State Sets Up $600M Credit Line With U.S. Bank
The State of Minnesota recently set up a $600 million line of credit with a group of banks led by U.S. Bank, NA, according to official documents provided by the Minnesota Management & Budget office.
Curt Yoakum, a spokesman with Minnesota Management & Budget, told Twin Cities Business on Monday that the credit line will help the state meet its goal to keep the general treasury's daily balance above $400 million. Officials expect the fund to fall below that figure sometime in October and dip down as low as $109 million in December.
The last time that the state resorted to short-term borrowing was 1984. While the state now has a balanced budget and also expects to end the next fiscal year in the black, Yoakum said that the state doesn't always get spend and receive money at the same rates or the same times of year-a challenge that's been compounded recently by the effects of the economic recession. The credit line will cover for shortfalls if and when they exist.
The state first announced plans to set up a $600 million credit line in July, saying at the time that the line would likely be set up by September but remain unused until the spring when there is traditionally a slump in cash flow.
The credit line expires at the end of June 2011-which is also the end of the state's fiscal year. The contract stipulates that any debt must also be repaid by that time.
Yoakum said it's possible that the credit line could be terminated early if Minnesota's financial state looks better than anticipated.
The state paid Minneapolis-based U.S. Bank and the other banks-BMO Capital Markets Financing, Inc., Wells Fargo Bank, NA, and Bank of the West-$635,000 to set up the credit line. In a best-case scenario, if the state doesn't use the credit line and terminates the agreement early, it would end up paying $937,000 in fees on top of the $635,000 set-up fee. The state also plans to pay somewhere in the neighborhood of $100,000 to a finance consultant who looked at various credit-line proposals.
Yoakum wouldn't say how much of the credit line the state expects to use but did confirm that it is very unlikely that the entire $600 million will be used. The credit line's full cost will depend on the amount borrowed and the interest rates at that time.
The credit-line documents include a covenant signed by Governor Tim Pawlenty. The covenant indicated that Minnesota's taxing authority would be used as collateral-meaning that the state's last resort to pay back any money it owes would be by raising property taxes.
U.S. Bancorp-the parent company of lead credit-line issuer U.S. Bank-is Minnesota's largest bank holding company based on its 2008 assets, which totaled $266.6 billion. As of March 31, the company had $282 billion in assets.