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

State Credit Enhancement Programstheir financing needs. This rating moves in conjunctionwith that of the state.Eligibility requirements: Any school district is eligibleto apply to the state to use the program as anadditional bond security. Program guidelines specificallyexclude any type of obligation other than GObonds. Conditions for state approval include a stateaid coverage requirement plus the district enteringinto a binding direct deposit agreement with thestate to divert monthly state aid to a trustee-helddebt service fund. To enter the program, districtsmust meet coverage requirements of state aid ineach of the past three fiscal years covering maximumannual debt service by at least 1.5x and agreeto the state making direct deposit of its monthlystate aid payments to a state-selected direct deposittrustee. Once debt has been issued using this program,the district cannot pledge state aid as a primaryor parity security to any non-programobligation as long as any program debt is outstanding.Participating school districts waive all rightsand privileges to institute any action authorized byany act of Congress relating to bankruptcy.Program provisions: The Missouri program providesfor a first-dollar claim on monthly state aid,which will be directly deposited to a master bondtrustee. Program oversight and management is theresponsibility of the Missouri Health &Educational Facilities Authority (HEFA), as is theability to establish operating guidelines. HEFA alsopays certain issuance costs for participating schooldistricts. Under the program, a school district entersinto a direct deposit agreement with the state tofund a debt service payment account for either individualissues or participation in a HEFA-issuedpooled financing. Upon application approval, a districtcan use this security enhancement for new andrefunding issues.The state aid flowing to the direct deposit trusteeare the first dollars of the district’s monthly state aidpayment. The trustee, in turn, remits to each independentdistrict paying agent the required principaland interest at the required times. HEFA, theDepartment of Elementary and SecondaryEducation, the Office of Administration, and thetreasurer’s office coordinate activities to operate thedirect deposit mechanism. The direct deposit paymentswill be made in 10 level monthly increments,with payments starting the month of the bond issueclose. If any monthly payment is insufficient to meetthe 1/10th monthly increment requirement, the nextdirect deposit will make up the shortfall and includethat month’s required payment. Although the annualdebt service payments will be made out of the first10 months of a participating district’s state aid, thedirect deposit account has access to its entire annualstate aid appropriation, if needed.To eliminate the risks associated with late statebudget adoptions or mid-year state aid reductions,debt service payment dates cannot be in the endingor beginning months of the state’s fiscal year. Alldirect deposit funds and HEFA-held moneys will beinvested in securities that meet Standard & Poor’sinvestment criteria.Nevada School District BondGuarantee Program (‘AAA’)Governing statutes: The Nevada permanent schoolfund was established under Article 11, Section 3 ofthe Nevada Constitution, to hold the proceeds offederal lands granted to the state by the U.S.Congress for school purposes, estates that escheat tothe state, and fines collected under the state’s penallaws. The constitution specifies that proceeds of thefund may be pledged only for educational purposes.Interest earnings may be apportioned to the variouscounty districts for educational purposes. NevadaRevised Statutes’ chapter 387 enables local schooldistricts to apply for a guarantee of debt servicefrom the state’s permanent fund under the NevadaSchool District Bond Guarantee Program. This ratingis independent of that of the state.Eligibility requirements: The state treasurer willenter into a guarantee agreement with a school districtonly if the executive director of the departmentof taxation submits a written report to the stateboard of finance, indicating that the school districthas the ability to timely service of its debt obligations.Program provisions: Program debt is backed bythe constitutional pledge of the permanent fund’sassets. There is a statutory requirement that limitsthe program’s guarantee amount to 250% of thelesser of cost or fair market value of the fund’sassets. Additionally, the program limits the amountof bonds that may be guaranteed for any individualschool district to no more than $25 million outstandingat any one time. A state board of financepolicy limits permanent fund investments to U.S.Treasuries and agencies and specifies a minimumliquidity requirement. The minimum liquidityrequirement is defined as the cash flow necessary tosupport 10% of guaranteed bonded indebtednessand such securities must mature within one year.Finally, legal features structured into the guaranteeagreements provide for the early deposit of schooldistrict’s debt service payment with the state treasureror a designated paying agent, and immediate notificationto the state treasurer if such payment is notmade. The guarantee agreement requires that thedistrict transfer debt service amounts to the statetreasurer or a designated paying agent, not laterthan five business days prior to each scheduled paymentdate. If there is a shortfall, the treasurer paysthe deficiency to the paying agent from guaranteewww.standardandpoors.com95