Stand-Alone Bond Financings
Bonds of the Authority are most often issued on a stand-alone basis. "Stand-alone" refers to the fact that the transaction is structured for one borrower at a time. Stand-alone bond issues can be structured with fixed or variable interest rates and with or without credit enhancement and/or ratings. For example, a bond issue may be enhanced by municipal bond insurance or a letter of credit if the benefits achieved will offset the additional cost of the enhancement premium. Bonds issued with variable interest rates traditionally require credit enhancement and liquidity agreements in the form of a bank letter of credit or municipal bond insurance.
Additionally, bond issues can be sold with or without a rating from one or more of the three primary rating services. A rating is based on the rating agency's assessment of the borrower's (or credit enhancer's) ability to repay the debt, and can also be modified as changes occur to the borrower's financial condition. The rating remains in place for the term of the bonds and can affect the marketability of an issue. When it is not cost effective to secure a rating, or when a rating is not available, the Authority may issue non-rated bonds.
The Authority's stand-alone financing programs can be completed using several different methods of sale. For larger projects, a public offering of bonds has been the most frequently used option. An alternative to selling securities in the public marketplace is the private placement of bonds, which has typically been used for smaller volume projects.
A negotiated public sale of bonds is appropriate for sales of complex financing structures, large issue size, variable rate bonds, those with programs or financial techniques that are new to investors, or is offered under volatile market conditions.
To complete a negotiated issue, a managing underwriter, approved by the Authority, is selected to work with other members of the financing team to establish contractual terms, obtain credit ratings and enhancement, if available and cost effective, and to structure a repayment schedule for the issue. The managing underwriter tests the interest rates and bond structure in the bond marketplace during the marketing of the bonds.
A private placement is considered for issues in which a public sale is either too expensive (e.g. smaller dollar volume) or likely to be ineffective (e.g. a borrower with a complicated history that requires direct contact with investors). To complete a private placement, the financing team structures the financing, develops a credit package and then drafts documents, which are distributed to the interested investors. Either a private placement agent is appointed to work on the transaction or, if requested by the borrower, the Authority will consider directly placing the bonds with a specified investor. The borrower, with the assistance of a placement agent or the Authority, negotiates the lowest interest cost and covenant requirements. Recent federal legislation revised laws that allow local community banks to purchase bonds at favorable rates.
The Stand-Alone Program requires the borrower to send correspondence to the Authority describing the project and requesting an application. Once the application is completed, the staff will present it to the Authority Board for approval.