the issuer.
5.83 SECONDARY MARKET- Market for bonds previously offered and sold.
5.84 SENIOR LIEN OBLIGATIONS: Obligations having a prior claim on pledge
revenues.
5.85 SERIAL BONDS- Bonds of an issue in which some bonds mature in each
year over a period of years.
5.86 SETTLEMENT- Delivery of and payment for a new issue of municipal
bonds. Settlement usually occurs within 30 days after the bonds are
awarded to the underwriters, which allows for the printing of the bonds and
the completion of certain legal matters.
5.87 SETTLEMENT DATE- The date used in price and interest computations,
usually the date of delivery.
5.88 SINKING FUND- A fund established in a bond indenture that contains
money available to call bonds prior to maturity.
5.89 STANDBY BOND PURCHASE AGREEMENT- A legal agreement with a
commercial bank or trust company whereby the bank agrees to purchase
demand bonds which the remarketing agent was unable to remarket to
other parties and chose not to purchase for itself.
OCSD 18-16-20
5.90 SUBORDINATE (JUNIOR) LIEN OBLIGATIONS- Obligations having a
subordinate claim against pledged revenues.
5.91 TAX-EXEMPT OBLIGATIONS- Obligations whose interest is exempt from
federal income taxation pursuant to Section 103 of the Internal Revenue
Code, and may or may not be exempt from state income or personal
property taxation in the jurisdiction where issued.
5.92 TERM BONDS- Bonds coming due in a single maturity. The issuer usually
agrees to make periodic payments into a sinking fund for mandatory
redemption of term bonds before maturity or for payment at maturity.
5.93 TRUE INTEREST COST (TIC) - The present value borrowing cost of the
issuer is reflected by taking into account the costs of issuance and
underwriting. TIC is similar to NIC, but also accounts for the time value of
money.
5.94 TRUSTEE-A financial institution with trust powers which acts in a fiduciary
capacity for the benefit of bond holders in enforcing the terms of the bond
indenture agreement.
5.95 TRUST INDENTURE- A contract between the issuer of municipal
securities and a trustee, serving for the benefit of the security holders.
5.96 UNDERWRITER- A dealer at a bank or brokerage house who buys an
agency's bonds in order for the firm's sales force to resell them to both
institutional and retail investors. The underwriter may acquire the bonds
either by negotiation with the issuer, or by award on the basis of
competitive bidding.
5.97 UNDERWRITERS COUNSEL- A lawyer involved in the transaction, who
represents the securities firm buying an issuer's bonds.
5.98 VARIABLE RATE OBLIGATIONS- A security whose interest rate is reset
periodically by the remarketing agent according to a preset formula defined
in the indenture agreement. The variable interest rate, also known as a
"floater", is determined by the remarketing agent as the level at which all
bonds trade at par.
5.99 YIELD CURVE- Graph displaying the term structure of interest rates by
plotting the yields of all bonds of the same quality with maturities ranging
from shortest to the longest available.
5.100 YIELD TO MATURITY- The rate of return to the investor earned from
payments of principal and interest, which is compounded semiannually and
assumes that interest paid is reinvested at the same rate. Yield to maturity
takes into consideration the time value of the investment.
OCSD 18-16-21
5.101 ZERO-COUPON BONDS- Bonds sold at a deep discount from par, which
pay no interest and appreciate to full value at maturity. Also known as
capital appreciation bonds.
OCSD 18-16-22