TITLE 2 PUBLIC FINANCE
CHAPTER 61 STATE INDEBTEDNESS AND SECURITIES
PART 8 APPROVAL OF REFUNDING BONDS
2.61.8.1 ISSUING AGENCY: Department of Finance and Administration,
180 Bataan Memorial Building, Santa Fe, NM 87501.
[2.61.8.1 NMAC - N, 2/29/2016]
2.61.8.2 SCOPE: Any issuance of refunding bonds that, pursuant to Section 3-31-9 NMSA
1978, Section 4-62-8 NMSA 1978, or Section 6-15-11 NMSA 1978, requires
department of finance and administration approval.
[2.61.8.2 NMAC - N, 2/29/2016]
2.61.8.3 STATUTORY AUTHORITY:
A. Section
3-31-9 NMSA 1978 provides that a municipality shall receive from the department
of finance and administration written approval of any gross receipts tax
refunding revenue bonds, gasoline tax refunding revenue bonds or project
refunding revenue bonds pursuant to the provisions of Sections 3-31-8 through
3-31-12 NMSA 1978.
B. Section
4-62-8 NMSA 1978 provides that a county shall receive from the department of
finance and administration written approval of any non-utility gross receipts
tax refunding bonds, gasoline tax refunding revenue bonds, fire protection
refunding revenue bonds, environmental refunding revenue bonds, or non-utility
project refunding revenue bonds issued pursuant to the provisions of Sections
4-62-7 through 4-62-10 NMSA 1978.
C. Section
6-15-11 NMSA 1978 provides that the governing body of any county, municipality
or school district in this state may, with the approval of the department of
finance and administration, issue bonds in such form as the governing body may
determine, to be denominated refunding bonds, for the purpose of refunding any
of the general obligation bonded indebtedness of the county, municipality or
school district which has or will become due and payable or which has or will
become payable at the option of the county, municipality or school district by
consent of the bondholders or by any lawful means.
D. Section
6-15-12 NMSA 1978 provides that whenever a governing body of a county,
municipality or school district deems it expedient to issue refunding bonds
under the provisions of Sections 6-15-11 to 6-15-22 NMSA 1978, the governing
body shall adopt an ordinance or resolution setting out the facts making the
issuance of such refunding bonds necessary or advisable, the determination of
such necessity or advisability of said governing body, and the amount of such
refunding bonds which it is deemed necessary and advisable to issue.
[2.61.8.3 NMAC - N, 2/29/2016]
2.61.8.4 DURATION: Permanent.
[2.61.8.4 NMAC - N, 2/29/2016]
2.61.8.5 EFFECTIVE DATE: February 29, 2016, unless a later date is
cited at the end of a section.
[2.61.8.5 NMAC - N, 2/29/2016]
2.61.8.6 OBJECTIVE: This rule provides general guidance
regarding the financial and legal requirements for department approval of
certain refunding bond issues as required by state statute. The rule is intended to benefit the state’s
political subdivisions in their refunding bond policies. Department approval of proposed refunding
bonds is not intended to protect investors and does not evidence the soundness
of any investment. Department approval
is based solely on information provided by the issuing authority. The department has no duty to independently
investigate, and does not independently investigate, the merits and risks
involved in the refunding bonds.
[2.61.8.6 NMAC - N, 2/29/2016]
2.61.8.7 DEFINITIONS:
A. “All-inclusive
interest cost” means the total cost of the refunding bonds, expressed as a
discount rate calculated using the present value of all debt service payments
on the refunding bonds and the total proceeds of the refunding bonds. The amount of refunding proceeds is adjusted
by any accrued interest, original issue discount, original discount premium,
costs of issuance, credit enhancement fees, and underwriter’s spread.
B. “Costs of issuance” means all costs
incurred by the issuing authority incident to the planning and sale of the
refunding bonds. Costs of issuance
include but are not limited to underwriters’ spread, discount, or fees, counsel
fees, financial advisor fees, credit enhancement costs, rating agency fees,
trustee fees, accountant fees, printing costs, loan origination fees,
administrative costs and costs incurred in connection with the required public
notice process.
C. “Department”
means the department of finance and administration.
D. “Financing
documents” means any official statement, bond purchase agreement, indenture,
liquidity facility, credit enhancement agreement, loan agreement or other
similar agreement associated with the issuance of the refunding bonds.
E. “Issuing
authority” for purposes of refunding bonds that by law require department
approval, means the governmental unit or public body in the name of which
refunding bonds are issued. For these
purposes, issuing authorities include, but are not limited to, counties, school
districts and municipalities.
F. “Refunded
bonds” means a written promise to pay a specified sum of money (par value or
principal amount) at a specified date or dates in the future (maturity dates)
together, if applicable, with interest, that is proposed to be refunded through
the issuance of refunding bonds.
Refunded bonds include, for these purposes, but without limitation:
(1) tax revenue bonds, gasoline tax revenue bonds, or project
revenue bonds issued by a municipality pursuant to Sections 3-31-1 through
3-31-7 NMSA 1978;
(2) non-utility
gross receipts tax bonds, gasoline tax revenue bonds, fire protection revenue
bonds, environmental revenue bonds, or non-utility project revenue bonds issued
pursuant to the provisions of Sections 4-62-1 through 4-62-6 NMSA 1978; or
(3) general obligation bonds issued by a county, municipality or
school district pursuant to Sections 6-15-3 through 6-15-10 NMSA 1978.
G. “Refunding
bonds” means bonds issued to refinance refunded bonds. These include current and advance refunding
within the meaning of the Internal Revenue Code of 1986, as amended.
H. “True-interest-cost”
means that yield, which if used to compute the present worth as of the delivery
date of the refunding bonds of all payments of principal and interest to be made
on the refunding bonds from their delivery date to their respective maturity
dates (as specified in the maturity schedule and without regard to the possible
optional prior redemption of the refunding bonds), using the interest rate
specified in the bid or purchase contract produces an amount equal to the
principal amount of the refunding bonds, plus any premium or minus any discount
bid or stated in the purchase contract.
Such calculation shall be based on a 360 day year consisting of 12, 30-day
months and a semi-annual compounding interval.
[2.61.8.7 NMAC - N, 2/29/2016]
2.61.8.8 FINANCING PLAN FOR REFUNDING BONDS:
A. In
order to obtain approval of the issuance of refunding bonds, the issuing
authority must prepare a financing plan prior to the sale of the refunding
bonds that addresses the following:
(1) Refunding
details:
(a) Estimated
gross and net present value savings annually, if any, by each series of
refunded bonds. If the refunding bonds
are being issued together with new money bonds, the net present value savings
calculation on the refunding bonds should exclude any interest payments or
proceeds associated with the new money bonds.
(b) Interest
rate and debt service comparisons between refunding bonds and their respective
refunded bonds.
(c) Description
of sources and uses of funds.
(d) If
request is for approval of advance refunding bonds, redemption dates and call
premiums on refunded bonds with an analysis of the potential costs and benefits
of delay of issuing the refunding bonds, description of any special arbitrage
issues, and type of proposed investments to be used for escrow accounts.
(2) Debt
management:
(a) Current
outstanding debt and relation of the proposed refunding bonds to financial,
parity bond and rate limits, if any.
(b) Five-year history of pledged revenues
used for proposed debt service based on fiscal year audited financial
statements.
(c) Current
and five-year projected coverage ratios, based on
current revenues, on annual debt service requirements by:
(i) Pledged revenue.
(ii) Total
revenue legally available for debt service.
(iii) Maximum
fiscal year debt service as a percentage of prior fiscal year audited pledged
revenue, if available.
(d) For
general obligation refunding bonds, current ad valorem mill levy imposed,
maximum mill levy allowable by law, and the anticipated impact the refunding
bonds will have on the mill levy.
(3) Debt
structure and terms:
(a) Maturity
structure of proposed refunding bonds.
(b) Estimated
interest rates on proposed refunding bonds including true-interest-cost,
all-inclusive interest cost, and average coupon.
(c) Estimated
life of the refunding bonds.
(d) Table
showing, on a fiscal year basis, total future debt payments by:
(i) New refunding issue.
(ii) Outstanding
issues less refunded bonds.
(iii) Total
debt payments (new refunding issue and outstanding issues less refunded bonds).
(e) Estimated
terms and conditions of refunding bonds including covenant and call provisions,
if applicable.
(f) Maximum
principal amount and the maximum interest rate allowed for refunding bond sale.
(4) Sales
management:
(a) Representation
and compensation of financial advisor, if any, and method of selection.
(b) Method
of sale, including justification for a negotiated sale, if any, and, if
negotiated, method of selection of underwriter.
(c) Representation
and compensation of bond counsel, special tax counsel, if any, and disclosure
counsel, if any, and indication of method of selection.
(d) Breakout
of costs of issuance. For negotiated
sales, cost of issuance breakout should include underwriters’ discount as
broken out by management fee, structuring fee, take down
and estimated expenses.
(e) Anticipated
timing of sale.
(5) Legal
documents:
(a) All
resolutions and ordinances previously adopted by the issuing authority relating
to the refunding bonds.
(b) Drafts
of all resolutions and ordinances to be adopted by the issuing authority
relating to the refunding bonds.
(c) Copies
(or drafts if not in final form) of all financing documents.
(6) Additional
information:
(a) A
certification of the issuing authority certifying that the issuing authority
has complied with all statutory requirements for the issuance of refunding
bonds.
(b) Any
other information that the department, in its discretion, needs and requests in
order to fulfill its duty to review and approve the refunding bonds.
B. The
department shall make its determination to approve or disapprove of refunding
bonds based on its assessment of the financing plan, including, in part,
whether the refunding bonds will achieve net present value savings of at least
three percent of the par amount of refunded bonds. The department may approve refunding bonds
that generate less than three percent savings or disapprove refunding bonds
that generate more than three percent savings in its sole discretion, depending
upon other factors related to the refunding bonds.
C. The
department, in its sole discretion, may waive specific provisions of this rule
when circumstances warrant.
[2.61.8.8 NMAC - N, 2/29/2016]
2.61.8.9 FINAL STATUTORY
APPROVAL BY THE DEPARTMENT ON ISSUANCE OF REFUNDING BONDS:
A. If
the refunding bonds have not yet been sold at the time department approval is
contemplated, the department may approve the issuance of refunding bonds by
sending correspondence establishing parameters including the maximum principal
amount, the maximum true interest cost, maximum coupon
on each maturity, the maximum final maturity date, and final closing date for
the refunding bonds. The issuing
authority must include proposed parameters in its request to the department for
approval and the department may request changes to the proposed parameters as a
condition of its approval. Following the
sale but at or before closing, the issuing authority will certify in writing to
the department that the results of the sale are in compliance with all parameters,
terms and conditions set by the department and include in the certification a
report of the results of the sale with respect to each parameter. An issuing authority’s failure to provide a
full and accurate certification to the department on or before the final
closing date will result in the department not having provided its approval to
the issuing authority.
B. If the refunding bonds have been sold but not yet issued or closed at the time department approval is contemplated, the department may approve the issuance of the refunding bonds by sending correspondence communicating its final approval.
C. The
issuing authority shall not deliver the refunding bonds to the purchasers until
after the issuing authority has received written confirmation from the
department that it has given its final approval.
D. The
refunding bonds must be delivered to the purchasers by the issuing authority no
later than any date established in the department correspondence. If the refunding bonds are not delivered to
the purchasers by the issuing authority by any date set in the department
correspondence, the issuing authority must prepare and present a new financing
plan to the department.
E. If
the department denies approval of the refunding bonds, the department will send
written communication to the issuing authority stating that the request for
approval of refunding bonds has been denied and summarizing the basis for its
denial.
[2.61.8.9 NMAC - N, 2/29/2016]
2.61.8.10 SUBMISSION OF FINANCING PLAN
TO THE DEPARTMENT:
A. A
financing plan submitted to the department must address each of the specific
items in this rule, if applicable.
B. One
original hard copy and one identical electronic version of the financing plan
must be submitted to the department.
Municipalities and counties must also submit copies to the local
government division of the department, and school districts must also submit
copies to the public education department.
The hard copy must be tabbed for easy reference and the electronic
version should be bookmarked.
C. A
financing plan, in its entirety, must be submitted at least 15 business days
before the date on which established parameters or final approval is requested
to be communicated by the department.
[2.61.8.10 NMAC - N, 2/29/2016]
HISTORY
OF 2.61.8 NMAC: [RESERVED]