HOW'S THE PROGRAM STRUCTURED?
- The Financial Advisor periodically surveys the State Agencies to determine if equipment needs exist. In addition, a State Agency may contact the Financial Advisor at anytime to discuss its upcoming equipment needs and lease-purchase options.
- The State Agency must comply with all State statutory requirements for acquiring equipment.
- When sufficient aggregate dollar volume—generally around $2 million--is reached to access the public markets, the Financial Advisor will request authorization from DFA to proceed with a series of the Program. DFA usually authorizes one or two series each year.
- Structurally, the Program consists of a series of individual financings in which the lease purchase or refinancing needs of one or more State Agencies are combined and funded collectively.
- Under each series of the Program, DFA enters into a Master Lease Purchase Agreement (the “Master Lease”) with the Lessor.
- Each State Agency participating in a series enters into an Agency User Agreement with DFA. Under the Agency User Agreement, each State Agency agrees to lease-purchase (or refinance) the equipment that it has selected and agrees to make semi-annual lease payments to DFA.
- To obtain the money required to pay the equipment vendors and the costs associated with the financing, the Lessor will assign all its rights under the Master Lease, including any interest it obtains under the Master Lease and its right to receive the lease payments payable by DFA, to a trustee (the “Trustee”). The Trustee, competitively selected by DFA, is currently Deutsche Bank National Trust Company located in Olive Branch, Mississippi.
- The Trustee facilitates the sale of a series of COPs to investors in the public markets.
- On closing date, Trustee delivers the COPs to the investors. The investors wire funds to the Trustee. The Trustee pays the costs of issuance, establishes a reserve fund and deposits the equipment costs into an Acquisition Fund.
- Three options for paying equipment vendors
1. If a State Agency can coordinate acceptance of equipment with the actual closing date of a series, a State Agency may direct the Trustee to pay directly one or more vendors for equipment that the State Agency has already accepted.
2. Second, if the State Agency has available funds and needs to acquire equipment before the closing date, a State Agency can accept equipment, pay the vendor and seek reimbursement when the series settles. The rules for reimbursement are governed by the Internal Revenue Code. Generally, the State Agency will need to declare its official intent to reimburse itself through the Program by entering into a Declaration of Intent to Reimburse (a “Declaration”). The Declaration states that the State Agency intends to be reimbursed with the proceeds of a tax-exempt obligation. Assuming that the Declaration is executed within sixty (60) days of the payment to the vendor, the State Agency can accept the equipment and pay the vendor in full, then request reimbursement from the Trustee on the closing date.
3. If the State Agency has not yet accepted the equipment on or before the closing date, the Trustee will deposit the amount required to acquire the equipment or to refinance existing lease purchase obligations into an Acquisition Fund on behalf of the State Agency. This is the most commonly utilized method of vendor payment. To request vendor payment after the closing date, the State Agency will complete a Request for Disbursement which is attached to each Agency User Agreement, attach the invoice, any title application and other required items, and fax or email to the Lessor for processing. The Lessor will reconcile the amounts, record the request, and forward to the Trustee for payment. Vendor payments are typically processed within 24 hours of receipt.
- If a State Agency has equipment needs which arise between series of the Program, the State Agency can obtain interim financing which is coordinated through DFA and the Financial Advisor. The interim financing will be paid off when the next funding under the Program is completed. For details on interim financing, please contact the Financial Advisor.
- Pursuant to the Agency User Agreement, each State Agency will remit its semi-annual lease payments to DFA by submitting a check or warrant to DFA. If an Agency User fails to make any payment to DFA when it is due, DFA can exercise its warrant authority to draw the amount due from any funds available to the Agency User to make its lease payments.
- DFA will remit the aggregate semi-annual Lease Payments to the Trustee. In turn, DFA will collect the semi-annual lease payments made by all the participating State Agencies and will use the aggregate amount to make the lease payments required under the Master Lease to the Trustee.
- The Trustee will use the Lease Payments to make distributions to the purchasers of the COPs.
- Note: The obligation of a State Agency to make lease payments to DFA and of DFA to pay the aggregate semi-annual lease payments to the Trustee does not create a “debt”, as defined by the State Constitution. DFA has not pledged any taxes to the payment of the lease payments. The payment of the lease payments is subject to DFA’s annual appropriation of sufficient funds to continue to make the lease payments during that fiscal year. Nonpayment of lease payments carries potentially significant risks to the State, not only in terms of the Program, but in relation to the State’s general obligation bonds. Rating agencies such as Moody’s Investors Service and Standard & Poor’s view non-appropriation as a serious matter and could potentially downgrade the State’s overall credit rating, which could result in loss of investor confidence, loss of access to the public markets, and higher costs of borrowing.
- Recent series of COPs were rated “AA-” by Standard & Poor’s Corporation, based on the State’s underlying credit rating.
- Title to the equipment acquired under the Program will vest in the respective State Agencies subject to a security interest which secures the obligation to make lease payments. If a State Agency acquires computer/technology equipment under the Program, the State Agency will assign title to the computer/technology equipment to the Mississippi Department of Information and Technology Services in accordance with State law. The Financial Advisor will file a financing statement with the Mississippi Secretary of State that perfect the Trustee’s security interest in the equipment acquired and financed under the Program.
- The Financial Advisor will provide semi-annual invoices well in advance of the lease payment due dates.
- Questions regarding damaged or destroyed equipment that is acquired under the Program or about prepayments or payoffs should be directed to the Financial Advisor.