Loans

Loan Terms

Participation in the loan program is subject to a credit review and approval by J.P. Morgan Bank, which provides the letter of credit supporting the program. The terms of each loan and each draw are required to be approved by J.P. Morgan Bank.

The letter of credit has a maturity of 3 years and can be extended each year at the Bank’s discretion.  Initial loan terms may be up to 5 years and may be extended as the letter of credit is extended. Repayment terms are very flexible and are custom-tailored to each participant’s needs.

The borrower is required to pay a fee of $2,000 for each full million dollars borrowed up to a maximum of $40,000. Once a participant pays the maximum amount it will not be required to pay any up-front fees for additional borrowings.  These fees are used by the Commission to cover issuance costs and other costs of operating the loan program.  A consolidated invoice is sent to each participant every month indicating the interest and fees that must be paid.  These fees are explained in greater detail in the Fee Section of this brochure.  Billed amounts are then, in turn, wired directly to the Program’s Trustee, US Bank, and held in an interest-bearing account until paid.

Loans are repaid pursuant to the terms of the loan agreement.  A loan may be prepaid at any time upon written notice to the Association with no fees or penalties for prepayment.

Security for the Loan Repayment

Typically, participants secure their loans with a covenant to budget and appropriate legally available non-ad valorem revenues, although a participant may request an alternative security structure.  All security pledges are subject to approval by J.P. Morgan Bank.

The Program is structured in a way so that there are no cross defaults.  In other words, if one participant defaults, there is no responsibility on the part of any other participant in the pool to make up for any payment deficiencies caused by the defaulting participant.

Security for the Commercial Paper Notes

The commercial paper notes which fund the loans are secured by a direct-pay letter of credit.  J.P. Morgan Bank maintains a high credit rating in the short-term marketplace from both Moody’s Investors’ Service and Standard and Poor’s Ratings Group.  These high ratings allow the commercial paper notes to be issued at low interest rates which are passed on to the participants.