Key Factors in Municipal Bond Analysis
A. General Obligations
1. General background and description of borrower
2. Security provisions and covenants – adequacy
3. Economic background and performance
a. Population trends
b. Wealth characteristics
c. Changes in personal income
(1) Total changes
(2) Change on a per capita basis
d. Major employers
e. Employment distribution
f. Changes in total employment
g. Unemployment history
4. Debt Burden
a. Direct and overall debt on a per capita basis
b. Debt structure – historical trends
c. Future debt service requirements
d. Future debt issuance projections
e. Sinking fund provision (if any)
5. Tax Burden
a. Assessed valuation trends and basis of assessments
b. Recent trends in tax rates and limits
c. Tax collection record
d. Tax levies of major taxpayers as a percentage of total levy
6. Fiscal Condition
a. Requirement for balanced budget
(1) Operating fund revenues and expenditures
(2) Operating fund unreserved accumulated surpluses (deficits)
b. Cash flow requirements
c. Quality of financial statements and accounting policies
d. Accuracy of past estimates of revenues and expenditures
e. Pension liabilities
f. Nature and quality of investments
7. Particular problems related to an individual credit – social, political problems
B. Revenue Obligations
Information reviewed will vary depending on the nature of the enterprise, e.g., university dormitory, toll road, toll bridge or water and sewer projects. Financial statistics would vary but would normally include, but not be limited to the following:
1. Viability of the project
a. Reputation of engineer or architect
b. Projected revenues and expenses
c. Competing enterprises (if any) and of service area
d. Rate comparisons with nearby communities
e. Process of effecting rate increases
f. Municipal support (if any)
2. Revenues available for debt service and flow of funds
3. Debt servicing requirements
4. Additional financing requirements
5. Fund balances – trends
6. Trends in operating ratios and net take-down
7. Rate covenants
a. Interest and debt service coverage
b. Safety margins
8. Sinking fund provisions – reserve funds