Information about going through a municipal bond process.

1. Issuing Municipal Debt

2. Why issue debt?
• Capital Project Funding
Because of the high cost of acquiring or replacing
capital assets governments are generally not able to
accumulate enough cash from current receipts to pay
for necessary improvements.
• Short Term Needs
Governments borrow in anticipation of future
revenue streams.
• Refund Bonds
Refunding bonds are used to re-finance a prior issue or
issues to achieve lower interest rates

3. Types of Municipal Bonds
• General Obligation Bonds
Issuer pledges to levy the necessary taxes on
all assessable property within its jurisdiction
to provide timely repayment of the
debt, usually ad valorem tax or sales tax.
Typically issued to finance government
improvements benefitting the community as a
whole.

4. General Obligation Bond
• Advantages
Readily accepted in the marketplace due to the
strength of the security pledge (“full faith &
credit”)
Usually have lower interest rates than revenue
bonds
No reserve fund required
Lower costs of issuance

5. General Obligation Bond
• Disadvantages
Tax limitations
Require voter approval
Difficult to enter the market quickly

6. Type of Municipal Bonds
• Revenue Bonds
Issuer pledges a specific source of funds, either
from the operations of the project being
financed or from a dedicated revenue stream
such as utility revenues, ticket sales etc. Issuer
may also pledge tax revenue in addition to the
specific revenues.

7. Revenue Bonds
• Advantages
Voter approval usually not required
Enter the market quickly
Debt secured by system users

8. Revenue Bonds
• Disadvantages
Considered less secure than GO Bonds
Credit enhancement may be needed
Reserve fund required
Issuer subject to bond indenture requirements
Higher costs of issuance than GO bonds

9. Financing Team
Internal Team
• Administrative – City Manager, Administrative
Team, Mayor
• Finance staff
• Development Services staff, Utility staff, other
enterprise fund staff
• Legal

10. Financing Team
External Team
• Financial Advisor
Assists in evaluating alternatives for funding
Assists in producing and reviewing documents
Designs debt structure
Recommends timing of sale
Assists with rating presentation
Obtains credit enhancement if warranted
Conducts pre-marketing of issue (Competitive Sale)
Evaluates Bids (Competitive Sale)
Oversees pricing and allocation of bonds in a negotiated
sale

11. Financing Team
External Team
• Bond Counsel/Tax Counsel
Certify that issuer has legal authority to issue
Ensure compliance with state and local laws
Draft legal documents
Review documents prepared by other counsel
Provide legal opinion on exemption from federal
and if applicable, state and local income tax

12. Financing Team
External Team
• Underwriter
Purchase bonds from issuer and remarket to
investors
Prepare structure alternatives
Assist in preparation of financing package
Coordinates meetings and document review
Oversees application for credit enhancement
Conduct premarketing activities with issuer

13. Financing Team
External Team
• Underwriter’s counsel
Prepares the disclosure document (Preliminary Official
Statement, Official Statement)
Prepares the bond purchase agreement
Negotiates on behalf of the underwriter
Ensures compliance with securities law
Conducts “due diligence”
• Credit Enhancement Provider
Guarantees the timely payment of debt service
• Credit rating agencies: Standard and Poors, Fitch, Moodys
Evaluate and publish opinion of the credit quality of the debt

14. Financing Team
External Team
• Paying agent/Registrar
Receives funds from issuers and makes
payments to bondholders
Issues new bond certificates when the bonds are
traded in the secondary market
Responsible for tax reporting to the Federal
government regarding the amount of interest
paid to the investors

15. Financing Team
External Team
• Other possible vendors include:
• Arbitrage agent – computes arbitrage liability
• Refunding verification agent – verifies funds in
escrow for refunding
• Printers – print bond documents

16. Bond Documents
• Ordinances/Resolutions
Council/Trustees Authorize Referendum and/or borrowing; approve
bond sale
• Disclosure Documents-Official Statements
Satisfy full disclosure requirements and avoid antifraud liabilities of
securities law
Used as a selling document
Preliminary Official Statement will include descriptions of the issuers
organization and management, project details, financial information,
details the financing team, describes underlying security for the issue,
details continuing disclosure requirements
Final Official Statement will include elements from the preliminary
statement but will also include all final details such as interest rates,
maturity dates, etc.

17. Bond Documents
• Bond Purchase Agreement
Contract between issuer and underwriter
Representations and warranties
Certificates and opinions – closing conditions
• Tax Document – determines tax status and
events which may change tax status

18. Bond Documents
• Bond Indenture
Contract between the issuer and the
bondholders
Specifies interest rates, maturity dates, timing of
interest payments, callable features
Financial covenants and formulas for calculating
compliance with the convents

19. Credit Enhancements
• Bond insurance
• Additional security pledge

20. Ratings
Credit ratings affect the degree of investor
receptivity for an issuers bonds and therefore the
cost of borrowing.
A credit rating provides and easily understandable
measure of the degree of risk of an issuer’s
securities. These ratings are used by investors as a
substitute for or to enhance their own research
when making a decision to purchase bonds.

21. Ratings
• Standard and Poors and Fitch
AAA highest quality, ratings below BBB are below
investment grade
• Moodys
Aaa highest quality, ratings below Baa are below
investment grade
It is recommended that more than one rating be
obtained so that issuer is not dependent on the
philosophy of only one firm.

22. Rating Factors
• Debt Management – an assessment of the issuer’s ability to support
existing and planned debt obligations
• Administrative Issues – a review of the organization and powers of the
government’s administration and the services for which it is directly
responsible
• Financial Performance – an analysis of revenue and expenditure trends
and the adequacy, dependability and scope of revenues, adequate reserve
funds
• Economic Base – an evaluation of the economic outlook for the
issuer, focusing on income, population, employment, diversity and
composition of employers and real estate values
• Review of specific issue features – an evaluation of contracts and/or
agreements specific to the funding, rate covenants, and or feasibility
studies
• Bond Insurance used as a credit enhancement will attach a rating that is
the underlying rating of the insurer.

23. Process
• Establish authority to issue (council/trustee action and/or affirmed by
referendum
• Financing team selected
• Issuer works with the financing team to create and review all documents,
secure ratings or credit enhancement and market the bonds
• Underwriter buys the bonds from the issuer and all final documents are
signed and payment is made for all costs of issuance. The remaining
proceeds are forwarded to the issuer
• Underwriter sells bonds in the secondary market to investors
• Issuer makes required principle and interest payments to the paying agent
who makes payment to the bondholders at each maturity for the life of
the issue
• Issuer complies with continuing disclosure requirements for the life of the
issue
• Ratings may be reaffirmed during the life of the issue

24. • Chief Financial Officer
Marcy Lamb
mlamb@stillwater.org
City of Stillwater
723 S. Lewis St
Stillwater, Oklahoma
Sept. 23, 2013