Debt Management Policy Review

Debt Management Policy Review The State Bond Commission shall designate representatives (to include the Debt Management Coordinator) to review this policy at least annually, and suggest revisions or updates as deemed appropriate. Source: §31-17-1, 31-18-3, 31-18-5, 31-17-153 (The remainder of this page left blank intentionally.) Page 24 of 38 Exhibit A Post Issuance Compliance Checklist (Name of Bond Issue) Overall Responsible Party for Debt Management Activities Bond Counsel Trustee Paying Agent Rebate Specialist Underwriter(s) A. Tax Law Requirements Document Reference Responsibility 1. General Matters a) Proof of filing Form 8038, 8038-G, or 8038-GC. b) Significant modification to bond documents that result in reissuance under Treas. Reg1.1001-3 requires the filing of a new 8038 etc. 2. Use of Proceeds: Governmental Bonds a) No private business use arrangement with private entity (including the federal government) beyond permitted de minimis amount unless cured by remedial action under Treas. Reg. 1.141-12. (i) Sale of facilities. (ii) Lease, concession, or similar arrangement. Page 25 of 38 (iii) Nonqualified management contract (Rev. Proc 97-13.) (iv) “Special legal entitlement” b) Remedial action may consist generally of redemption or defeasance of bonds (with notice of defeasance to IRS). c) Direct Payment BABs – 100% of available project proceeds must be used for capital expenditures after allowing for a reasonably required reserve fund and for costs of issuance not to exceed 2% as required by IRC 54AA. 3. Arbitrage a) Yield Restriction. IRC 148 and Treas Reg 1.148-2. Monies treated as bond proceeds may not be invested at a “materially higher” yield except for investments during a permitted temporary period, investments in a reasonable required reserve or replacement fund or investments of a “minor portion.” b) Rebate. IRC Section 148(f) (i) First installment of arbitrage rebate due no later than the fifth anniversary of bond issuance plus 60 days. (ii) Succeeding installments every five years. (iii) Final installment 60 days after retirement of last bond issue. (iv) Monitor expenditures, prior to semiannual target dates for six-month, 18 month, or 24 month spending exception. (v) Monitor expenditures generally against date of issuance expectations for three-year or five-year temporary periods or five-year hedge bond rules. 4. Record Retention a) Maintain general records relating to issue for longer of life of issue plus 3 years or life or refunding bonds plus 3 years. b) Maintain special records required by safe harbor for investment contracts or defeasance escrows. (Treasury Reg. Section 1.148.5. c) Maintain record of identification on issuer’s books and record of “qualified hedge” contract. Treas. Reg. Page 26 of 38 Sections 1.148-4(h)(2)(viii) and 1.148-11A(i)(3) d) Maintain records supporting the finding that the Direct Payment BABs are “qualified bonds” under Section 54AA. 5. Allocation of Bond Proceeds to Expenditures. a) Make any allocations of bond proceeds to expenditures needed under Treas. Reg. Sections 1.148-6(d) and 1.141-6(a) by 18 months after the later of the date the expenditure was made or the date the project was placed in service, but not later than the earlier of five years after the bonds were issued or 60 days after the issue is retired. B. Disclosure Requirements 1. SEC Rule 15c2-12 Requirements a) Name of Dissemination Agent, if applicable. b) Periodically determine that required filings have been prepared, sent to and received by the Repository. c) Information required to be provided to Repository: (i) Annual reports – Quantitative financial information and operating date disclosed in the Official Statement and Audited Financial Statements (ii) Other Information d) Material Event Disclosure. Notification by obligated person to each Repository, in timely manner, of any of the following events with respect to bonds, if event is material within the meaning of the federal securities laws: (i) Principal and interest payment delinquencies. (ii) Non-payment related defaults. (iii) Unscheduled draws on debt service reserves reflecting financial difficulties. (iv) Unscheduled draws on credit enhancements reflecting financial difficulties. (v) Substitution of credit or liquidity providers, or their failure to perform. (vi) Adverse tax opinions or events affecting the tax- exempt status of the bonds. (vii) Modifications to rights of holders of bonds. Page 27 of 38 (viii)Bond calls. (ix) Defeasances. (x) Release, substitution or sale of property securing repayment of bonds. (xi) Rating changes. 2. Notification to Underwriter of Bonds Determination of whether bond purchase agreement requires issuer of bonds to notify underwriters for a special period of time of any fact or event that might cause the official statement to contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading. 3. Information Required to be Filed with Other Entities. a) Trustee b) Rating agencies c) Bond insurer d) Credit Enhancer e) Examples of information to be filed: (i) Financial records (ii) Budgets (iii) Events of default (iv) Notices of redemption (v) Amendments to bond documents Exhibit B Derivatives Checklist General Information 1. Name of governmental entity entering into the derivative: 2. Type of derivative: 3. (a) Names of officials responsible for procurement of derivative: (b) Have the individuals received derivatives training? Yes □ No □. If yes, please describe. 4. (a) Names of person and backup(s) responsible for monitoring derivative: (b) Have the individuals received derivatives training? Yes □ No □. If yes, please describe. 5. Independent derivatives advisor, if any: 6. Independent derivatives monitor, if any: _________________________________________________________________________ 7. Counterparty(ies): ___________________________________________________________________ Authority of Contracting Governmental Entity 1. General authority/approval to enter into derivatives: 2. Date of specific approval for this derivative: 3. Date of most recent update to derivatives policy (Debt Management Policy): Purpose 1. Identify the purpose of entering into the derivative: □ Reduce exposure to possible higher interest rates on variable rate debt. □ Increase refunding savings □ Reduce net debt service costs on new money borrowing □ Receive upfront payment of refunding value □ Provide a better match of interest rate exposures on assets and liabilities □ Offset, in whole or in part, a prior derivative (e.g., swap LIBOR for BMA) □ Hedge the anticipated costs of future borrowings □ Optimize the mix of variable (or synthetic variable) to fixed (or synthetic fixed) rate borrowings □ Other 2. What debt, or asset, is the derivative being used to hedge? 3. Describe the derivative and explain how the purpose indicated above will be achieved. 4. Were other means considered for achieving this purpose? Yes □ No □ If yes, what other options were considered? Why is the derivative the best option? Terms 1. (a) Expected Trade Date: (b) Effective Date: (c) Scheduled Termination Date: (d) If derivative is an option, exercise date: 2. (a) Notional amount: (b) Principal amount of debt (or assets) being hedged: (c) If the debt is being hedged, will the derivative amortize on the same schedule as the debt? Yes □ No □ If no, on what basis was the notional amount and amortization schedule determined? (d) If debt is callable, will the derivative potentially interfere with the objective of the call feature? Yes □ No □ If yes, explain: 3. Governmental entity will make payments based on: fixed rate □ floating rate □ If floating rate: (a) BMA □ Libor □ Other (b) Identify the basis on which payments will be made: □ A percentage of an index. What percentage? □ A spread to an index. What spread? □ A percentage of an index AND a spread to an index? Define. (c) Frequency of payments: How closely do they correspond to debt or assets being hedged? (d) Can future market conditions cause the basis of these payments to change? Yes □ No □ If yes, explain: 4. Counterparty(ies) will make payments based on: fixed rate □ floating rate □ If floating rate: (a) BMA □ Libor □ Other (b) Identify the basis on which payments will be made: □ A percentage of an index. What percentage? □ A spread to an index. What spread? □ A percentage of an index AND a spread to an index? Define. (c) Frequency of payments: How closely do they correspond to debt or assets being hedged? (d) Can future market conditions cause the basis of these payments to change? Yes □ No □ If yes, explain: 5. Are any non-periodic payments being made by either party? Yes □ No □ If yes, explain: 6. Identify any other embedded options in the derivative: □ Knockout provisions □ Cancellation provisions □ Cap □ Floor □ Other (a) Describe: (b) Describe cost of such option and reason for inclusion: 7. Does the derivative have an imbedded loan concept? Yes □ No □ If yes, explain: If yes, describe procedure to be followed to determine and document the portions of payments under the derivative attributable to the imbedded loan and the portions that are “on- market.” 8. Specified Entity, if any (a) For governmental entity: (b) For counterparties: 9. Credit support will be provided by: (a) Governmental entity? Yes □ No □ If yes, name of provider: (b) Counterparty? Yes □ No □ If yes, name of provider: 10. Identify the methodology for determining any termination payments: □ First method and loss □ First method and market quotation □ Second method and loss □ Second method and market quotation □ Close out amount □ Other 11. Will the counterparty/ies have the right of optional termination? Yes □ No □ If yes, explain: 12. What is the source for any termination payments owed by the governmental entity? 13. What is the maximum estimated termination payment exposure? What, if any, sensitivity analysis was performed on potential termination payment amounts? 14. What is the priority for any termination payments, compared to bond payments, owed by the governmental entity? Risks 1. Which of the following risks will the Issuer assume upon execution of the derivative? (a) Amortization risk Yes □ No □ (b) Ratings risk Yes □ No □ (c) Basis risk Yes □ No □ (d) Tax risk Yes □ No □ (e) Interest rate risk Yes □ No □ (f) Counterparty risk Yes □ No □ (g) Termination risk Yes □ No □ (h) Market-access risk Yes □ No □ (i) Rollover risk Yes □ No □ (j) Credit risk Yes □ No □ (k) Other Yes □ No □ If Other, explain: 2. How much of the value, if any, of entering into the derivative will come from assuming any particular tax risk? 3. Will the derivative leverage any risks? Yes □ No □ If yes, explain: 4. Have stress tests been run or obtained on how the derivative could affect the budget and financial position under various market conditions? Yes □ No □ If yes, describe: 5. Explain how the risks being assumed will be mitigated: 6. How do the benefits of entering into the derivative outweigh the risks being assumed? 7. (a) Upon execution of this derivative, (i) How many derivatives will the state, directly or indirectly, have outstanding? (ii) What is the total notional amount of those derivatives? (iii) Does the total net out offsetting positions? Yes □ No □ If yes, explain: (b) The total (net of offsetting positions) notional amount is what percentage of the State’s (i) total long term debt? (ii) liquid assets? 8. Explain any expected impact of this derivative on the State’s credit standing. Documentation 1. Which ISDA documentation will be executed in connection with the derivative? □ Master Agreement □ 1992 □ 2002 □ Schedule □ Credit Support Annex □ Confirmation □ Other 2. (a) Governing Law: (b) Will the State consent to jurisdiction? Yes □ No □ If yes, where? 3. Will State waive sovereign immunity? Yes □ No □ 4. Will State waive its right to jury trial? Yes □ No □ 5. Who will deliver the legal opinion as to due authorization and legal enforceability for: (a) the State (b) the counterparty(ies) Counterparty(ies) 1. On what basis were counterparties selected? Competitive □ Negotiated □ 2. If competitive, (a) Who was the bidding agent? (b) How many firms were invited to bid? (c) How many firms bid? (d) Is bidding agent providing a closing certificate? Yes □ No □ (e) Were bids uniform? Yes □ No □ If no, how was the winning provider selected? (f) How was the bidding agent compensated? In what amount? Was the compensation separately stated? Yes □ No □ 3. If negotiated, (a) State reasons for negotiating derivatives: (b) State reasons for choosing counterparty: (c) Is an independent derivatives advisor providing a certificate as to fair market valuation? Yes □ No □ (d) Does the counterparty (or an affiliate of the counterparty) have another role in the transaction (e.g., underwriter)? Yes □ No □ If yes, describe role: (e) Does the counterparty (or an affiliate of the counterparty) have other business relationships with the State? Yes □ No □ If yes, describe: If yes, what comfort does the State receive that the terms of the derivative are independently determined without regard to the counterparty’s other roles? 4. Does counterparty have: (a) a rating that is within the two highest investment grade categories from a nationally recognized rating agency? Yes □ No □ (b) minimum capitalization of at least $100 million? Yes □ No □ (c) a demonstrated record of successfully executing municipal derivatives transactions? Yes□ No □ 5. What percentage of the State’s, direct or indirect, total notional amount of derivatives will be with the same counterparty? 6. If the State will have more than one direct or indirect derivatives contract with this counterparty or any of the counterparties, are any of them offsetting? Yes □ No □ Credit Support 1. Credit Support will be provided for: (a) Issuer Yes No If yes, name of provider: (b) Counterparty/ies Yes No If yes, name of provider: 2. Has Issuer’s counsel reviewed Issuer’s credit support obligations? Yes No 3. Has Issuer established procedures sufficient to: (a) Comply with any such obligations Yes No (b) Renew or replace Credit Support, if required? Yes No (c) Monitor the credit level of the Counterparty/ies? Yes No (d) Receive the benefit of, and comply with any obligations relating to, any credit support obligations of Counterparty/ies? Yes No Tax Issues 1. Tax counsel reviewing the documentation: 2. Has Issuer discussed with tax counsel: (a) Integration of the derivative with a bond issue? Yes No (b) Whether yield monitoring is required? Yes No (c) Whether the derivative’s performance or mark-to-market value should be included in arbitrage compliance calculations? Yes No 3. Will tax counsel deliver an opinion in connection with the derivative? Yes No Operations and Monitoring 1. If the Expected Trade Date and the Effective Date are different, is the derivative part of a series of transactions? Yes No If yes, (a) Describe the subsequent transactions being considered: (b) Has Issuer established procedures or mechanisms to: (i) Determine how and when any subsequent transaction will occur? Yes No (ii) Evaluate and handle risks to completion of any subsequent transaction? Yes No (iii) Complete, and pay expenses of, any subsequent transactions? Yes No 2. Has Issuer discussed the appropriate accounting treatment for the derivative with its independent auditor? Yes No 3. Does the Issuer intend to use hedge accounting? Yes No If yes, has the issuer received or made arrangements to receive confirmation of hedge effectiveness? Yes No If yes, from: 4. Who is responsible for confirming payment amounts and making necessary payments? 5. What is the source for Issuer’s regular payments? 6. How are such payments budgeted? 7. Who is responsible for monitoring credit ratings of Counterparty/ies? 8. Who is responsible for monitoring mark-to-market valuations? 9. What is the frequency of such monitoring? 10. Who is responsible for monitoring collateralization requirements of Issuer and Counterparty/ies? 11. If Issuer must post collateral, what will be the source? 12. If Counterparty/ies must post collateral, who will monitor? 13. What is the frequency of: (a) Reporting monitoring results to Chief Executive Officer/Chief Financial Officer? (b) Sharing monitoring results with independent auditor? 14. Has Issuer discussed this derivative with the rating agencies? Yes No 15. Who is responsible for delivery of future documents required by the derivative’s documentation? 16. Who is responsible for answering investors’ questions about Issuer’s derivatives exposure? Information Provided By: (signature)