Accessing Capital Markets for Capital Needs
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Lourdes Germán, fellow at the Lincoln Institute, followed with an overview of municipal access to capital markets for public projects.
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Accessing Capital Markets for Capital Needs
- 1. 1 April 2016 | Lourdes German April 2016 | Lourdes German | lgerman@lincolninst.edu Accessing Capital Markets For Capital Needs
- 2. 2 April 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. 3 April 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. 4 April 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. 5 April 2016 | Lourdes German WHO OWNS MUNICIPAL SECURITIES? 0.00 200.00 400.00 600.00 800.00 1,000.00 1,200.00 1,400.00 1,600.00 1,800.00 2,000.00 INDIVIDUALS&HOUSEHOLDS MUTUALFUNDS MONEYMARKETFUNDS CLOSED-ENDFUNDS EXCHANGE-TRADEDFUNDS NONFINANCIALCORPORATE BUSINESSES NONFARMNONCORPORATE BUSINESSES GOVERNMENT-SPONSORED ENTERPRISES STATE&LOCALGOVERNMENT GENERALFUNDS U.S.-CHARTEREDDEPOSITORY INSTITUTIONS FOREIGNBANKINGOFFICESIN U.S. BANKSINU.S.-AFFILIATED AREAS CREDITUNIONS PROPERTY&CASUALTY INSURANCECOMPANIES LIFEINSURANCECOMPANIES STATE&LOCALGOVERNMENT RETIREMENTFUNDS BROKERS&DEALERS OTHER 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
- 6. 6 April 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. 7 April 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. 8 April 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. 9 April 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. 10 April 2016 | Lourdes German EXAMPLES
- 11. 11 April 2016 | Lourdes German Town of Shrewsbury Municipal Purpose Loan of 2008 Bonds City of New Bedford 2008 State Qualified Bonds
- 12. 12 April 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. 13 April 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. 14 April 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 LGERMAN@LINCOLNINST.EDU
- 15. 15 April 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.