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Knowledge Center

General Obligation Bonds Q&A

How does VMBB sell its bonds?

When VMBB is ready to enter the tax-exempt capital market, it combines all the approved borrowers into a single pooled bond issue. The necessary documents and copies of the applications are submitted to the rating agencies for a credit rating review and update. After the ratings are obtained, a preliminary official statement is printed and mailed to all investment firms and potential purchasers of the bonds. Bonds are offered first to Vermont individual investors and then to national institutional investors.

How often are bonds sold?

Usually bonds are sold once a year, in July. If there is sufficient demand, the VMBB may issue additional bond series.

How does VMBB determine the interest rates?

Final interest rates are established through negotiation with the selected senior managing underwriter and are based on several factors including the market’s demand for tax-exempt bonds, current national interest rates and a review of recent comparable financings.

Can a municipality obtain its funds from VMBB before the bond sale?

No, but interim financing can be obtained from commercial lenders.

What if interest rates change significantly after the closing?

Bonds are issued on a fixed-rate basis and borrowers are protected against ever having their interest rates rise due to an increasing market. However, in the event that interest rates decline by a substantial amount, VMBB may refund the existing bonds and pass the savings through to the borrowers. The refunding is limited to the entire pool and may not be done on an individual municipality basis.

Is there a limit to the size of a loan?

There are no legal limits to the amount of bonds a municipality can issue. However, VMBB, through its credit review process, reserves the right to disallow an applicant based on a number of criteria including the amount of debt per capita and the ratio of debt to assessed valuation.

Who are the investors who typically buy these bonds?

Because of the federal and state tax advantages of these bonds, typical investors tend to be Vermont individuals. Other investors can include banks, mutual funds, insurance companies and other corporations.

What type of information does VMBB look for in its application?

The application requires project, tax, rate, financial, economic, debt, income, and population information. The majority of the information requested is for the entire municipality not just the school, town, or village and is readily available in municipal and state reports.

Who reviews the applications?

Applications are reviewed by Vermont Municipal Bond Bank’s Directors and staff. In addition, each application may also be analyzed by the underwriter, bond counsel, rating agencies and bond insurance company.

Can a municipality pay off a bond early?

No. A municipality cannot pay off a bond early once the bond has been sold. By making deposits into a sinking or reserve fund, the municipality may accomplish the same thing. Please be sure to consult with your bond counsel if you are interested in setting up a sinking fund to pay off your bonds.

Can the repayment schedule change after a bond is issued?

The only time a debt service payment schedule could change would be if VMBB refunded the bonds.

State Revolving Fund Q&A

How does a municipality begin the State Revolving Fund process?

A municipality or its engineer contacts the Department of Environmental Conservation. In most cases, a DEC application will need to be filed. If the SRF loan is expected to exceed $100,000, a VMBB SRF application must be filed as well.

How often are loans issued?

Loans are issued on an as-needed basis. Once the applications have been approved by the DEC and the VMBB, the loan may go to closing.

How are interest rates determined?

The DEC files an interest rate plan with the Federal Environmental Protection Agency. Depending on poverty and other factors, interest rates are set and can vary from a -3.0% to a +3.0%.

Does the SRF advance funds to a municipality while the project is under planning and construction?

No. The SRF program is administered as a “cost reimbursement” program. A municipality must use its own cash or obtain cash flow bank financing to complete the project. See interim financing. Approved SRF project expenses are reimbursed to the municipality by the Trustee by making a reimbursement request to the DEC.

What if interest rates change significantly after the closing?

Loans are issued on a fixed-rate basis and borrowers are protected against ever having their interest rates rise due to an increasing market.

Is there a limit to the size of a loan?

The maximum SRF loan size is limited by DEC’s engineering and budget review, the availability of SRF funds and the municipality’s ability to repay the loan.

How is the SRF loan administered?

The VMBB contracts with People’s United Institutional Trust to act as the SRF program’s Trustee. When authorized by the DEC and VMBB, the Trustee will reimburse the municipality for approved project expenses. The Trustee is also responsible for sending out payment notices and collecting loan repayments.

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