KNN Public Finance provides a full range of financing instruments to its public agency and nonprofit clients. Our close contact with bond rating and insurance agencies often results in more bids to provide credit enhancement at better rates than our clients would have received otherwise. KNN serves as an extension of your staff, managing the entire financing process, assembling the finance team, and preparing and presenting agenda items at Board and staff meetings.

 

General Obligation (GO) Bonds
GO Bonds are voter authorized, long-term debt instruments that are paid from a supplemental ad valorem property tax. KNN helps school districts and other agencies prepare for successful GO Bond elections and bring their bonds to market.
COPs/Lease Revenue Bonds
Certificates of Participation (COPs) and lease revenue bonds are long-term financing instruments that are structured as leases and payable from General Funds. They do not require voter approval. Lease revenue bonds are similar and secured by lease payments on equipment and facilities. An asset's "useful life" and "essentiality" are key considerations for the security of a lease revenue bond.
Variable Rate Securities
Variable rate debt has traditionally been used to obtain significant reduction of interest costs under appropriate conditions. Because there are extra costs of issuance with variable rate debt, variable rate debt saves issuers the most money when financings are large enough to reduce costs of issuance to a small percentage of the borrowing, typically about 2%, including underwriting (but not credit enhancement). In general, this means a minimum size in the $10 to $15 million range, and larger is better. Variable rate debt implies a certain amount of interest rate risk. But properly managed, variable rate debt has saved millions of dollars for issuers. In addition to advising several of our large and sophisticated clients on stand-alone variable rate debt, KNN opens the door to variable rate debt to smaller issuers like school districts by aggregating smaller individual school district loans into larger variable rate pool financings.
Tax and Revenue Anticipation Notes (TRANs)
TRANs are short-term debt securities that provide public agencies the opportunity to borrow for one year to cover temporary cash deficits caused by the cyclical nature of tax receipts. As a major financial advisor in this market, KNN offers cost-saving pooled TRANs for small issuers and individual TRANs for clients with significant cash flow requirements.
Land Secured Finance
Also known by the colloquial term “Dirt Bonds,” land secured finance generally describes Mello-Roos and assessment bonds that are secured by a lien on property, often on unimproved property. Mello-Roos bonds are paid from a special tax; assessment bonds from assessments which are not true taxes. Both are secured by a pledge of the property. The security for payment of debt service may be in the form of, among other things, property taxes or special assessments based on the valuation of property, or sales proceeds received upon sales of parcels of property.
Tax Increment Bonds
Tax increment bonds are issued by redevelopment agencies and are paid from the tax receipts generated by growth in valuation of the property in the redevelopment project area.
Pension Bonds and OPEB Bonds
Pension Obligation Bonds (POBs) and Other Post Employment Benefits Bonds (OPEB Bonds) are utilized by public agencies to fund their unfunded accrued actuarial liability (UAAL) for retirement costs. The proceeds of the bonds are paid to the agency's pension plan to extinguish (in whole or in part) the UAAL as of the date of issuance. From a purely financial perspective, issuing POBs or OPEB Bonds can produce savings for a government agency if the interest rate paid on the bonds is less than the actuarially determined rate of interest which the agency would pay to its Retirement Association to amortize its unfunded liability. POBs and OPEB Bonds must be issued on a taxable basis because retirement costs, like salaries and benefits, are working capital expenditures. Also, there is an underlying arbitrage consideration: the proceeds are deposited into a pension plan that can subsequently invest in higher yielding securities, including equities. In California, POBs and OPEB Bonds are viewed as an exception to the constitutional debt restriction imposed on cities, counties, and school districts requiring voter approval of debt. This exception occurs because POBs and OPEB Bonds are considered to be an "obligation imposed by law." They are also authorized under the State law that permits the issuance of refunding bonds. With obligations imposed by law, most bond counsels require that each jurisdiction must first pursue a court validation action to confirm the agency's authority to issue the debt. This process can take between 3-4 months.
Tobacco Securitization Bonds
Pursuant to a nation-wide settlement of litigation initiated by State and local governments, tobacco companies were forced to reimburse local governments for the health-related costs resulting from the cancer-causing agents of their products. Tobacco settlement revenue is based on a complicated formula tied to the consumption of tobacco in the United States. Counties within California have issued Tobacco Securitization Bonds, taking advantage of the opportunity to receive a lump-sum cash payment “up front,” while bond purchasers assume the risks associated with this relatively new revenue stream. Tobacco Securitization Bonds are not technically considered debt because the bonds use tobacco settlement revenues as their sole source of repayment.
Swaps
Municipal borrowers have increasingly coupled variable-rate borrowings with swap agreements to produce relatively fixed payment obligations at a lower cost than traditional fixed-rate debt. In all cases, the reduced net cost is in exchange for the tax-exempt borrower accepting some form of increased risk. The prudent use of swaps can provide appropriate reductions in the overall cost of borrowing.
Commercial Paper
A form of short-term funding used by large issuers, Commercial Paper is essentially short-term notes, usually backed by a line or letter of credit with a bank, issued by the institution. Commercial Paper is typically used to fund project payments on an as-needed basis, and eventually refunded with some form of permanent financing.
Enterprise Revenue Bonds and Certificates of Participation
Enterprise Revenue Bonds or Installment Sale Certificates of Participation are issued to fund projects for revenue-producing entities within a municipality (e.g., water and wastewater systems, a port or an airport). The security for this type of issue is usually the pledged revenue from the project or system financed, not the credit of the governmental issuer.
Conduit Financing
Conduit financing is employed by entities without the authority to issue tax-exempt bonds independently. Conduit Bonds or Certificates of Participation are issued by a governmental unit to finance a project for use primarily by a (501 (c) (3)) non-profit corporation. The security for this type of issue is usually the credit of the conduit borrower or pledged revenues from the project financed and a lien on the financed property, not the credit of the governmental issuer.