Public Project Revolving Fund (PPRF) bonds are issued to fund infrastructure projects in the State of New Mexico. The Finance Authority began issuing PPRF bonds in 1995.
Through the Finance Authority’s website, interested parties are able to view bond specific information about PPRF bonds including the following information:
- Senior Lien Official Statements
- Subordinate Lien Official Statements
- PPRF Debt Service Schedules
- PPRF Rating Agency Reports & Letters
Additionally, the Finance Authority provides on its website information about the PPRF loan portfolio pledged to the PPRF bonds and about the credit enhancements that enable the PPRF bonds to be highly rated by Standard & Poor’s and by Moody’s including:
- Common Debt Service Reserve
- PPRF Loan Portfolio Attributes & Credit Enhancements
- PPRF Loan Coverage
- PPRF Loan Revenue Concentration
- PPRF Largest Loan Borrowers
Note that in viewing information about PPRF bonds, consideration should be given to the following disclaimer:
There are several factors that lead to the high ratings for PPRF bonds. PPRF loan revenues pledged to PPRF bonds exceed bond debt service in every year, in part because the Finance Authority makes PPRF Equity loans that are not pledged to specific PPRF bond issues but the revenues from which can be used to pay PPRF bond debt service. In addition, the PPRF program receives 75% of all Governmental Gross Receipts Taxes (GGRT) generated in New Mexico ( Tax and Pledged Revenue Definitions ). GGRT is used as a credit enhancement and has never been used for debt service. GGRT comprises approximately 20% of PPRF revenue each year. After senior lien bond debt service and subordinate lien bond debt service is paid in June of each fiscal year, excess loan revenues and GGRT receipts flow through to the Finance Authority to be used for such purposes as funding reserves and making new loans.
The Finance Authority funds two types of reserves from flow through revenues.
- The Common Debt Service Reserve Fund is established in the senior lien indentures governing the PPRF funds. The required CDSR funding level is based on senior lien loan revenues with pledged revenues categorized into three risk groups for calculation purposes. CDSR funds are available to make senior lien bond debt service payments should loan revenues and GGRT not be sufficient to do so. The CDSR’s funding level is approximately 25% of PPRF senior lien bond debt service in the maximum debt service year.
- The Supplemental Credit Reserve Fund is established in the subordinate lien indentures governing the PPRF funds. The required SCRF funding level is set at an amount equal to the Common Debt Service Reserve Fund, which is calculated as of July each year. SCRF funds are available to make subordinate lien bond debt service payments should subordinate lien loan revenues, excess senior lien loan revenues and GGRT not be sufficient to do so. The SCRF’s funding level is approximately 80% of PPRF subordinate lien bond debt service in the maximum debt service year.
The Finance Authority takes a number of structuring steps to ensure the credit quality of the underlying PPRF loan portfolio. These steps include:
- For lower rated borrowers, individual debt service reserve funds may be required for individual loans. These individual debt service reserve funds, when added to CDSR funds, are almost 60% of maximum year PPRF bond debt service payments due.
- About 60% of loan revenues due to the Finance Authority in any year are subject to intercept by the New Mexico Department of Taxation and Revenue or contingent intercept by the Department of Finance and Administration for school districts. Intercept means that funds collected by Tax and Rev – usually taxes – are paid first to the Finance Authority to meet loan obligations before funds are sent to the borrowing entity.
- General Obligation bonds issued by school districts and purchased by the Finance Authority as part of its PPRF loan portfolio are subject to a memorandum of understanding (MOU) with the New Mexico School District Enhancement Program to intercept funds of individual school districts prior to default and are classified as contingent intercepts.
- About one third of all Finance Authority loans (and about 3% in dollar amount) are funded by State Fire Protection Funds, which are paid directly to the Finance Authority well in advance of when the loans are due.
- In its history, no PPRF loan has ever had a payment default in part due to strong PPRF credit structuring standards.
A good summary of the credit enhancements described above and their financial impact can be found on the following web page:
Direct Comments, Requests or Questions to:
Michael Zavelle, Chief Financial Strategist NMFA, 505-992-9639, mailto:email@example.com
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