HomeMy Public PortalAboutCurrent Debt Policy 12-31-22
DEBT MANAGEMENT POLICY
Created: March 2004
Last Reviewed: December 2022
THE METROPOLITAN ST. LOUIS SEWER DISTRICT
Table of Contents
Policy Statement ............................................................................................................. 3
Formulating Rates and Charges ......................................................................................4
Types of Debt ..................................................................................................................4
Purpose of Debt .............................................................................................................. 6
Types of Products ...........................................................................................................8
Structural Features ........................................................................................................11
Funds and Accounts......................................................................................................13
Credit Objectives ...........................................................................................................14
Method of Bond Issuance ..............................................................................................15
Use and Investment of Bond Proceeds .........................................................................16
Documentation of Transactions ..................................................................................... 16
Market Relationships .....................................................................................................16
Consultant & Investment Banking Firm Selection ..........................................................17
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The Metropolitan St. Louis Sewer District
Statement of Policy
Debt Management & Formulation of Rates and Charges
March 22, 2004
Policy Statement
The purpose of the Debt Management Policy is to guide current and future decisions
related to the formulation of rates and charges and the issuance of debt to fund capital
projects identified in the Capital Improvement and Repair Program (the "CIRP") and authorized
by the MSD Trustees. Rates and charges for wastewater service will be established at levels
adequate to ensure both the timely payment of all debt to be issued and to provide
adequate surplus revenue to maintain the fiscal integrity of utility operations and fund a portion
of the long-term CIRP. This Debt Management Policy confirms the commitment of the MSD
Trustees to sound financial management practices. It is MSD's policy to:
• Undertake a multi-year planning approach to facilitate both timely and
equitable changes to rates and charges, and actively communicate
information to MSD ratepayers and stakeholders regarding the financial
health of MSD and forecasts of future funding needs;
• Maintain a strong financial foundation for MSD operations and
completion of the CIRP;
Assure access to the capital credit markets;
• Establish and maintain high credit quality for MSD debt; and
Achieve the lowest aggregate CIRP financing costs consistent with a
prudent degree of risk and the recognition of ratepayer affordability.
The Debt Management Policy incorporates elements and information from a number of
sources, including existing MSD practices and procedures, national credit rating agency
guidelines, and policies and best practices employed by high performing public entities. The
MSD Trustees recognize that the Debt Management Policy may be amended or modified from
time to time and reserves the right to waive or modify any of the policies and guidelines included
herein if, in its judgment, doing so advances the MSD's objectives and is deemed fiscally prudent.
The waiver or modification is implied by the approval of an ordinance authorizing the issuance of
bonds passed by the MSD Trustees.
Funding the Long-Term CIRP
The Executive Director will ensure the completion and timely updates of a
comprehensive capital improvement program including the preparation of a 15-year
CIRP. Stormwater projects and wastewater infrastructure projects will be financed by
separate funding sources. Stormwater projects will be financed through stormwater
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charges, with some current funding derived from subdistrict specific property taxes. The
issuance of Stormwater Revenue Bonds may be considered at a later date. Wastewater
infrastructure projects will be funded by wastewater charges and Wastewater System
Revenue Bonds. Appropriate ranking systems for stormwater and wastewater
infrastructure projects will be utilized to develop the CIRP. The ranking process for
both categories of CIRP projects will reflect the following parameters:
Capital projects that are necessary to ensure compliance with Federal
Environmental Protection Agency and State of Missouri Department of
Natural Resources rules and regulations and that protect the health and
safety of MSD customers will be given the highest priority.
• Capital projects will be consistent with MSD's long-term goals and mission
and reflect a well-conceived plan to address infrastructure needs.
• Capital projects will be consistent with regulatory trends, including existing
and future permit requirements and evolving Sanitary Sewer Overflow,
Combined Sewer Overflow, Total Maximum Daily Load, flow blending,
and storm water regulations.
It is anticipated that the long-term CIRP will be funded with a combination of pay-as-
you-go ("PAYGO") and debt financing, with debt issuance subject to voter authorization.
To the extent Federal, State, or other sources of grant revenues are available, MSD will
appropriately consider and pursue such funding sources. Given the uncertain nature
of such grant sources, however, the Executive Director will include in the long-term CIRP
a plan of finance for funding the CIRP that reflects PAYGO and debt financing funding
sources. The mix of PAYGO and debt financing should balance concerns regarding the
affordability of rates and charges as well as the impact of debt burden on MSD
ratepayers.
Formulating Rates and Charges
Rates and charges will be established at levels to generate sufficient revenues to support
the full cost (direct and indirect) of operations including ongoing and preventive maintenance, to
ensure the timely payment of debt, to provide debt service coverage and meet other Master
Bond Ordinance, provisions as applicable, and to ensure adequate and appropriate levels of
liquidity and emergency reserves. Rates and charges shall be reviewed at least annually.
Each year, at the time the annual operating and capital budget is presented for the
consideration of the Trustees, the Executive Director will report to the Trustees regarding
the adequacy of rates and charges to meet all legal obligations as well as the broader
goals and mission of MSD.
Types of Debt
The MSD Trustees shall authorize and approve all debt issued for the purpose of
financing a portion of MSD's CIRP, as well as debt that may be issued for the purpose of
refunding any MSD debt outstanding. The MSD Trustees should employ a Financial Advisor to
assist MSD with a capital financing strategy and the evaluation or analysis of specific relevant
the upper limit for such debt specified by the rating agencies. Unhedged variable
rate debt representing 15 to 20 percent of MSD's total outstanding debt is an
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debt management matters. When the MSD Trustees determine that the use of debt is
appropriate, the following criteria will be utilized to evaluate the type of debt to be issued.
Long-Term Debt
MSD may issue long-term debt (general obligation or revenue bonds) where it is deemed
that capital improvements should not be financed from current revenues. Long-term
borrowing will not be used to finance current operations or normal maintenance. Long-
term debt will be repaid from District revenues and structured such that the weighted
average maturity of the debt does not exceed the expected useful life of the capital project.
Short-Term Debt
Short-term borrowing may be utilized as authorized by MSD Charter, Article 3, Section
3.020(13), for the temporary funding of capital projects or for operational cash flow deficits
subject to the following policies:
MSD may issue short-term debt when there is a defined and adequate
repayment source.
• Lines of Credit may be considered as an alternative to other short- term
borrowing options if it is determined to be more cost-effective.
Other Short-Term Debt, including commercial paper notes, may be used
when it provides advantages or as interim financing until market conditions are
more favorable for long-term debt issuance.
Lease- Purchase Debt
Lease-purchase debt, including certificates of participation, shall be considered as an
alternative to long-term vendor leases. Such debt shall be subject to annual
appropriation. To reduce the cost of lease borrowing and to improve control over leases
MSD may implement a master lease program.
Variable Rate Debt
To maintain a predictable debt service burden, MSD may give preference to debt that
carries a fixed interest rate. MSD, however, may consider variable rate debt to diversify
its debt portfolio, reduce interest costs and match the durations of assets and liabilities.
Prior to issuing variable rate instruments, MSD Staff and the Financial Advisor will
analyze the savings available in comparison to fixed rate instruments and evaluate and
quantify the risks associated with the variable rate debt. The most recent five-year
average of the SIFMA Index may be used as a benchmark for determining variable rate
debt cost. Ancillary costs for remarketing, liquidity, or broker-deal and tender agent fees
should also be reflected in the analysis.
As long as variable rate debt is outstanding, MSD will actively monitor and
evaluate market conditions and shall determine if it is appropriate and cost efficient
to convert the variable rate debt to fixed interest rates.
• Consistent with rating agency guidelines, the percentage of unhedged
variable rate debt outstanding at the time of any debt issuance shall not exceed
cash or crossover refunding structure. Before MSD undertakes an advanced refunding
its Financial Advisor will analyze the contemplated refunding and opine to MSD Staff
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acceptable upper limit. For purposes of this limitation, variable rate debt is
considered hedged if it is subject to an interest cap, has been synthetically
converted to a fixed rate, or if short-term investments offset variable rate debt
exposure. Short-term MSD investments for purposes of this limitation shall include
monies invested and maintained for working capital and liquidity purposes.
• MSD may use contracts that limit exposure to interest rate volatility, such
as interest rate Caps and Collars, to hedge interest rate fluctuations.
Variable rate bonds may be used in conjunction with a financial strategy, which results in
long-term synthetic fixed rate debt. Prior to using synthetic fixed rate debt to fund
authorized capital expenditures, MSD will require that the interest rate cost is at least
20 basis points lower than traditional fixed rate debt, based on projections provided by
MSD Staff and a Swap Advisor. Any risks associated with the utilization of a synthetic
fixed rate debt structure will be identified and evaluated by a Swap Advisor in a
recommendation to the Secretary-Treasurer. The risk analysis will be consistent with the
provisions of this Debt Management Policy.
Purpose of Debt
Long-term debt may be issued to finance authorized CIRP projects, or to refund, on a
current or advanced basis, outstanding debt obligations.
New Money Bonds
New money issues are those financings that generate additional funding to be
available for expenditure on capital projects. These funds will be used for acquisition,
construction and major rehabilitation of capital assets identified in the CIRP. The
structure for any financing shall be recommended by the Financial Advisor based on
the composition of MSD's outstanding debt and market conditions at the time of the sale
for the new money issue.
Refunding Bonds
MSD may undertake a refunding of outstanding debt for the purpose of capturing interest
rate savings, to restructure debt, change the type of debt instruments being used, or
to retire a bond issue and indenture in order to remove undesirable covenants,
based on the recommendation of MSD's Financial Adviser.
Refunding outstanding bonds for debt service savings may be undertaken on a current
basis; i.e., the optional call date for the bonds to be redeemed is within 90 days of the
dated date of the new refunding bonds. Before MSD undertakes a current refunding,
its Financial Advisor will analyze the contemplated refunding and opine to MSD Staff
that the economic benefit of such refunding will achieve positive savings.
The refunding of outstanding bonds for debt service savings may be undertaken as an
advanced refunding; i.e., the optional call date for the bonds to be redeemed is at least
90 days after the dated date of the refunding bonds. The refunding may reflect a net
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that the economic benefit of such refunding meets the following two-part criteria:
• Each maturity to be advance refunded will produce a three percent
minimum present value savings; and
The total present value savings for all maturities to be advanced
refunded will result in a net present value savings equal to or exceeding
four percent of the total refunded par amount.
The present value analysis of savings should be supplemented by utilization of a call-
option-pricing model to measure the potential savings that may be generated for
individual bond maturities. The call-option-pricing model computes the maximum
possible refunding value of an outstanding bond and then computes the savings under
current market conditions as a percentage of the maximum value. The District will work
with its financial advisor to determine the best method for calculating potential future
refunding value. The target savings from any particular refunding candidate shall be a
minimum of 75 percent of the expected value of the call option, net of all transaction
expenses. At the recommendation of MSD Staff and the Financial Advisor, individual
refunding candidates that are above or below the savings objective may be included in
order to optimize MSD's financial objectives for any given refunding issue.
If the structure of an advanced refunding transaction incorporates an interest rate swap
or other hedging agreement, the transaction must generate demonstrable additional
savings as compared to the relevant traditional net cash or crossover refunding
approach. The amount of additional savings demonstrated should be commensurate
with the additional risk assumed by MSD in the transaction. Recognizing there are
multiple transaction structures with different and varying sources of risk, no specific
savings criterion is specified. Prior to proceeding on such an advanced refunding,
MSD's Financial or Swap Advisor must undertake an analysis of the risks associated
with the interest rate swap or hedging agreement, estimate the additional savings to be
realized and provide a recommendation to the Finance Committee that such additional
savings is commensurate with any risks associated with the proposed
transaction. The identification of risks associated with the transaction shall be consistent
with the "Interest Rate Swap Risk Analysis" section of this Debt Management Policy.
Escrow Structuring
The Secretary-Treasurer may authorize the Financial Advisor or a qualified third-party
agent, who is not a broker-dealer, to assist with the structure of the escrow and
procurement of securities for refunding transactions. The Secretary-Treasurer shall
require the Financial Advisor or qualified third-party agent to provide a certification stating
that the securities were procured through an arms-length, competitive bid process (in
the case of open market securities), that such securities were more cost effective than
State and Local Government Series (SLGS) securities, and that the price paid for the
securities was reasonable within Federal guidelines. MSD shall take all necessary steps
to optimize escrows and to avoid negative arbitrage in its refundings. Any resulting
positive arbitrage will be rebated as necessary according to Federal guidelines.
Types of Products
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MSD may utilize financial instruments that lower its interest expense, manage its financial
risk, and improve its financial condition. MSD may not use financial instruments that create
extraordinary leverage or financial risk, lack adequate liquidity to terminate at fair market value,
or whose value cannot be determined easily from available market information. The use of
derivative financial products should produce a result not otherwise available in the cash market
(e.g., lack of advance refunding/non-callable debt) or provide a higher level of savings or benefit
commensurate with any risks associated with the derivative financial product.
Current Coupon Bonds
Current coupon bonds are bonds that pay interest periodically and principal at
maturity. They may be used for both new money and refunding transactions. Current
coupon bonds may be structured to meet the demands of the investor and thereby
reduce the cost of borrowing. Features such as annual principal maturities, the use of
discounts or premiums, maturity of the debt, parameters of the call provisions, bond
insurance and cash-funded or surety debt service reserve fund may be adjusted based
on the market conditions at the time of sale.
Zero Coupon and Capital Appreciation Bonds
Zero coupon bonds and capital appreciation bonds have principal amortization that is
much slower than level debt service with coupon bonds, resulting in increased interest
expenditure over the life of the bonds. Zero coupon and capital appreciation bonds shall
only be recommended in limited circumstances.
Interest Rate Swaps and Hedging Agreements
Any utilization of interest rate swaps, or hedging agreements is subject to Missouri
statutory authorization and limitations. To the extent permitted by law, MSD may utilize
the following financial products after identifying the specific financial objective to be
realized and assessing that product's attendant risks:
• Interest Rate Swaps
Options on Interest Rate Swaps
Swaptions
Caps/Floors/Collars
Interest rate swaps and hedging agreements will be considered where
appropriate in the issuance of or management of debt only in instances where it has
been demonstrated that the swap or agreement will either provide a hedge, which
reduces risk of fluctuations in expense or revenue, or alternatively, where it will reduce
total project cost. Swaps and hedging agreements will only be utilized with prior
approval of the MSD Trustees.
Interest Rate Swap Risk Analysis
MSD shall evaluate all financial products with respect to the unique risks they each
create. The analysis and recommendation of the Financial Advisor or Swap Advisor
should establish that the risks to MSD are justifiable. A specific determination must be
made that the projected benefits exceed the identified risks by an adequate margin over
a comparable cash market transaction, if available. At a minimum, MSD and the
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Financial Advisor or Swap Advisor should perform a risk evaluation of the following
factors and questions:
Market or interest rate risk-Does the transaction hedge or create interest
rate volatility?
Tax risk-Is the value of the instrument subject to a future change in federal
income tax policy?
• Termination risk-Under what circumstance might the transaction be
terminated? At what value?
Risk of uncommitted funding or "put risk"-Does the transaction create
an additional financing obligation dependent upon third party participation?
• Credit risk-How would the transaction be impacted by a change in
MSD's credit ratings?
• Liquidity renewal risk--What is the impact on the transaction of higher
liquidity charges upon renewal of the liquidity facility? What actions can
mitigate the risk of liquidity renewal?
• Counterparty risk--What is the creditworthiness of the counterparty?
What downgrade and collateral provisions mitigate this risk?
Basis risk-Do the anticipated payments MSD receives match the payments
it makes?
Interest Rate Swap Procurement
MSD's preference is that the procurement of interest rate swaps be undertaken on a
competitive bid basis. MSD prefers the utilization of interest rate swap contracts that
have strong price transparency, and which are of a type referred to as "plain vanilla,"
e.g., a percentage of a market-accepted interest rate average (similar to LIBOR) and
SIFMA interest rate swaps. On a product-by-product basis, MSD will consider a
negotiated procurement of financial instruments that have customized or specific
attributes benefiting MSD, provided that justification of the benefit is documented. To the
extent MSD procures an interest rate swap through a negotiated process, the Financial
Advisor or Swap Advisor will provide a Fair Market Opinion letter to the Secretary-
Treasurer that includes a certification that the interest rate swap pricing reflects fair
market value of the transaction.
Interest Rate Swap Counteroarty Requirements
MSD will only enter into interest rate swap agreements with highly rated financial
institutions. Credit criteria for financial institutions are as follows:
• The institutions' long term, unsecured and unsubordinated obligations are
rated at the time of execution of the interest rate swap agreement by at least
one rating agency at least "Aa3" by Moody's Investors Services, Inc.
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(Moody's) or "AA-" by Standard and Poor's Ratings Services, a division of
McGraw-Hill Companies, Inc. ("S&P"), or Fitch Ratings ("Fitch") and by at
least one other rating agency at no lower than an "A2" by Moody's or "A" by
S&P or Fitch; or
The institutions' obligations under the interest rate swap agreement and
the Credit Support Annex are unconditionally guaranteed by a bank or non-
bank financial institution the long-term, unsecured, and unsubordinated
obligations of which are rated at the time of execution of the interest rate swap
agreement by at least one credit agency at least "Aa3" by Moody's or "AA-
, by S&P or Fitch and by another rating agency not lower than "A2" by
Moody's or "A" by S&P or Fitch.
Financial institutions seeking to act as an interest rate swap counterparty must agree to
one-way collateral and ratings downgrade provisions that provide additional protection
for MSD.
Interest Rate Swap Documentation
MSD will use standard International Swap Dealer Association (ISDA) interest rate swap
documentation including the Schedule to a Master Agreement and a Credit Support
Annex thereto. Interest Rate Swap documentation should include the following terms
and provisions:
Downgrade provisions triggering termination should be bilateral;
Governing law for interest rate swaps may be New York, but should reflect
Missouri's authorization provisions;
The language related to credit events in the master agreement should be
narrowly drafted with regards to MSD credit downgrade events and specify
downgrade trigger events and remedies for the counterparty;
Eligible collateral should be limited to Treasuries and Federal Agencies;
Collateral thresholds should be set on a sliding scale reflective of counterparty
credit ratings;
Termination value should be set by the "market quotation" methodology
Interest Rate Swap Contract Limitations
MSD may enter into interest rate swap contracts, provided that the cumulative total
of all Interest Rate Swap contracts at any one time shall not exceed 10 percent of the
then outstanding long-term debt, adjusted for the amount of any authorized new money
bonds not yet issued. MSD will avoid incurring significantly more than $100,000,000
of exposure to any single counterparty. For the purpose of this size limitation, a
counterparty is considered to include all affiliated or syndicated entities.
Benefit Expectation from use of an Interest Rate Swap
Financial transactions using interest rate swaps or other hedging agreements that
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are intended to produce the effect of a synthetic variable rate debt or synthetic
fixed interest rate debt must generate demonstrable additional savings as compared to
alternative traditional variable or fixed rate financing approaches. Target savings should
reflect the greater complexity and higher risk of derivative financial instruments. The
savings threshold should increase with the complexity and risk features of the specific
proposed interest rate swap. In calculating the prospective savings derived from use
of an interest rate swap, all applicable remarketing credit and liquidity fees must be
added to variable rate debt cost, utilizing the five-year historic average of comparable
variable rate securities.
Prior to executing any interest rate swap transaction, MSD's Financial Advisor or Swap
Advisor shall undertake an analysis of the proposed transaction, compare the interest
rate swap proposal to a more traditional financing approach, if available, review any all
risks associated with the interest rate swap transaction, quantify the reasonably
expected economic benefit to be derived from the transaction. The advisor shall also
advise the Treasurer that the economic benefits either are or are not commensurate
with any risks to MSD regarding the transaction so analyzed.
Collateral Requirements for Interest Rate Swap Agreements
MSD shall not provide collateral to secure its obligations under interest rate swap
agreements. Collateral posted by counterparty shall consist of cash or U.S.
Government securities deposited with a third-party trustee.
Structural Features
MSD bonds will be structured consistent with requirements specified in the Charter
Plan of the Metropolitan St. Louis Sewer District and applicable Missouri statutes. Bond issues
will be structured to optimize the cost of funds while recognizing the debt affordability targets
discussed in the Debt Management Policy. Debt structure decisions must recognize the impact
on MSD ratepayers, and such impact will be communicated in appropriate public forums prior to
debt issuance.
Term of Debt
The weighted average maturity of the debt issue will not exceed the useful life the
project(s) to be financed. Final maturity of the bonds will not exceed 30 years from the
date of issuance.
Debt Service Structure
Combined principal and interest payments for any bond issue will be structured in
consideration of existing debt outstanding and to achieve approximately equal annual
debt service requirements over the life of the bonds. Exceptions will occur for
refunding bonds that may have varying principal repayments structured to fill in gaps
created by refunding specific principal maturities. The objective is to achieve level
aggregate debt service..
Lien Levels
Senior and junior liens for debt issues may be utilized if the resulting debt structure
optimizes certain critical debt constraints, typically either cost or capacity.
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Capitalized Interest
Certain types of financings such as certificates of participation, lease-secured financings,
and certain revenue bonds may require that interest on the bonds be paid from
capitalized interest until MSD has constructive use of the capital infrastructure funded by
the bond proceeds. In order to avoid unnecessarily increasing the bond size MSD will
minimize its use of capitalized interest.
Premium and Discount Bonds
Original issuance premium and discount bonds may reduce the interest cost of the
bonds and can be used upon recommendation by the Financial Advisor.
Bifurcated Coupons
Bifurcated coupons for individual maturities may be utilized if recommended by
the Financial Advisor to MSD Staff confirming that the coupon bifurcation will enhance
the pricing of the bonds by optimizing interest from both institutional and retail investors.
Debt Service Reserve Fund
A Debt Service Reserve Fund may be established if recommended by the Financial
Advisor. The amount of the reserve shall not exceed federal tax law limits, if applicable.
A surety bond insurance policy may be used if such use is not expected to impair the
marketing of the bonds and only upon the recommendation of the Financial Advisor.
Call Provisions
MSD's debt instruments may include a call provision. Prior to issuing bonds, MSD will
evaluate expected interest savings, based on the theoretical value of certain call options.
Credit Enhancement
Bond insurance will be used when it provides an economic advantage to a particular
bond maturity or entire issue. The decision to use bond insurance shall be based upon
the value it adds to a specific transaction. The analysis of that value shall compare
the present value of the prospective interest savings produced due to the insurance to
the cost of the insurance premium. Insurance may be purchased when the premium
cost is less than the projected interest savings. Bond insurance may be purchased
for the entire par amount of an issue or for specific maturities thereof, based on a
recommendation to the Secretary-Treasurer from the Financial Advisor regarding the
most cost-effective approach.
For MSD bond issues sold on a negotiated basis, quotations for bond insurance will be
solicited from all qualified providers, as determined based on recommendation of the
Financial Advisor. The winning underwriter in a competitive sale will determine
whether it will purchase insurance for the issue.
Letters of Credit may be considered as an alternative approach to credit enhancement.
If a letter of credit is proposed, MSD will select the provider pursuant to a competitive
procurement process and taking into account bank or provider ratings and any impact
on marketing the bonds.
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Liquidity Facility
Liquidity may be necessary and prudent to ensure the marketability of certain short-term
financing instruments such as commercial paper, variable rate demand obligations
or auction rate securities. MSD may select a liquidity facility through a competitive
procurement process. Provider selection criteria will include but not be limited to the
following:
• Only those banks recommended by MSD's Financial Advisor and with the
highest letter and numerical ranking (i.e., A 1/P1/F1) by at least two nationally
recognized statistical rating organizations (NRSRO's). will be solicited.
• Providers must agree to terms and conditions acceptable to MSD and as
recommended by the Financial Advisor. MSD will provide a term sheet along
with the request for qualifications to which the banks will highlight modifications.
• Providers must demonstrate experience and credibility in the market by
providing representative list of clients for whom the bank has provided liquidity
facilities; and
Fees, including upfront and annual charges, will be evaluated, taking into
account differential trading costs as appropriate.
Tax Status
Bonds may be issued on a taxable or tax-exempt basis upon recommendation of the
Financial Advisor and advice of the tax status from Bond Counsel. Unless otherwise
recommended, New Money Bonds should be issued on a tax-exempt basis and
Refunding Bonds should be issued in a manner that achieves the most projected
savings.
Funds and Accounts
MSD has established and will maintain Wastewater Revenue and Stormwater Revenue
Funds to facilitate the separate accounting of all cash receipts of fees, charges, licenses, and
permits for sanitary sewer and stormwater services. MSD has established and utilizes the
General Fund to finance the ordinary operations of the District and to account for revenues and
activities of the District that are not provided for in any other fund.
The Operating, Maintenance and Construction Improvement (OMCI) Funds account for
the expenditure of subdistrict property tax receipts. Construction Funds are established for the
Sanitary Replacement and Stormwater Replacement projects funded through the annual CIRP.
The Capital Improvement Trust Fund accounts for the expenditure of capital improvement
surcharge moneys collected between 1988 and 1995.
Special Funds include the Improvement, Real Property Improvements and Alterations
Fund, the Water Backup Insurance and Reimbursement Fund and the Emergency Fund and are
established to account for distinct purposes and programs as established by the MSD Trustees.
There are no complex explanations required during marketing, regarding
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The Master Bond Ordinance, together with Supplemental Bond Ordinances that may be
authorized from time to time by the MSD Trustees, will establish additional funds and accounts
and determine a flow of funds for application of revenues pledged to the repayment of bonds
issued by MSD. The Finance Director will direct and ensure that the funds and accounts
established by the Master Bond Ordinance are maintained and that the revenues are allocated
consistent with the pledges and covenants included in the Master Bond Ordinance.
Liquidity
MSD will accumulate and maintain cash-on-hand for liquidity purposes and as a source
of unrestricted operating reserves in an amount equal to 45 days operating
expenses (excluding depreciation). The liquidity requirement will be reviewed from time
to time and the Executive Director is expected to offer recommendations for adjustments
to the requirement as appropriate to maintain prudent ongoing operating reserves.
However, the requirements of the Master Bond Ordinance must always be maintained.
Surplus revenue in excess of this liquidity requirement may be allocated to PAYGO
ClRP projects.
Credit Objectives
MSD will actively seek to maintain and improve the credit ratings of its outstanding debt
obligations through the highest quality fiscal management and adherence to prudent
investment and debt management policies, including debt affordability benchmarks.
Credit objectives, together with the relative cost of debt, will be considered in the
structure of any junior or subordinate lien debt. MSD will maintain ongoing
communications with all of the national credit rating agencies that rate outstanding
District debt and provide annual credit updates to credit analysts, as appropriate.
Method of Bond Issuance
MSD may consider selling its bonds on either a competitive or negotiated basis. MSD shall
utilize a sale method to achieve the lowest debt cost depending on the size and characteristics
of the proposed issue and the applicable market conditions at the time of sale, as recommended
by the Financial Advisor. MSD Staff will notify the Finance Committee regarding the method of
sale for each proposed bond issue. The conditions, which indicate the appropriate method for
selling a particular bond issue, are generally described below.
Competitive sale methodology:
• Bond prices are stable and/or demand is strong;
Market timing and interest rate sensitivity are not critical to the pricing;
• Participation from Disadvantaged Business Enterprises (DBE I Small
Business Enterprises (SBE) firms is best efforts;
MSD has a well-established credit rating and is a recognized issuer in the
market;
date if the terms and sale of the bonds are within the parameters approved by the MSD Trustees.
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issuer's projects, media coverage, political structure, political support,
funding, or credit quality;
The bond type and structural features are conventional;
Bond insurance is included or pre-qualified (available); and
• The transaction size is manageable
Negotiated sale methodology:
• Bond prices are volatile and/or demand is weak and/or the supply of
competing bonds is high;
• Market timing is important, such as for refundings;
Coordination of multiple components of the financing is required;
• Participation from DBE I SBE firms can be assured;
MSD has lower or weakening credit rating;
• MSD is not a well-known issuer to likely investors (e.g. in the context of a
new debt structure or product);
• Sale and marketing of the bonds will require complex explanations about
the issuer's projects, media coverage, political structure, political support,
funding, or credit quality;
• The bond type and/or structural features are non-standard, such as for a
forward bond sale, issuance of variable rate bonds or where there is use
of derivative products;
Bond insurance is not available or not offered;
• Early structuring and market participation by underwriters desired;
MSD has selected a group of qualified investment banking firms through
a competitive procurement process with lead bankers for specific issues
chosen from the pre-qualified banking pre-qualified underwriters pool;
• Large transaction size; and
• Strong retail participation is desired and expected to enhance pricing efforts.
Upon recommendation by Staff, MSD Trustees may approve the issuance of bonds through a
"parameters" ordinance whereby the MSD Trustees authorize the issuance of bonds at a later
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Use and Investment of Bond Proceeds
The Secretary-Treasurer shall comply with all applicable federal, State, and bond
ordinance restrictions regarding the use and investment of bond proceeds. Any Investment of
bond proceeds shall be executed in accordance with MSD's Investment Management Policy
subject to the restrictions noted above. Net bond proceeds will be deposited as directed in the
Master Bond Ordinance and supplemental ordinances passed by the MSD Trustees.
Diversification
The Secretary-Treasurer shall diversify invested bond proceeds in order to reduce
risk exposure to single issuers (other than Treasuries and Agencies), types of
investment products and types of securities held.
Competitive Bidding of Investments
The Secretary-Treasurer shall competitively bid and or use the services of the
Financial Advisor, or qualified Investment Advisor, to bid the purchase of securities,
investment agreements, float contracts, forward purchase contracts and any other
investment products used to invest bond proceeds. Underwriters of MSD's bonds may
bid on the sale of investment products for the bond proceeds. The Financial or
Investment Advisor shall document the bidding process and results thereof and shall
certify in writing that MSD received a competitive and fair market price on all
investments purchased based on the bidding process.
Disclosure
The Secretary-Treasurer will require a full disclosure of all fees charged for investment
services or the sale of investment products to MSD to ensure that a provider of
investment products has no conflict of interest and all investments are purchased at a
fair market price.
Documentation of Transactions
The decision processes used in each financing transaction shall be fully documented. The
documentation will capture information regarding the recommendations of the Financial Advisor,
selection of the financing team, decisions on product selection and structuring features, sizing,
timing, selection of vendors providing ancillary services and selection of investment securities or
products. The Financial Advisor will provide a post issuance Memorandum that includes the
results of the transaction and opines on the fairness of the pricing. MSD shall keep this
documentation on permanent file.
Market Relationships
The Secretary-Treasurer and the Director of Finance shall be primarily responsible, along
with the Executive Director, for maintaining MSD's relationships with national credit rating
organizations that rate the District's outstanding debt, as well as investors and bondholders. In
addition to general communication, the Secretary-Treasurer and Director of Finance, or their
appropriate designees, shall: 1) meet, either in person or telephonically, with each agency's
analysts as necessary, and 2) communicate with each agency's analysts prior to each debt
transaction.
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Continuing Disclosure
MSD shall comply with U.S. Securities and Exchange Commission Rule 15c2-12 (the
"Rule") by filing on EMMA (or in such other manner required by the Rule) its annual
financial statements and other financial and operating data for the benefit of its
bondholders no later than six months after the end of the MSD's fiscal year. The
inability to make timely filings must be disclosed promptly.
Rebate Reporting
The use and investment of bond proceeds shall be monitored continuously to ensure
compliance with arbitrage restrictions. Existing regulations require that issuers calculate
annual rebate requirements related to any bond issues and pay any required rebate
every five years. Therefore, MSD Staff shall ensure that bond proceeds and
investments are traced in a manner that facilitates the completion of accurate rebate
calculations, and rebate payments, if any, are made in a timely manner.
Consultant & Investment Banking Firm Selection
MSD will select its Financial Advisor, investment banking firms and its bond counsel by a
competitive-negotiated process through a Request for Proposals (RFP) pursuant to the
procurement authority of the Secretary-Treasurer. All then applicable MSD contracting policies
will apply to all contracts with finance professionals. Selection may be based on a best value
approach for professional services, or the lowest responsive cost-effective bid based upon pre-
determined criteria.
Financial Advisor Selection
MSD will select an independent financial advisor (or advisors) to assist with the issuance
of all debt and debt administration processes. The financial advisory services may
include, but shall not be limited to, the following:
• Providing recommendations to the MSD staff & Trustees;
• Evaluating risks and opportunities associated with debt issuance;
• Monitoring market opportunities, including refunding for economic savings
opportunities;
• Evaluating proposals submitted to MSD by investment banking firms and
providing coordination with the banking team;
• Advising on investment banking firm selection for debt transactions;
Advising on structuring and pricing of bond issues;
• Preparing requests for proposals for other financial services (trustee and paying
agent services, escrow agent services, printing, credit facilities, remarketing
agent services, etc.);
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Educating MSD personnel on relevant financing topics;
Providing advice, assistance, and preparation for presentations with rating
agencies and investors; and
Providing post-transaction analysis.
Financial Advisor Selection Criteria
Selection of MSD's financial advisor(s) should be based on the following criteria:
Experience in providing consulting services to complex issuers;
Knowledge and experience in structuring and analyzing complex issues;
• Experience and reputation of assigned personnel; and
Fees and expenses.
Investment Banking Firms
MSD may select a group of investment banking firms to underwrite debt issues on a
negotiated basis. MSD will select a senior manager (or co-senior manager) for each
negotiated sale from among the qualified banking firms based on the following criteria:
The firm's ability and experience in managing complex transactions
similar to the debt to be issued;
Prior knowledge and experience working with similar issuers;
• The firm's willingness and ability to risk capital to underwrite MSD debt
obligations;
• Quality and experience of personnel assigned to MSD's engagement;
The proposed marketing plan;
• The firm's distribution capabilities and success distributing bonds to both
institutional and retail investors;
• The ability to sell bonds to Missouri retail investors; and
• Proposed management fees and expenses.
Co-manager Selection
Co-managers will be selected utilizing the same criteria as used for the senior
manager. In addition to their individual qualifications, co-managers appointed to specific
transactions shall depend upon of the transaction size and the necessity to ensure
maximum distribution of MSD's debt obligations.
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Syndicate Policies
MSD will approve syndicate policies and designation priorities prior to the issuance
of debt.
MSD may periodically reassess and recommend changes at any time to the composition
of the investment banking firms underwriting MSD's debt issues.
Bond Counsel
MSD debt shall be issued with a written opinion by legal counsel affirming that MSD is
authorized to issue the proposed debt, that MSD has met all constitutional and
statutory requirements necessary for issuance, and a determination regarding the
proposed debt's federal income tax status, if applicable. MSD shall select a nationally
recognized bond counsel firm with extensive experience in public finance and tax issues
through an RFP . Bond counsel will prepare an approving opinion and other documents
relating to the issuance of debt.
Disclosure Counsel
MSD may hire, when appropriate, Disclosure Counsel to prepare official statements.
Disclosure Counsel will be responsible for ensuring that the official statement complies
with all applicable rules, regulations, and guidelines. Disclosure Counsel will be a
nationally recognized firm with extensive experience in public finance. The counsel will
be selected base on a competitive-negotiated procurement process.
Special Counsel
MSD shall hire, when appropriate, Special Counsel to provide assurance that MSD
is compliant with all applicable statutory, regulatory, and contractual provisions of bond
issues.
Disclosure by Financing Team Members
Finance Team Members will be directed at the time of selection to provide written
disclosure of any conflicts of interest that may relate to their ability to represent MSD, to
disclose any relationships with MSD Trustees, to disclose any current investigative
action of any federal or state regulatory agencies, and to establish their compliance with
rules promulgated by the Municipal Securities Rulemaking Board as applicable. Team
members will be obligated to disclose promptly any material changes to the disclosure
provided in the selection process or in this Debt Management Policy.
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