Strategic Partnership Supports Novel Financing Plan

Thanks to their previous experience working with U.S. Bank Global Corporate Trust Services, an investment banker working on a uniquely structured transaction for the state of Illinois brought U.S. Bank to the table to serve as trustee.

"Our experience working with public and private entities, as well as our ability to adapt to unique structures, made U.S. Bank a logical choice to partner with the investment bank and the service provider, Vendor Assistance Program, LLC (VAP), on this deal," says Nancie Arvin, Senior Vice President, Global Structured Finance, U.S. Bank Global Corporate Trust Services. "In addition, our track record of creating distinctive investor reporting packages for new and unique asset classes combined with our delivery of additional bank capabilities, made it a convenient, one-stop shopping experience for all transaction parties."

Turning Lemons into Lemonade

"Illinois, like many other states in a still recovering economy, has faced challenges paying its bills in a timely manner," explains Arvin. "Its vendors were waiting six months or more for payment. In the meantime, the vendors had to cover their own bills and salaries. The state’s product and service suppliers were unhappy and some were considering severing ties with the state."

A collateralized credit facility was set up within a trust to enable the state to tap a line of credit established with investors. VAP works with Illinois to tap funds advanced by the lenders and pay vendors 90 percent of the invoiced amount within 10 days of when the state assigns the receivable to the trust. Then, as revenues come in, the state repays investors and VAP along with any applicable late fees. VAP then pays the remaining 10 percent to the vendor and makes its money on the late fees.

The deal is unique because it involves a public entity. Details of how the transaction works were published in an article in The Wall Street Journal in March.*

Inspiring Client Loyalty

U.S. Bank’s value proposition is our ability to combine traditional trustee services with customized reporting for investors and ancillary banking services to benefit all transaction parties. This combination of agile reporting capabilities and diverse services minimize the number of transaction parties and improves the overall efficiency of the transaction. "We see it as our responsibility to work collectively across U.S. Bank to help create an exceptional client experience, so we reached out to other business areas to provide VAP and others with one-stop shopping," Arvin says. "Our Global Structured Finance group serves as both Owner Trustee of the VAP Funding Master Note Trust (Illinois), a Delaware statutory trust; and Indenture Trustee, Paying Agent and Registrar for notes issued to the investors.

"U.S. Bank’s Investor Reporting group handles the securities administration functions and created reporting for VAP which also met the needs of investors. U. S. Bank Treasury Management provides lockbox and DDA services to support incoming state payments as well as check and ACH payments made to the vendors," Arvin adds. "This partnership is a great example of how we bring together multiple resources across the bank to provide holistic solutions for customers. In fact, processes established for this transaction work so well that VAP is looking to expand these services to other states."

If you anticipate traditional or unique service requirements for your structured finance transaction on the horizon, please contact your Account Manager to discuss various options to support your requirements. As illustrated by the VAP transaction, U.S. Bank is committed to collaborate with customers and transaction parties to provide customized solutions that meet our clients’ and investors’ distinctive needs.

* Source: “Startup Sees Profit in State's Financial Woes,” The Wall Street Journal, March 21, 2013.