FAQS

Is there a limit to the number of years that a bond can be issued?

According to RSA 33:2, bonds can be issued up to 30 years, but the term of the bonds cannot exceed the life expectancy of the project.

For example, if the bond was for equipment with a life expectancy of 10 years, a bond could not be issued for more than 10 years.

Another factor which effects the term is that bonds are generally sold in amounts divisible by $5,000. Note: One time odd amounts can be allowed in the first maturity. A bond in the amount of $50,000 would not be issued for more than 10 years because the maturities each year would not be divisible by $5,000.

A $51,000 bond could be issued with the first principal payment of $6,000 and the remaining 9 payments at $5,000.

Recommendation: Allow one extra year when determining the term of the bonds to allow for timing issues with the bond bank sales. Do not include the term in the warrant article. If the board is allowed to select the term, they can make the best decision at the time of issuance depending upon market conditions.

What type of structures can be used for the bond issue?

There are two basic structures available:

Level Principal:

The principal payments are equal every year
Usually results in the lowest interest cost
Generally results in higher impact on the tax rate in early years

Level Debt:

The total principal plus interest payments are equal every year
Usually results in higher interest cost
Results in constant impact on the tax rate throughout the term

Can bonds be issued with lower debt service in the early years and higher payments at the end of the term?

No. Per RSA 33:2 no subsequent total debt service payment can be more than 2% of the total principal of the bond issue.

What projects are eligible for bonding?

Capital Projects. See RSA 33:3

When should bonds be issued?

Permanent bonds should be issued when you are reasonably sure that all of the proceeds will be expended in a timely manner. If the timeline, amount of project, or other revenue sources are uncertain, Bond Anticipation Notes (BANs) should be issued on a temporary basis to provide the necessary start up cash for the project.

What are BANs?

Bond Anticipation Notes (BANs) are short term notes issued to provide interim financing for the project until the permanent bond is issued. The bond authorization at the annual meeting includes the authority to issue BANs.

Per RSA 33:7-a BANs can be issued up to 5 years, but principal payments must start after 3 years.

Can Bonds be prepaid?

Bonds issued through the NHMBB cannot be prepaid. The NHMBB combines all of the borrowers together to issue bonds in the market. Each maturity consists of several governmental entities.

The NHMBB bonds can be called at certain dates by maturity when the market is conducive to a refunding. In the past, when the rates dropped, the NHMBB called maturities and shared the savings with the borrowers participating in the maturities that were called.

If the district issues its own bonds or borrows from a bank, terms can be determined for prepayment. In general, the rates will be higher, if prepayment is allowed.

When should a bank loan be considered in place of a bond issue?

Local banks may be interested in loaning funds to the district if the amount is small and the term is relatively short.

Amounts under $1 million and terms less than 10 years are often considered by banks for their portfolios.

Rates tend to be higher

Fees tend to be lower

Prepayment often allowed at minimal cost

Recommendation: Contact three to five banks to keep the rates competitive. Call the NHMBB before you award the bid to be sure the rates are reasonable in the current market.

What is arbitrage?

Arbitrage is the amount of investment earnings received from bond proceeds invested at a yield higher than the bond yield.

The rules are complicated and depending on the circumstances, you may be required to send the arbitrage earned to the Federal Government, otherwise known as arbitrage rebate.

If you meet the exceptions to the rule, arbitrage rebate will not be an issue. The following exceptions apply in the majority of NH issues:

Small Issuer Exception:
Bonds issued in the amount of $5 million or less, in a calendar year, and expended within 3 years usually meet the exception and will not require arbitrage rebate.

Two Year Construction Rule:
Bonds issued in excess of $5 million and expended within the following timetable usually meet the exception and will not require arbitrage rebate:

6 months – 10 percent
12 months – 45 percent
18 months – 75 percent
24 months – 100 percent

Recommendation: Consult with bond counsel about the arbitrage rules. The information listed above is general information and does not address all situations.

What fees are required to issue bonds?

Issuance fees can be paid from the municipality's budget, premiums, or from the bond proceeds (if they were included in the project costs).

If you are issuing your bond through NHMBB, there is a one time fee to the bond bank and there will be a bond counsel fee, paid by the municipality directly to the bond counsel.

If you are issuing bonds on your own, the following fees are required in most issues:
Bond Counsel, Financial Advisor, Rating Agency, Printer, and Paying Agent

Contact Information:

25 Triangle Park Drive, Suite 102
Concord, NH 03301

Sheila St. Germain
Executive Director

Tammy St. Gelais
Assistant Director

Jill Topliff
Program Assistant

Phone: 603-271-2595
Toll Free: 1-800-393-6422
Fax: 603-271-3937
E-mail: sstgermain@nhmbb.com

E-mail: tstgelais@nhmbb.com


E-mail: jtopliff@nhmbb.com