MMUA Finance Program Overview

The MMUA Finance Program was launched in June of 2004 with the start-up of the Midwest Consortium of Municipal Utilities. The program is targeted towards utility projects and was developed to provide a simple, flexible and cost-effective financing option for MMUA members. Currently, most members issue tax-exempt bonds to finance utility projects, enabling local governments to access some of the lowest interest rates available. However, the high cost and complexity of a typical stand-alone bond issue can often drive up overall financing costs for a project. The MMUA Finance Program reduces some of those added costs while still using tax-exempt bonds. Some of the specific advantages are:

• A lower cost of issuance because it is shared over a larger issue
• Attractive interest rates
• Flexible loan amounts and loan terms
• Simple application using standardized documents
• Flexible entry into an established financing program permitting quicker turnaround time from application to loan issuance
• Fixed or variable rate loans are available

The Program:

How the MMUA Finance Program works:

1. MCMU issues tax-exempt bonds and the proceeds are used to finance utility projects to its members.
2. Projects that qualify are electric, gas, water, wastewater and other related utility projects. This money can be used for new construction, equipment or refinance of existing utility project debt.
3. A borrower pays an interest rate (fixed or variable) after the loan closing, which is typically very attractive due to using an economy of scale.
4. Draw requests are made on the loan to access the financing.

Separate Liability:

Although the MMUA Finance Program is designed for flexibility, its structure does not sacrifice security. Each participant in the program has separate liability. A participant does not bear obligation if another borrower defaults on their loan. Each loan is backed by an individual letter of credit from our credit provider.

Low Cost of Issuance:

The MMUA Finance Program combines the multiple financing needs of municipal utilities. When debt is issued by MCMU, the cost of that issue is spread amongst the multiple participants on a pro rata basis, reducing the costs proportionately.

Interest Rate:

Borrowers can enter into either a variable or fixed rate loan. The bonds themselves are variable rate bonds secured by a direct pay letter of credit issued by U.S. Bank National Association ("U.S. Bank"). An individual borrower can fix the rate of repayment for all or a portion of their loan. This can be done at the initial issuance or at a later date with the consent of U.S. Bank.

The bonds are rated by Standard and Poor's with the primary basis for the rating being the U.S. Bank letter of credit. The bond rating on the current issue is an "AA-/A-1+". Our credit provider is able to provide favorable credit enhancement fees because the loans are secured from the diversity of multiple borrowers.

Loan Closing:

In order to access the funds, a borrower must have a "loan closing". No interest accrues on a loan until the loan closing. At that point project funds become available to the participant. Once a loan closing has taken place, the borrower can access funds by submitting a draw request to the bond trustee. Instructions on how to submit a draw request are included in the borrower's project loan agreement. Investment interest on the borrower's project account will accrue to the benefit of that borrower until all money has been withdrawn.

Loan Repayment:

Interest payments on the loan are due monthly and principal payments are scheduled semi-annually, or in some cases, annually. Payment schedules can be tailored to meet the needs of the borrower. Loans that remain in a variable rate form are pre-payable at any time without a pre-payment penalty. Loans that have been converted to a fixed rate can also be prepaid at any time without penalty, but prepayment could result in a loss or a gain depending on market conditions at the time.

Timing of the Funding Cycle:

Loans are available on an as-needed basis. If you have special timing considerations, please make them known to the finance program coordinator at the time of application.