Essay Describing Work Experience

Please describe your direct experience with municipal bond financings. Include what capacity you were involved in these debt transactions. Your answer should provide a clear picture of your role during the debt issuance process.

I have taken active part in the issuance of municipal debt in the capacity of financial advisor, especially when it came to tax-backed and taxsupported bonds. The security for GO bonds is the general creditworthiness and the taxing power of the state or local government issuing the bonds. Most municipal governments depend largely on ad valorem (to the value added), or value-based, property taxes for their revenues. State governments, however, usually do not levy real estate taxes but rely mostly on sales and income taxes. The full-faithand-credit backing of a GO bond implies that all sources of revenue, unless specifically limited, will be used to pay debt service on the bonds. I have also helped to issue moral obligation bonds, which are securities with a governmental guarantor who does not have a legal obligation to repay the debt.

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The pledge is used most often to enhance the credit of an agency that issues revenue bonds. When revenues are insufficient to cover debt service, the debt service reserve fund is used to make the necessary payments. The moral obligation mechanism then calls for notification to the legislature or other governing body to replenish the reserve fund before the next interest payment date, if the legislature so desires.

Describe your specific experience with DBC finance and include in with capacity you have utilized this software. If you have worked with a comparable software program, please identify the program and describe what type of analyses you have run.

My experience with DBC finance was somewhat limited to analysis of interest rates offered for different types of bonds. Changes in the supply of credit will affect interest rates in the opposite way. If there are more funds available to buy fixed income securities, rates will be pushed down. If there are fewer funds available to buy these securities, rates will be pushed up. Many economists at brokerage firms and banks closely analyze the nation’s capital flows to forecast interest rates. The object is to project the major demands for borrowing, on the one hand, and to project the major sources of the supply of lending, on the other. The projections, of course, are closely related to forecasts of the business cycle in general. The Federal Reserve publishes an invaluable series of accounts to facilitate such an analysis. It is called the Flow of Funds Accounts of the United States and traces just how money flows through the entire economy. I used this tool, as well as DBC finance, to forecast the various components of the supply and demand for credit. Unusually heavy needs on the part of municipalities or the federal government, for example, can be assessed in this light. Heavy demand from these borrowers may be offset by diminished borrowing needs on the part of corporations.

Describe your experience determining whether to lease or buy a particular asset. Highlight the assumptions that were built into your financial model and briefly explain the quantitative rationale behind your decision.

I have had this experience when calculating the amount of funds that could be spent by the municipal employees on the vehicles used for public needs. In the case of leasing decisions, the question is whether the effective ownership of an asset should be obtained by leasing or outright purchase. The concept of replacement implies that one wishes to maintain the function of an existing capital asset, most probably the physical capacity of a facility or machine. The question is whether we should replace the existing facility or machine in view of more modern and efficient models available on the market and/or high operating and maintenance costs of the present equipment due to old age. Expansion investments call for the analysis of optimal expansion policies for an anticipated growth in demand. Thus, the economic objective is the minimization of the present value of the total costs to meet this growing demand. The transportation algorithm is introduced to select routes so as to allocate the production of various plants to a number of terminal points with a minimal total cost. Except for differences in the lease period and economic life and effects of taxation, there is no significant difference between owning and leasing the same asset over the same period.

Describe your experience with reading and commenting on municipal bond documents and indicate the type of transaction (i.e General Obligation Bonds, Lease Revenue Bonds, Tax and Revenue Anticipation Notes, etc.)

I have participated in the review process of government credit-enhancement bonds memorandums, encompassing programs that range from partial to total credit substitution of a stronger governmental entity for a weaker one. A particular example of this security, which was reviewed by me, is state school bond credit enhancement programs, the structures for which vary considerably from state to state. A common form of enhancement is the state-aid intercept mechanism, whereby a state withholds state-aid payments otherwise due a school district that has defaulted, or is expected to default, on a debt-service payment. The state then forwards the intercepted state-aid payments to the bond trustee to be used to pay debt service. The extent to which the state credit substitutes for that of the school district will depend on the specific rules and procedures of each program. Some states directly guarantee the bonds of the participating school districts; in these cases, the school bonds enjoy the same rating as the state. Other states use intercept mechanisms to enhance the credit of school district bonds; in these cases, the districts’ ratings will be lower than those of the states. Other government credit-enhancement programs include annual appropriations by a state to the issuer of the bonds.

Briefly describe your experience with computerized budget and financial systems. Include the types of systems that you used.

I have used to prepare flexed budgets using the simulation software that allows one to integrate sensitivity analysis into budgeting. In the sense that simulation is both a project evaluation and project planning tool, it may be compared with other approaches in both these areas. Various methods of incorporating risk in project evaluation models were discussed in earlier chapters, including the risk-adjusted discount rate, the certainty equivalent, and sensitivity and break-even analysis. Risk analysis, or risk simulation, is an alternative to these approaches which provides more information to the decision-maker. For example, compared to sensitivity analysis not only is the range of possible outcomes indicated, but also probabilities are attached to these ranges. Further, the variables are allowed to vary simultaneously, to yield a probability distribution of overall project performance. In this sense, a more comprehensive measure of risk is obtained. From the CDF, the decision-maker can gain an idea of the overall range over which project financial performance is likely to vary, and can read off probability estimates for various sub-ranges of project performance. On the other hand, more information is required to carry out risk analysis, and the computer modelling can be more demanding.

Describe your work experience in developing and monitoring budgets. Please include your role and the size of the budgets for which you were responsible.

Personally, I have not developed and monitored really large budgets. None of the budgets that I have been responsible for exceeded USD 300 thousands. In particular, I have monitored the budget developed for the local airline company. The number of passengers – the main source of uncertainty for the airline – can be represented by the demand function, but with the addition of a random component, “y”, where this random component has a normal distribution with a mean of 0 and standard deviation of 500 passengers. The financial model may now be used to conduct a simulation experiment in which the demand function includes this non-controllable environmental variable. Every time the program is run on the computer (each encounter with the model) a different set of demand levels is generated, and hence a different NPV obtained. For this reason, it is necessary to include in the simulation experiment a number of replicates and to average NPV performance over these replicates. It is notable that there is considerable variation in performance among replicates. Averaging the NPV values over the four replicates removes some of the variation between treatments found when individual replicates are compared. The NPV values for the highest fare discount rate exhibit little variation, because the capacity constraint is reached early in the project life.

Describe your experience with coordinating the implementation of policies and procedures among parties in a complex organization.

I have worked as a project coordinator for the municipal authorities with regards to implementation of cost center concept and analysis of the different costs that should have been considered by the public entities. Increment costs are known as differential costs or variable costs. The mathematical connotation of «differential» is an extremely small change, while the term «variable costs» is frequently employed for ordinary accounting purposes. Unit or standard costs are sometimes used in investment analyses involving changes from a specified level of activity. The use of increment costs is, however, preferred, since unit or standard costs are frequently based on accounting records and, consequently, may be established on somewhat arbitrary cost allocations and levels of activity. Sunk costs are those costs incurred on a project prior to its appraisal and which can no longer be retrieved. They are costs already paid or committed which are irrelevant to a future investment decision that is being made. Thus, they should be excluded from the cost of a project for the purpose of reaching a decision as to whether to proceed further with it. For instance, the economic merit of a project designed to complete a project started earlier and left unfinished does not depend on the costs already incurred but only on the costs of completion.

Please describe your experience preparing and analyzing complex reports. Include the type, length, and complexity of the reports.

I have both analyzed and prepared complex reports and memorandums associated with different fixed income securities of enterprises and public entities. The most frequently used measure of an enterprise’s well-being is the coverage ratio—the ratio of revenues (less operation and maintenance expenses but before provision for depreciation) to debt service—which uses figures from the income statement projecting future debt service coverage is important. This coverage may be adequate when bonds are issued, but if additional bonds are planned or if revenues decline, the ratio could drop sharply. Analysis of the efficiency of current facilities and of the potential need for new facilities plays a role here.

In addition to coverage, the analyst looks at trends in operating ratios. For example, the trend of days in accounts receivable would show how efficient the issuer is in collecting money. Balance sheet ratios, such as days cash on hand, show how liquid the issuer is and how much financial cushion exists. Electronic delivery of municipal credit information is based on documents (both official statements and continuing-disclosure documents) submitted by the issuer and on other available third-party information. Analysts use the data to evaluate the credit quality and to compare it to other credits in its sector, region or rating category or however the user sees fit.
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