Texas Public Finance Authority Client Agency

TPFA Client Agencies Cancer Prevention and Research Institute of Texas
Texas Agriculture Finance Authority
Texas Commission on Environmental Quality (formerly Texas Low-Level Radioactive Waste Disposal Authority)
Texas Department of Agriculture
Texas Department of Criminal Justice
Texas Department of Public Safety
Texas Department of Transportation (Governor’s Office – Colonia Roadway Grant Program)
Texas Facilities Commission
Texas Health and Human Services Commission
Texas Historical Commission
Texas Juvenile Justice Department
Midwestern State University*
Texas Military Department(formerly Office of Adjutant General, and Texas Military Facilities Commission)
Texas Military Preparedness Commission (Texas Military Value Revolving Loan Fund)
Texas Parks and Wildlife Department
Texas School for the Blind and Visually Impaired
Texas School for the Deaf
Texas Southern University
Texas State Preservation Board
Texas Windstorm Insurance Association
Texas Workforce Commission
Optional Use of TPFA as an Issuer
Stephen F. Austin State University
Texas State Technical College System
General Academic Teaching Institutions as defined by Section 61.003 of the Texas Education Code *The 87th Legislature transferred Midwestern State University to the Texas Tech University System.<br>

TPFA Issuance History 5<br>

Why Issue Debt? Given that:
Capital projects deliver benefits over a period of time,
Beneficiaries grow with population growth, and
Revenues available for capital costs grow in future period

Debt is issued to:
Conserve current revenue/manage liquidity, and
Match capital project costs to the realization of project benefits, and/or
Match project costs with future project revenues. 6<br>

2. Issuance Process<br>

Issuance Process Life Cycle 8<br>

9 Client Agency Planning In preparation for the Legislative Session, Agency prepares
Project Description
Project Budget
Project Expenditure Schedule
Timing of Funding
Repayment Sources
Proposed or Existing Legal Authority for Project<br>

10 Requesting Bond Authority Agency, LBB, or Legislative member provides TPFA with
Draft of proposed authorizing language
Amount to be requested
Description of the project
Estimated Expenditure schedule
TPFA will prepare debt service estimates and recommend use of existing programs or available financing options based on the following information<br>

11 Legislative Authorization The Legislature must authorize the specific project for which bonds are to be issued.<br>

12 Request for Financing Required by TPFA Board Rules
34 Texas Administrative Code, Section 221.3
Submitted by Client Agency at least 30 days prior to being considered at a TPFA Board meeting.
Includes Cover Letter, Resolution, Project Description, Budget, and Expenditure Schedule<br>

13 Issuance Process The issuance process from beginning to end generally takes 120-150 days but can be longer depending on the scope and complexity of the project, revenue source, or other factors.<br>

Ongoing Responsibilities 14<br>

15 Client Agency Biennial Request If all of the authorization has not been issued or the agency has not encumbered all bond proceeds prior to the end of the biennium, ensure the ability to issue and expend those proceeds for the project in a subsequent biennium is continued; usually done by “U.B.” rider in agency’s bill pattern.
If the full amount authorized has not been approved by TPFA and BRB prior to the end of the biennium, agency will need to ensure the authorization is continued; also usually done in the agency’s bill pattern.
For certain projects, debt service that is appropriated to the agency will need to be requested by the agency in their LAR. (TPFA will provide an estimate before the LAR process and updates as needed).<br>

3. Debt Instruments<br>

17 What is a Debt Instrument? A debt instrument is a contract for a loan between a lender and a borrower specifying:

Term or maturity for debt security is the due date for the loan (e.g., years, months, days)
Interest rate on the bond (e.g., 5%)
Debt service schedule or repayment schedule, (e.g., monthly, semi-annually or annually)
Revenue source pledged to repay the loan<br>

Common Terms Par – Face value of a security
Discount or Premium – Amount the price of a security is less than or exceeds par value
Coupon – Interest rate paid on a security
Fixed rate – Interest rate that does not fluctuate during the life of the security
Variable rate  – Interest rate that resets at fixed intervals based on a predetermined index or formula
Yield – Investor rate of return
Debt Service – the repayment of the borrowed funds that consist of both principal (amount borrowed) and/or interest 18<br>

Types of Debt Instruments 19 Commercial Paper Notes Bonds Up to 270 days and interest rate resets at maturity if not redeemed. Up to 5 years. Fixed or Variable Rate 5 – 30 years or more. Fixed or variable interest rate.<br>

Taxable vs. Tax-Exempt Debt 20<br>

AAA MMD Historical Yield Comparison 21 Source: Thomson Reuters Municipal Market Data<br>

Debt Structure Bonds can be sold with a variety of structures
Maturities occurring at a defined interval such as 6 months or annually
Zero coupon or Capital Appreciation Bond that pay no interest until maturity
Level principal or level debt service 22<br>

Maximum and Minimum AAA MMD Yields 23 Source: Thomson Reuters Municipal Market Data<br>

24 Long Term vs. Short Term Rates<br>

25 Credit Ratings Effect On Interest Rates<br>

26 Refundings Used to:
Refinance – Issue new debt to pay off old debt
Lower interest rates
Change bond covenants
Change repayment schedule (“Restructure”)
Can be a current refunding or an advance refunding
A current refunding is one in which the outstanding (refunded) bonds are redeemed within 90 days of the date the refunding bonds are issued. In an advance refunding, the refunded bonds are redeemed more than 90 days from the date the refunding bonds are issued.<br>

4. Types of Texas Debt<br>

General Obligation (GO) Debt 28<br>

Revenue Debt 29<br>

Master Lease Purchase Program TPFA issues revenue debt to finance a purchase of personal property, equipment, (under its Master Lease Purchase Program (MLPP)) or buildings
TPFA holds the title to the property and leases the property to the client agency
Client agency makes lease payments to TPFA from appropriations to the client agency
TPFA uses the lease payments to pay debt service 30<br>

Master Lease Process (Equipment) Agency Vendor TPFA Commercial Paper
Dealer Procures Project Lease Agency makes Lease
Payments to TPFA
(GR appropriation) TPFA pays Debt Service TPFA issues Commercial Paper to provide funding to pay invoices TPFA pays Vendor, takes title to Project and leases it to Agency Title Payment 31<br>

Master Lease Process (Building) Agency Building Owner/Vendor TPFA Commercial Paper
Dealer Procures Project Lease and Lease Purchase Agreement Lease Payments
(GR appropriation) TPFA pays Debt Service TPFA issues Commercial Paper to provide funding to agency TPFA and Client Agency enter into Lease and Lease Purchase Agreement. Agency makes payment. Payment 32 Proceeds Proceeds<br>

33 Self-Supporting Repaid with revenues other than general revenues, can be either GO or revenue debt

Examples:
GO: Water Development Board debt repaid from loans for water and wastewater projects, Mobility Fund Transportation Bonds

Revenue: University revenue financing system debt, Texas Dept. of Housing and Community Affairs single family mortgage debt<br>

34 Not Self-Supporting Repaid with state general revenues, can be either GO or revenue debt

Examples:
GO: Higher Education Fund debt, most TPFA debt, CPRIT debt, Prop 12 HIGO transportation debt

Revenue: TPFA MLPP, Building Revenue Bonds<br>

5. Debt Sale Mechanics<br>

36 Finance Team Bonds and Notes:
Financial Advisor
Bond Counsel
Underwriter(s)
Rating Agencies
Commercial Paper Transactions also include:
Dealer
Paying Agent
Liquidity Provider<br>

37 Methods of Sale<br>

Document Preparation TPFA Resolution
Official Statement
Rating Agency Presentation
Counsel Opinion
Bond Purchase Agreement
Financing or Lease Agreement between TPFA and Agency 38<br>

Pricing and Closing Bonds are marketed to investors 1-2 weeks before sale
An order period is set with an initial price and investors put in orders
Sale is negotiated and accepted via a Bond Purchase Agreement
Closing occurs 1-2 weeks after the sale and funding occurs 39<br>

Key Takeaways Financing is a tool to maximize and efficiently use funding
Planning is key, the earlier the better
Work with TPFA before and after requesting and receiving authority
With financing, goals and projects can be accomplished sooner
Match project costs with future project revenues and use 40<br>