Port Planning and Investment Toolkit Appendices Port Planning & Investment Toolkit APPENDICES Glossary of Terms Additional Bonds Test - The financial test, Asset - Any item of economic value, either sometimes referred to as a “parity test,” that must physical in nature (such as land) or a right to be satisfied under the bond contract securing ownership, expressed in cost or some other value, outstanding revenue bonds or other types of which an individual or entity owns. 2 bonds as a condition to issuing additional bonds. Asset-Backed Debt - Debt having hard asset Typically, the test would require that historical security such as a crane lease or property revenues (plus, in some cases, future estimated mortgage, in addition to the security of pledged revenues) exceed projected debt service revenues. requirements for both the outstanding issue and the proposed issue by a certain ratio.1 Availability Payment - A means of compensating a private concessionaire for its responsibility to Advance Refunding - For purposes of certain tax design, construct, operate, and/or maintain an and securities laws and regulations, a refunding in infrastructure facility for a set period of time. which the refunded issue remains outstanding for These payments are made by a public project a period of more than 90 days after the issuance of sponsor (a port authority, for example) based on the refunding issue.1 particular project milestones or facility Alternative Minimum Tax (AMT) - Taxation based performance standards.2 on an alternative method of calculating federal Best and Final Offers (BAFO) - In government income tax under the Internal Revenue Code. contracting, a vendor’s response to a contracting Interest on certain private activity bonds is subject officer’s request that vendors submit their last and to the AMT.1 most attractive bids to secure a contract for a Amortization - The process of paying the principal particular project. Best and final offers are amount of an issue of securities by periodic submitted during the final round of negotiations.3 payments either directly to bondholders or to a Bond Indenture - A contract between the issuer of sinking fund for the benefit of bondholders.1 municipal securities and a trustee for the benefit of Arbitrage Rebate - A payment made by an issuer the bondholders. The trustee administers the to the federal government in connection with an funds or property specified in the indenture in a issue of tax-exempt or other federally tax- fiduciary capacity on behalf of the bondholders. advantaged bonds. The payment represents the The indenture, which is generally part of the bond amount, if any, of arbitrage earnings on bond contract, establishes the rights, duties, proceeds and certain other related funds, except responsibilities and remedies of the issuer and for earnings that are not required to be rebated trustee and determines the exact nature of the under limited exemptions provided under the security for the bonds. The trustee is generally Internal Revenue Code. An issuer generally is empowered to enforce the terms of the indenture required to calculate, once every five years during on behalf of the bondholders.1 the life of its bonds, whether or not an arbitrage Call Date - The date on which bonds may be called rebate payment must be made.1 for redemption as specified by the bond contract. 1 A-1 Port Planning & Investment Toolkit APPENDICES Capacity (Maximum Practical) - Throughput concession is a contractual agreement in which a volume which, if exceeded, would cause a port owner conveys specific operating rights of its disproportionate increase in unit operating cost or facility to a private entity for a specified period of business delay, within the context of a facility’s time. land use, layout, and uncontrollable commercial Convertible Capital Appreciation Bonds (CCABs) drivers. - CABs with a convertibility feature at a future Capital Expenditure (CapEx) - Expenditure on date to CIBs. CCABs can be used to defer interest capital items either at the commencement of the and principal payments, with conversion to project or the cost of their renewal and Current Interest Bonds so that debt service replacement (”R&R”) over the life of the project. requirements begin, thus reducing the cost of funds relative to traditional, non-convertible Capital Appreciation Bonds (CABs) - A municipal CABs. security on which the investment return on an initial principal amount is reinvested at a stated Coupon - The periodic rate of interest, usually compounded rate until maturity. At maturity the calculated as an annual rate payable on a security investor receives a single payment (the “maturity expressed as a percentage of the principal value”) representing both the initial principal amount. The coupon rate, sometimes referred to amount and the total investment return. CABs as the “nominal interest rate,” does not take into typically are sold at a deeply discounted price with account any discount or premium in the purchase maturity values in multiples of $5,000.1 price of the security.1 Capital Improvement Program (CIP) - A schedule, Covenants - Contractual obligations set forth in a typically covering a period of less than ten years, bond contract. Covenants commonly made in which outlines expenditures for capital projects on connection with a bond issue may include an annual basis and corresponding funding covenants to charge fees sufficient to provide sources. required pledged revenues (called a “rate covenant”); to maintain casualty insurance on the Capital Structure - The mix of an issuer’s or a project; to complete, maintain and operate the project’s short and long-term debt and equity, project; not to sell or including the terms of such financing and encumber the project; repayment requirements. not to issue parity Capitalized Interest - A portion of the proceeds of bonds or other an issue that is set aside to pay interest on the indebtedness unless securities for a specified period of time. Interest is certain tests are met commonly capitalized for the construction period (“additional bonds” or of a revenue-producing project, and sometimes for “additional a period thereafter, so that debt service expense indebtedness” does not begin until the project is expected to be covenant); and not to operational and producing revenues.1 take actions that would Concession - An alternative method for a public cause tax-exempt sector entity to deliver a public- purpose project interest on the bonds to through long-term contracting with a private become taxable or sector entity. A concession agreement typically otherwise become covers the objectives of the asset concession, arbitrage bonds (“tax 1 compensation, and duration of concession. A port covenants”). A-2 Port Planning & Investment Toolkit APPENDICES Credit Rating - An to comply with a covenant in the bond contract) (a opinion by a rating “springing reserve”). Issuers may sometimes agency of the credit- authorize the provision of a surety bond or letter of worthiness of a credit to satisfy the debt service reserve fund bond.1 requirement in lieu of cash. If the debt service reserve fund is used in whole or part to pay debt Current Interest service, the issuer usually is required to replenish Bonds (CIBs) - A the fund from the first available revenues, or in bond on which periodic repayments over a specified period of interest payments time. are made to the bondholders on a Defeasance - Termination of certain of the rights periodic basis. This and interests of the bondholders and of their lien term is most often on the pledged revenues or other security in used in the context of an issue of bonds that accordance with the terms of the bond contract for includes both CABs and CIBs.1 an issue of securities. This is sometimes referred to as a “legal defeasance.” Defeasance usually occurs Current Refunding - A refunding transaction in connection with the refunding of an outstanding where the municipal securities being refunded will issue after provision has been made for future all mature or be redeemed within 90 days or less payment of all obligations related to the from the date of issuance of the refunding issue.1 outstanding bonds, sometimes from funds Debt Profile - A detailed description of an issuer’s provided by the issuance of a new series of bonds. overall debt portfolio and credit profile that is In some cases, particularly where the bond updated as changes in capital structure occur. A contract does not provide a procedure for debt profile typically includes all of the relevant termination of these rights, interests and lien other information about an issuer’s debt including but than through payment of all outstanding debt in not limited to current ratings, debt service full, funds deposited for future payment of the requirements, debt service coverage ratios and debt may make the pledged revenues available for eligibility for refunding. other purposes without effecting a legal Debt Service Coverage Ratio - The ratio of defeasance. This is sometimes referred to as an available revenues available annually to pay debt “economic defeasance” or “financial defeasance.” service over the annual debt service requirement. If for some reason the funds deposited in an This ratio is one indication of the availability of economic or financial defeasance prove revenues for payment of debt service.1 insufficient to make future payment of the outstanding debt, the issuer would continue to be Debt Service Reserve - A fund in which funds are legally obligated to make payment on such debt placed to be applied to pay debt service if pledged from the pledged revenues.1 revenues are insufficient to satisfy the debt service requirements. The debt service reserve fund may Demand & Revenue Study - A professionally be entirely funded with bond proceeds at the time prepared forecast and report of the market of issuance, may be funded over time through the demand for a port’s cargo, and the ensuing accumulation of pledged revenues, may be funded revenue as a result of charging rates/fees for such with a surety or other type of guaranty policy cargo moving through a port.