737 Fort Street 737 Fort Street Victoria, BC Victoria, BC V8W 2V1 - - PowerPoint PPT Presentation

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?

i. i.

MFA uses a Banking Syndicate (Toronto) to sell our bonds to MFA uses a Banking Syndicate (Toronto) to sell our bonds to investors investors

ii. ii.

Banking Syndicate charges 60 cents commission per $100.00 Banking Syndicate charges 60 cents commission per $100.00

iii. iii.

Investors = insurance companies, mutual funds, others Investors = insurance companies, mutual funds, others

i. i.

Investors are residents and businesses in the area Investors are residents and businesses in the area

ii. ii.

No Banking Syndicate = No Commission No Banking Syndicate = No Commission Normal Debentures Normal Debentures Community Bonds Community Bonds

Pros and Cons of Each Type of Bond Pros and Cons of Each Type of Bond

i. i.

Can raise very large amounts of capital Can raise very large amounts of capital

ii. ii.

Banking Syndicate Banking Syndicate guarantees guarantees “price” and “interest rate” “price” and “interest rate” – – this is how they earn their commission this is how they earn their commission

iii. iii.

Interest rates are low (MFA = “AAA”) Interest rates are low (MFA = “AAA”) but but at market rates at market rates

Normal Debentures Normal Debentures

Pros and Cons of Each Type of Bond Pros and Cons of Each Type of Bond Community Bonds Community Bonds

i. i.

Limited amount of capital that can be raised Limited amount of capital that can be raised

ii. ii.

Interest rates are below “market” Interest rates are below “market”

• 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)

iii. iii.

60 cent banking commission can be used elsewhere 60 cent banking commission can be used elsewhere

Normal MFA Debenture Process Normal MFA Debenture Process

Example: Example:

Normal Normal Debenture Debenture Community Community Bond 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. agencies, etc. (0.15) (0.15) (0.15) (0.15) Kelowna receives Kelowna receives $99.25 $99.25 $99.85 $99.85

MFA Raises capital in the same bond markets as the Government of Canada, Provinces, Chartered Banks, corporations, etc.

Community Bond Community Bond – – Impact on Budget Impact on Budget

(20 year MFA rate = 4.90% currently) (20 year MFA rate = 4.90% currently)

$1,000,000 $1,000,000 Community Community Bond @ Bond @ 3.90% 3.90% $2,000,000 $2,000,000 Community Community Bond @ Bond @ 3.90% 3.90% $5,000,000 $5,000,000 Community Community Bond @ Bond @ 3.90% 3.90% (i) Year One (i) Year One Annual Interest Savings Annual Interest Savings $10,000 $10,000 $20,000 $20,000 $50,000 $50,000 Add: Banking Commission Saved Add: Banking Commission Saved 6,000 6,000 12,000 12,000 30,000 30,000 Savings Savings – – Year One Year One $16,000 $16,000 $32,000 $32,000 $80,000 $80,000 (ii) Interest Savings over 5 years: (ii) Interest Savings over 5 years: Total Interest Saved Total Interest Saved $50,000 $50,000 $100,000 $100,000 $250,000 $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 Total Interest Saved $200,000 $200,000 $400,000 $400,000 $1,000,000 $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 Community Bond – – The Process The Process

i. i.

A Community Bond is debt A Community Bond is debt – – Normal LA Bylaw Process Normal LA Bylaw Process

ii. ii.

Kelowna staff communicates with MFA: Kelowna staff communicates with MFA:

• allocation of funds: X% MFA Debt + X% Community Bonds

allocation of funds: X% MFA Debt + X% Community Bonds

iii. iii.

City and Council determine: City and Council determine: a) interest rate offered a) interest rate offered b) term of bond b) term of bond c) annual or semi c) annual or semi-

• annual interest

annual interest

Community Bond Community Bond – – The Process The Process

iv. iv.

City Steps: City Steps:

• 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 Community Bond – – The Process The Process

v. v.

MFA: MFA: a) establishes an Investor Register a) establishes an Investor Register 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 Community Bonds – – Tax Impact Tax Impact

• 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 Phone: (250) 383-

• 1181

1181 Fax: (250) 384 Fax: (250) 384-

• 3000

3000

2007 MFA Staff 2007 MFA Staff

Steve Shelley Graham Allison Jane Lorna Renata Meagan Tyler