The policy of the Board is that only completed projects are financed through the issuance of debentures. The NSMFC does offer short-term financing to clients that have completed their capital projects and are waiting to participate in the debenture process.
The cost of the borrowing depends on the term of the debenture and market conditions. The pricing is based on the Province of Nova Scotia's cost of funds, plus a number of basis points for the NSMFC. The NSMFC also charges a fee for the reserve fund and covers issuing costs. NSMFC debenture prices have remained consistently lower than commercial banks and financial institutions.
Interest on an MFC debenture is not calculated by taking the outstanding principal balance multiplied by the outstanding interest rate at that point in time. Each annual principal maturity has its own interest rate (or coupon rate). The semi-annual interest to be paid to the NSMFC has to take each principal amount, multiplied by its own interest rate (coupon rate), divided by “2”, to capture the 6-month interest payment.
Why is my loan request different from the funds deposited into my bank account? This is your net proceeds. Each NSMFC debenture passes on the costs of issuing the debenture, based proportionally on how much is borrowed. Your net proceeds are calculated by subtracting the NSMFC administration fee, issuance costs, and commissions from the loan request (based on XX cents/$100 borrowed). For budget purposes, NSMFC suggests grossing your loan request by 0.70% of 1% in order to receive the funds you actually require.
It is simpler to quote a loan using one interest rate, hence the use of the “all-in” cost. The all-in cost is a finance calculation called Internal Rate of Return (IRR). Since the NSMFC has different interest rates for each maturity, how would a client know that they are getting the lowest rate possible? Hence the use of the “all-in” rate. Your all-in rate is calculated by using your net cash flows, which are the total principal and interest payments over the life of the loan less your net proceeds, to come back to an average interest rate.
Municipalities realize cost savings by borrowing from the NSMFC in at least three ways.
Municipalities, municipal enterprises (with a municipal guarantee), fire departments, regional school boards, and hospitals – with the required ministerial approval.
Yes, the NSMFC will issue single-issue debentures. The NSMFC also offers a short-term financing program.
Debentures must be outstanding to maturity, which is they are not subject to redemption prior to maturity. When the NSMFC issues debentures, the Corporation is locked into the same maturity schedule including principal and interest payments as its clients. For this reason, the NSMFC does not provide for early redemption of debentures. For more information, please visit our Corporate Governance page to read our Early Loan Repayment Policy (pg 39 of the NSMFC Policy Manual).
The Corporation offers financial planning and capacity-building tools to municipalities, such as the Debt Affordability Model and Financial Management Best Practices. We also sponsor a municipal finance officer to attend the Government Finance Officers Association (GFOA) annual conference. Our staff can work with your municipality to find the program that is right for you.