State of Connecticut

Notes to the Financial Statements

June 30, 1995
(Amounts in thousands unless otherwise stated)

Note 15

DEBT

  1. Short-Term Debt
    Up to $739.4 million of general obligation temporary notes may be issued by the State with these notes having the full faith and credit of the state pledged for payment of principal and interest. As of June 30, 1995, no notes were outstanding. Additionally, revolving lines of credit have been secured from Dai-Ichi Kangyo Bank, Limited and The Industrial Bank of Japan, Limited in the amounts of $550.0 million and $203.9 million respectively. Of these amounts $539.4 million and $200.0 million may be advanced with respect to the payment of the above notes and $10.6 million and $3.9 million may be advanced with respect to the payment of up to 60 days interest on the notes. As of June 30, 1995, no amount was outstanding on the lines of credit.
  2. Long-Term Debt
    Economic Recovery Notes
    In September and October 1991, $965.7 million of General Obligation Economic Recovery Notes were issued to fund the accumulated budgetary deficit.
  3. Economic recovery notes outstanding at June 30 were $315.7 million, these notes mature on various dates through 1996 and bear interest rates from 5.25% to 6.8%.

The following is a description of the future amounts needed to pay principal and interest on economic recovery notes outstanding at June 30, 1995.

Year Ending
June 30,
PrincipalInterestTotal
1996$315,710 $ 12,982 $328,692

General Obligation Bonds
General obligation bonds are those bonds that are paid out of the revenues of the General fund and that are supported by the full faith and credit of the State.

General obligation bonds outstanding and bonds authorized but unissued at June 30 were as follows:

Purpose of Bonds Final
Maturity
Dates
Interest
Rates
Amount
Outstanding
Authorized
But Unissued
Capital Improvements 1995-2013 4.218-9.875% $1,541,408 $297,750
School Construction 1997-2012 4.2-9.75% 628,564 7,733
Municipal redevelopment 1995-2015 3.25-9.25% 1,426,670 545,447
Elderly Housing 1996-2011 7-7.4% 36,900 151
Elimination of Water
Pollution
1996-2014 4.48-8.25% 257,865 8,091
General Obligation-
Refunding
1997-2012 2.4-7.35% 1,283,600 -
Miscellaneous 1997-2013 4.625-8.95% 39,454 49,530
5,214,461 $908,702
Accretion-Various Capital Appreciation Bonds 310,286
Total $5,524,747

Future amounts needed to pay principal and interest on general obligation bonds outstanding at June 30, 1995, were as follows:

Year Ending
June 30

Principal

Interest

Total
1996 $ 394,634 $ 267,107 $ 661,741
1997 421,818 249,638 671,456
1998 416,936 233,329 650,265
1999 400,631 228,828 629,459
2000 394,966 236,316 631,282
Thereafter 3,185,476 1,832,434 5,017,910
$5,214,461 $3,047,652 $8,262,113

Transportation Related Bonds
Transportation related bonds include special tax obligation bonds and general obligation bonds that are paid out of revenues pledged or earned in the Transportation Fund to pay special tax obligation bonds is transferred to the debt service fund for retirement of principal and interest.

Transportation related bonds outstanding and bonds authorized but unissued at June 30 were as follows:

Purpose of Bonds Final
Maturity
Dates
Interest
Rates
Amount
Outstanding
Authorized
But Unissued
Public Transportation 1996-1999 5-8.25% $ 19,053 $ 668
Specific Highways 1997 4.9-5.25% 2,165 19,900
Infrastructure
Improvements
1996-2015 2.65-10% 2,892,027 564,287
General Obligation-
Refunding
2004 5.15-9.75% 46,000 -
Other Transportation 1995-2010 4.218-9.25% 24,890 317
2,984,135 $585,172
Accretion-Various Capital Appreciation Bonds 7,184
Total $2,991,319

Future amounts required to pay principal and interest on transportation related bonds outstanding at June 30 were as follows:

Year Ending
June 30
Principal Interest Total
1996 $ 126,065 $ 166,955 $ 293,020
1997 136,958 159,281 296,239
1998 147,275 151,088 298,363
1999 161,489 142,250 303,739
2000 159,294 136,636 295,930
Thereafter 2,253,054 834,731 3,087,785
$2,984,135 $1,590,941 $4,575,076

Special Assessment Unemployment Compensation Advance Fund
In July, August, and September of 1994, the State issued $1,020.7 million of Special Assessment Unemployment Compensation Advance Fund revenue bonds. The issuance of these special obligation revenue bonds was for the purpose of repaying loans made by the United States to Connecticut for payment of unemployment compensation benefits and assisting the State in meeting a portion of its unemployment compensation benefit obligations until increased employer assessments are levied. These bonds mature on various dates through 2001 and bear interest rates from 3.1% to 4.6% and shall be payable solely from the Unemployment Compensation Advance Fund and revenues and requisitional funds specifically pledged for their payment.

The State has no contingent obligation either directly or indirectly with the payment of these bonds.

Future amounts needed to pay principal and interest on special assessment unemployment compensation bonds were as follows:

Year Ending
June 30
Principal Interest Total
1996 $ 50,000 $ 38,206 $ 88,206
1997 75,000 36,306 111,306
1998 95,000 33,251 128,251
1999 115,000 129,281 144,281
Thereafter 655,700 53,681 709,381
$990,700 $190,725 $1,181,425

Interest Rate Swap Agreements
The State has entered into interest rate swap agreements for the following outstanding debt:

Type Face
Value
Interest
Rate
Maturity
Date
Transportation-STO's $228,000 Variable 2010
Special Assessment Unemployment
Compensation Advance Fund-
Revenue Bonds
$235,000 Variable 2001

Based on these agreements, the State pays a fixed interest rate to the counterparty to the swap. In return, the counterparty pays the State a variable interest rate that either matches the variable rate of the bonds or is determined by the agreement. In either case, only the net difference in interest payments is actually exchanged with the counterparty. By entering into these agreements, the State has in effect exchanged its variable rate liability for a fixed rate obligation.

The agreements call for the following exchange of interest rates:

Type of Debt Face Value Interest Rate
Assumed by
State
Interest Rate
Assumed by
Counterparty
STO's $136,800 5.75% 65% of 1 - month
LIBOR* rate
STO's $ 91,200 5.71% 65% of 1 - month
LIBOR* rate
Revenue Bonds $235,000 4.05% Variable rate of
revenue bonds

*The primary fixed income index reference rates used in the Euromarkets. Most international floating rates are quoted as LIBOR plus or minus spread.

Regarding the STO swaps, the State is exposed to the market risk relating to the relationship between the variable interest rate on the bonds (which is reset weekly) and the rate that it receives under the swap agreements (which is 65% of 1-month LIBOR). For the fiscal year ended June 30, 1995, the average variable interest rate on the bonds and the average LIBOR rate were approximately equal.

Except for one of the STO swaps (face value of $91,200), the agreements have collateral provisions which protect the State against default by the counterparty.

Revenue Bonds
Revenue bonds are those bonds that are paid out of resources pledged in the enterprise funds, higher education and university hospital funds, and component units. Revenue bonds outstanding at June 30 were as follows:

Fund Type Maturity
Dates
Interest
Rates
Amounts
Outstanding
Primary Government:
Enterprise:
Bradley International Airport
1996-2012 7.1-9.125% $ 93,170
Rental Housing 2000-2002 5.25-9.15% 125,935
Nonexpendable:
Clear Water Fund
2009-2013 4.05-11% 315,590
Higher Education & University Hospital:
Investment in Plant
1997-2015 4.3-7.25% 92,249
Premium on Clean Water Fund
Bonds sold
3,618
Total $630,562
Component Units:
Conn. Development Authority
2002-2008 2.6-9.8% 152,285
Conn Housing Finance
Authority (as of 12-31-94)
2027 2-11% 2,725,145
Conn. Resources Recovery
Authority
1995-2016 4.2-8.8% 390,839
Conn. Higher Education Supplemental Loan Authority 1995-2013 4.4-7.5% 78,070
Conn. Health & Educational
Facilities Authority
1995-2024 4.32-14.94% 1,904,722
Discount on CHFA bonds sold (24,136)
Total $5,226,925

Revenue bonds issued by the component units do not constitute a liability or debt of the State, and the State is only contingently liable for these bonds as discussed in this section.

The following is a description of revenue bonds with restrictive covenants:

Primary Government:
Bradley International Airport's revenue bonds were issued in 1982 in the amount of $100,000 to finance costs of improvements to the airport. As of June 30, 1995, the following bonds were outstanding:

  1. Airport revenue refunding bonds in the amount of $89,470. These bonds were issued in October, 1992, to redeem the 1982 revenue bonds, and are secured by and payable solely from the gross operating revenues generated by the State from the operations of the airport and other receipts, funds or monies pledged in the bond indenture. In accordance with this indenture, certain assets of this fund have been restricted for the payment of bond principal and interest, construction projects and other uses.
  2. Airport subordinated refunding bonds in the amount of $3,700. These bonds were issued in 1989 to help pay for certain expenses (e.g. issuance costs, redemption premium) incurred in the issuance of the 1992 refunding bonds.

In 1994, the State of Connecticut issued Clean Water Fund revenue bonds in the amount of $325,245. The proceeds of these bonds are to be used to provide funds to make loans to Connecticut municipalities for use in connection with the financing or refinancing of waste water treatment projects.

Component Units
Connecticut Development Authority's revenue bonds are issued to finance such projects as the acquisition of land or the construction of buildings, and purchase and installation of machinery, equipment, and pollution control facilities. The Authority finances these projects through its Self-Sustaining Bond Program and Umbrella Program. Under the Umbrella Program, bonds outstanding at June 30, 1995, were $86,705. Also, assets totaling $91,729 are pledged under the terms of the bond resolution for the payment of principal and interest on these bonds until such time as it is determined that there are surplus funds as defined in the bond resolution. Bonds issued under the Self- Sustaining Bond Program are discussed in the no-commitment debt section. In addition, the Authority had $65,580 in general obligation bonds outstanding at year end. These bonds were issued to finance the lease of an entertainment/sports facility, the purchase of a hockey team, and the construction of a music amphitheatre.

Connecticut Housing Finance Authority's revenue bonds are issued to finance the purchase, development and construction of housing for low and moderate income families and persons throughout the State. According to the bond resolution, the following assets of the Authority are pledged for the payment of the bond principal and interest: (1) The proceeds from the sale of bonds, (2) all mortgage repayments with respect to long-term mortgage and construction loans financed from the Authority's general fund, and (3) all monies and securities of the Authority's general and capital reserve funds. In addition, all assets of the Authority's general and capital reserve funds ($2,952,282) are restricted until such time as they are determined to be "surplus funds". The bond resolution describes "surplus funds" as being the excess of pledged receipts over funds required for the payment of operating expenses, principal and interest and requirements of the capital reserve fund during the most recent twelve month period.

Connecticut Resources Recovery Authority's revenue bonds are issued to finance the design, development and construction of resources recovery and recycling facilities and landfills throughout the State. These bonds are paid solely from the revenues generated from the operations of the Authority and other receipts, accounts and monies pledged in the bond indentures.

Connecticut Higher Education Supplemental Loan Authority's revenue bonds are issued to provide loans to students and their parents to assist in the financing of the cost of higher education. According to the bond resolutions, the Authority reports the bonds in either the Institution Bond Fund or the Individual Bond Fund, depending on whether the loans are made directly to individuals or indirectly through the intermediary of an educational institution. At year end, there were no outstanding bonds in the Institution Bond Fund.

Connecticut Health and Educational Facilities Authority's revenue bonds are issued to assist certain health care institutions, institutions of higher education and qualified for-profit and not-for-profit institutions in the financing and refinancing of projects to be under- taken in relation to programs for these institutions. The Authority generally holds title to, or has first mortgages on, the buildings and related facilities financed by the bonds. The terms of the lease, mortgage and loan payments receivable from the institutions correspond to the amortization requirements of related bonds payable. On final payment of a bond issue, the title to or security interest in the building and related facilities reverts to the institution. Prior to July 1, 1979, the Authority issued general obligation bonds for which the Authority is ultimately responsible for the payment of principal and interest when due. After July 1, 1979, the Authority has issued special obligation bonds for which the principal and interest is payable solely from the revenues of the institutions. At year end, the Authority had $30,205 and $1,874,517 in outstanding general obligation and special obligation bonds, respectively.

Each Authority has established special capital revenue funds which secure all the outstanding bonds of the Authority at year end (except as discussed below). These funds are usually maintained at an amount equal to next year's bond debt service requirements. The State may be contingently liable to restore any deficiencies that may exist in the funds in any one year in the event that the Authority is unable to do so. For the Connecticut Resources Recovery Authority and the Connecticut Health and Educational Facilities Authority, bonds outstanding at year end in the amount of $357,084 and $227,680 respectively, were secured by the special capital reserve funds.

Future amounts required to pay principal and interest on revenue bonds outstanding at June 30, 1995, were as follows:

Primary Government
Year
Ending
Enterprise Funds Nonexpendable Trust Higher Education
and University
Hospital Funds
Component Units
June 30, Principal Interest Principal Interest Principal Interest Principal Interest
1996 $4,936 $12,502 $12,490 $4,886 $5,377 $4,923 $150,755 $308,685
1997 4,995 14,611 15,395 14,072 6,382 4,690 187,513 299,872
1998 8,130 14,113 15,730 13,452 6,208 4,362 206,002 289,212
1999 14,960 13,169 16,075 12,890 6,262 4,032 187,431 276,789
2000 15,593 11,938 16,425 12,345 5,912 3,681 202,216 266,827
Thereafter 170,491 56,274 239,475 90,091 62,108 22,382 4,317,144 2,833,270
$219,105 $122,607 $315,590 $147,736 $92,249 $44,070 $5,251,061 $4,274,655

No-commitment Debt
Under the Self-Sustaining Bond Program, the Connecticut Development Authority issues revenue bonds to finance such projects as described previously in the component units section. These bonds are paid solely from payments received from participating companies (or from proceeds of sale of the specific projects in the event of default) and do not constitute a debt or liability of the Authority or the State. Thus, the balances and activity of the Self-Sustaining Bond Program are not included in the Authority's financial statements. Total bonds outstanding at June 30, 1995 were $1,444.7 million bearing rates ranging from 3.6% to 13.5%.

The Connecticut Resources Recovery Authority has issued several bonds to fund the construction of waste processing facilities by independent contractors/operators. These bonds are payable from a pledge of revenues derived primarily under lease or loan agreements between the Authority and the operators. Certain of these bonds are secured by letters of credit. The Authority does not become involved in the construction activities or the repayment of the debt (other than the portion allocable to Authority purposes). In the event of default, payment of the debt is not guaranteed by the Authority or the State except for the State's contingent liability discussed below. Thus, the assets and liabilities related to these bond issues are not included in the Authority's financial statements. Total bonds outstanding at June 30, 1995 were $355.8 million bearing interest rates ranging from 4.4% to 8.625%. Of this amount, $174.1 million was secured by a special capital reserve fund. The State may be contingently liable for any deficiencies in the fund as explained previously in the component units section. There were no deficiencies in the fund at year end.

Debt Refundings
During the year, the State sold $54.2 million in general obligation bonds with an average rate of 5.3% to advance refund $50.1 million in outstanding general obligation bonds (including $1.2 million reported as a liability in the Higher Education and University Hospital fund) with an average rate of 6.8%. The proceeds of the refunding bonds were used to purchase U.S. government securities, which were deposited in an irrevocable trust with an escrow agent to provide for all future payments on the refunded bonds. Thus, the refunded bonds are considered to be defeased and the liability for those bonds has been removed from the general long-term debt account group.

As a result of this advance refunding, the State reduced its total debt service payments over the next ten years by $.7 million and obtained an economic gain (difference between the present values of the debt service payments of the old and new bonds) of $1.5 million. As of June 30, 1995, $1,656.8 million of outstanding general obligation and special tax obligation bonds (including prior year's refundings) are considered defeased.

Note Payable
An installment note for $12.3 million to acquire a telecommunication system was established between the University of Connecticut and Connecticut Bank and Trust Co. in 1988 with an interest rate of 7.55% and final maturity in April 1999. Future amounts required to pay principal and interest on the note outstanding were as follows:

Year Ending
June 30

Principal

Interest

Total
1996 $ 1,295 $ 415 $ 1,710
1997 1,395 315 1,710
1998 1,502 208 1,710
1999 1,618 93 1,711
$5,810 $1,031 $6,841

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