Debt management

debt management. Policies of debt management are guidelines and written restrictions that have an impact on the type of debt securities issued by a administration and amount, as well as the process of issuing and managing. portfolio. A policy of debt management can take
better decisions and justify the structure of issuing debt securities. It specifies the policy objectives and presents a capital plan multi-year, reflecting the emphasis on long-term planning. the compliance with a policy of debt management is to rating agencies securities and financial markets is an indication that the government is well managed and it should meet its obligations in a timely manner.

Debt levels and related annual costs are important
long-term obligations that must be managed according to available resources. Policy effective debt management provides management guidelines necessary for manage its debt program according to these resources.

GFOA recommends that all jurisdictions adopt written policies overall management of the debt and that they examine and revise as necessary.a policy of debt management must address:
• direct debt - a debt repayable with general revenues, including contracts of lease.
• operating debt - a debt payable from a source revenue guarantee.
• the revolving loan funds and pooled.
• other types of hybrid securities - debt repayable from revenues with special or other guarantees of unique titles.
• Interfund loans - loans to fill short-term needs of the flow cash.
1.Debt limits.Must be established in the policy limits or specific acceptable ranges for each type of debt. Generally establishes limits for reasons of a legal or financial, and under official policies.

a)limits may be prescribed by legislation, including
a local charter, bylaws, resolution, order or clause.
b)The limits set by government policy may establish inter alia:

• the reasons why debt products may be used or not.
• the types of securities that may be issued or not. • integration of the capital improvement program and the link therewith.
• the policy objectives related to economic development, funding for capital improvements, financing by new land and partnerships between the private sector and the taxes public sector.
c)Financial limitations generally reflect official policy or other restrictions as regards financial resources, example the use of a restricted type of debt due to changes in financial position. Limits appropriate debt can have a positive impact on bond ratings if administration demonstrates time compliance with this policy.
Financial constraints are often expressed as ratios used by credit analysts. Different financial constraints are used to different types of debt. Here are some examples:

• The direct debt can be measured or limited according to the following ratios:
• the ratio of debt per capita.
• the ratio of debt by personal income.
• the ratio of debt to the value of the taxable property.
• payments for debt service as percentage of expenditure or major revenue fund.

• The levels of operating debt are often limited by the ratios coverage (eg. annual net revenue guarantees to pay annual cost of debt service) or the impact of the credit (eg. additional obligations should not reduce the notation) specified in the covenants established for obligations.

• The issue short-term debt should state the reasons for which we can use this measure and in what circumstances particular it can be done, and any restrictions imposed on the conditions and the amount of the loan.

2.Use of derivatives. Policy objectives:

• explain the integration of the derivatives in the global program

of debt management.
• specify the conditions of use of derivatives.
• describe the types of derivative instruments permitted and prohibited.
• Define one or more approaches to examine, assess and manage risks associated with derivative instruments, including basic risks, risks related to taxation, the counterparty risk, the risk of termination, renewal of liquidity risk, the risk of remarketing and credit risk.
• establish procedures for the selection and acquisition of products.

3.Practices structuring debt. We must integrate policy specific practices for structuring debt policies for each type obligations, including:

• the maximum maturity (often indicated in absolute terms or based on the useful life of an asset or assets).
• the average maturity.
• the model of debt service, for example equal payments or equal principal amortization.
• the use of optional prepayment provisions which reflect market conditions and the needs of the administration.
• the use of debt to variable rate or fixed rate securities debt in foreign currency, the improvement of credit, derivatives, debt and short-term restrictions on instruments the use of these measures.
• one must also consider other practices such structuring the capitalized interest, postponement of principal or other measures internal support, including the promise of obligations.

4.Practices on the issuance of debt securities. The policy must provide lines guidelines of the emission process, which may be different depending on the type of debt.

Here these practices:
• criteria to determine the method used for sale (contests, trading, investment) and investment products.
• criteria for the issuance of bonds which refinancing is Early and obligations which refinancing is in progress.
• the selection of providers of professional services and the use of these last.
• use of settlement services in bond or similar market indices as a benchmark when transactions and to evaluate the results of the determination of the prices of obligations.
• the use of credit and the minimum rating obligations. determining the number of listings and selection listing services.

5. Practices of debt management. The policy should define guidelines regarding routine administrative activities, including:

• the investment of bond proceeds.
• disclosure practices adopted in the primary market and the market secondary, including the annual certifications required.
• practices to comply with federal legislation and provincial.
• Efforts to establish the relationship between the market and the investor.