Municipal Government Investors Corp. Bond Proceeds Investments Fixed Rate Investment Agreements for Construction, Debt Service Reserve and Bond Funds February 2007 Victor Adams Managing Director 704-554-1160 Table of Contents Introduction Bond Proceeds Accounts
Bond Proceeds InvestmentsFixed Rate Investment Agreements forConstruction, Debt Service Reserve and Bond FundsFebruary 2007
New bond issues can create several accounts requiring investment:
These investments fail to maximize all three of the objectives.
Principal Risk - Example
Interest Rate Risk - Example
Mark-to-Market Risk - Example
Repurchase Agreement or “Repo”
* Even thought the securities delivered are short-term, they carry a long-term fixed rate.
Safety–Funds are either invested in Treasuries and Agencies held by the Trustee, or collateralized (103%) by these securities. Agreements also typically carry additional provider “downgrade” provisions offering additional security.
Liquidity - Funds may be withdrawn at “par” at any time, for any purpose listed in the Bond documents.
Maturity - Agreement’s maturity is equal to the maturity of the account invested.
High Fixed-Rates - The yield of the agreement is fixed for its term. The interest rate level will be a function of the original maturity of the account that is invested.
Par-Value Accounting – Due to the ability to always withdraw funds at par, an Investment Agreement’s mark-to-market value is always par.
Week 1 Preparation of 1st draft of Bid Specifications
Preliminary list of eligible bidders prepared
Week 2 Bid Specifications finalized
Bid Specifications circulated to bidders along with expected cash flows and project financial information
Bids taken and winner awarded
Week 3 Investment Agreement documentation process
Close and fund