Legislative Fiscal Bureau ‘One East Man, Sute 301» Madison, WE $5703» (608 2663847 Fa: (608 257-5873 mai fscl howau@egowisconsingov= Webs: b/lps.iaconsn go February 13, 2015 TO: Democratic Members Joint Committee on Finance FROM: Al Runde, Supervising Analyst SUBIECT: History of GPR Debt Restructuring and Planned Amount in May, 2015 ‘As you requested, the attached table lists the GPR debt restructuring actions the state has carried out, as well as the administration's planned restructuring of 2 GPR commercial paper principal payment due in May, 2015. Economic Refinancing versus Debt Restructuring Generally, debt is refinanced through either an economic refunding or a structural refunding, or @ combination of those methods. In an economic refunding, the new stream of debt service payments is designed to reduce the total cost of the outstanding debt and is typically undertaken to take advantage of reduced interest rates. No increase in debt service payments occurs in any year due to an economic refunding and debt service payments are reduced in some or all years during the life of the refunding issue. ‘The transaction can be structured so that the debt service savings are realized equally in each year during the life of the refunding bonds or concentrated in the early or Tae years of the transaction. Under a structural refunding, the new stream of debt service payments can be higher or ower in a given year than under the current stream of payments. For example, the debt service payments in the early years of the refunding could be reduced while debt service payments are increased in future years compared to the existing repayment schedule, Under past restructurings, for GPR budgetary reasons, the state has simply issued debt to make a current principal payment due and deferred a current principal payment due. A structural refunding extends the average life of previously issued debt. Principal on the bonds is outstanding longer and therefore, the interest costs to the issuer are greater. Commercial Paper Principal The proposed restructuring of the May, 2015, GPR principal repayment of a portion of the state's outstanding commercial paper, which is identified in the attachment, would involve delaying$108,000,000 in GPR principal that had been previously scheduled to be retired. Unlike outstanding bond principal, restructuring a commercial paper payment does not require the Legislature to authorize any refunding bond authority in order to carry out such an action. Rather, the administration can simply direct the Department of Administration Capital Finance officials to not make the scheduled principal payment. This can occur because the state's commercial paper program is effectively a short term line of credit, in which the state, under the agreed terms of the line of credit, is only required to make annual interest payments on the principal borrowed on the line of credit. Although, in creating its commercial paper borrowing program, the state has generally attempted to retire the outstanding principal on its outstanding commercial paper using the same principal repayment structure that it uses for general obligation bonds (generally a 10 to 20 year repayment schedule). As a result, DOA Capital Finance has established a principal repayment schedule for the state's outstanding commercial paper, including a May, 2015, payment of $108,000,000 budgeted for in the 2013-15 budget. However, because only the interest on that outstanding principal is due under the credit agreement, the administration can defer paying the principal on these obligations in any given year. While the 2015-17 budget bill does not include debt restructuring, the expenditure reduction from the May, 2015, restructuring action is included in the opening general fund balance for the 2015-17 biennium under the Governor's budget proposal. In addition, the Governor's biennial budget proposal would increase GPR debt service by $544,900 in 2015-16 and $18,746,900 in 2016-17 relating to the administration's decision to restructure $108,000,000 in outstanding state commercial paper principal that would otherwise be due in May, 2015. The increased debt service costs in 2015-16 are associated with interest on the $108,000,000 in deferred principal. The debt service costs in 2016-17 also reflect interest due on the deferred principal as well as the repayment of a portion of the deferred principal. Thope this information is helpful. Please contact me if you have any further questions. AR/sas Attachment Page 2Action 2001 Act 16 2001 Act 109 2003 Act 129 2007 Act 226 2009 Act 28 2011 Act 13 2011 Act 32 May, 2015 ATTACHMENT (in Millions) Fiscal Year ‘Type of Obligation 2001-02 Commercial Paper 2002-03 Commercial Paper 2003-04 2004 Series 3 2007-08 Commercial Paper 2008-09 Commercial Paper 2009-10 2009 Series 1 2009-10 2010 Series 1 2009-10 Commercial Paper 2010-11 Commercial Paper 2010-11 2011 Series 1 2010-11 2011 Series 1 2011-12 2011 Series 2 2011-12 Commercial Paper 2011-12 2012 Series 1 2014-15 Commercial Paper Grand Total Pages jory of GPR Debt Restructuring with Proposed May, 2015, Amount Amount $102.0 25.0 175.0 63.6 616 SA 201.2 107.0 107.0 25.1 165.0 434 1048 218.0 $1,563.1