KATIE SCHWAB SVP

MICHAEL SCHRADERB OND COUNSEL

Facility Funding Regional Workshop Funding Best Practices

October 31, 2013

Overview

1. Getting Started

2. Funding Options:a. Publicly Offered Bonds and Other Securities

b. Commercial Bank Loans

c. State and Federal Funding Programs

d. Regionalization and Urban Renewal

3. Credit Considerations

1. Getting Started

Engage Financial Advisor and Bond Counsel early!Roles and responsibilities of Financial Advisor and

Bond CounselUse of proceedsReview all funding optionsOptions for reducing capital/operating expensesReimbursement resolutionPaying for predevelopment costsManaging financing costs

Getting Started – Continued

Options for reducing capital/operating expenses

Reimbursement resolutionPaying for predevelopment costsManaging financing costs

2. Funding Options

Publicly Offered Bonds and Other SecuritiesCommercial Bank LoansState and Federal Funding ProgramsRegionalization and Urban Renewal

Publicly Offered Bonds and Other Securities

General Obligation BondsFull Faith and Credit ObligationsRevenue Bonds

Local Option Levies

General Obligation Bonds

Requires voter approval – provides separate bond levyEstablish Community Advisory Committee and

conduct outreachDetermine scope of project and project costsAdopt Board Resolution approving Notice of

Election, including Ballot TitleUpon successful election, Board adopts Bond

Resolution approving issuance and Bonds

Non-voted Obligations

No vote required – payable from all lawfully available fundsDetermine scope of project and project costs

– same as GO BondsBoard adopts Authorizing Resolution

approving Financing Agreement and delegating authority

Revenue Bonds

Does not require voter approval Secured by revenue stream from energy

efficiency contractGenerally requires additional securityTypically a private placement

Local Option Levies

Not “securities”

Requires voter approval – provides separate levySubject to first compression10 year maximum maturity

Summary of Securities and LOL

GO Bonds Full Faith & Credit Obligations (FFC)

Revenue Bonds Local Option Levy

Voter Approval Yes No No YesPrincipal Limitation K-12 and ESDs Community Colleges

7.95% of RMV1.50% of RMV

Affordability Coverage ≤ $1,000/student or 20% of SD's total State resources

Payment Source Bond Levy General Fund Third-party guaranty of energy savings revenue stream

Levy

Security Energy contract NAOSBG Yes No No No

Full Faith and Credit Pledge

Structure Matters

Example: $10M “AA” rated GO Bond maturing over 20 years

Level Levy Rate

Level Debt Service

Level Debt Service CABs

Debt ServiceMaximum Annual Debt Service 913,527$ 701,825$ 730,000$ Average Annual Debt Service 728,166$ 699,404$ 729,000$

Levy RateMaximum Annual Levy 0.5498$ 0.6613$ 0.7010$ Average Annual Levy 0.5474$ 0.5286$ 0.5593$

True Interest Cost (TIC) 3.497% 3.369% 3.852%

Level Levy Rate Level Debt Service

Structure Matters – Graphs

-

0.1000

0.2000

0.3000

0.4000

0.5000

0.6000

0.7000

0.8000

0.9000

1.0000

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Levy

Rat

e

Debt

Ser

vice

Maturity

Debt Service Levy Rate

-

0.1000

0.2000

0.3000

0.4000

0.5000

0.6000

0.7000

0.8000

0.9000

1.0000

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Levy

Rat

e

Debt

Ser

vice

Maturity

Level D/S Level D/S CABs Level D/S Levy Level D/S CABs Levy

Taxable vs. Tax Exempt Rates

Issuer can use taxable and tax-exempt rates in the same issue, but they need to be split into different series.

Issuer must choose between the two!

Tax-Exempt TaxableNational Scale MMD TreasuriesSEC Registration Exempt Certain exemptionsUse Restrictions Yes Depends

Taxable vs. Tax-Exempt

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

2/9/2006 2/9/2007 2/9/2008 2/9/2009 2/9/2010 2/9/2011 2/9/2012 2/9/2013

Yiel

ds

30-Year AAA MMD Index vs 30-Year Treasuries

Treasuries AAA MMD

Taxable vs. Tax-Exempt continued

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

2/9/2006 2/9/2007 2/9/2008 2/9/2009 2/9/2010 2/9/2011 2/9/2012 2/9/2013

Differential between 30-yr MMd and 30-yr Treasuries

Sale Methods

Private PlacementPublic Market

Competitive Sale Negotiated Sale

Commercial Bank Loans

Loans are not securitiesUp front costs are typically lowerInterest may be (not always) higher than

securitiesTerm is typically shorter than for a publicly

offered security

Loan Considerations

Funds available quicklyFlexible payment plansAmortization considerationsMarket risk with resets

Line of Credit

Consideration for “bridge” financingFunds available quicklyInterest paid only on principal that is drawn

down

State and Federal Programs

Qualified School

Construction Bond

Qualified Zone Academy Bond

Qualified Energy Conservation Bond Seismic Grants

Small Scale Energy Loan Program (SELP): Cool

SchoolsPermitted Use of Proceeds

Construct, rehab or repair public school facilities, acquire land on which the facility is to be constructed and equip the impacted portion of the facilities

Rehab or repair public school facilities in which a "qualified zone academy" is located, equip, develop course materials.

"Qualified energy conservation projects" including those that reduce energy consumption in publicly owned buildings.

Safety of public facilities

Energy conservation, renewable resource energy projects and the use of recycled materials to create other projects. Projects must meet local community or regional energy needs and be designed to save or produce energy.

Regionalization and Urban Renewal

ESDsShared facilities (e.g., Gresham)Review urban renewal plans

3. Credit Considerations

Governance and ManagementFinancial ProfileDebt ProfileOperating ProfileEconomy and Local Factors Moody’s:

(i) increase in the weight assigns to debt profile and pensions, to 20% from 10%;

(ii) reduction in the weight attached to economic factors, to 30% from 40%

Contacts

Katie Schwab, Senior Vice PresidentWedbush Securitieskatie.schwab@wedbush.com503.471.6798; 800.234.0480 (toll-free)

Michael Schrader, AttorneyOrrick, Herrington & Sutcliffe LLPmschrader@orrick.com503.943.4840