GUIDELINES ON SECURITY FOR AUTHORITY FINANCINGS FOR INDEPENDENT INSTITUTIONS

Financing Security Guidelines Matrix

The purpose of these guidelines is to provide an outline for Authority staff when considering security provisions for financings on behalf of independent institutions, including higher education, health care institutions financed under the MCFFA Act and other eligible 501(c)(3) institutions, that have met credit tests for the issuance of Authority debt. Although each proposed financing must be reviewed individually and exceptions to these guidelines may be considered, the Authority will generally require the security provisions as follows.

1. The following loan security provisions would be required for bond financings undertaken on behalf of higher education and other eligible 501(c)(3) institutions, excluding health care institutions financed under the MCFFA Act, that secure a rating of A1/A+ or greater, as determined by nationally recognized municipal bond rating services.
1. A general obligation of the institution;
2. Financial covenants, including restrictions on the pledging of assets and the incurrence of additional debt, and covenants relating to financial performance to serve as an early warning of financial deterioration. The specific terms of the covenants would be at the discretion of the Authority and the credit enhancer, if credit enhancement is utilized. If the financial covenants are not met, the remedies available to the Authority and the credit enhancer would include the right to require the institution to retain the services of a qualified management consultant acceptable to the Authority and the credit enhancer.
2. The following loan security provisions would be required for bond financings undertaken on behalf of higher education and other eligible 501(c)(3) institutions excluding health care institutions financed under the MCFFA Act, that secure a rating of less than A1 or A+, as determined by nationally recognized municipal bond rating services.
1. A general obligation of the institution secured by a pledge of revenue at least equal to the debt service requirements of the obligations;
2. Credit enhancement acceptable to the Authority, provided, however, that for institutions rated A3/A- or greater, credit enhancement may not be required at the discretion of the Authority. Credit enhancement would include, but is not limited to, the following:
1. A policy of municipal bond insurance;
2. A SONYMA-insured mortgage;
3. An irrevocable stand-by or direct-pay letter of credit issued by a commercial banking institution of an amount not less than 100% of the principal amount of obligations outstanding plus interest sufficient for mandatory redemption;
3. A debt service reserve fund funded with a letter of credit, a surety bond or proceeds from the sale of the obligations established at the discretion of the Authority and credit enhancer, provided, however, that for institutions rated less than A3/A-, a debt service reserve fund would be required;
4. A mortgage upon real estate taken at the discretion of the Authority and credit enhancer, provided, however, that for institutions rated A3/A- or greater but less than A1/A+, that do not obtain credit enhancement, and institutions that obtain credit enhancement and the credit enhancer is rated less than A1/A+, a mortgage would be required;
5. Financial covenants including restrictions on the pledging of assets and the incurrence of additional debt or covenants relating to financial performance to serve as an early warning of financial deterioration. The specific terms of the covenants would be at the discretion of the Authority and the credit enhancer. If the financial covenants are not met, the remedies available to the Authority and the credit enhancer would include the right to require the institution to retain the services of a qualified management consultant acceptable to the Authority and the credit enhancer.
3. The following loan security provisions would be required for bond financings undertaken on behalf of health care institutions including members of obligated groups, financed under the MCFFA Act that secure a rating of A1/A+ or greater, as determined by nationally recognized municipal bond rating services.
1. A general obligation of the institution secured by a pledge of gross receipts;
2. A project loan or a mortgage loan taken at the discretion of the Authority;
3. Financial covenants, including restrictions on the pledging of assets and the incurrence of additional debt, and covenants relating to financial performance to serve as an early warning of financial deterioration. The specific terms of the covenants would be at the discretion of the Authority and the credit enhancer, if credit enhancement is utilized. If the financial covenants are not met, the remedies available to the Authority and the credit enhancer would include the right to require the institution to retain the services of a qualified management consultant acceptable to the Authority and the credit enhancer.
4. The following loan security provisions would be required for health care institutions including members of obligated groups, financed under the MCFFA Act that secure a rating of less than A1 or A+, as determined by nationally recognized municipal bond rating services.
1. A general obligation of the institution secured by a pledge of gross receipts or a pledge of revenue at least equal to the debt service requirements of the obligations;
2. Credit enhancement acceptable to the Authority, provided, however, that for institutions rated A3/A- or greater, credit enhancement may not be required at the discretion of the Authority. Credit enhancement would include, but is not limited to, the following:
1. A policy of municipal bond insurance;
2. An FHA-insured mortgage;
3. A SONYMA-insured mortgage;
4. An irrevocable stand-by or direct-pay letter of credit issued by a commercial banking institution of an amount not less than 100% of the principal amount of obligations outstanding plus interest sufficient for mandatory redemption;
3. A debt service reserve fund funded with a letter of credit, a surety bond or proceeds from the sale of the obligations established at the discretion of the Authority and credit enhancer, provided, however, that for institutions rated less than A3/A-, a debt service reserve fund would be required;
4. A project loan or a mortgage loan taken at the discretion of the Authority, provided, however, that for institutions rated A3/A- or greater but less than A1/A+, that do not obtain credit enhancement, and institutions that obtain credit enhancement and the credit enhancer is rated less than A1/A+, a mortgage upon real estate, which, at the discretion of the Authority, may be either a project loan or a mortgage loan, would be required;
5. Financial covenants including restrictions on the pledging of assets and the incurrence of additional debt or covenants relating to financial performance to serve as an early warning of financial deterioration. The specific terms of the covenants would be at the discretion of the Authority and the credit enhancer. If the financial covenants are not met, the remedies available to the Authority and the credit enhancer would include the right to require the institution to retain the services of a qualified management consultant acceptable to the Authority and the credit enhancer.