Guidebook for Effective Policies and Practices for Managing Surface Transportation Debt (2022) / Chapter Skim
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Pages 35-56
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From page 35... ...
35 4.1 Overview After state DOTs and surface transportation agencies have identified a need to issue debt along with developing guiding policies for debt issuance in Phase 1, issuers must prepare individual transactions. Developing individual transactions involves the following key decisions, which are not necessarily conducted in a linear or sequential order but are determined collectively and iteratively by debt practitioners as indicated in Figure 10.
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From page 36... ...
36 Guidebook for Effective Policies and Practices for Managing Surface Transportation Debt • Section 4.4 explains the importance of confirming the debt approach. • Section 4.5 describes the process of soliciting and utilizing professional support.
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From page 37... ...
Phase 2: Individual Transaction Preparation and Development 37 Determining the timing and amount of the issuance will be greatly in uenced by the outcomes of Phase 1 with respect to determining a debt strategy and conducting market analysis. In Phase 1, practitioners consider how to navigate external factors, such as relevant state regulations and state procedures for approving an issuance.
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From page 38... ...
38 Guidebook for Effective Policies and Practices for Managing Surface Transportation Debt 4.2.2 Tool: Cash Flow Analyses Case study research identified several valuable tools to support decision-making regarding timing and amount. The Arizona study (Example 13)
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Phase 2: Individual Transaction Preparation and Development 39 Example 12. Collaborative Analyses for Project-Speci c Decision-Making (Virginia)
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40 Guidebook for Effective Policies and Practices for Managing Surface Transportation Debt Example 13. Pro Forma Issue Cash Flow (Arizona)
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Phase 2: Individual Transaction Preparation and Development 41 Example 14. Collaborative Analyses for Project-Speci c Decision-Making (Ohio)
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42 Guidebook for Effective Policies and Practices for Managing Surface Transportation Debt debt, such as a general obligation bond, have different security structures, which have implications for the credit rating and overall attractiveness to investors. Generally, the method of sale should maximize the value of the issuance for the debt program.
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Phase 2: Individual Transaction Preparation and Development 43 o en be used for both. Additionally, it is important for practitioners to consider and to monitor the revenue pledge, or revenues, that will be utilized to pay the debt service.
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44 Guidebook for Effective Policies and Practices for Managing Surface Transportation Debt variable rate bonds that are to be issued.4 In contrast, ODOT uses variable rate debt and interest rate swaps to manage risk.5 Surface transportation debt programs may establish the debt approach for issuing in Phase 1 or in Phase 2. Programs that issue frequently and have few issuance-speci c decisions, such as MTA and PTC, establish the debt approach in Phase 1, a rming the type of debt vehicle, the security, the revenues, and the debt structure.
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Phase 2: Individual Transaction Preparation and Development 45 Example 17. Electing Alternative Debt Structures (Colorado)
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From page 46... ...
46 Guidebook for Effective Policies and Practices for Managing Surface Transportation Debt 4.4.3 Developing the Preliminary Of cial Statement e timing for completing the type of debt and type of revenues sections of issuance-speci c documents will vary based on the number of issuance-speci c decisions a program must make. As stated above, issuers who have few issuance-speci c decisions, such as MTA and PTC, will complete this part of the debt document in Phase 1.
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From page 47... ...
Phase 2: Individual Transaction Preparation and Development 47 noting that technical support may vary widely based on the type of the project, and Table 6 provides a brief description of each. Surface transportation debt practitioners may choose to solicit outside professionals to support particular issuances or a certain debt series within their program, or to provide support to a program in general.
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From page 48... ...
48 Guidebook for Effective Policies and Practices for Managing Surface Transportation Debt surface transportation agency itself. In that case, the responsible state agency may set the parameters for how outside professionals are procured (e.g., through a request for proposal process)
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From page 49... ...
Phase 2: Individual Transaction Preparation and Development 49 institutional investors that are restricted from purchasing unrated debt or debt below a certain rating threshold8 and reducing the interest rate that must be paid on bonds.9 Each CRA has a slightly di erent approach to measuring creditworthiness and has developed rating methodologies for di erent types of debt issues. CRAs are required by the SEC -- which oversees credit agencies that are registered with the SEC as nationally recognized statistical rating organizations -- to publish their rating methodologies, which can be found on the respective websites.
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From page 50... ...
50 Guidebook for Effective Policies and Practices for Managing Surface Transportation Debt CRAs for years and have continued to sustain the practice of soliciting credit ratings from the three major CRAs -- Moody's, S&P, and Fitch. However, there is not a prescribed number of ratings that practitioners must solicit, and some programs have opted to reduce the number of credit ratings they solicit to reduce costs.
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From page 51... ...
Phase 2: Individual Transaction Preparation and Development 51 Communication and Coordination The purpose of engaging with CRAs is to maximize the creditworthiness of the issuance. To effectively engage with CRAs, debt practitioners must employ methods of engagement and communication, which will vary by program.
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From page 52... ...
52 Guidebook for Effective Policies and Practices for Managing Surface Transportation Debt of what credit ratings communicate to investors on official statements. Additionally, the difference in the number of credit ratings solicited and the time when the ratings are solicited in the debt issuance process are based on the policies, procedures, and characteristics of the debt program.
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Phase 2: Individual Transaction Preparation and Development 53 a graphic representation of the process for creating debt documents for individual transactions. Some issuers have developed their own investor website to communicate with their investors.
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From page 54... ...
54 Guidebook for Effective Policies and Practices for Managing Surface Transportation Debt well-established programs that issue debt for programmatic purposes -- may know the amount of the issuance in Phase 1, while other issuers may decide on a project-by-project basis. Ultimately, the debt documents themselves can serve as highly effective tools for communicating the characteristics of the specific bond purchase opportunity to the market.
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Phase 2: Individual Transaction Preparation and Development 55 Figure 16. Summary page of of cial statement.
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From page 56... ...
56 Guidebook for Effective Policies and Practices for Managing Surface Transportation Debt staff should leverage the expertise from outside professionals to develop debt documents to communicate to investors. 4.8 Summary This chapter has described effective practices for Phase 2, individual transaction preparation and development.
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