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Infrastructure Financing
Approved Borrowing: Borrowing Members will present their requests for borrowing to the FNTC by way of a Borrowing Law. The FNTC will approve the Law if the First Nation borrowing is in accordance with the legislation, that there is sufficient borrowing room available to the First Nation. The FNTC will verify the Law once all period for judicial review have expired. Once the Borrowing Law is certified by the FNTC the authority to borrow cannot be challenged and the First Nation is free to execute the Borrowing Agreement with the FNFA. The FNFA can only borrow on behalf of First Nations that have approved Borrowing Laws and have entered into a Borrowing Agreement.
Going to Market: Approved requests for financing once certified by the FNTC will be forwarded to the FNFA. Subject to market and economic conditions, the FNFA will batch the requests and authorize the issue and sale of securities in an amount sufficient to meet the requests. Securities of the FNFA, the proceeds of which cannot exceed the amount authorized, will then be issued at such rates and pursuant to such terms and conditions and in such markets and currencies as the Board of Directors of the FNFA determine.
Following the authorization to proceed with an issue, the FNFA will meet with its syndicate of underwriters who will advise on the market and indicate the willingness of the market to buy the issue. When the time is right, the FNFA, through a lead underwriter will go to market. It is expected that FNFA issues will be bought primarily by institutional investors in Canada.
Relending Process: Once the issue has been sold through the syndicate the proceeds of the sale will be deposited into an account managed by the FNFA and the proceeds re-loaned to the participating Borrowing Members participating in that debt issue.
During the life of an issue the cash collected from Borrowing Members will approximate the cash due balances. Each term of borrowing will cover its own share of the collective debt. Each participant’s share of a debt issue will be tracked and accounted for independently by the FNFA.
Sinking funds: The FNFA policy is to relend on a sinking fund basis. A sinking fund is where the principal and interest remain constant to the borrower, thus thereby requiring an actuarial accumulation of cash to ensure that there are sufficient monies to pay off the bondholder when the capital is due. The sinking fund consists of the capital portion of the loan payment collected from the borrowers and not yet due to the bondholder. These excess monies are invested and used to cover the principal due at maturity. A separate account is maintained for each sinking fund and is invested in high quality money market instruments. Borrowing Members will receive regular statements on each debt issue in which they are participating.
Debt reserve fund: In addition to the sinking fund the Debt Reserve Fund (DRF) is established to assure sufficient funds are available to meet the principal, interest or sinking fund payments due on its obligations. Each borrowing member sharing in the proceeds of a securities issue having a term to maturity of five years or more will, as a condition of participating, contribute an amount equal to 5% of the total amount borrowed into the DRF. This amount will be returned to the Borrowing Member at maturity.
Payment to Bondholders: The FNFA will issue “book-based” debt. The FNFA will use a paying/transfer Agent for each debt issue. The Agent will take responsibility to pay bondholders on time. The Agent will also prepare year-end T5 statements. The FNFA will provide the Agent with each debt issue’s details at the start of an issue. |
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