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PFA Loan Negotiations Overview - Metropolitan Council Environmental Services

The presentation delivered by Jason Willett, Finance Director of the Clean Water Agency, to the Environment Committee on July 14, 2009, outlines the Metropolitan Council Environmental Services' (MCES) participation in the Public Facilities Authority (PFA) Loan Program. Since 1989, MCES secured $965 million in loans, with interest rates varying from 2.54% to 6.42%. The presentation details capital projects eligible for ARRA grants, potential savings from Build America Bonds, and various terms impacting loan costs, emphasizing the financial framework supporting sustainable water infrastructure.

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PFA Loan Negotiations Overview - Metropolitan Council Environmental Services

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  1. Metropolitan Council Environmental Services PFA Loan Negotiations Presented to the Environment Committee July 14, 2009 Jason Willett, Finance Director A Clean Water Agency

  2. State Revolving Loan Program • MCES’s historical involvement • Active in program since 1989 • 18 separate prior loan agreements • $965 million of prior loans to date • Interest rates from 2.54% (2004) to 6.42% (1991)

  3. Revolving Loan Program Loan agreements issued to date ($s in millions)

  4. Capital Project Expenses Actual and projected source of funding* ($s in thousands) *Excludes capital expenses paid out of the operating budget Key: PFA = Public Facilities Authority Loan; SAC = Sewer Service Availability Charge; CRF = Capital Revolving Fund; PAYG = Pay-as-you-go

  5. Conventional PFA Subsidy • For the first $50 million, 150 basis points (1.5 percentage points) • Adjusted downward by 1.25 basis points for each additional $1 million borrowed, resulting in a 112.5 basis point discount for $80 million borrowed • No underwriter’s discount • Limited costs of issuance

  6. Conventional Loan Savings $80-million loan ($ in millions) Total Debt Present Service Value 4.35% Council bond $121.4 $80.0 3.23% (est.) PFA loan 109.8 72.3 Savings to ratepayers $ 11.6 $ 7.6 Underwriters discount saved $ .5 Cost of issuance saved $ .1 Total Present Value Savings $ 8.2

  7. Tentative Loan 1 withARRA Grants • Five capital projects eligible for partial grants = “principal forgiveness” under the American Reconstruction and Recovery ACT (ARRA) • Three of these projects qualified under the base program and two under the Green Infrastructure program • Additional project restrictions: • Federal prevailing wage • Buy American provision • Reporting requirements • Remainder of loan will be 150 basis points less than a market interest rate scale

  8. Loan 1 (in millions) Principal Loan ProjectForgivenessRemainder Blue Lk Int. $2.0 $8.0 Blue Lk Plant 2.0 8.0 SSP Forcemain 2.0 8.0 Blue Lk Solids 2.0 (green) 6.0 MWWTP Tunnel Lts 0.2 (green) 0.6 Total $8.2 $30.6 Nominal amount of Loan 1 = $38.8 million

  9. Tentative Loan 2: Build America Bonds—ARRA Financing • Build America Bonds (BABs) will be used to finance cash flow of the remaining PFA eligible projects; a loan of $49.4 million is projected • BABs are taxable but receive federal rebate 35% of the interest cost • PFA rules for taxable loan: interest rate based on Aa tax-exempt + 20 basis points

  10. Loan 2 Savings (in millions) Extended savings from BABs compared to conventional PFA loan*: $6.4 million $5.3 million (net present value) Note: Interest rate to be set the week of July 27 *Per Springsted Inc.

  11. Tentative Total Savings NPV Savings 1.5% discount on $80 million loan $10.1 ARRA Principal Forgiveness Base Program $6.0 Green Infrastructure $2.2 Build America Bonds Increment. $5.3 Total Savings vs. Council Bonding $23.6 (in millions)

  12. Questions, Concerns

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