Legal Documents of Dandridge

When the town determines that debt is appropriate, consideration of the security structure, duration, interest rate modes, zero coupon debt, and synthetic debt will be utilized to evaluate the type of debt to be issued.

1. Security structure.
   1. General obligation bonds. The town may issue debt supported by its full faith, credit, and unlimited ad valorem taxing power ("general obligation debt"). General obligation debt shall be used to finance capital projects that do not have significant independent creditworthiness or significant on-going revenue streams or as additional credit support for revenue-supported debt, if such support improves the economics of the debt and is used in accordance with these guidelines.
   2. Revenue debt. The town may issue debt supported exclusively with revenues generated by a project or enterprise fund ("revenue debt"), where repayment of the debt service obligations on such revenue debt will be made through revenues generated from specifically designated sources. Typically, revenue debt will be issued for capital projects which can be supported from project or enterpriserelated revenues.
   3. Capital leases. The town may use capital leases to finance projects assuming the town administrator and finance director and/or professionals, if any, determine that such an instrument is economically feasible.
2. Duration.
   1. Long-term debt. The town may issue long-term debt when it is deemed that capital improvements should not be financed from current revenues or short-term borrowings. Long-term debt will not be used to finance current operations or normal maintenance. Long-term debt will be structured such that financial obligations do not exceed the expected useful economic life of the project(s) financed.
      1. Serial and term debt. Serial and term debt may be issued in either fixed or variable rate modes to finance capital infrastructure projects.
      2. Capital Outlay Notes ("CONs ''). CONs may be issued to finance capital infrastructure projects with an expected life up to twelve (12) years.
      3. Capitalized leases. Capitalized leases may be issued to finance infrastructure projects or equipment with an expected life not greater than its expected useful life.
   2. Short-term debt. Short-term borrowing may be utilized for:
      1. Financing short economic life assets;
      2. The construction period of long-term projects;
      3. For interim financing; or
      4. For the temporary funding of operational cash flow deficits or anticipated revenues subject to the following policies:
         1. Bond Anticipation Notes ("BANs''). BANs, including commercial paper notes issued as BANs, may be issued instead of capitalizing interest to reduce the debt service during the construction period of a project or facility. The BANs shall not mature more than two (2) years from the date of issuance. BANs can be rolled in accordance with federal and state law. BANs shall mature within six (6) months after substantial completion of the financed facility.
         2. Revenue Anticipation Notes ("RANs") and Tax Anticipation Notes ("TANs"). RANs and TANs shall be issued only to meet cash flow needs consistent with a finding by bond counsel that the sizing of the issue fully conforms to federal IRS and state requirements and limitations.
         3. Lines of credit. Lines of credit shall be considered as an alternative to other short-term borrowing options. A line of credit shall only be structured to federal and state requirements.
         4. Interfund loans. Interfund loans shall only be used to fund operational deficiencies among accounts or for capital projects to be paid from current fiscal year revenues. Such interfund loans shall comply with state regulations and limitations.
         5. Other short-term debt. Other short-term debt including commercial paper notes, BANs, capitalized leases and CONs may be used when it provides an interest rate advantage or as interim financing until market conditions are more favorable to issue debt in a fixed or variable rate mode. The town will determine and utilize the most advantageous method for short-term borrowing. The town may issue short-term debt when there is a defined repayment source or amortization of principal.
3. Interest rate modes. Debt will be issued with either a fixed, variable, or zero interest-bearing rate.
   1. Fixed rate debt. To maintain a predictable debt service schedule, the town may give preference to debt that carries a fixed interest rate.

   2. Variable rate debt. The targeted percentage of net variable rate debt outstanding (excluding an amount of debt considered to be naturally hedged to short-term assets in the unassigned general and/or debt service fund balance) shall not normally exceed thirty-five percent (35%) of the town's total outstanding debt and will take into consideration the amount and investment strategy of the town's operating cash.

      The following circumstances may result in the consideration of issuing variable rate debt:

      1. Asset-liability matching;
      2. Construction period funding;
      3. High fixed interest rates. Interest rates are above historic averages;
      4. Diversification of debt porifolio;
      5. Variable revenue stream. The revenue stream for repayment is variable and is anticipated to move in the same direction as market-generated variable interest rates or the dedication of revenues allows capacity for variability; and
      6. Adequate safeguard against risk. Financing structure and budgetary safeguards are in place to prevent adverse impacts from interest rate shifts such structures could include, but are not limited to, interest rate caps and short-term cash investments in the town's general fund.

      An analysis by the town administrator and finance director and/or professionals, if any, shall be conducted to evaluate and quantify the risks and returns associated with the variable rate debt including, but not limited to, a recommendation regarding the use of variable rate debt. The board of mayor and aldermen will be informed of any terms, conditions, fees, or other costs associated with the prepayment of variable rate debt obligations prior to entering into any variable debt obligation. Prior to entering into any variable rate debt obligation that is backed by insurance and secured by a liquidity provider or by a letter of credit provider, the board of mayor and aldermen shall also be informed of the potential effect on rates as well as any additional costs that might be incurred should either the insurance or letter of credit fail, respectively. The town will annually include in its budget an interest rate assumption for any outstanding variable rate debt that takes market fluctuations affecting the rate of interest into consideration.

      Bonds backed with a general obligations pledge often have lower interest rates than revenue bonds. The town may use its general obligation pledge with revenue bond issues when the populations served by the revenue bond projects overlap or significantly are the same as the property tax base of the town. The board of mayor and aldermen and management are committed to maintaining rates and fee structures of revenue suppotted debt at levels that will not require a subsidy from the town's general fund.

4. Zero coupon debt. Zero coupon debt may be used if an analysis has been conducted by the town administrator and finance director and/or professionals, if any, and the risks and returns associated with the zero coupon debt have been made. The analysis shall include, but not be limited to a recommendation regarding the use of zero coupon debt as the most feasible instrument considering available revenues streams, the need for the project and other factors determined by board of mayor and aldermen.
5. Synthetic debt. The town will not enter into any new interest rate swaps or other derivative instruments unless it adapts a debt derivative policy consistent with the requirements of Tennessee Code Annotated and only after approval of the state comptroller's office and affirmative action of board of mayor and aldermen. (Ord. #11/12-08, Nov. 2011)