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TRANSCRIPT
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Morgan Keegan
Build America BondsFederally Subsidized Taxable Municipal Bonds
Virginia Government Finance Officers AssociationVirginia Government Finance Officers AssociationCentral Regional Training EventMarch 16, 2010
Kevin D. Rotty, Managing Director(804) 225‐[email protected]
Dianne C. Klaiss, First Vice President(804) 225‐1107
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Table of Contents
Overview of American Recovery and Reinvestment Act I
Overview of Build America Bonds
Recovery Zone Economic Development Bonds
II
III
Execution Details of Build America Bonds
Contemplated Changes
IV
VContemplated Changes V
Information contained in this presentation is provided for illustrative and discussion purposes. Any description of terms or rates contained herein is intended to provide theclient with a better understanding of relevant funding issues. This presentation does not constitute a commitment on the part of Morgan Keegan to enter into any specifictransaction. Changes in market factors or the receipt of further information may force a change in assumptions and therefore the suggestions and recommendations
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contained herein. Additionally, the internal approval that Morgan Keegan would require as a condition to any formal undertaking has not been obtained.
This presentation may not be reproduced or distributed without the written permission of Morgan Keegan.
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Overview of IAmerican Recovery and Reinvestment Act of 2009 I
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Financial Alphabet Soup
I F b 2009 C d th A i R d R i t t A t• In February 2009, Congress passed the American Recovery and Reinvestment Actof 2009 (“ARRA” or “Stimulus”). The Act created the following new classes of bonds:
• Build America Bonds (BABs)• Recovery Zone Economic Development Bonds (RZEDBs)• Qualified School Construction Bonds (QSCBs)• Qualified Zone Academy Bonds (QZABs)• Clean Renewable Energy Bonds (CREBs)• Qualified Energy Conservation Bonds (QECBs)Q gy (Q )• Recovery Zone Facility Bonds (RZFBs)• Tribal Economic Development Bonds TEDBs)• Bank Qualification Increase to $30 Million• Bank Qualification Increase to $30 Million• Temporary Repeal of Alternative Minimum Tax for Private Activity Bonds
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IIOverview of Build America Bonds II
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Build America Bonds – Federally Subsidized Taxable Municipal Bonds
• Congress enacted BABs to broaden the market for municipal debt and toprovide a more efficient subsidy than tax exemption while encouraging new publiccapital projects.
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The BAB Program Broadens the Investor Base
Most tax‐exempt bonds are held by U.S. individuals directly and through funds. BABs open up a new asset class of “U.S. Sub‐Sovereign” debt to all investors.
Expanded Universe of Municipal Debt
Taxable Bond Funds
Investment Managers
Expanded Universe of Municipal Debt Investors
Banks, GSEs and S&Ls, 10% Other, 2%
Investment Managers
Public Pension Funds
Private Pension Funds
C ti
Mutual and Money Market Funds 37%
Insurance Companies,
16% Corporations
Life Insurance Companies
Endowments of Not‐for‐Profits
Funds, 37%
Individuals, 35%
16%
State and Local Governments
Commercial Banks
Non‐U.S. Corporations, Banks, Sovereign Funds and Individuals
35%
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2008 Data from Federal Reserve
Sovereign Funds and Individuals
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Municipal Bonds have Experienced Lower Default Rates than Corporate Bonds with the Same Credit Ratings
Moody’s 10‐year Cumulative Default Rates, 1970‐2006
Moody’s Rating
Corporate Defaults Municipal DefaultsMunicipal Defaults
Corporate / Municipal
Aaa 0.5208% 0.0000% ∞
Aa 0.5225% 0.0617% 8.5x
A 1.2870% 0.0323% 39.8x
Source: Moody’s report “The U S Municipal Bond Rating Scale: Mapping to the Global Rating Scale and Assigning Global Scale ratings
Baa 4.6366% 0.1349% 34.4x
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Source: Moody s report, The U.S. Municipal Bond Rating Scale: Mapping to the Global Rating Scale and Assigning Global Scale ratings to Municipal Obligations” – March, 2007
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Build America Bond Transactions are Being Completed Nationwide
StatesPar Amount(US$ mil)
Number ofIssues
Mkt.Share
Average Deal Size (US$ mil)
California 15,630.6 72 24.4 217.1
BABs by State2009
StatesPar Amount(US$ mil)
Number ofIssues
Mkt.Share
Average Deal Size (US$ mil)
Georgia 620.6 5 1.0 124.1
BABs by State (cont.)2009
Texas 6,994.9 34 10.9 205.7New York 5,776.1 16 9.0 361.0Illinois 3,687.4 87 5.8 42.4New Jersey 2,250.1 16 3.5 140.6Florida 2,184.4 22 3.4 99.3Massachusetts 1,963.0 6 3.1 327.2Ohio 1 850 9 34 2 9 54 4
Arizona 618.8 11 1.0 56.3Louisiana 531.9 8 .8 66.5Indiana 530.3 11 .8 48.2Iowa 489.3 30 .8 16.3South Carolina 467.3 15 .7 31.2Minnesota 442.9 48 .7 9.2Nebraska 333 3 13 5 25 6Ohio 1,850.9 34 2.9 54.4
Washington 1,844.4 26 2.9 70.9Colorado 1,559.2 21 2.4 74.2Missouri 1,362.8 29 2.1 47.0Kentucky 1,355.1 29 2.1 46.7Virginia 1,336.0 17 2.1 78.6Pennsylvania 1,325.1 15 2.1 88.3
Nebraska 333.3 13 .5 25.6Tennessee 308.8 14 .5 22.1Oklahoma 298.6 12 .5 24.9New Hampshire 226.4 3 .4 75.5Alabama 218.4 5 .3 43.7Delaware 179.3 1 .3 179.3Mississippi 161.6 2 .3 80.8
Maryland 1,307.9 18 2.0 72.7Utah 1,285.2 19 2.0 67.6Nevada 1,212.2 8 1.9 151.5Michigan 1,169.4 30 1.8 39.0D. of Columbia 956.3 3 1.5 318.8Connecticut 844.2 10 1.3 84.4Kansas 806 8 29 1 3 27 8
Alaska 160.1 2 .3 80.1South Dakota 141.0 7 .2 20.1Hawaii 91.2 2 .1 45.6New Mexico 57.9 2 .1 29.0North Dakota 21.6 3 .0 7.2Oregon 21.5 2 .0 10.8Wyoming 12 7 2 0 6 4Kansas 806.8 29 1.3 27.8
Wisconsin 781.4 44 1.2 17.8North Carolina 703.4 7 1.1 100.5
Wyoming 12.7 2 .0 6.4
Industry Total 64,119.9 790 100.0 81.2
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Approximately 30% of Municipal Debt is Now Being Sold as Taxable Bonds
Annual Issuance of U S Municipal Debt
$400
$450Annual Issuance of U.S. Municipal Debt
$250
$300
$350
s
$150
$200
$250
Billion
s
$50
$100
$
$0
2006 2007 2008 2009 YTD (Dec 1)Tax‐Exempt New Money Exclusively Tax‐Exempt Refunding Exclusively
d f di C bi i
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Tax‐Exempt New Money and Refunding Combination Tax Exempt AMTTaxable
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Build America Bonds – Federally Subsidized Taxable Municipal Bonds
• Congress enacted BABs to broaden the market for municipal debt and to provide amore efficient subsidy than tax exemption while encouraging new public capitalprojects.
• Permits state and local governments to sell taxable bonds instead of tax‐exemptbonds and receive periodic payments from the US Treasury equal to 35% of theinterest on the bonds for the life of the debtinterest on the bonds for the life of the debt.
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Why a 35% Subsidy?
Dominant Purchasers of Tax‐Exempt Debt
• Instead of allowing the high net worth investor to realize the tax benefit, the IRS pays the same incentive via the subsidy to the Issuer.
T E t B d T bl B dTax-Exempt Bonds Taxable Bonds
Interest Rate of Bonds 2.60% 4.00%
Investor Tax Bracket (35%) 0 00% 1 40%Investor Tax Bracket (35%) 0.00% 1.40%
Yield to Investor 2.60% 2.60%
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Build America Bonds – Federally Subsidized Taxable Municipal Bonds
• Congress enacted BABs to broaden the market for municipal debt and toprovide a more efficient subsidy than tax exemption while encouraging newpublic capital projects.
• Permits state and local governments to sell taxable bonds instead of tax‐exemptbonds and receive periodic payments from the US Treasury equal to 35% of theinterest on the bonds for the life of the debtinterest on the bonds for the life of the debt.
• Debt must be issued by January 1, 2011.
• There are no limits on the amount of debt that may be issued except forRecovery Zone Economic Development Bonds, a special category of BABs.
• To date, over $71 billion of BABs have been sold with a large range of sizes andstructures. In Virginia $1.77 billion of BABs have been issued.
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Virginia Activity
Si UVA i d th fi t BAB i i th ti i A il 2009 th h b
Sale Date Par Issuer Issue Description Senior Competitive or
• Since UVA issued the first BABs, issuance in the nation in April 2009, there have been27 subsequent issues in the Commonwealth for a total issuance amount of $1.777billion.
($000s) Manager Negotiated (C/N)4/15/2009 $100.00 University of Virginia Rector and Visitors General Revenue Pledge Bonds Morgan Stanley N4/15/2009 150 University of Virginia Rector and Visitors General Revenue Pledge Bonds JP Morgan N6/23/2009 44.5 City of Alexandria, Virginia GO Capital Improvement Bonds Morgan Keegan C7/14/2009 15.905 Spotsylvania County, Virginia GO Public Improvement Bonds Morgan Keegan C7/29/2009 27.42 City of Lynchburg, Virginia GO Public Improvement Bonds Morgan Keegan N8/4/2009 31.435 Arlington County Industrial Development Authority Revenue Bonds Wachovia C9/9/2009 14 935 James City County Economic Development Authority Lease Revenue Bonds Morgan Keegan C9/9/2009 14.935 James City County Economic Development Authority Lease Revenue Bonds Morgan Keegan C9/23/2009 3.18 Town of Blacksburg, Virginia GO Capital Improvement Bonds Morgan Keegan C10/7/2009 21.285 Virginia General Obligation Bonds Barclays Capital C10/7/2009 23.715 Virginia General Obligation Bonds Morgan Keegan C10/14/2009 202.2 Fairfax County, Virginia Public Improvement Bonds Barclays Capital C10/16/2009 22.195 Town of Leesburg, Virginia General Obligation Bonds Morgan Keegan N10/21/2009 60.95 Virginia Transportation Board Transportation Revenue Bonds Morgan Keegan C10/28/2009 27 City of Suffolk, Virginia GO Public Utility Bonds Wells Fargo N11/4/2009 134.725 Hampton Roads Sanitation District Wastewater Revenue Bonds JP Morgan N11/5/2009 65.965 Virginia Resources Authority (VRA) Infra & St Moral Oblig Rev Bonds Citi N12/2/2009 390.575 Virginia College Building Authority Educational Facil ities Rev Bonds JP Morgan C12/8/2009 9.8 Henrico County, Virginia Water and Sewer System Revenue Bonds; RZEDB Morgan Keegan N1/14/2010 14.125 Hanover County, Virginia GO Public Improvement Bonds Davenport N1/14/2010 117.65 City of Norfolk, Virginia GO Capital Improvement Bonds Morgan Keegan N2/10/2010 256.71 Virginia Public Building Authority Public Facil ities Revenue Bonds JP Morgan C3/3/2010 2 475 Stafford Co Indus Dev Auth Revenue Bonds; BAB US Piper N3/3/2010 2.475 Stafford Co Indus Dev Auth Revenue Bonds; BAB US Piper N3/3/2010 4.85 Stafford Co Indus Dev Auth Revenue Bonds; BAB US Piper N3/3/2010 12.26 Stafford Co Indus Dev Auth Revenue Bonds; RZEDB US Piper N3/3/2010 13.305 Stafford Co Indus Dev Auth Revenue Bonds; RZEDB US Piper N3/3/2010 1.52 City of Hampton, Virginia GO Public Improvement Bonds; RZEDB Morgan Keegan N3/3/2010 5.67 City of Hampton, Virginia GO Public Improvement Bonds; BAB Morgan Keegan N3/4/2010 2.68 City of Roanoke, Virginia GO Public Improvement Bonds; RZEDB Morgan Keegan N
28 Issues for a total par amount of $1.777 billion
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BABs are Funding New General Infrastructure Projects
HAS TO BE NEW MONEY
Generally will Qualify for BABs
CANNOT BE REFINANCINGS
Generally will Not Qualify for BABs
General Obligation Bonds of State and Local Governments for Schools, Roads and Other Infrastructure Purposes
ALSO NOT PERMITTED
Private Colleges
Private Hospitalsp
Dedicated Tax Bonds• Sales Tax• Personal Income Tax• Highway Taxes
Private Hospitals
Housing Bonds
Airportsg y
Water and Sewer Bonds
Toll Roads
Government owned power authorities
Ports
Corporate Industrial Development Bonds (IDBs)
Government owned power authorities
Public universities
Public hospitals
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Issuers have New Decisions on Funding Qualified Projects
Governmental Bond that
Qualifies for Tax Exemption
Traditional Taxable
or
Tax‐Exempt Bond Build America Bond
New Money Projects Refundings and Working Capital*
Recovery Zone EconomicDevelopment Projects
Direct Issuer Subsidy of 45%
Direct Issuer Subsidy of 35%
Working Capital
Investor Tax Credit of 35%
Development ProjectsThat Receive Volume Cap
Subsidy of 45% of Interest
Subsidy of 35%of Interest
Credit of 35% of Interest
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*Issuers can elect to sell BABs with tax credits on qualified new money projects in lieu of a direct subsidy, but doing so would increase their net borrowing costs in most situations.
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Tax‐Exempt VS BABs Yield Curves as of 3/15/2010
•BABs may be more attractive for longer maturities in some cases
'AA' Taxable Yield Curve, AA' Taxable Yield Curve (After Subsidy) and 'AA' Tax‐Exempt MMD Yield Curve
5.00
6.00
7.00
2.00
3.00
4.00
0.00
1.00
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
•As the bond market is constantly fluctuating so does the BABs benefit
AA Tax‐Exempt AA Taxable w/ Subsidy AA Taxable
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As the bond market is constantly fluctuating so does the BABs benefit
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Case Study – City of Lynchburg
Project: General Governmental Public Improvements
Amount: $45,629,055
Approach:
•Determine structure
•If and how much Build America Bonds would be sold
•Compare tax‐exempt versus taxable interest rates including subsidy
•Determine break point
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City of Lynchburg Case Study
f
• Just prior to pricing, tax‐exemptbonds were the preferred choice
Approx. Maturity Amts Taxable Yield
65% of Taxable
Tax‐Exempt Yield Spread
2010 $990,000 1.80 1.17 0.57 -0.602011 1,385,000 2.10 1.37 0.89 -0.482012 1,390,000 2.57 1.67 1.09 -0.582013 1,395,000 3.12 2.03 1.46 -0.57
for maturities from 2010 – 2020while BABs provided the lowestyield from 2020 to 2039.
2014 1,405,000 3.75 2.44 1.90 -0.542015 1,410,000 4.00 2.60 2.23 -0.372016 1,420,000 4.30 2.80 2.50 -0.302017 1,435,000 4.70 3.06 2.77 -0.292018 1,445,000 5.06 3.29 3.00 -0.292019 1,465,000 5.21 3.39 3.20 -0.19
• Final Issue Size was $44,650,000• Sold Bonds in two series
2020 1,480,000 5.26 3.42 3.42 0.002021 1,500,000 5.36 3.48 3.58 0.102022 1,520,000 5.41 3.52 3.72 0.202023 1,540,000 5.46 3.55 3.83 0.282024 1,565,000 5.51 3.58 3.93 0.352025 1,590,000 5.56 3.61 4.03 0.42
• $17,230,000 Tax‐Exempt• $27,420,000 Taxable
2026 1,610,000 6.36 4.13 4.23 0.102027 1,630,000 6.36 4.13 4.33 0.202028 1,655,000 6.36 4.13 4.42 0.292029 1,675,000 6.36 4.13 4.51 0.3820302031203220332034 6,785,000 4.76 0.43203520362037
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20382039 7,725,000 6.66 4.33 4.87 0.54
$44,015,000
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City of Lynchburg Case Study
T E T E / T E /Tax‐Exempt BABs Debt Service
Tax‐Exempt D/S
Tax‐Exempt / BABs Principal
Tax‐Exempt / BABs Interest 35% Subsidy Total Gross Savings Net PV Savings
6/30/2010 $1,066,284 ‐ $1,244,495 ‐$275,908 $968,588 $97,697 $95,8376/30/2011 4,220,420 1,965,000.00 2,637,301 ‐591,231 4,011,070 209,350 199,1296/30/2012 4,577,195 2,375,000.00 2,584,076 ‐591,231 4,367,845 209,350 191,0956/30/2013 4,517,020 2,355,000.00 2,543,901 ‐591,231 4,307,670 209,350 183,3856/30/2014 5 072 645 2 975 000 00 2 479 526 591 231 4 863 295 209 350 175 9866/30/2014 5,072,645 2,975,000.00 2,479,526 ‐591,231 4,863,295 209,350 175,9866/30/2015 4,967,758 2,955,000.00 2,394,638 ‐591,231 4,758,407 209,350 168,8856/30/2016 4,869,195 2,930,000.00 2,321,076 ‐591,231 4,659,845 209,350 162,0716/30/2017 4,585,908 2,730,000.00 2,237,788 ‐591,231 4,376,557 209,350 155,5326/30/2018 4,481,070 2,720,000.00 2,142,951 ‐591,231 4,271,720 209,350 149,2576/30/2019 4,371,430 2,715,000.00 2,038,311 ‐591,231 4,162,080 209,350 143,2356/30/2020 3 524 128 1 970 000 00 1 936 008 ‐591 231 3 314 777 209 350 137 456
Result
Gross Savings$4.4 million
6/30/2020 3,524,128 1,970,000.00 1,936,008 591,231 3,314,777 209,350 137,4566/30/2021 3,442,795 1,980,000.00 1,844,676 ‐591,231 3,233,445 209,350 131,9106/30/2022 3,364,625 1,995,000.00 1,751,506 ‐591,231 3,155,275 209,350 126,5876/30/2023 3,213,350 1,930,000.00 1,657,014 ‐577,400 3,009,614 203,736 118,2566/30/2024 2,798,050 1,585,000.00 1,568,988 ‐549,146 2,604,842 193,208 107,6186/30/2025 2,749,350 1,600,000.00 1,484,578 ‐519,602 2,564,976 184,374 98,5506/30/2026 2,700,050 1,615,000.00 1,396,562 ‐488,797 2,522,765 177,285 90,934
Net Present Value Savings $2.9 million
/ / , , , , , , , , , , ,6/30/2027 2,646,875 1,635,000.00 1,302,614 ‐455,915 2,481,699 165,176 81,3356/30/2028 2,584,625 1,655,000.00 1,203,749 ‐421,312 2,437,437 147,188 69,5586/30/2029 2,521,375 1,675,000.00 1,103,683 ‐386,289 2,392,394 128,981 58,5016/30/2030 2,462,000 1,700,000.00 1,002,264 ‐350,792 2,351,472 110,528 48,1156/30/2031 1,996,750 1,310,000.00 907,884 ‐317,759 1,900,124 96,626 40,3516/30/2032 1,955,625 1,335,000.00 820,466 ‐287,163 1,868,303 87,322 34,9966/30/2033 1,913,250 1,360,000.00 731,397 ‐255,989 1,835,408 77,842 29,9416/30/2034 1,869,625 1,385,000.00 640,674 ‐224,236 1,801,438 68,187 25,1716/30/2035 1,829,625 1,415,000.00 548,134 ‐191,847 1,771,287 58,338 20,6706/30/2036 1,793,000 1,450,000.00 453,446 ‐158,706 1,744,740 48,260 16,4136/30/2037 1,749,750 1,480,000.00 356,610 ‐124,813 1,711,796 37,954 12,3916/30/2038 1,709,875 1,515,000.00 257,625 ‐90,169 1,682,456 27,419 8,595
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6/30/2039 1,668,250 1,550,000.00 156,327 ‐54,714 1,651,612 16,638 5,0126/30/2040 1,629,750 1,590,000.00 52,550 ‐18,392 1,624,157 5,593 1,628
$92,851,647 $57,450,000 $43,800,811 ‐$12,567,811 $87,438,506 $4,444,554 $2,888,397
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IIIRecovery Zone Economic Development Bonds III
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Recovery Zone Economic Development Bonds Receive a 45% Interest Subsidy
Qualifications for a Recovery Zone Economic Development Bond:
• Meet all of the general requirements of a Build America Bond, including issuance as a tax‐exempt governmental bond.
• Receive a portion of the $10 billion of volume cap allocated to counties and large cities. Virginia’s portion totaled $104.4 million.
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Recovery Zone Economic Development Bond Volume Cap Allocations
A di t th i i l ll t t i di id l ll ti f hi h f• According to the original allotments, individual allocations range from a high of nearly $10 million for Chesterfield and Henrico to a low of $0 for numerous localities. Below is a sampling:
Locality Allocation
Chesterfield County $9,998,000
Henrico County $9,800,000
Hano er Co nt $3 308 000Hanover County $3,308,000
City of Roanoke $1,602,000
Stafford County $385,000
Northampton County $98,000p y ,
City of Radford $27,000
King George County $0
• The following municipalities have or plan to take advantage of their allocations:• The following municipalities have or plan to take advantage of their allocations:Cape Charles Chesapeake Chesterfield Frederick Fredericksburg Front Royal Hampton Henrico
Henry Herndon Loudoun Manassas
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Norfolk Petersburg Prince George RoanokeTappahannock Virginia Beach Wythe
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Recovery Zone Economic Development Bonds Receive a 45% Interest Subsidy
Qualifications for a Recovery Zone Economic Development Bond:
• Meet all of the general requirements of a Build America Bond, including issuanceas a tax‐exempt governmental bond.
• Receive a portion of the $10 billion of volume cap allocated to counties and largecities. Virginia’s portion totaled $104.4 million.
• Issue bonds prior to January 1, 2011.• Use all bond proceeds (net of up to 2% costs of issuance and funding a reasonablyp ( p g yrequired reserve) for Qualified Economic Development Purposes in an issuerdesignated Recovery Zone.
• Federal Davis‐Bacon prevailing wage rules apply to projects financed with RZEDBs.
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Recovery Zone Economic Development Bonds Receive a 45% Interest Subsidy
Qualified Economic Development Purposes
Any expenditures for purposes of promoting development or other economic activity in a Recovery Zone, including:
• Capital expenditures paid or incurred with respect to property located in the Recovery Zone
• Expenditure for public infrastructure and construction of public facilities• Expenditures for job training and educational programs• Generally, capital and working capital expenditures to promote development and economic activity in a Recovery Zoney y
The determination of what constitutes a Qualified Economic Development Purpose may be made by an issuer in any reasonable manner as it shall determine in good faith in its discretion.
Qualified expenditures include reimbursements, but RZEDBs cannot be used in a refunding except to refinance expenditures paid or incurred after ARRA enactment that were financed temporarily.
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Definition of a Recovery Zone
A Recovery Zone is
• Any area designated by the issuer as having significant poverty, unemployment, rate of home foreclosures, or general distress.
• Any area designated by the issuer as economically distressed by reason of the closure or realignment of a military installation pursuant to the Defense Base Closure and Realignment Act of 1990.
• Any area for which a designation as an empowerment zone or renewal community is in effect as of the effective date of ARRA, which effective date is February 17, 2009.
Any state, county or large municipality that receives a volume cap allocation may make a designation of a recovery zone in any reasonable manner as it shall determine in good faith in its discretion.g
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Case Study – County of Henrico
P j t W t d S I tProject: Water and Sewer Improvements
RZEDBs Amount: $9,800,000
• The County decided to take advantage of the low interest rate environment to fixThe County decided to take advantage of the low interest rate environment to fixtheir variable rate Virginia Resources Authority bonds. These Bonds amortized to2028.
• Concurrently, the County opted to use their Recovery Zone Allocation and financey, y p yimprovements to the water and sewer system which were already in the CIP.
• Henrico County designated three “recovery zones” in the immediate area wherethe improvements were being made.
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Case Study – County of Henrico
Fiscal YearSeries 2009A
D/S Series 2009B
D/S SubsidyTotal Debt
ServiceFiscal Year D/S D/S Subsidy Service6/30/2010 $350,002 $117,856 ($96,428) $371,4316/30/2011 $976,750 $328,902 ($269,101) $1,036,5506/30/2012 $976,750 $328,902 ($269,101) $1,036,5506/30/2013 $976,750 $328,902 ($269,101) $1,036,5506/30/2014 $2,151,750 $328,902 ($269,101) $2,211,550
• The County chose to “wrap” the recovery zone bonds around the fi d b d b i i
, , , ( , ) , ,6/30/2015 $2,148,250 $328,902 ($269,101) $2,208,0506/30/2016 $2,150,450 $328,902 ($269,101) $2,210,2506/30/2017 $2,148,763 $328,902 ($269,101) $2,208,5636/30/2018 $2,150,063 $328,902 ($269,101) $2,209,8636/30/2019 $2,150,163 $328,902 ($269,101) $2,209,963
fixed rate bonds by amortizing the taxable bonds from 2029 to 2036.
6/30/2020 $2,149,063 $328,902 ($269,101) $2,208,8636/30/2021 $2,150,000 $328,902 ($269,101) $2,209,8006/30/2022 $2,152,250 $328,902 ($269,101) $2,212,0506/30/2023 $2,150,750 $328,902 ($269,101) $2,210,5506/30/2024 $2,150,500 $328,902 ($269,101) $2,210,3006/30/2025 $2 151 250 $328 902 ($269 101) $2 211 0506/30/2025 $2,151,250 $328,902 ($269,101) $2,211,0506/30/2026 $2,147,750 $328,902 ($269,101) $2,207,5506/30/2027 $2,150,000 $328,902 ($269,101) $2,209,8006/30/2028 $2,152,500 $328,902 ($269,101) $2,212,3006/30/2029 - $1,418,902 ($269,101) $1,149,8006/30/2030 - $1,418,813 ($240,392) $1,178,421, , ( , ) , ,6/30/2031 - $1,416,688 ($210,017) $1,206,6716/30/2032 - $1,417,432 ($177,899) $1,239,5336/30/2033 - $1,416,822 ($144,672) $1,272,1496/30/2034 - $1,419,858 ($110,339) $1,309,5206/30/2035 - $1,421,372 ($74,759) $1,346,613
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6/30/2036 - $1,416,363 ($37,933) $1,378,430Total $35,533,752 $17,384,333 ($6,205,362) $46,712,723
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IVExecution Details of Build America Bonds IV
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Build America Bonds – Program Details
• Issuers of certain bonds that could be issued as tax‐exempt may irrevocably elect at issuance to have the bond designated a “Build America Bond” by filing an IRS Form 8038‐G
I h ld fil F 8038 CD 90 45 d b f h fi d i• Issuers should file Form 8038‐CD 90 to 45 days before each fixed interest payment date to receive subsidy payments on interest payment dates. Subsidy payments on variable rate bonds will be paid quarterly in arrears.
• The subsidy payments are only made on interest not on credit liquidity or swap• The subsidy payments are only made on interest, not on credit, liquidity or swap payments.
• Build America Bonds are not included in the calculation of whether an issuer’s tax‐exempt debt is Bank Qualifiedtax exempt debt is Bank Qualified.
• Federal Davis‐Bacon prevailing wage rules do not apply to projects financed with standard BABs, subsidy or credit, but do apply to Recovery Zone Economic Development Projects.p j
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BABs are Being Structured to Serve the Needs of the Municipal Market
• Most Build America Bond transactions have been structured with either multipleterm bonds, a combination of serial bonds and term bonds, or have been fullyserialized.
• Bonds can either be structured with traditional 10‐year calls or with make‐wholecalls.
• Most BAB issues are including an Extraordinary Redemption Provision to provide anit t t f i if C h l i l ti i th f texit strategy for issuer if Congress changes legislation in the future.
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Issuer Risks in BABs that Do Not Exist for Tax‐Exempt Bonds
Congress and the President could Change the Law to Reduce or Eliminate the Issuer Subsidy on Already Issued BABs.
• The legal mechanism by which the subsidy is paid the same as for income tax rebates requiring no appropriations.
• The ability to change law is equally applicable to issued tax‐exempt bonds which could be retroactively declared taxable, but the risk is borne by bondholders in that scenario.
• Many state and local governments now have issued many billions of dollars of BABs arg abl red cing this political risk ith e er iss anceBABs arguably reducing this political risk with every issuance.
• This risk can be partially mitigated with an extraordinary make‐whole call calculated using a higher spread than a normal make‐whole call.
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Issuer Risks in BABs that Do Not Exist for Tax‐Exempt Bonds
The Penalty for Breaking Tax Law with a Change in Use of the Financed Facility, Not Rebating Earned Arbitrage or Other Reason Falls Directly on the Issuer with a Potential Loss of Subsidy.y
• In contrast, for tax‐exempt bonds it is bondholders who bear this risk through the loss of tax exemption.
• There is a concern that the IRS would withhold the subsidy if a municipality had any outstanding federal tax issues.
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VContemplated Changes to the BABs Program V
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• Extend programs possibly indefinitely
Contemplated Changes to the BABs Program
• Extend programs, possibly indefinitely
• If extended, reduce subsidy (chatter about 28%)
• Modifying allowable uses such as current refundings and short‐term capitalexpenditures
• Possible deletion of Federal Davis‐Bacon Act requirements on RZEDBs
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