737 Fort Street 737 Fort Street Victoria, BC Victoria, BC V8W 2V1 V8W 2V1
A DISCUSSION ON: A DISCUSSION ON: Community Bonds Community Bonds and the and the “Mission Recreation Park Aquatic Centre” “Mission Recreation Park Aquatic Centre”
What is a Community Bond? What is a Community Bond? Normal Debentures Normal Debentures MFA uses a Banking Syndicate (Toronto) to sell our bonds to MFA uses a Banking Syndicate (Toronto) to sell our bonds to i. i. investors investors Banking Syndicate charges 60 cents commission per $100.00 Banking Syndicate charges 60 cents commission per $100.00 ii. ii. Investors = insurance companies, mutual funds, others Investors = insurance companies, mutual funds, others iii. iii. Community Bonds Community Bonds Investors are residents and businesses in the area Investors are residents and businesses in the area i. i. No Banking Syndicate = No Commission No Banking Syndicate = No Commission ii. ii.
Pros and Cons of Each Type of Bond Pros and Cons of Each Type of Bond Normal Debentures Normal Debentures Can raise very large amounts of capital Can raise very large amounts of capital i. i. Banking Syndicate guarantees guarantees “price” and “interest rate” “price” and “interest rate” Banking Syndicate ii. ii. – this is how they earn their commission this is how they earn their commission – Interest rates are low (MFA = “AAA”) but Interest rates are low (MFA = “AAA”) but at market rates at market rates iii. iii.
Pros and Cons of Each Type of Bond Pros and Cons of Each Type of Bond Community Bonds Community Bonds Limited amount of capital that can be raised Limited amount of capital that can be raised i. i. Interest rates are below “market” Interest rates are below “market” ii. ii. - 20 year MFA 20 year MFA = 4.90% - = 4.90% - Estimated Community Bond Estimated Community Bond = 3.90% = 3.90% - - Canada Savings Bonds Canada Savings Bonds = 3.15% (one year) - = 3.15% (one year) = 3.35% (three years) = 3.35% (three years) 60 cent banking commission can be used elsewhere 60 cent banking commission can be used elsewhere iii. iii.
Normal MFA Debenture Process Normal MFA Debenture Process MFA Raises capital in the same bond markets as the Government of Canada, Provinces, Chartered Banks, corporations, etc. Example: Normal Community Normal Community Example: Debenture Bond Debenture Bond Kelowna requests Kelowna requests $100.00 $100.00 $100.00 $100.00 Less: Bank Syndicate commission Less: Bank Syndicate commission (0.60) - (0.60) - Legal fees, printing, rating Legal fees, printing, rating agencies, etc. (0.15) (0.15) agencies, etc. (0.15) (0.15) Kelowna receives $99.25 $99.85 Kelowna receives $99.25 $99.85
Community Bond – – Impact on Budget Impact on Budget Community Bond (20 year MFA rate = 4.90% currently) (20 year MFA rate = 4.90% currently) $1,000,000 $1,000,000 $2,000,000 $2,000,000 $5,000,000 $5,000,000 Community Community Community Community Community Community Bond @ Bond @ Bond @ Bond @ Bond @ Bond @ 3.90% 3.90% 3.90% 3.90% 3.90% 3.90% (i) Year One (i) Year One Annual Interest Savings $10,000 $20,000 $50,000 Annual Interest Savings $10,000 $20,000 $50,000 Add: Banking Commission Saved 6,000 12,000 30,000 Add: Banking Commission Saved 6,000 12,000 30,000 Savings – – Year One Year One $16,000 $32,000 $80,000 Savings $16,000 $32,000 $80,000 (ii) Interest Savings over 5 years: (ii) Interest Savings over 5 years: Total Interest Saved $50,000 $100,000 $250,000 Total Interest Saved $50,000 $100,000 $250,000 (iii) If Community Bond renewed for full (iii) If Community Bond renewed for full 20 year term: 20 year term: Total Interest Saved $200,000 $400,000 $1,000,000 Total Interest Saved $200,000 $400,000 $1,000,000
Why it Might Work in Kelowna: Why it Might Work in Kelowna: � Residents Residents choose choose to live here (pride in community) to live here (pride in community) � � Wealthy residents on average Wealthy residents on average � � Businesses Businesses – – a good opportunity to invest back into the a good opportunity to invest back into the � community (i.e. “community involvement”, marketing) community (i.e. “community involvement”, marketing) � Project Project – – visible and large enough to consider using a consultant visible and large enough to consider using a consultant � to market to market
Community Bond – – The Process The Process Community Bond A Community Bond is debt – – Normal LA Bylaw Process Normal LA Bylaw Process A Community Bond is debt i. i. Kelowna staff communicates with MFA: Kelowna staff communicates with MFA: ii. ii. - allocation of funds: X% MFA Debt + X% Community Bonds allocation of funds: X% MFA Debt + X% Community Bonds - City and Council determine: a) interest rate offered City and Council determine: a) interest rate offered iii. iii. b) term of bond b) term of bond c) annual or semi- -annual interest annual interest c) annual or semi
Community Bond – – The Process The Process Community Bond City Steps: City Steps: iv. iv. - council support council support - - advertise advertise – – consider a consultant to market consider a consultant to market - - Town Hall Meeting Town Hall Meeting – – explain project and Community explain project and Community - Bond Bond - MFA will attend (since MFA supports bond) MFA will attend (since MFA supports bond) - - AAA behind community bond AAA behind community bond - - City Staff collect investors: City Staff collect investors: a) deposits - a) deposits b) information b) information - remit deposits remit deposits plus plus information information -
Community Bond – – The Process The Process Community Bond MFA: a) establishes an Investor Register MFA: a) establishes an Investor Register v. v. b) prepares Investor Receipts (originals kept by MFA) b) prepares Investor Receipts (originals kept by MFA) c) Issues interest cheques c) Issues interest cheques d) Administers any transfers of ownership d) Administers any transfers of ownership e) prepares T5 slips e) prepares T5 slips
Community Bonds – – Tax Impact Tax Impact Community Bonds � Eligible for self Eligible for self- -directed RRSPs directed RRSPs �
Interest Yield Curve Interest Yield Curve
THANK YOU! THANK YOU! 737 Fort Street 737 Fort Street Victoria, BC V8W 2V1 Victoria, BC V8W 2V1 Phone: (250) 383- -1181 1181 Phone: (250) 383 Fax: (250) 384- -3000 3000 Fax: (250) 384
2007 MFA Staff 2007 MFA Staff Steve Graham Renata Shelley Jane Meagan Allison Lorna Tyler
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