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Frequently Asked Questions
General Questions
- How does VMBB sell its bonds?
- How often are bonds sold?
- How does VMBB determine its interest rates?
- Can a municipality obtain its funds from VMBB before the bond sale?
- What if interest rates change significantly after the closing?
- Is there a limit to the size of a loan?
- Who are the investors who typically buy these bonds?
Application Questions
Bond Repayment Questions
| General Questions |
Q: How does VMBB sell its bonds?
A: When VMBB is ready to enter the tax-exempt capital market, it combines all the approved borrowers into a single pooled bond issue. The necessary documents and copies of the applications are submitted to the rating agencies for a credit rating review and update. After the ratings are obtained, a preliminary official statement is printed and mailed to all investment firms and potential purchasers of the bonds. Bonds are offered first to Vermont individual investors and then to national institutional investors.
A: Usually bonds are sold once a year, in July.
Q: How does VMBB determine its interest rates?
A: Final interest rates are established through negotiation with the selected senior managing underwriter and are based on several factors including the market’s demand for tax-exempt bonds, current national interest rates and a review of recent comparable financings.
Q: Can a municipality obtain its funds from VMBB before the bond sale?
A: No, but interim financing can be obtained from commercial lenders. (See Alternative Financing Options)
Q: What if interest rates change significantly after the closing?
A: Bonds are issued on a fixed-rate basis and borrowers are protected against ever having their interest rates rise due to an increasing market. However, in the event interest rates decline by a substantial amount, VMBB may refund the existing bonds and pass the savings through to the borrowers. The refunding is limited to the entire pool and may not be done on an individual municipality basis.
Q: Is there a limit on the size of a loan?
A: There are no legal limits to the amount of bonds a municipality can issue. However, VMBB, through its credit review process, reserves the right to disallow an applicant based on a number of criteria including the amount of debt per capita and the ratio of debt to assessed valuation.
Q: Who typically are the investors who buy these bonds?
A: Because of the federal and state tax advantages of these bonds, typical investors tend to be Vermont individuals. Other investors can include banks, mutual funds, insurance companies and other corporations.
| Application Questions |
Q: What type of information does VMBB look for in its application?
A: The application requires project, tax rate, financial, economic, debt, income, and population information. The majority of the information requested is for the entire municipality not just the school, town or village and is readily available in municipal and state reports.
Q: Who reviews the applications?
A: Applications are reviewed by Vermont Municipal Bond Bank’s Directors and staff. In addition, each application may also be analyzed by the underwriter, bond counsel, rating agencies and bond insurance company.
| Bond Repayment Questions |
Q: Can a municipality pay off a bond early?
A: No. A municipality cannot pay off a bond early once the bond has been sold. However, there is no restriction on making scheduled bond payments early.
Q: Can the repayment schedule change after a bond is issued?
A: The only time a debt service payment schedule could change would be if VMBB refunded bonds.