1 / 30

Financial Assurance

Financial Assurance. ADEQ Solid Waste Management Division. ALLOWABLE FINANCIAL ASSURANCE MECHANISMS. WHY ?

orea
Download Presentation

Financial Assurance

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Financial Assurance ADEQ Solid WasteManagement Division

  2. ALLOWABLE FINANCIAL ASSURANCE MECHANISMS WHY? Financial assurance requirements create a financial incentive for owners and operators to locate, design, and operate facilities in a manner that minimize closure and post-closure costs AND reduce the likelihood of accidents and other events that may harm the environment and public.

  3. ALLOWABLE FINANCIAL ASSURANCE MECHANISMS FIRST STEP • Accurate cost estimates are important • Annual updates are critical • Must be adjusted for inflation, facility expansion, and other factors • Instruments must correlate precisely to the approved cost estimates

  4. REGULATION 22 • Trust Fund • Surety Bond Guaranteeing Payment or Performance • Letter of Credit • Insurance

  5. REGULATION 22 • Corporate Financial Test / Corporate Guarantee • Local Government Financial Test / Local Government Guarantee • Municipality or County Contract of Obligation

  6. TRUST FUND • Agreement between 3 parties: • Owner/operator • Financial Institution • ADEQ • Payments into the trust fund must be made annually by the owner or operator over the term of the initial permit or over the remaining life of the facility.

  7. TRUST FUND • WHAT’S REQUIRED: • Must submit original, signed trust agreement with schedules • The Trustee must send an annual statement to ADEQ confirming the value of the trust.

  8. SURETY BOND GUARANTEEING PAYMENT OR PERFORMANCE • Contract between the Surety and the Owner/Operator • Payment Bonds – Surety will pay the face value of the bond into a Standby Trust Fund

  9. SURETY BOND GUARANTEEING PAYMENT OR PERFORMANCE • Performance Bonds – Surety guarantees it will perform the required closure activities or pay the bond • The Surety must be certified and listed on Circular 570 (Treasury Department’s listing of approved sureties)

  10. SURETY BOND GUARANTEEING PAYMENT OR PERFORMANCE • WHAT’S REQUIRED: • Must submit original Surety Bond • The owner/operator must establish a Standby Trust Fund

  11. LETTER OF CREDIT • Issued by a Financial Institution • Guarantees the payment of owner/operator’s obligations • Must be irrevocable • Issued for one year and is automatically renewable

  12. LETTER OF CREDIT • WHAT’S REQUIRED: • Must submit original letter of credit • Must be accompanied by a letter from the owner/operator

  13. INSURANCE • Contract between the insurer and owner/operator • The face amount of the policy must be equal to current closure and post-closure cost estimates • Insurer pays for claims against the policy

  14. INSURANCE • WHAT’S REQUIRED: • Must submit a certificate of insurance • Must submit a copy of the insurance policy with endorsements

  15. CORPORATE FINANCIAL TESTCORPORATE GUARANTEE • Owner/operator may demonstrate financial assurance for cost of closure and post-closure; a form of “self-insurance” • Must pass one of two financial tests

  16. CORPORATE FINANCIAL TESTCORPORATE GUARANTEE • Analyze financial strength of the company by measuring financial ratios: • Debts – ability to convert assets to cash – working capital

  17. CORPORATE FINANCIAL TESTCORPORATE GUARANTEE • Subset of these ratios and an examination of the company’s public bond ratings (Standard & Poor’s or Moody’s) • Company must have at least $10 million in tangible net worth

  18. CORPORATE FINANCIAL TESTCORPORATE GUARANTEE • Tests rely on a “6 X multiple”: the company must demonstrate tangible net worth is at least 6 times the sum of current closure and post closure costs for ALL facilities covered by the test.

  19. CORPORATE FINANCIAL TESTCORPORATE GUARANTEE • WHAT’S REQUIRED: • An original letter signed by the Company’s CFO, which includes current cost estimates for all relevant facilities • CPA’s audit report for the most recent fiscal year

  20. CORPORATE FINANCIAL TESTCORPORATE GUARANTEE • Report from the CPA stipulating that no discrepancies between the Chief Financial Officer’s letter and the audited statements

  21. CORPORATE FINANCIAL TESTCORPORATE GUARANTEE • Corporate Guarantee: • The Guarantor is a higher-tier parent corporate of the company or a firm with a “substantial business relationship” with the company. • WHAT’S REQUIRED: • The same required, reporting items of the Corporate Financial Test; PLUS

  22. CORPORATE FINANCIAL TESTCORPORATE GUARANTEE • A signed, certified copy of the written guarantee between the Guarantor and the Company • A letter from the Guarantor’s CFO detailing the value of the guarantee • The Guarantor’s financial statements on behalf of the company

  23. LOCAL GOVERNMENT FINANCIAL TESTLOCAL GOVERNMENT GUARANTEE • Owner/operator must have satisfy either the bond rating requirement or the financial ratio alternative • The government must have its financial statements audited by an independent CPA and use Generally Accepted Accounting Principles

  24. LOCAL GOVERNMENT FINANCIAL TESTLOCAL GOVERNMENT GUARANTEE • WHAT’S REQUIRED: • Letter signed by the government’s CFO • Audited year-end financial statements

  25. LOCAL GOVERNMENT FINANCIAL TESTLOCAL GOVERNMENT GUARANTEE • Report from CPA stating the agreed upon procedures engagement relative to the financial ratios • Comprehensive annual financial report (CAFR) – which relates to the Public Notice Component

  26. LOCAL GOVERNMENT FINANCIAL TESTLOCAL GOVERNMENT GUARANTEE • Local Government Guarantee: • An owner/operator may demonstrate closure and post-closure care by securing a written guarantee from a local government

  27. LOCAL GOVERNMENT FINANCIAL TESTLOCAL GOVERNMENT GUARANTEE • WHAT’S REQUIRED: • The same documentation required by govt. fit test; PLUS • Certified copy of the guarantee

  28. STATE APPROVED MECHANISM • Mechanisms must be legally valid and binding under State and Federal Law • Must be approved by the Director prior to the initial receipt of solid waste

  29. THINGS TO REMEMBER • Cannot be recalled or revoked without the written consent of the regulator • Must be filed on forms developed and provided by the Department • Update to reflect CURRENT closure and post-closure cost estimates • Original mechanisms only

  30. For More Information http://www.adeq.state.ar.us/solwaste/branch_technical/financial_assurance_requirements.htm Susan Speake Programs Branch (501)-682-0594

More Related