The State Environmental Improvement and Energy Resources Authority (the “EIERA”) selected Columbia Capital Management as its new financial advisor effective July 1, 2014 for its clean water and drinking water revolving loan fund programs. EIERA originally issued bonds under a reserve fund structure, whereby earnings on reserve funds provided an offset to borrower loan payments.

Subsequent refunding bonds were issued on a subordinated basis with no claim on the reserve fund earnings, but rather claims to the excess loan repayments and certain released reserve funds. Most recently, the EIERA began to issue bonds using a cashflow structure, with a cross-collateralization of released amounts under both senior indentures, after taking into account the subordinated obligations in the case of the reserve fund indenture.

Methodology. In preparation to meet rating agency default tolerance models, we sought to assure that we were using reliable original loan, bond, reserve fund and other information reflecting any changes due to refundings, prepayments, investment changes and other adjustments that naturally occur in programs like this over time. To meet this goal we developed a methodology for data inputs relying upon original, current data from the Authority and the bond trustee and, as necessary, supplemental information from various legal documents. The volume of information that needed to be gather was staggering: twelve to sixteen different amounts for each payment date on each of 44 outstanding series of bonds

Source data. Because the Missouri Department of Natural Resources maintains and administers the individual SRF loans to each community, we used their loan information to provide the source data for our model, assuring complete and accurate loan data taking into account any prepayments or other loan modifications. As the trustee administers the bond payments and holds the reserve funds, we used their information for the bonds and the reserve funds by excising information on a series-by-series basis from various spreadsheets maintained by the trustee. Unfortunately, the trustee did not need to maintain a breakdown of outstanding bonds between clean and drinking water, so we used original allocations of bond payments among borrowers, which we then aggregated between clean and drinking water borrowers.

Conflicts. Throughout the information-gathering and input process we verified our output against other independent output and other known information whenever possible. This process enabled us to identify erroneous information inadvertently provided to us, as well as the incorrect inputs. When necessary, conflicts among data output sources were resolved by reference to legal documents. We believe this process has resulted in an accurate and comprehensively-reviewed source of information for the EIERA’s default tolerance model with readily-available source data to support the information if requested.

Tolerance. From these data we built a default tolerance model that was submitted to both Moody’s and Fitch less than six months from the beginning of our formal engagement. Those rating agencies confirmed the EIERA’s bond ratings of 'Aaa' and 'AAA', respectively.