Pooled Loan

A Cost-Effective Way to Borrow Money

Introduction
FMPA launched its Pooled Loan Project in 1988 to provide a cost-effective alternative to traditional methods of raising capital, such as bank loans and bond issues.

Like other successful pooled financing programs, FMPA’s program was designed to offer the following benefits for borrowers:

  • Lower interest rate
  • Lower issuance costs
  • More flexibility
  • Quicker turnaround time from application to loan issuance

The Program
Here’s how FMPA’s Pooled Loan Project works:

1. FMPA issues debt based on signed loan agreements with its members, and
2. The proceeds in turn are loaned to individual members to finance various electric, gas, water, sewer and other utility-related projects.
3. Borrowers are charged an interest rate based on FMPA’s commercial paper rate plus 0.6% for letter of credit, dealer, trustee and other administrative expenses.

Typical Projects
Loan proceeds can be used to finance various electric, gas, water, sewer, trash and other utility-related projects. Some examples include:

  • Capital Additions: Generation, substations, transmission lines, line extensions, water and sewer treatment facilities, replacement facilities.
  • Equipment Acquisition: Line trucks, construction equipment, pumps and motors.
  • Inventories: Fuel.
Borrower Benefits
1. Saves time and money when FMPA borrows funds for several participants and manages the program. Participants benefit from lower issuance fees.
2. Saves on interest costs. FMPA utilizes low-cost variable rate debt, in the form of tax-exempt commercial paper. For members, this translates into long-term loans at attractive short-term rates.
3. Frees-up working capital for other purposes.
4. Loans are subordinate to outstanding utility debt, therefore, a parity bond test is not required. Loans will be subject to letter of credit bank approval.
5. Interest can be capitalized during construction, and principal payments can be scheduled to begin after construction is expected to be completed.
6. Loans can be paid off at any time without penalty, thus refinancings are possible with a member’s long-term debt when rates are favorable.
7. Multiple loans can be made to one member—during the course of a lengthy project for example—and the utility can later choose to refinance the loans using its own long-term debt.
8. Cost of issuance is minimal.

Separate Liability
Although the pool was designed with flexibility in mind, its structure does not sacrifice security. Each participant in the pool is separately liable, so the participants bear no obligation if another borrower defaults. And to further protect the project, the pool has a letter of credit.

Responsibilities of Participant
1. File a request with FMPA for a loan to cover the cost of the project.
2. Provide description of the project and summary of costs.
3. Provide utility’s financial information, including copies of audits, budgets and last official statement.
4. Sign loan agreement after the loan has been approved by Wachovia Bank, the letter of credit bank.
5. Submit invoices to FMPA for payment or reimbursement.
6. Pay interest on loan by 15th of month.
7. Principal payments will be made according to agreed-upon repayment schedule. Generally, amount of the loan can be amortized over the life of the asset.

Responsibilities of FMPA
1. Forward participant’s loan request and financial information to Wachovia for approval.
2. Act as agent for participant with Wachovia in loan approval process.
3. Finalize loan agreement (i.e. amount, payment schedule, etc.) with participant.
4. Sell commercial paper to provide funds for participant.
5. Calculate interest costs on participant’s loan quarterly and adjust as necessary.
6. Collect principal and interest from participant.
7. Pay invoices received from participant.
8. Administer the Pooled Loan Project.
9. Invest funds on deposit with trustee.

Responsibilities of LOC Bank
1. Guarantee payments of principal and interest to bondholders in case of participant default.
2. Review loan requests and approve or disapprove loans.

Responsibilities of Commercial Paper Dealer
Market and remarket commercial paper to provide FMPA with funds for approved loans.

Responsibilities of Trustee
1. Receive funds from commercial paper sold and hold in trust until notified by FMPA to disburse the funds.
2. Receive interest and principal payments from participants.
3. Maintain records for each loan agreement showing amount of loan, amount of payments and balance.

This summary provides a general description of FMPA’s Pooled Loan Project. Prospective participants should consult actual loan documents for a complete description on which to rely. Contact Janet Davis at FMPA, 1 888 774-7606.