Case Studies
In the current economic environment, municipal issuers are facing many challenges in bringing their debt issues to market efficiently and cost-effectively. In this section we provide examples of some of these client issues, the challenges they faced and how we worked with them to bring their project financing to a successful conclusion.
Initial Financing for Newly Created Municipal Entity - Mattapoisett River Valley Water District
The Mattapoisett River Valley Water District in southeastern Massachusetts was formed in 2005. The District consists of four member communities, the towns of Mattapoisett, Marion, Fairhaven and Rochester. UniBank was hired by the newly created District to assist them in the financing of the new $5,000,000 Water Treatment Facility. The financing was to consist of a combination of temporary Bond Anticipation Notes, Interim Loans and Bonds by the Massachusetts Water Pollution Abatement Trust (MWPAT). Because the District had never borrowed before, UniBank was challenged to educate the District officials and its Board on the costs, procedures and requirements of the financing strategy.
UniBank reviewed and analyzed yearly budgets and cash flow borrowing needs of the District from the inception of the project. Meetings with the District officials and project engineers were attended by UniBank representatives on a monthly basis, or as needed. UniBank had direct contact with the District’s engineer and Bond Counsel and coordinated meetings with appropriate representatives of the MWPAT as the provider of the project financing. The District’s cashflow was monitored by UniBank and appropriate financing was completed on an as-needed basis, lowering the overall interest expense to the District. When the District needed to complete both an interim loan and a permanent bond with the MWPAT, UniBank assisted the District in the completion of the legal documents necessary for the approval and settlement of the notes and bonds.
The District has completed the financing of the Water Treatment Facility on budget and on time with UniBank’s assistance.
Utility Fund Relief - Town of North Andover, Massachusetts
Like many communities, North Andover has faced diminishing water and sewer revenues in recent fiscal years. In order to relieve financial pressure on its water and sewer enterprise funds, the Town has looked to cost-cutting measures, including refunding of outstanding debt.
In December 2009, the Town of North Andover sold bonds that refunded sewer bonds issued in 2001 and 2002. The refunding bonds were structured on a level debt service basis; because the 2001 and 2002 bonds were structured on a level principal basis, the refunding structure produced substantial savings in the early years of the refunding issue. The refunding issue met the state requirement of overall present value savings, helped by the fact that the refunding escrow was funded with bank-issued certificates of deposit rather than U.S. Treasury securities. The bank CDs were fully insured by the Massachusetts Depositors Insurance Fund (DIF).
The Town achieved a $200,000 present value reduction in sewer debt service. The average annual reduction in sewer debt service for fiscal years 2011 to 2014 is over $65,000, or about 1.5 percent of fiscal 2009 sewer revenues of approximately $4.3 million.
Commercial Paper Program - Boston Water and Sewer Commission
UFASI has been providing advisory services to the Boston Water and Sewer Commission since 2001. The Commission is the provider of all water and wastewater distribution, collection and conveyance services within the City of Boston. We have assisted the Commission in issuing five bond issues totaling $340,000,000 and in establishing and managing a $125,000,000 commercial paper program. We have also provided active support with the Commission’s budget planning, revenue and expenditure projections, letter of credit renewals, investment contract procurements, procurement of consulting engineering services, evaluation of refunding and swap proposals, procurement of a remarketing agent for its variable rate demand bonds, procurement of senior managing underwriters, and rating agency presentations. We have also participated in its annual rate evaluation and rate setting activities.
The establishment of the commercial paper program was to solve several problems: the need for quick and cost effective access to the capital markets, the desire to reduce the overall cost of capital of the Commission’s capital program, the desire to increase the Commission’s variable interest rate exposure in its debt portfolio, and the interest in precluding any risk of missing expenditure tests and requiring arbitrage payments to the federal treasury. The program accomplished all four; it has been an extremely successful and easy to manage component of the Commission’s overall capital program management and debt portfolio.
The Town of Carver, Masachusetts
UFASI provides general financial advisory assistance to the Town of Carver and to the North Carver Water District. The District was established by a Special Act of the Commonwealth to develop a water system to serve the current commercial and residential properties in the northern portion of the Town and to facilitate future commercial development that was otherwise precluded without access to public water. The water system is currently under construction. The original plan had been to fund the project from Town CPA bonds, developer contributions, and a loan through the U.S. Rural Development Administration. However, when project costs exceeded original projections, and when developer contributions were not forthcoming, the Town looked to more creative ways to fund the capital costs of the project. The Town is the first town in the Commonwealth to apply for and receive the authority to issue Recovery Zone Economic Development Bonds, authorized under the American Recovery and Reinvestment Act. In addition, it has applied to the Executive Office of Housing and Economic Development to utilize a District Improvement Financing under Chapter 40Q of the General Laws. It also expects to issue a portion of its debt to the USRDA. The District and the Town currently plan to pay for water system costs through a combination of user fees, betterments, captured incremental tax revenues and Town tax levy support.
