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BOND HOLDERS PDA MUNICIPAL FORUM 18 MARCH 2011

BOND HOLDERS PDA MUNICIPAL FORUM 18 MARCH 2011. WHAT IS A BOND? (1). CONTRACT A loan agreement between two parties: Bondholder (usually a financial institution) Client of the bondholder Involves: A fixed asset that serves as security for the loan Payments at specified intervals

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BOND HOLDERS PDA MUNICIPAL FORUM 18 MARCH 2011

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  1. BOND HOLDERS PDA MUNICIPAL FORUM 18 MARCH 2011

  2. WHAT IS A BOND? (1) CONTRACT • A loan agreement between two parties: • Bondholder (usually a financial institution) • Client of the bondholder • Involves: • A fixed asset that serves as security for the loan • Payments • at specified intervals • at a specified interest rate • for a specified period

  3. WHAT IS A BOND? (2) RIGHTS OF THE BONDHOLDER • May sell the fixed asset if the client cannot repay the debt in accordance with the agreement • Preferential right: Bondholder gets paid out before any other creditor • Cover remaining debt • Cost of settling the debt • Rights registered against the property in the deed of the property

  4. IMPACT OF APPLICATION ITO PDA ON BOND (1) • Changes the nature of the fixed asset that serves as security for the loan • Usually enhances the value of the fixed asset, but not necessarily

  5. IMPACT OF APPLICATION ITO PDA ON BOND (2) • Bond holder may not be able to consent because: • cost of loan different for commercial (in wide sense), agricultural and residential property • term of loan different for commercial (in wide sense), agricultural and residential property • client’s credit rating insufficient • Client may want to change nature of asset in order to settle debt

  6. AGREEMENT WITH FINANCIAL INSTITUTIONS (1) • Consulted: Absa, Standard, Nedbank, FNB • Will not require bondholder consent • Will require acknowledgement in writing from the institution that it was given personal notice of the application (at the same time when comment is obtained from the public and interested parties) • = Disclosure

  7. AGREEMENT WITH FINANCIAL INSTITUTIONS (2) • Financial institutions undertake: • Make arrangements with home loans division for referral of applications to commercial division • Collective agreement with financial institutions: • Accept disclosure that application was made as sufficient • Will acknowledge receipt of disclosure • Times frames • Changes to wording of PDA to expressly provide for disclosure

  8. DISCLOSURE AND THE PDA • Municipality to bondholders that an application has been made • Sellers to buyers that properties are not serviced but that planning approval has been granted • Surveyor General to municipalities that diagrams, general plans and sectional title schemes have been approved

  9. GERT ROOS 14th Floor, North Tower Natalia Building 330 Langalibalele Street Pietermaritzburg, 3200 Tel: (033) 33 395 2656 Fax: (033) 33 3949 714 E-mail: gert.roos@kzncogta.gov.za Website: www.kzncogta.gov.za

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