S&P - Public Finance Criteria (2007). - The Global Clearinghouse

State Credit Enhancement Programsdences qualify as an event of default that triggersthe intercept, with the exercise of such and remittanceof such prior to the debt service due date,representing a cure of the event of default.In addition to the terms to be included in thebond indenture, Standard & Poor’s requires thatqualifying universities demonstrate a minimum of2x coverage of maximum annual debt service on alloutstanding debt (regardless of the indenture underwhich it is issued) from general fund appropriationsfrom the commonwealth for the current fiscal yearand the two most recent fiscal years. Furthermore,maintenance of the ‘A+’ rating will be dependent onmaintaining a minimum coverage of 2x.Massachusetts Qualified Bond Act (‘AA-’)Governing statute: Under the Qualified Bond Act(Massachusetts General Law, Chapter 44A), the statetreasurer pays debt service directly to the payingagent and withholds the amount of the payment fromthe borrower’s annual state aid appropriation. Thisrating moves in conjunction with the state’s rating.Eligibility requirements: Approval by the StateEmergency Finance Board, which oversees andmonitors the program, is required. The programcovers all pre-approved local debt issued by cities,towns and regional school districts.Program provisions: The entity’s treasurer certifiesto the state treasurer the maturity schedule,interest rate, and dates of payment on the bondswithin 10 days of issuance. If necessary, the statetreasurer pays debt service and after payment withholdsfrom the distributable aid payments or anyother amount payable to the municipality or schooldistrict (all state aid is subject to annual appropriation)a sum sufficient to cover debt service. Entitiesparticipating in this program are required to appropriateand to include in their tax levies amountsnecessary to pay qualified debt service. There is nocoverage requirement in the Massachusetts law;however, state aid has historically been substantiallyhigher than the amount of qualified debt service,resulting in multiple times coverage.Michigan State School Bond Loan Fund Program (‘AA’)Governing statutes: Section 16 of Article 9 ofMichigan’s constitution (adopted in 1963) createdthe Michigan School Bond Loan Fund Program toprovide districts access to funds to avoid a defaulton qualified debt. This rating moves in conjunctionwith the state’s rating.Eligibility requirements: For a bond to be eligiblefor the School Bond Loan Fund Program, it mustbe a voter-approved qualified bond. The proceedsmust be used for capital expenditure purposes, butnot for maintenance. To participate in the program,a school district must apply for qualification ofeach bond issuance. The district must complete thequalification application forms and substantiatethat the planned improvements are needed and thecosts are reasonable. In order to borrow from thebond loan fund, the district is required to levy minimumproperty tax millages for debt service and forgeneral operating expenses as the minimum localproperty tax effort.Program provisions: If a school district fails tomeet its debt service obligation for qualified debt,the state treasurer is notified and pays the requireddebt service. The loan from the bond loan fundbecomes an obligation of the district, with the loanrepayment scheduled as part of the district’s annualdebt service. Access to the loan fund is also availableas a property tax relief mechanism for qualifiedprincipal and interest payments. In effect,borrowing from the fund to limit property tax levyrequirements extends the debt retirement term. Ifthe balance in the state’s loan fund is insufficient tocover obligations, the state is required to makeloans from the general fund and issue general obligationbonds if necessary to raise sufficient funds.Since the fund is an obligation of the state, theguarantee program is rated on par with the state’sGO debt.Minnesota State StandingAppropriation Program (‘AAA’)Governing statutes: Authorized by MinnesotaStatutes, Section 126C.55, the Minnesota programwas designed to correct potential school districtdefault situations and is backed by a standingappropriation from Minnesota’s general fund. Thisrating moves in conjunction with that of the state.Eligibility requirements: All school districts areeligible to benefit from this enhancement. To applyfor participation in the School District CreditEnhancement Program, the school district files aschool board resolution with the commissioner ofeducation. Upon acceptance into the program, aparticipation certificate is issued to the applyingschool district.Program provisions: A participating district mustcovenant to notify the commissioner of the departmentof a potential default as soon as possible, butnot less than 15 business days before the debt servicedue date. A district must also covenant to depositwith a paying agent sufficient funds to make paymentson its bonds at least three business days beforethe debt service due date. The school district mustenter into a paying agent agreement that requires thepaying agent to inform the commissioner of educationif it becomes aware of a default, a potentialdefault or if there are insufficient funds on depositwith the paying agent three business days before thedebt service due date. Once a school district elects towww.standardandpoors.com93