Revenue bonds

REOCNTEK has completed the licensing process for its first full scale facility in Newman, Illinois. With the assistance of its corporate parent PS Group, REOCNTEK has sold 15 million in industrial revenue bonds and will begin construction cn or about July 1, 1989. We expect this facility to begin operation during the first quarter of 1990. 

The nation s first saline water conversion plant to treat an entire municipal supply, built for the town of Buckeye, Ariz., went into operation early in September 1962. It has the capability to reduce water of 2200 p.p.m. total dissolved solids to 500 p.p.m., at a rate of 650,000 gallons per day. The plant was financed by a 305,000 issue of 25-year, 41/2% water revenue bonds sold at competitive bidding through normal municipal bond channels. No federal or state funds were utilized in the financing of this plant. 

Town of Buckeye, Arizona, Prospectus and Call for Bids, 305,000 Water Revenue Bonds, Series of 1961, Buckeye, Ariz., 1961. 

It was assumed that the power plant will be financed from revenue bonding. Therefore, reasonable estimates were made for interest on bonds, interest earned and expended during cor)struction, and bond discounts. Working capital and the debt reserve fund were assumed to be capitalized. By projecting all capital and operating costs with reasonable escalation factors, a life-cycle cost analysis was performed. Results of that analysis shown below indicate an estimate of required revenues to offset all costs. These projected costs are favorable when compared to alternative fossil fuel unit costs projected for the New England region. 

The Supply System proposed to finance and build the steam plant. The proposal was accepted, and a bill authorizing the AEC to sell the steam from N Reactor, which otherwise would have been dissipated as waste heat, was signed Into law on September 26, 1962. The law stipulated that no Federal funds could be spent to build the plant. It also specified that 50 percent of the electricity produced would be offered for sale to Investor-owned utilities and 50 percent would be offered to consumer-owned utilities. With the proceeds from a 122-m1111on revenue bond Issue, the Supply System financed and built the generating facility. 

The other class of municipal bond is revenue bonds, affectionately known as "revs." Revs are backed by the revenues generated by a specific project s user fees. The proceeds from the bond sale are used to build or maintain a project. User fees include tolls taken on a turnpike, bridge, or tunnel, override fees paid by attendees at civic or convention centers (you ve no doubt had to pay these at any new convention center), or airport landing fees. 

The bond s rating reflects the financial prospects for the project how much it will be used, how much consumers can be charged, whether constructing the project is likely to stay within budget, how much it will cost to maintain, and so on. Revenue bonds are commonly felt to have a little more risk than GO bonds since it is believed that there is more that could go wrong... 

Often the reason a given plant site is chosen is that special incentives have been offered by local authorities. In the mid-1960s, when money for financing was hard to obtain and interest rates were high, tax-free municipal bonds were an important lure. Tax-free means the investor does not need to pay taxes on his earnings. This means the bonds can be sold at lower interest rates and the company saves money. In 1967, 1,500,000,000 worth of these industrial bonds were issued. In 1968 the Department of Internal Revenue announced that in the future bonds used to finance private industry would be taxed regardless of who issued them. However, since then various loopholes have developed. Municipal bonds used to finance public projects such as schools, roads, and fire stations are still not taxed, since many communities would be unable to finance these projects at commercial interest rates. 

Investors, however, like companies that have large tangible assets, because they think they have a better chance of getting their money back should the company become bankrupt. The tangible assets are the undepreciated assets of the company. So if a company is interested in selling bonds, it looks better if it has depreciated its assets slowly. As a result, some companies keep dual books-one for the public and the other for the Internal Revenue Service. There is nothing illegal about this. The capitalized cost minus the amount that has been depreciated is called the book value of the asset. This may be above, below, or the same as its resale value. 

Completion risks are primarily related to commissioning delays, contractor default and cost overruns. Typical outcomes of such events would be the loss of revenue, difficulties in servicing debts, the calling-in of bonds, the need to refinance or seek new loans. Prudent strategies would involve the use of reputable contractors, early triggers of performance bonds, etc. 

The owners funds, or equity, include the issued capital (i.e. the face value of the company s shares), capital reserves (funds received in ways distinct from operating profits, such as premiums on the sale of shares) and revenue reserves, which are the accumulated annual profits earned. The long-term loans include not only the sums borrowed from hanks and finance houses as well as bonds issued by the company, but also the provisions for future potential (but as yet unknown) costs for example the sums a company involved in asbestos liability litigation would prudently set aside against possible penalties and costs. Current liabilities include all bills received but not yet paid (for goods and services), and any short-term loans, due within a year, such as bank overdrafts. 

The majority of independent energy projects which have been promoted in countries such as the UK, which have a non-parastatal electricity supply indushy, have been funded on the so-called project finance basis. Under such an arrangement which was developed originally in connection with North Sea oil projects in the 1960s) the majority (in the region of 80 %) of the finance required to implement the project comprises debt borrowed over a period of, typically, 12-15 years. Bond financing can extend this period to 25 years in certain cases. The debt is repaid from the net revenues of the project. The remainder of the finance required for the project comprises equity provided by the project sponsors. 

Table 37.—Productions and Removals of Wine, Amounts on Hand in Bonded Wineries, and Revenue from Taxes on... 

These one-off revenues added to the healthy and sustained economic growth in those years (the Euro economy grew 2.8% in 1999 and 3.5% in 2000) reduced significantly those countries financing needs. Accordingly, the amount of Euro government bonds issued in 2000 was just around 475 billion, clearly below the 600 billion issued the previous year. 

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