Sector Profiles
Tribal Financings
ACA Capital insures bonds issued for financings by or on behalf of Native American tribes. While funding for capital projects for Native American tribes has been achieved largely through bank borrowing, high yield transactions or cash funding when possible, ACA Capital credit enhancement presents another option whereby tribes may access the municipal marketplace, obtaining rates and terms which are often more favorable than traditional options. ACA Capital remains the only municipal bond insurer committed to the enhancement of tribal credits as a unique sector.
Key Credit Factors
In order to make a preliminary determination of insurability ACA Capital will review the Tribal financing for the following key characteristics:
- A legal and governing framework similar to a municipal entity
- Location in state with favorable political and compact environment
- Annual audits presented in compliance with GAAP accounting standards
- Sound financial performance for 3 year minimum
- Willingness to apply limited waiver of sovereign immunity to the transaction
- Tribe is not subject to nonconsensual suits in tribal, state or federal court absent express waiver of sovereign immunity
- Comfort with jurisdictional provisions in the event of suit
- No less that semi-annual surveillance and coverage certification through maturity
Key Legal and Covenant Provisions
Typical security and covenant provisions for ACA Capital insured Tribal financings include the following:
- Reserve pledge
- Fully funded DSR
- Maximum debt service coverage approaches 2X based on historical revenues.
- Additional debt test at 2X or higher using MADS
- Rate Covenant to operate/set charges to meet 1.25X or higher
- Term: Up to 15 years
- Monthly sinking fund payments senior to release of excess for general tribal purposes or distributions
Essential Documentation
The following information is essential for an ACA Capital review of proposed Tribal financings:
- Preliminary Official Statement
- Financing Documents
- Term sheet and debt service schedule
- At least three years audited financial statements and current interim reports for both the Tribe and the enterprise(s), if enterprise revenues are pledged
- Area demographics and overview of competition, if applicable
- Background summary for Council members, tribal senior staff and enterprise management
- Feasibility study, if applicable
- Site visit by ACA to be scheduled
