Utility Debt and Investment Policies
APPA Business & Financial Conference
Savannah, Georgia
September 15, 2009
Kevin Crawford, CPA
Financial Analysis & Compliance Manager
Gainesville Regional Utilities
Gainesville Regional Utilities
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Municipally-owned Combined Utility System
– Located in Gainesville, Florida
– 898 employees serving:
• 92,849 Electric customers
• 33,777 Natural Gas customers
• 69,772 Water customers
• 61,552 Wastewater customers
•
Revenue Base is Diversified
– FY 2008 combined systems revenue of $352.6 million
– FY 2008 Revenue Breakdown:
• Electric 63.8%, Wastewater 14.4%, Water 12.3%, Gas: 5.3%, Other
4.3%
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Total Debt Outstanding of approximately $785m, with an overall cost of
debt below 4.50%
Current Investable balance of $144m, increasing to $349m
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Debt Management Policy
• Objective
– Take a long term approach in borrowing funds at the lowest
possible interest cost in view of GRU’s risk tolerance
• Investment Structure is contemplated in debt
management
• Annual Plan of Finance projects the amount of debt
to be issued considering
– Capital project evaluation
– Availability of equity funds
– Desired debt service coverage levels
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Debt Management Policy:
Debt Structure
• Authorized to issue senior and subordinate debt
• Can issue either tax-exempt or taxable
• Fixed versus Variable Rate Debt
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Overall cost of capital
Interest rates
Shape of the yield curve
Changing tax or other laws
Flexibility
Goal is a 60% Fixed/Synthetic Fixed and 40% Variable
• Evaluate risk versus cost savings
• GRU consults with our financial advisor routinely
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Debt Management Policy:
Debt Structure
Tax-Exempt CP
8%
Taxable CP
2%
Gross Debt
Structure
Taxable Fixed
21%
Daily Variable
14%
Tax-Exempt Fixed
26%
Weekly Variable
29%
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Debt Management Policy:
Debt Structure
Net Fixed and Variable
Variable
7%
Synthetic
Variable
6%
Swap Composition
Net Effective
Debt Structure
Swap Index
Exposure
10Y LIBOR
23%
Fixed
41%
1M LIBOR
12%
Synthetic Fixed
46%
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SIFMA
65%
Debt Management Policy
• Ability to:
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Fund a Debt Service Reserve
Utilize bond insurance
Refund debt where economical
Enter into interest rate swaps
Select underwriters, bond counsel and others
• Reporting and Compliance
– Annually report on outstanding indebtedness summarizing
principal amounts, interest rates and maturities
– Responsibility to comply with all arbitrage and other bond
related requirements
– Regularly analyze investments and use of bond proceeds
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Investment Policy
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Objectives
– Preservation of Capital
– Provide sufficient liquidity to meet requirements
– Provide returns commensurate with risk limitations
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Ethical Standards
– “Prudent Person Rule”
– No conflict of interest
•
Authorized Institutions and Dealers
– “Primary Security Dealers”
– Approved by Investment Committee
– Selection Based on:
• State Law, City of Gainesville ordinance, Bond Resolution
• Financial Condition of company
• Competitiveness
• Performance & Expertise
• References
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Investment Policy
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Security Selection Criteria
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Competitive bids from at least three firms
Comparison to the current market price
Flexibility to sole source due to market conditions, time constraints, unique security
Authorized Investments are Defined by the Bond Resolution and City Ordinance
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Government Securities (Bills, SLGS, Treasuries Bills/Notes)
CDs issued by Florida Qualified Public Depositories
Federal Instrumentalities (FNMA, FHLB, FHLMC)
Federal Agencies
State and Local Government Taxable/Tax-Exempt Debt
Corporate Fixed Income Securities
SBA Investment Pool
Fixed-Income Mutual Funds
Repurchase Agreements
Money Market Mutual Funds
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Investment Policy
Portfolio Composition and Diversification
Allowable
Investments
Maximum
Maturity
Maximum
Total Portfolio
Minimum
Total Portfolio
Government
Securities
10 years
100%
20%
Certificate of
Deposit
1 year
20%
N/A
Agencies
10 years
45%
N/A
Commercial Paper
5 years
20%
N/A
Government
Sponsored Entities
10 years
45%
N/A
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Investment Policy
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Reporting & Performance Measurement
– Establish Investment Committee to review investment activity and
performance
– Provide monthly investment report
• Balances
• Portfolio Composition, Mix, Terms & Maturities
• Earnings & Yield Analysis and history
• Cash Flow estimates and requirements
• Credit Monitoring
• Benchmarking Analysis
– Approve exceptions
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Other Items to Consider
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Internal Controls
Continuing Education
Reporting Requirements
Investment Committee Oversight
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Maintenance
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Oversight is critical.
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Strict adherence to the monitoring prescribed in the
policies is essential
Exceptions, specific authorizations, reporting requirements
should all be noted and documented.
Change is inevitable.
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Prudent policy management dictates changes from time to
time. Market conditions may change, certain
investment/debt instruments may no longer be prudent or
practical, etc.
Any modifications to the policies should be made in
accordance with established guidelines
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Summary
Debt & Investment
Management Policies
Debt &
Investment
Activity
Oversight &
Governance
Reporting &
Monitoring
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