Investment Advice

AFG provides its clients with a number of ongoing services to assist with their financial operations and management. These services are designed to assist an issuer in matters directly and indirectly related to its securities and include the investment and reinvestment of bond and non-bond related funds. AFG provides investment advice to its clients for the maximization of earnings. Specifically, the firm confirms investment goals after conferring with staff; reviews legal requirements and permitted investments with relevant counsel; analyzes investment alternatives in terms of risk and rewards and assists in developing an overall investment strategy.

AFG will also review the issuer's investment policy with respect to general funds and bond proceeds and develops guidelines and strategies for the investment of funds. AFG has reviewed the use of a variety of derivative products and investment vehicles in formulating investment strategies for our clients. Such investment strategies are developed to maximize earnings while minimizing rebate liability. These investment vehicles include: direct treasury and government securities; rolling treasury securities; flexi escrows; certificates of deposit, guaranteed investment contracts; repurchase agreements; swaps and forward supply contracts. AFG is cognizant that security is of the utmost importance when investing funds. In developing an investment strategy, issuers generally seek security of principal, some level of liquidity and adequate returns, therefore, it is important to match the appropriateness of the investment with the use of the funds and the cashflow needs of the specific bond financing. AFG’s professionals have developed comprehensive investment strategies for the New Jersey Educational Facilities Authority, Ohio Building Authority, Stafford Board of Education, Old Bridge Municipal Utilities Authority, Bayshore Regional Sewerage Authority, Branchburg Board of Education and Sussex County Municipal Utilities Authority.

The following are three examples of AFG’s professionals providing advice for the investment of bond proceeds.

New Jersey Higher Education Student Assistance Authority
When AFG’s professionals were retained to serve as financial advisor to the New Jersey Higher Education Student Assistance Authority (“NJHESAA”) the proceeds of its prior bond issues had not been invested for the long term. At the time of the offerings, interest rates were extraordinarily low. The bonds were issued as variable rate bonds and the majority of bonds were hedged with a swap to fixed rate. Because BMA was so low and the relationship between BMA and Libor was particularly tight, it would not have been beneficial for NJHESSA to bid out the investments as providers were not inclined to bid aggressively. Additionally, circumstances specific to the student loan industry (including the recycling of funds and frequency of draws) began to restrict the number of providers willing to provide investment agreements. In the face of the likelihood that interest rates would increase in the future, a decision was made to temporarily invest the money in a money market and enter into long-term investments at a later date. AFG’s professionals were charged with monitoring the relationship of short term interest rates. As short term interest rates increased, the relationship between BMA and LIBOR widened. In addition, a greater number of investment providers became experienced with loan consolidation risk. Therefore, AFG’s professionals recommended that NJHESAA proceed with bidding out the investments of its bond funds for its Series 2002, 2003, 2004 and 2005 issues.

During 2005 and 2006, in an effort to address NJHESAA’s unhedged liability, AFG’s professionals obtained guaranteed investment contracts for proceeds of the Series 2002, 2003, 2004 and 2005 bond issues. In addition, in conjunction with the closing of the Series 2006 bond issue in April 2006, AFG’s professionals also negotiated a GIC for those bond proceeds. The services provided in negotiating the GICs included drafting and disseminating a Request for GIC; contacting all bidders to guarantee interest; analyzing bids to determine the winning bidder and reviewing the legal documents required for closing.

Camden County Improvement Authority
In 2004 AFG’S professionals assisted the Camden County Improvement Authority (“CCIA”) with a restructuring of the refunding escrow relating to the 2003 Refunding Bonds in order to recoup “negative arbitrage” in the escrow and generate upfront cash savings for the County of Camden. In order to recoup these earnings, AFG’S professionals proposed that the CCIA undertake a SLGS to SLGS restructuring. AFG’S professionals structured and implemented a strategy wherein on a day when there was a sell off in the U.S. Treasury market, the Authority would redeem its SLGS for rates posted on the date of the sell off. SLGS rates are reset each morning based on the previous day’s open market yields, thus on a day after a sell off, SLGS rates would reset at higher interest rates and the Authority would subscribe for new SLGS the day after the sell off, and retain the differential.

Due to a significant rise in U.S. Treasury interest rates on May 9, 2004, AFG’s professionals submitted a notice of redemption for a portion of the SLGS held in the refunding escrow. AFG’s professionals continually monitored the Treasury/SLGS market and, in accordance with SLGS regulations, were able to cancel and re-subscribe for SLGS several times in order to secure the highest possible interest rate for the CCIA/County. Based on this cancellation and re-subscription strategy, the CCIA/County increased its net benefit by approximately $260,000 during this period. AFG’s professionals presented this innovative idea to the CCIA and were instrumental in coordinating the activities of other professionals on the transaction and in securing the appropriate authorizations to proceed.

Ohio Building Authority
AFG’s professionals reviewed the investment histories and investments of the OBA's debt service reserve and construction funds to verify whether the maximum allowable yield was being earned on all funds. In addition, we reviewed the escrow on outstanding refunding bonds and whether the use of swaps or forward purchase contracts could assist in bringing additional earning potential to the OBA within the scope of remaining within the maximum allowable yield.

Swedesboro-Woolwich Board of Education
In 2006, AFG’s professionals were retained to serve as financial advisor for the District’s proposed capital improvement project. The District opted to issue the full amount of the project in bonds and to offset debt service through annual state aid. AFG professionals assisted the District in developing an investment strategy for the bond proceeds that would earn maximum interest, within their particular investment parameters, to further offset the debt service on the bonds. In conjunction with the closing of the Series 2006 bond issue in June 2006, AFG’s professionals drafted an RFP for investment providers, reviewed the investment provider responses, analyzed the investment strategy, negotiating investment rates on the investment portfolio, and appointed an investment provider based on negotiation of the best overall yield and service provided to the District.