The term of each loan is determined by the participating municipality. However, the term length cannot exceed the useful life of the asset(s) financed. In accordance with Vermont statutes, terms lengths can range from five to thirty years.
Payment Due Dates
May 1st – Interest Only
November 1st – Principal & Interest
Payments may be made by check, ACH transfer, or by bank wire. Instructions for each payment type are included with the notice sent to each municipality in advance of each payment date. Failure to receive a notice does not absolve the municipality from making a scheduled payment in a timely manner.
Principal and Interest Payments
Principal payments usually start in the year following the year of the bond issue and are included in the November 1st payment. At the election of the borrower, principal payments may:
- Begin the November immediately following the bond issue; or
- Be delayed for up to five years but during that time, interest will still be due. The number of years that principal is delayed does not extend the maximum allowable term. For example: Repayment of principal on a 20-year loan is delayed for five years. After the fifth year, principal payments are amortized over the remaining 15 years.
Annual principal payments for non-revenue projects are limited to level or declining amounts. Revenue projects can have level debt service (mortgage type) payments.
Prepayment of Loans
Because the VMBB loans funds to municipalities from “pooled bonds”, it is very difficult for a municipality to prepay its debt. However, by depositing surplus funds into a dedicated sinking fund or an escrow account with the trustee, the effect is close to a prepayment. IRS regulations regarding sinking fund and escrow deposits are complicated, and municipalities are requested to work with their bond counsel when trying to set up a prepayment plan.
The VMBB continuously reviews its bond portfolio for refinancing opportunities. If a proposed financing meets the VMBB’s three-pronged test – 1) minimum 3% net present value savings, 2) cash flows remain positive throughout the life of the bond series, and 3) the bond structure allows for maximized savings – the VMBB will in most cases refinance that bond series. Savings are then credited back to participating municipalities as a credit against an interest payment or as an actual cash payment to the borrower from the VMBB’s trustee.