Optimal Refunding

Overview

Determines the cost-effectiveness of a current, advance, or crossover refunding.  Structures refunding issue’s debt service payments according to one of ten user-defined options.  Creates an optimal escrow portfolio of open-market or SLGS securities or a combination of both.  Calculates transferred proceeds.  Ability to scan a database for refunding candidates based on present-value savings.

Features & Capabilities

Structuring Options – (a) Level savings,  (b) upfront savings, (c) backloaded savings, (d) increasing or decreasing savings using a user-defined yearly percent of increase or decrease.

Handles current, advance, and crossover refundings.  Structures an escrow portfolio of open market or SLGS securities needed for defeasance of refunded bonds. Handles multiple escrows.

Partial or complete refundings – Up to 30 bond issues can be refunded at one time.  An interest-only defeasance can also be performed.  Refunded bonds can be called on non-anniversary coupon dates.

Ability to determine the cost-effectiveness of a swap transaction.

Ability to scan your database of bond issues looking for refunding candidates.  Refunding candidates are ranked by present-value savings.

Computes transferred proceeds (note: this feature requires that the user purchase both the arbitrage and refunding modules).

Coupon rate schedules can be imported directly from the Bloomberg web site and SLGS rates can be imported directly from the Treasury web site.

User-defined sources/uses – Mun-Ease provides up to six user-defined sources and uses of funds.  The user has the option whether sources/uses will be included in the savings calculation.

Maturities within the bond issue can be current interest bonds, zero coupon CABS, or any combination.  The arbitrage yield limit and reoffering prices/yields are correctly computed when the issue is sized with yield-to-call or deep-discount term maturities.

Cost of issuance – Underwriter expenses are expressed as a percentage of principal.  Credit enhancements are expressed as a percentage of gross debt service, or debt service net of accrued and capitalized interest.  Credit enhancements can be computed for specific maturities.  Allows the user to enter an unlimited number of miscellaneous cost items.

Debt service reserve (DSR) fund – The size of the DSR fund can be computed according to 1 of 5 rules including the lesser of 10% of stated principal, maximum annual debt service or 125% of average annual debt service.   A bond surety fee can be computed based on the size of a simulated debt service reserve.

Calculations

Gross & discounted savings, refunding savings as a percentage of  refunded/refunding bonds, escrow IRR from date of disbursement and receipt, blended escrow yields, true interest cost, net interest cost, arbitrage yield limit, original issue and underwriter discounts, credit enhancements, reoffering prices/yields and debt service reserve fund, transferred proceeds penalty.

Reports

(6b) Refunding Yearly Savings Report – This report provides a summary of yearly savings that result from a refunding. Because savings are shown only on a yearly basis, the report can usually be on a single page.

(20a,b,c) Refunding Summary Reports – These reports (20a, b) display the refunding parameters input by you and a summary of the refunding results. Report 20c is summary of calculations used for presentation purposes.

(21) Refunding Sources & Uses of Funds – This report displays the sources and uses of refunding bond proceeds.

(29) SLGS/Open Markets Portfolio Report – This report lists the SLGS investments purchased for refunding escrow.

(30,b) SLGS/Open Markets Escrow Verification Report – Report 30 verifies that the investment receipts from either a SLGS or open market escrow cover the debt service requirements of the refunded bonds.

(30c) SLGS/Open Markets Wrap-Around Escrow Verification Report – Report 30 verifies that the investment receipts from either a restricted SLGS or open market escrow PLUS the investment receipts of an unrestricted or outside open market escrow cover the debt service requirements of the refunded bonds.

(70a) Pricing Summary Report – Displays reoffering prices and yields for each maturity in the bond issue. If the bond issue contains yield-to-call maturities, the report displays the price and call date from which the yield was calculated.

(83) Miscellaneous Issuance Costs Report – Displays individual cost items that are included in the Other TIC Costs summary field.

(98) Summary of Refunded Bonds – This report is generated as part of a refunding analysis. It displays the coupon rates and call attributes of each maturity of the bond issues to be refunded.

(6) Refunding Verification Report – This report provides a cost/benefit analysis of calling one or more bond issues and refunding them with a new issue. The analysis discounts the difference in debt service between the old and new issue to determine if the refunding is cost-effective.

(8a,b) Escrow Yield Reports – These reports display by period, the interest and principal payments associated with the refunded bond issues, and the interest earned on proceeds deposited in an escrow account. The proceeds in the escrow account earn interest at a rate defined by the user-input restricted yield. Report #8a displays the escrow yield for advance refunding. Report #8b displays the crossover yield for crossover refunding.

(9c,d) Present Value Reports – Verifies the internal rate of return calculations used during the rebate calculations. Report #9d displays the present value for calculations done via nonpurpose investments. Report 9c displays the present value for calculations done via purpose expenditures. Reports 9c and 9d can also be generated through the arbitrage|rebate transactions|IRR calculations menu option.

(27) Escrow Transaction Report – Displays rebate transactions sorted by investment ID. The escrow transaction report shows the total deposits, withdrawals, and interest earnings for each investment.

(28) Refunding Savings Report – This report displays refunding savings by fiscal year on a gross and present value basis. The report is for bond issues.

(28b) Refunding Savings (Notes) – This report displays refunding savings by fiscal year on a gross and present value basis. The report is similar to report #28 except that it is designed notes and variable rate bonds.

(56) Comparative Yield Report – Provides information to verify the TIC, All-In TIC, and the Arbitrage Yield Limit Calculations.

(75) Bond Production Report – This report displays the attributes of the individual maturities within a bond issue and displays summary information to verify the NIC calculation.

(80) GASB 34 Refunding Excess Indebtedness Amortization Report – This report amortizes on a straight-line basis the excess indebtedness the results from a refunding.

(54a) Transferred Proceeds Penalty Report – Report 54a is produced when you request Mun-Ease to calculate the transferred proceeds penalty. It allows you to verify the amount of unspent proceeds from the refunded bonds that are subject to penalty.

(54b) Investment Transfers to Refunding Issue – Displays a schedule of when the unspent proceeds of the refunded bond issue are to transfer to refunding issue. The schedule assumes that the unspent proceeds are in investments that have future cash flows that fall beyond each transfer (call) date. Once transferred, the investments become subject to the arbitrage yield limit of the refunding issue.

(54c) Investment Transfers to Refunding Issue (Summary) – Displays a schedule of when the unspent proceeds of the refunded bond issue are to transfer to refunding issue. The schedule assumes that the unspent proceeds are invested in money market instruments and can be liquidated and moved to an account associated with the refunding issue. Once transferred, the investments become subject to the arbitrage yield limit of the refunding issue.

(55a,c) Refunding Candidates – Reports 55a and 55c are produced when you request Mun-Ease to scan your database for refunding candidates. Mun-Ease ranks refunding candidates by present-value savings. Report 55a is sorted by bond issue and 55c is sorted by present-value savings.

(73) Interest Rate Probabilities Based on Statistical Projections – This report is used to assess probabilities of different interest rate scenarios. Probabilities can be calculated based on a normal curve or a chi-square distribution.

(78,b,c) Swaps Analysis Report – This report compares a fixed-rate bond issue’s debt service against one or more variable rate scenarios. The user assigns probabilities to each variable rate scenario. Mun-Ease sums the present-value of each of the variable rate scenario weighted by it probability and compares it to the present-value of the fixed rate bond issue to determine the feasibility of a swap transaction.

(11c,d) SLGS/Open Markets Escrow Verification Report – Mun-Ease allows you to regenerate the refunding escrow verification report while viewing the investment cash flows (Refunding | Open Market Investments | Create/edit/delete menu option). When you press the cash flows report button Mun-Ease will automatically detect whether the escrow is a single-yield or bifurcated escrow and will generate the appropriate escrow verification report (either report 11c or 11d). This feature allows you to incorporate adjustments made to the escrow analysis outside of the original refunding. Reports 11c and 11d are similar to reports 30 and 30c respectively.

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