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<br />Assumption <br />The underlying assLlllption in all types of short term borrowing is that the <br />funds will be repaid after a short time or at the term of the short term <br />borrowing from revenues, grants, or proceeds of refinancing bonds or other short <br />term notes. If there are no project revenues in the form of user charges or <br />taxes available, and uncertainty as to whether stud ies financed wi th proceeds of <br />interim borrowing will result in a project financing, the investor will demand <br />some form of baCk-up guarantee from each participant to ensure payment of the <br />short term obligation. <br /> <br />Revenue Anticipation Bonds <br />Revenue Anticipation Bonds (HANs) are most often used by utilities that have <br />a strong seasonality in their revenue base. A conservancy district for example <br />may store water dur ing one season and distribute dur ing another part of the year. <br />The nature of its collection and distribution system may permit it to undertake a <br />Substantial amount of construction during its storage cycle that it could <br />accomplish on a pay-as-you-go basis if its revenues were not cyclical. By <br />issuing HANs, a water user can obtain construction funds to be repaid from the <br />revenues generated during the normal revenue cycle. <br />Because of the short-term nature of the RANs, the lender will want to see a <br />history of cash flow to assure himself that the HANs can be repaid. In today's <br />market environment, a RAN will carry an interest rate of 7 to 8-1/2% because its <br />maturity will only be nine to twelve months. In addition, and this is one of the <br />most salient features of a RAN, if the issuer meets certain Internal Revenue <br />Service requirements, the proceeds of the RANs can be invested at a rate higher <br />than the rate on the RANs, thus providing an additional source of revenue. <br /> <br />/ <br /> <br />2 <br />