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Introduction to Municipal Bonds
Session One Bond ConceptsOctober 26 2016
PresentersBrad Koehn Finance Director ndash City of Elk GroveCraig Hill Municipal Advisor ndash NHA Advisors LLC
Overview of Presentation
1 Introduction to Bondsbull Purpose for issuing
bull Funding Projectsbull Refinancing
bull Key terms
2 Process of Issuingbull Types of Bondsbull Key participantsbull Timing and Processbull Structuring and Pricing Bondsbull Credit Ratingsbull Costs of Issuingbull Debt Policies amp Considerations
3 Basic Bond Mathbull Present Value Calculationsbull Calculating Yield and Yield Curvebull PMT Calculationsbull True Interest Cost Calculations
4 Real Life Example Golden 1 Center Sacramento
2
bull What is a Municipal Bond A Promise of a Borrower (Issuer) to repay a Lender (Bondholder) Issuer receives upfront cash payment and owes annual payments at a fixed interest rate Bondholder receives future repayment with interest
bull Personal Example ndash Home Mortgage Homeowner gets upfront cash from Bank to buy home Bank gets homeownerrsquos promise to make payments with interest
3
Government Bond Issuers Corporate Bond Issuers
Purpose of Municipal Bonds
bull Typically issued for infrastructure (water sewer streets bridges utilities) and capital improvement projects (libraries firepolice stations community centers stadiums parks)
bull Used as an alternative to cash or bank loans
bull Tax-exempt bonds cannot be used to pay for operating expenses 4
Sour
ce M
TCc
ago
v
Sour
ce C
ity o
f San
Dim
asSo
urce
OC
Regi
ster
Sour
ce C
harle
s OrsquoR
ear
Ways to Fund Projects
5
Cash (ldquoPay-As-You-Gordquo)
bull Small and recurring capital projects
bull Projects built slowly over time
bull Future Council flexibility
bull Opportunity cost of funds
bull Easiest source of money
Bond Financing
bull Large capital expenditures
bull Acquisition Projectsbull Future revenues
from Project available for debt service
bull Interest and financing costs
bull Staff resources required for financing
Federal and State Grants or Loans
bull ldquoFreerdquo money with strings attached
bull May require oversight or thorough review
bull Application process can be drawn-out and competitive
bull Timing of funds can be uncertain
Basic Reasons for Issuing Bonds
bull Project Fundingbull RestructuringRefinancing Existing
Debtbull Some bonds can be redeemed prior
to maturity (called)bull If current market interest rates are
lower now than when the bond was issued it may make financial sense to issue new bonds at the lower interest rate to refund the outstanding bonds
bull Responsible practices dictate refunding should result in minimum 3-5 present value savings barring extenuating circumstances
bull Working Capital or Cash Flow Management (short-term notes)
6
Shor
t-te
rm N
otes
Refu
ndR
efin
ance
New
Mon
ey
Capital Improvement Projects
Infrastructure Development
Take advantage of lower interest rates to lower debt repayments
Simplify debt structure
TaxRevenueAnticipationNotes
(TRANs)
BondAnticipationNotes
(BAN)
Tax Exempt Nature of Municipal Bonds
bull Most municipal bonds are tax-exemptbull Bondholders do not pay State of Federal income tax on interest earnings from
municipal bondbull Investors are willing to purchase bond at lower interest ratebull IRS reprieve to help local governments fund projects and compete in the capital market
for investors against corporate bond issuers
bull Issuers are not allowed to earn ldquoArbitragerdquobull General rule ndash Issuers can invest bond proceeds and earn yield no higher than weighted
average cost of funds on bond (known as Arbitrage Yield)bull All excess earnings must be ldquoRebatedrdquo to IRS ndash 100 tax
bull Government gives up income tax revenues from bondholders on the interest of the bond
7
Introductory VocabularyIssuer Legal authority to approve and issue BondPrincipal Total amount borrowed (also known as par value)Coupon Nominal interest rate charged on the PrincipalInterest Additional amount paid on Principal (calculated with Principal times Coupon)Debt Service Annual Principal and Interest payments on the BondMaturity Date Principal is due
8
Interest Payment
Principal Repayment
AnnualDebt
Service
Bond Structuresbull Bonds are secured by different revenue sourcesbull Some require voter approval
9
Bonds Repaid With Dedicated Taxes
bull General Obligation (GO) (Local)
bull Sales Tax Revenuebull Special Taxbull Assessmentbull Tax Allocation
(Redevelopment)
Bonds Repaid From General Fund
bull Lease Revenue (LRB)
bull Certificates of Participation (COP)
bull Pension Obligationbull GO (State level
only)
Special Revenue Fund Bonds
bull Enterprise RevenueWaterSewerParkingRefuseAirportGolf Course
Voter Approval Required for Certain Types of Bondsbull Once a municipality has decided to issue bonds it may require voter approval to proceedbull Typically includes general obligation bonds or special tax type obligations
10
55 Approval
REQUIRED VOTER APPROVALFOR SCHOOL DISTRICT BONDS
67 Approval
REQUIRED VOTER APPROVALFOR LOCAL AGENCIES
50 Approval
REQUIRED VOTER APPROVAL FOR STATE BONDS
Major Exceptions to Voter Approval Requirement
1 General Fund Lease Bondsbull Secured by lease payments for use of an assetbull Example Financing Authority leases City Hall to City in exchange for ldquorentrdquo payments which
equal debt service on Bondsbull Similar to equipment or vehicle lease
2 Special Revenue Fundsbull Debt service comes from specific revenue sourcebull Utility rates may be subject to approval process (Prop 218)bull Example Water sewer parking refuse airport convention center and golf course
3 Obligation Imposed by Lawbull Involuntary debt obligations enacted by a courtbull Example Pension Obligation or Bankruptcy
11
Process of Issuing a BondFrom Start to Finish
Financing Plan
13
Identify Project Needs and Cash Flowbull Timing of expenditures
Quantify Available Cash Resources to Apply towards Project
Project Repayment Resources for ongoing Debt Service
Develop Financial Modelbull Sources of Project Funding (Bonds andor Cash)bull Bond Debt Servicebull Available Annual Revenuesbull Coverage (RevenuesDebt Service)
Debt Policy Considerations
bull Essentiality of Projectbull Reserve levels to be maintainedbull Available cash to be applied towards Projectbull Financing structure
bull Limit financial exposure to critical services (general fund)bull Financial Assumptions
bull Conservative revenue growth assumptionsbull Drought impact on water revenuesbull Credit rating implications and impact on market interest rates
bull Continuing Disclosure Obligation
14
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
15
The Underwriting Process
bull The underwriter has a unique role they act as the middle-man buying bonds wholesale from the issuer and selling them on the market
bull Involved in pricing the bond and determining market-appropriate interest rates
bull Solicits investor interest
16
Mun
icip
al Is
suer Issues Bond
andReceives Proceeds from Underwriter U
nder
writ
er Buys entire Bond issue and reoffers to investors In
vest
ors Purchase Bond
from Underwriter
Receive periodic interest and principal payments
The Underwriting SELECTION Process
Competitive Salebull Financing Structure
created with Issuer Bond Counsel and Municipal Advisor
bull Underwriter services bid like construction project
bull Typically traditional Bond structure or higher rated credits
17
Negotiated Salebull Underwriter selected early
to assist in creation of Financing Structure
bull Allows Underwriter to better understand the credit to improve sale of bonds
bull Typically used on weaker rated credits
Bond Sources and Usesbull Sources
bull PrincipalPar Amount ndash Total obligation amount (face value of Bond)
bull Purchase Premium ndash Amount generated from bondholders when Coupon is higher than market rate for similar maturity
bull Usesbull Project Fund ndash Project requirementbull Capitalized Interest Fund ndash Proceeds used to make interest
payments while Project is being completedbull Debt Service Reserve Fund ndash Proceeds set aside in trust
account to protect bondholders and make debt service payment if Issuer is unable to make payment Typically the lesser of 3 tests
1 Maximum annual debt service2 10 of par value3 125 of average annual debt service
bull Cost of Issuance Financing costs for bond amp disclosure counsel municipal advisor rating agency trustee title or property insurance official statement distribution
bull Underwriterrsquos Discount Fee paid to underwriter to sell Bonds
18
Sources
Bond Principal $10000000
Purchase Premium $500000
Total Proceeds $10500000
Uses of Funds
Project Fund $8000000
Capitalized Interest 1500000
Debt Service Reserve $800000
Costs of Issuance $150000
Underwriter Discount $50000
Total Proceeds $10500000
Serial and Term Bondsbull Bond issue will include multiple
maturities that can be either Serial or Term Bonds
bull Serial Bonds ndash Single bond with one maturity
bull Term Bonds ndash Single Bond with annual redemption of identified portion of Principal prior to final maturity
bull Sinking Fund provision ensures that the municipality pays off portions of the term bond each year
bull Bondholder does not know if their portion of Term Bond will be paid on sinking date or at final maturity (trustee uses lottery to determine who is paid early)
bull Bond amortization similar to mortgage schedule with portion including interest and principal
19
Matures Principal Coupon Interest Debt Service
Serial 6302017 $ - 150 $ 150000 $ 150000
Serial 6302018 $ 500000 175 $ 168966 $ 668966
Serial 6302019 $ 550000 180 $ 167586 $ 717586
Serial 6302020 $ 560000 200 $ 179310 $ 739310
Serial 6302021 $ 575000 225 $ 193966 $ 768966
Serial 6302022 $ 590000 250 $ 206897 $ 796897
Serial 6302023 $ 600000 275 $ 218103 $ 818103
Term 6302026 $ 2000000 400 $ 303448 $ 2303448
Term 6302030 $ 2400000 425 $ 307759 $ 2707759 Mandatory Sinking Fund Prepayment for 6302026 Term Bond
Payment Date Principal Amount
6302024 $ 600000
6302025 $ 650000
6302026 (maturity) $ 750000
Determining Debt Service Schedulebull Structure the debt service according to the unique needs and situation of Project
bull Amortization refers to payment of Principal and the Interest due on the outstanding Principal balance each year
bull Level Debt service characterized by increasing Principal payments and decreasing Interest payments over time
bull Current Interest Bonds pay semi-annual Interest throughout the life of the Bondbull Capital Appreciation Bonds pay accrued Interest at maturity (Zero Coupon)bull Part of the financing costs can be defrayed using investment earnings on bond proceeds (with
restrictions)
20
$0
$50000
$100000
$150000
$200000
$250000
$300000
$350000
$400000
$450000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Level Debt Service Schedule
Principal Interest
Alternative Debt Structures
21
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years
Level Principal Debt Schedule
Principal Interest
$0
$100000
$200000
$300000
$400000
$500000
$600000
$700000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure New Principal Payments Interest
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Overview of Presentation
1 Introduction to Bondsbull Purpose for issuing
bull Funding Projectsbull Refinancing
bull Key terms
2 Process of Issuingbull Types of Bondsbull Key participantsbull Timing and Processbull Structuring and Pricing Bondsbull Credit Ratingsbull Costs of Issuingbull Debt Policies amp Considerations
3 Basic Bond Mathbull Present Value Calculationsbull Calculating Yield and Yield Curvebull PMT Calculationsbull True Interest Cost Calculations
4 Real Life Example Golden 1 Center Sacramento
2
bull What is a Municipal Bond A Promise of a Borrower (Issuer) to repay a Lender (Bondholder) Issuer receives upfront cash payment and owes annual payments at a fixed interest rate Bondholder receives future repayment with interest
bull Personal Example ndash Home Mortgage Homeowner gets upfront cash from Bank to buy home Bank gets homeownerrsquos promise to make payments with interest
3
Government Bond Issuers Corporate Bond Issuers
Purpose of Municipal Bonds
bull Typically issued for infrastructure (water sewer streets bridges utilities) and capital improvement projects (libraries firepolice stations community centers stadiums parks)
bull Used as an alternative to cash or bank loans
bull Tax-exempt bonds cannot be used to pay for operating expenses 4
Sour
ce M
TCc
ago
v
Sour
ce C
ity o
f San
Dim
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urce
OC
Regi
ster
Sour
ce C
harle
s OrsquoR
ear
Ways to Fund Projects
5
Cash (ldquoPay-As-You-Gordquo)
bull Small and recurring capital projects
bull Projects built slowly over time
bull Future Council flexibility
bull Opportunity cost of funds
bull Easiest source of money
Bond Financing
bull Large capital expenditures
bull Acquisition Projectsbull Future revenues
from Project available for debt service
bull Interest and financing costs
bull Staff resources required for financing
Federal and State Grants or Loans
bull ldquoFreerdquo money with strings attached
bull May require oversight or thorough review
bull Application process can be drawn-out and competitive
bull Timing of funds can be uncertain
Basic Reasons for Issuing Bonds
bull Project Fundingbull RestructuringRefinancing Existing
Debtbull Some bonds can be redeemed prior
to maturity (called)bull If current market interest rates are
lower now than when the bond was issued it may make financial sense to issue new bonds at the lower interest rate to refund the outstanding bonds
bull Responsible practices dictate refunding should result in minimum 3-5 present value savings barring extenuating circumstances
bull Working Capital or Cash Flow Management (short-term notes)
6
Shor
t-te
rm N
otes
Refu
ndR
efin
ance
New
Mon
ey
Capital Improvement Projects
Infrastructure Development
Take advantage of lower interest rates to lower debt repayments
Simplify debt structure
TaxRevenueAnticipationNotes
(TRANs)
BondAnticipationNotes
(BAN)
Tax Exempt Nature of Municipal Bonds
bull Most municipal bonds are tax-exemptbull Bondholders do not pay State of Federal income tax on interest earnings from
municipal bondbull Investors are willing to purchase bond at lower interest ratebull IRS reprieve to help local governments fund projects and compete in the capital market
for investors against corporate bond issuers
bull Issuers are not allowed to earn ldquoArbitragerdquobull General rule ndash Issuers can invest bond proceeds and earn yield no higher than weighted
average cost of funds on bond (known as Arbitrage Yield)bull All excess earnings must be ldquoRebatedrdquo to IRS ndash 100 tax
bull Government gives up income tax revenues from bondholders on the interest of the bond
7
Introductory VocabularyIssuer Legal authority to approve and issue BondPrincipal Total amount borrowed (also known as par value)Coupon Nominal interest rate charged on the PrincipalInterest Additional amount paid on Principal (calculated with Principal times Coupon)Debt Service Annual Principal and Interest payments on the BondMaturity Date Principal is due
8
Interest Payment
Principal Repayment
AnnualDebt
Service
Bond Structuresbull Bonds are secured by different revenue sourcesbull Some require voter approval
9
Bonds Repaid With Dedicated Taxes
bull General Obligation (GO) (Local)
bull Sales Tax Revenuebull Special Taxbull Assessmentbull Tax Allocation
(Redevelopment)
Bonds Repaid From General Fund
bull Lease Revenue (LRB)
bull Certificates of Participation (COP)
bull Pension Obligationbull GO (State level
only)
Special Revenue Fund Bonds
bull Enterprise RevenueWaterSewerParkingRefuseAirportGolf Course
Voter Approval Required for Certain Types of Bondsbull Once a municipality has decided to issue bonds it may require voter approval to proceedbull Typically includes general obligation bonds or special tax type obligations
10
55 Approval
REQUIRED VOTER APPROVALFOR SCHOOL DISTRICT BONDS
67 Approval
REQUIRED VOTER APPROVALFOR LOCAL AGENCIES
50 Approval
REQUIRED VOTER APPROVAL FOR STATE BONDS
Major Exceptions to Voter Approval Requirement
1 General Fund Lease Bondsbull Secured by lease payments for use of an assetbull Example Financing Authority leases City Hall to City in exchange for ldquorentrdquo payments which
equal debt service on Bondsbull Similar to equipment or vehicle lease
2 Special Revenue Fundsbull Debt service comes from specific revenue sourcebull Utility rates may be subject to approval process (Prop 218)bull Example Water sewer parking refuse airport convention center and golf course
3 Obligation Imposed by Lawbull Involuntary debt obligations enacted by a courtbull Example Pension Obligation or Bankruptcy
11
Process of Issuing a BondFrom Start to Finish
Financing Plan
13
Identify Project Needs and Cash Flowbull Timing of expenditures
Quantify Available Cash Resources to Apply towards Project
Project Repayment Resources for ongoing Debt Service
Develop Financial Modelbull Sources of Project Funding (Bonds andor Cash)bull Bond Debt Servicebull Available Annual Revenuesbull Coverage (RevenuesDebt Service)
Debt Policy Considerations
bull Essentiality of Projectbull Reserve levels to be maintainedbull Available cash to be applied towards Projectbull Financing structure
bull Limit financial exposure to critical services (general fund)bull Financial Assumptions
bull Conservative revenue growth assumptionsbull Drought impact on water revenuesbull Credit rating implications and impact on market interest rates
bull Continuing Disclosure Obligation
14
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
15
The Underwriting Process
bull The underwriter has a unique role they act as the middle-man buying bonds wholesale from the issuer and selling them on the market
bull Involved in pricing the bond and determining market-appropriate interest rates
bull Solicits investor interest
16
Mun
icip
al Is
suer Issues Bond
andReceives Proceeds from Underwriter U
nder
writ
er Buys entire Bond issue and reoffers to investors In
vest
ors Purchase Bond
from Underwriter
Receive periodic interest and principal payments
The Underwriting SELECTION Process
Competitive Salebull Financing Structure
created with Issuer Bond Counsel and Municipal Advisor
bull Underwriter services bid like construction project
bull Typically traditional Bond structure or higher rated credits
17
Negotiated Salebull Underwriter selected early
to assist in creation of Financing Structure
bull Allows Underwriter to better understand the credit to improve sale of bonds
bull Typically used on weaker rated credits
Bond Sources and Usesbull Sources
bull PrincipalPar Amount ndash Total obligation amount (face value of Bond)
bull Purchase Premium ndash Amount generated from bondholders when Coupon is higher than market rate for similar maturity
bull Usesbull Project Fund ndash Project requirementbull Capitalized Interest Fund ndash Proceeds used to make interest
payments while Project is being completedbull Debt Service Reserve Fund ndash Proceeds set aside in trust
account to protect bondholders and make debt service payment if Issuer is unable to make payment Typically the lesser of 3 tests
1 Maximum annual debt service2 10 of par value3 125 of average annual debt service
bull Cost of Issuance Financing costs for bond amp disclosure counsel municipal advisor rating agency trustee title or property insurance official statement distribution
bull Underwriterrsquos Discount Fee paid to underwriter to sell Bonds
18
Sources
Bond Principal $10000000
Purchase Premium $500000
Total Proceeds $10500000
Uses of Funds
Project Fund $8000000
Capitalized Interest 1500000
Debt Service Reserve $800000
Costs of Issuance $150000
Underwriter Discount $50000
Total Proceeds $10500000
Serial and Term Bondsbull Bond issue will include multiple
maturities that can be either Serial or Term Bonds
bull Serial Bonds ndash Single bond with one maturity
bull Term Bonds ndash Single Bond with annual redemption of identified portion of Principal prior to final maturity
bull Sinking Fund provision ensures that the municipality pays off portions of the term bond each year
bull Bondholder does not know if their portion of Term Bond will be paid on sinking date or at final maturity (trustee uses lottery to determine who is paid early)
bull Bond amortization similar to mortgage schedule with portion including interest and principal
19
Matures Principal Coupon Interest Debt Service
Serial 6302017 $ - 150 $ 150000 $ 150000
Serial 6302018 $ 500000 175 $ 168966 $ 668966
Serial 6302019 $ 550000 180 $ 167586 $ 717586
Serial 6302020 $ 560000 200 $ 179310 $ 739310
Serial 6302021 $ 575000 225 $ 193966 $ 768966
Serial 6302022 $ 590000 250 $ 206897 $ 796897
Serial 6302023 $ 600000 275 $ 218103 $ 818103
Term 6302026 $ 2000000 400 $ 303448 $ 2303448
Term 6302030 $ 2400000 425 $ 307759 $ 2707759 Mandatory Sinking Fund Prepayment for 6302026 Term Bond
Payment Date Principal Amount
6302024 $ 600000
6302025 $ 650000
6302026 (maturity) $ 750000
Determining Debt Service Schedulebull Structure the debt service according to the unique needs and situation of Project
bull Amortization refers to payment of Principal and the Interest due on the outstanding Principal balance each year
bull Level Debt service characterized by increasing Principal payments and decreasing Interest payments over time
bull Current Interest Bonds pay semi-annual Interest throughout the life of the Bondbull Capital Appreciation Bonds pay accrued Interest at maturity (Zero Coupon)bull Part of the financing costs can be defrayed using investment earnings on bond proceeds (with
restrictions)
20
$0
$50000
$100000
$150000
$200000
$250000
$300000
$350000
$400000
$450000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Level Debt Service Schedule
Principal Interest
Alternative Debt Structures
21
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years
Level Principal Debt Schedule
Principal Interest
$0
$100000
$200000
$300000
$400000
$500000
$600000
$700000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure New Principal Payments Interest
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
bull What is a Municipal Bond A Promise of a Borrower (Issuer) to repay a Lender (Bondholder) Issuer receives upfront cash payment and owes annual payments at a fixed interest rate Bondholder receives future repayment with interest
bull Personal Example ndash Home Mortgage Homeowner gets upfront cash from Bank to buy home Bank gets homeownerrsquos promise to make payments with interest
3
Government Bond Issuers Corporate Bond Issuers
Purpose of Municipal Bonds
bull Typically issued for infrastructure (water sewer streets bridges utilities) and capital improvement projects (libraries firepolice stations community centers stadiums parks)
bull Used as an alternative to cash or bank loans
bull Tax-exempt bonds cannot be used to pay for operating expenses 4
Sour
ce M
TCc
ago
v
Sour
ce C
ity o
f San
Dim
asSo
urce
OC
Regi
ster
Sour
ce C
harle
s OrsquoR
ear
Ways to Fund Projects
5
Cash (ldquoPay-As-You-Gordquo)
bull Small and recurring capital projects
bull Projects built slowly over time
bull Future Council flexibility
bull Opportunity cost of funds
bull Easiest source of money
Bond Financing
bull Large capital expenditures
bull Acquisition Projectsbull Future revenues
from Project available for debt service
bull Interest and financing costs
bull Staff resources required for financing
Federal and State Grants or Loans
bull ldquoFreerdquo money with strings attached
bull May require oversight or thorough review
bull Application process can be drawn-out and competitive
bull Timing of funds can be uncertain
Basic Reasons for Issuing Bonds
bull Project Fundingbull RestructuringRefinancing Existing
Debtbull Some bonds can be redeemed prior
to maturity (called)bull If current market interest rates are
lower now than when the bond was issued it may make financial sense to issue new bonds at the lower interest rate to refund the outstanding bonds
bull Responsible practices dictate refunding should result in minimum 3-5 present value savings barring extenuating circumstances
bull Working Capital or Cash Flow Management (short-term notes)
6
Shor
t-te
rm N
otes
Refu
ndR
efin
ance
New
Mon
ey
Capital Improvement Projects
Infrastructure Development
Take advantage of lower interest rates to lower debt repayments
Simplify debt structure
TaxRevenueAnticipationNotes
(TRANs)
BondAnticipationNotes
(BAN)
Tax Exempt Nature of Municipal Bonds
bull Most municipal bonds are tax-exemptbull Bondholders do not pay State of Federal income tax on interest earnings from
municipal bondbull Investors are willing to purchase bond at lower interest ratebull IRS reprieve to help local governments fund projects and compete in the capital market
for investors against corporate bond issuers
bull Issuers are not allowed to earn ldquoArbitragerdquobull General rule ndash Issuers can invest bond proceeds and earn yield no higher than weighted
average cost of funds on bond (known as Arbitrage Yield)bull All excess earnings must be ldquoRebatedrdquo to IRS ndash 100 tax
bull Government gives up income tax revenues from bondholders on the interest of the bond
7
Introductory VocabularyIssuer Legal authority to approve and issue BondPrincipal Total amount borrowed (also known as par value)Coupon Nominal interest rate charged on the PrincipalInterest Additional amount paid on Principal (calculated with Principal times Coupon)Debt Service Annual Principal and Interest payments on the BondMaturity Date Principal is due
8
Interest Payment
Principal Repayment
AnnualDebt
Service
Bond Structuresbull Bonds are secured by different revenue sourcesbull Some require voter approval
9
Bonds Repaid With Dedicated Taxes
bull General Obligation (GO) (Local)
bull Sales Tax Revenuebull Special Taxbull Assessmentbull Tax Allocation
(Redevelopment)
Bonds Repaid From General Fund
bull Lease Revenue (LRB)
bull Certificates of Participation (COP)
bull Pension Obligationbull GO (State level
only)
Special Revenue Fund Bonds
bull Enterprise RevenueWaterSewerParkingRefuseAirportGolf Course
Voter Approval Required for Certain Types of Bondsbull Once a municipality has decided to issue bonds it may require voter approval to proceedbull Typically includes general obligation bonds or special tax type obligations
10
55 Approval
REQUIRED VOTER APPROVALFOR SCHOOL DISTRICT BONDS
67 Approval
REQUIRED VOTER APPROVALFOR LOCAL AGENCIES
50 Approval
REQUIRED VOTER APPROVAL FOR STATE BONDS
Major Exceptions to Voter Approval Requirement
1 General Fund Lease Bondsbull Secured by lease payments for use of an assetbull Example Financing Authority leases City Hall to City in exchange for ldquorentrdquo payments which
equal debt service on Bondsbull Similar to equipment or vehicle lease
2 Special Revenue Fundsbull Debt service comes from specific revenue sourcebull Utility rates may be subject to approval process (Prop 218)bull Example Water sewer parking refuse airport convention center and golf course
3 Obligation Imposed by Lawbull Involuntary debt obligations enacted by a courtbull Example Pension Obligation or Bankruptcy
11
Process of Issuing a BondFrom Start to Finish
Financing Plan
13
Identify Project Needs and Cash Flowbull Timing of expenditures
Quantify Available Cash Resources to Apply towards Project
Project Repayment Resources for ongoing Debt Service
Develop Financial Modelbull Sources of Project Funding (Bonds andor Cash)bull Bond Debt Servicebull Available Annual Revenuesbull Coverage (RevenuesDebt Service)
Debt Policy Considerations
bull Essentiality of Projectbull Reserve levels to be maintainedbull Available cash to be applied towards Projectbull Financing structure
bull Limit financial exposure to critical services (general fund)bull Financial Assumptions
bull Conservative revenue growth assumptionsbull Drought impact on water revenuesbull Credit rating implications and impact on market interest rates
bull Continuing Disclosure Obligation
14
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
15
The Underwriting Process
bull The underwriter has a unique role they act as the middle-man buying bonds wholesale from the issuer and selling them on the market
bull Involved in pricing the bond and determining market-appropriate interest rates
bull Solicits investor interest
16
Mun
icip
al Is
suer Issues Bond
andReceives Proceeds from Underwriter U
nder
writ
er Buys entire Bond issue and reoffers to investors In
vest
ors Purchase Bond
from Underwriter
Receive periodic interest and principal payments
The Underwriting SELECTION Process
Competitive Salebull Financing Structure
created with Issuer Bond Counsel and Municipal Advisor
bull Underwriter services bid like construction project
bull Typically traditional Bond structure or higher rated credits
17
Negotiated Salebull Underwriter selected early
to assist in creation of Financing Structure
bull Allows Underwriter to better understand the credit to improve sale of bonds
bull Typically used on weaker rated credits
Bond Sources and Usesbull Sources
bull PrincipalPar Amount ndash Total obligation amount (face value of Bond)
bull Purchase Premium ndash Amount generated from bondholders when Coupon is higher than market rate for similar maturity
bull Usesbull Project Fund ndash Project requirementbull Capitalized Interest Fund ndash Proceeds used to make interest
payments while Project is being completedbull Debt Service Reserve Fund ndash Proceeds set aside in trust
account to protect bondholders and make debt service payment if Issuer is unable to make payment Typically the lesser of 3 tests
1 Maximum annual debt service2 10 of par value3 125 of average annual debt service
bull Cost of Issuance Financing costs for bond amp disclosure counsel municipal advisor rating agency trustee title or property insurance official statement distribution
bull Underwriterrsquos Discount Fee paid to underwriter to sell Bonds
18
Sources
Bond Principal $10000000
Purchase Premium $500000
Total Proceeds $10500000
Uses of Funds
Project Fund $8000000
Capitalized Interest 1500000
Debt Service Reserve $800000
Costs of Issuance $150000
Underwriter Discount $50000
Total Proceeds $10500000
Serial and Term Bondsbull Bond issue will include multiple
maturities that can be either Serial or Term Bonds
bull Serial Bonds ndash Single bond with one maturity
bull Term Bonds ndash Single Bond with annual redemption of identified portion of Principal prior to final maturity
bull Sinking Fund provision ensures that the municipality pays off portions of the term bond each year
bull Bondholder does not know if their portion of Term Bond will be paid on sinking date or at final maturity (trustee uses lottery to determine who is paid early)
bull Bond amortization similar to mortgage schedule with portion including interest and principal
19
Matures Principal Coupon Interest Debt Service
Serial 6302017 $ - 150 $ 150000 $ 150000
Serial 6302018 $ 500000 175 $ 168966 $ 668966
Serial 6302019 $ 550000 180 $ 167586 $ 717586
Serial 6302020 $ 560000 200 $ 179310 $ 739310
Serial 6302021 $ 575000 225 $ 193966 $ 768966
Serial 6302022 $ 590000 250 $ 206897 $ 796897
Serial 6302023 $ 600000 275 $ 218103 $ 818103
Term 6302026 $ 2000000 400 $ 303448 $ 2303448
Term 6302030 $ 2400000 425 $ 307759 $ 2707759 Mandatory Sinking Fund Prepayment for 6302026 Term Bond
Payment Date Principal Amount
6302024 $ 600000
6302025 $ 650000
6302026 (maturity) $ 750000
Determining Debt Service Schedulebull Structure the debt service according to the unique needs and situation of Project
bull Amortization refers to payment of Principal and the Interest due on the outstanding Principal balance each year
bull Level Debt service characterized by increasing Principal payments and decreasing Interest payments over time
bull Current Interest Bonds pay semi-annual Interest throughout the life of the Bondbull Capital Appreciation Bonds pay accrued Interest at maturity (Zero Coupon)bull Part of the financing costs can be defrayed using investment earnings on bond proceeds (with
restrictions)
20
$0
$50000
$100000
$150000
$200000
$250000
$300000
$350000
$400000
$450000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Level Debt Service Schedule
Principal Interest
Alternative Debt Structures
21
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years
Level Principal Debt Schedule
Principal Interest
$0
$100000
$200000
$300000
$400000
$500000
$600000
$700000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure New Principal Payments Interest
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Purpose of Municipal Bonds
bull Typically issued for infrastructure (water sewer streets bridges utilities) and capital improvement projects (libraries firepolice stations community centers stadiums parks)
bull Used as an alternative to cash or bank loans
bull Tax-exempt bonds cannot be used to pay for operating expenses 4
Sour
ce M
TCc
ago
v
Sour
ce C
ity o
f San
Dim
asSo
urce
OC
Regi
ster
Sour
ce C
harle
s OrsquoR
ear
Ways to Fund Projects
5
Cash (ldquoPay-As-You-Gordquo)
bull Small and recurring capital projects
bull Projects built slowly over time
bull Future Council flexibility
bull Opportunity cost of funds
bull Easiest source of money
Bond Financing
bull Large capital expenditures
bull Acquisition Projectsbull Future revenues
from Project available for debt service
bull Interest and financing costs
bull Staff resources required for financing
Federal and State Grants or Loans
bull ldquoFreerdquo money with strings attached
bull May require oversight or thorough review
bull Application process can be drawn-out and competitive
bull Timing of funds can be uncertain
Basic Reasons for Issuing Bonds
bull Project Fundingbull RestructuringRefinancing Existing
Debtbull Some bonds can be redeemed prior
to maturity (called)bull If current market interest rates are
lower now than when the bond was issued it may make financial sense to issue new bonds at the lower interest rate to refund the outstanding bonds
bull Responsible practices dictate refunding should result in minimum 3-5 present value savings barring extenuating circumstances
bull Working Capital or Cash Flow Management (short-term notes)
6
Shor
t-te
rm N
otes
Refu
ndR
efin
ance
New
Mon
ey
Capital Improvement Projects
Infrastructure Development
Take advantage of lower interest rates to lower debt repayments
Simplify debt structure
TaxRevenueAnticipationNotes
(TRANs)
BondAnticipationNotes
(BAN)
Tax Exempt Nature of Municipal Bonds
bull Most municipal bonds are tax-exemptbull Bondholders do not pay State of Federal income tax on interest earnings from
municipal bondbull Investors are willing to purchase bond at lower interest ratebull IRS reprieve to help local governments fund projects and compete in the capital market
for investors against corporate bond issuers
bull Issuers are not allowed to earn ldquoArbitragerdquobull General rule ndash Issuers can invest bond proceeds and earn yield no higher than weighted
average cost of funds on bond (known as Arbitrage Yield)bull All excess earnings must be ldquoRebatedrdquo to IRS ndash 100 tax
bull Government gives up income tax revenues from bondholders on the interest of the bond
7
Introductory VocabularyIssuer Legal authority to approve and issue BondPrincipal Total amount borrowed (also known as par value)Coupon Nominal interest rate charged on the PrincipalInterest Additional amount paid on Principal (calculated with Principal times Coupon)Debt Service Annual Principal and Interest payments on the BondMaturity Date Principal is due
8
Interest Payment
Principal Repayment
AnnualDebt
Service
Bond Structuresbull Bonds are secured by different revenue sourcesbull Some require voter approval
9
Bonds Repaid With Dedicated Taxes
bull General Obligation (GO) (Local)
bull Sales Tax Revenuebull Special Taxbull Assessmentbull Tax Allocation
(Redevelopment)
Bonds Repaid From General Fund
bull Lease Revenue (LRB)
bull Certificates of Participation (COP)
bull Pension Obligationbull GO (State level
only)
Special Revenue Fund Bonds
bull Enterprise RevenueWaterSewerParkingRefuseAirportGolf Course
Voter Approval Required for Certain Types of Bondsbull Once a municipality has decided to issue bonds it may require voter approval to proceedbull Typically includes general obligation bonds or special tax type obligations
10
55 Approval
REQUIRED VOTER APPROVALFOR SCHOOL DISTRICT BONDS
67 Approval
REQUIRED VOTER APPROVALFOR LOCAL AGENCIES
50 Approval
REQUIRED VOTER APPROVAL FOR STATE BONDS
Major Exceptions to Voter Approval Requirement
1 General Fund Lease Bondsbull Secured by lease payments for use of an assetbull Example Financing Authority leases City Hall to City in exchange for ldquorentrdquo payments which
equal debt service on Bondsbull Similar to equipment or vehicle lease
2 Special Revenue Fundsbull Debt service comes from specific revenue sourcebull Utility rates may be subject to approval process (Prop 218)bull Example Water sewer parking refuse airport convention center and golf course
3 Obligation Imposed by Lawbull Involuntary debt obligations enacted by a courtbull Example Pension Obligation or Bankruptcy
11
Process of Issuing a BondFrom Start to Finish
Financing Plan
13
Identify Project Needs and Cash Flowbull Timing of expenditures
Quantify Available Cash Resources to Apply towards Project
Project Repayment Resources for ongoing Debt Service
Develop Financial Modelbull Sources of Project Funding (Bonds andor Cash)bull Bond Debt Servicebull Available Annual Revenuesbull Coverage (RevenuesDebt Service)
Debt Policy Considerations
bull Essentiality of Projectbull Reserve levels to be maintainedbull Available cash to be applied towards Projectbull Financing structure
bull Limit financial exposure to critical services (general fund)bull Financial Assumptions
bull Conservative revenue growth assumptionsbull Drought impact on water revenuesbull Credit rating implications and impact on market interest rates
bull Continuing Disclosure Obligation
14
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
15
The Underwriting Process
bull The underwriter has a unique role they act as the middle-man buying bonds wholesale from the issuer and selling them on the market
bull Involved in pricing the bond and determining market-appropriate interest rates
bull Solicits investor interest
16
Mun
icip
al Is
suer Issues Bond
andReceives Proceeds from Underwriter U
nder
writ
er Buys entire Bond issue and reoffers to investors In
vest
ors Purchase Bond
from Underwriter
Receive periodic interest and principal payments
The Underwriting SELECTION Process
Competitive Salebull Financing Structure
created with Issuer Bond Counsel and Municipal Advisor
bull Underwriter services bid like construction project
bull Typically traditional Bond structure or higher rated credits
17
Negotiated Salebull Underwriter selected early
to assist in creation of Financing Structure
bull Allows Underwriter to better understand the credit to improve sale of bonds
bull Typically used on weaker rated credits
Bond Sources and Usesbull Sources
bull PrincipalPar Amount ndash Total obligation amount (face value of Bond)
bull Purchase Premium ndash Amount generated from bondholders when Coupon is higher than market rate for similar maturity
bull Usesbull Project Fund ndash Project requirementbull Capitalized Interest Fund ndash Proceeds used to make interest
payments while Project is being completedbull Debt Service Reserve Fund ndash Proceeds set aside in trust
account to protect bondholders and make debt service payment if Issuer is unable to make payment Typically the lesser of 3 tests
1 Maximum annual debt service2 10 of par value3 125 of average annual debt service
bull Cost of Issuance Financing costs for bond amp disclosure counsel municipal advisor rating agency trustee title or property insurance official statement distribution
bull Underwriterrsquos Discount Fee paid to underwriter to sell Bonds
18
Sources
Bond Principal $10000000
Purchase Premium $500000
Total Proceeds $10500000
Uses of Funds
Project Fund $8000000
Capitalized Interest 1500000
Debt Service Reserve $800000
Costs of Issuance $150000
Underwriter Discount $50000
Total Proceeds $10500000
Serial and Term Bondsbull Bond issue will include multiple
maturities that can be either Serial or Term Bonds
bull Serial Bonds ndash Single bond with one maturity
bull Term Bonds ndash Single Bond with annual redemption of identified portion of Principal prior to final maturity
bull Sinking Fund provision ensures that the municipality pays off portions of the term bond each year
bull Bondholder does not know if their portion of Term Bond will be paid on sinking date or at final maturity (trustee uses lottery to determine who is paid early)
bull Bond amortization similar to mortgage schedule with portion including interest and principal
19
Matures Principal Coupon Interest Debt Service
Serial 6302017 $ - 150 $ 150000 $ 150000
Serial 6302018 $ 500000 175 $ 168966 $ 668966
Serial 6302019 $ 550000 180 $ 167586 $ 717586
Serial 6302020 $ 560000 200 $ 179310 $ 739310
Serial 6302021 $ 575000 225 $ 193966 $ 768966
Serial 6302022 $ 590000 250 $ 206897 $ 796897
Serial 6302023 $ 600000 275 $ 218103 $ 818103
Term 6302026 $ 2000000 400 $ 303448 $ 2303448
Term 6302030 $ 2400000 425 $ 307759 $ 2707759 Mandatory Sinking Fund Prepayment for 6302026 Term Bond
Payment Date Principal Amount
6302024 $ 600000
6302025 $ 650000
6302026 (maturity) $ 750000
Determining Debt Service Schedulebull Structure the debt service according to the unique needs and situation of Project
bull Amortization refers to payment of Principal and the Interest due on the outstanding Principal balance each year
bull Level Debt service characterized by increasing Principal payments and decreasing Interest payments over time
bull Current Interest Bonds pay semi-annual Interest throughout the life of the Bondbull Capital Appreciation Bonds pay accrued Interest at maturity (Zero Coupon)bull Part of the financing costs can be defrayed using investment earnings on bond proceeds (with
restrictions)
20
$0
$50000
$100000
$150000
$200000
$250000
$300000
$350000
$400000
$450000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Level Debt Service Schedule
Principal Interest
Alternative Debt Structures
21
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years
Level Principal Debt Schedule
Principal Interest
$0
$100000
$200000
$300000
$400000
$500000
$600000
$700000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure New Principal Payments Interest
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Ways to Fund Projects
5
Cash (ldquoPay-As-You-Gordquo)
bull Small and recurring capital projects
bull Projects built slowly over time
bull Future Council flexibility
bull Opportunity cost of funds
bull Easiest source of money
Bond Financing
bull Large capital expenditures
bull Acquisition Projectsbull Future revenues
from Project available for debt service
bull Interest and financing costs
bull Staff resources required for financing
Federal and State Grants or Loans
bull ldquoFreerdquo money with strings attached
bull May require oversight or thorough review
bull Application process can be drawn-out and competitive
bull Timing of funds can be uncertain
Basic Reasons for Issuing Bonds
bull Project Fundingbull RestructuringRefinancing Existing
Debtbull Some bonds can be redeemed prior
to maturity (called)bull If current market interest rates are
lower now than when the bond was issued it may make financial sense to issue new bonds at the lower interest rate to refund the outstanding bonds
bull Responsible practices dictate refunding should result in minimum 3-5 present value savings barring extenuating circumstances
bull Working Capital or Cash Flow Management (short-term notes)
6
Shor
t-te
rm N
otes
Refu
ndR
efin
ance
New
Mon
ey
Capital Improvement Projects
Infrastructure Development
Take advantage of lower interest rates to lower debt repayments
Simplify debt structure
TaxRevenueAnticipationNotes
(TRANs)
BondAnticipationNotes
(BAN)
Tax Exempt Nature of Municipal Bonds
bull Most municipal bonds are tax-exemptbull Bondholders do not pay State of Federal income tax on interest earnings from
municipal bondbull Investors are willing to purchase bond at lower interest ratebull IRS reprieve to help local governments fund projects and compete in the capital market
for investors against corporate bond issuers
bull Issuers are not allowed to earn ldquoArbitragerdquobull General rule ndash Issuers can invest bond proceeds and earn yield no higher than weighted
average cost of funds on bond (known as Arbitrage Yield)bull All excess earnings must be ldquoRebatedrdquo to IRS ndash 100 tax
bull Government gives up income tax revenues from bondholders on the interest of the bond
7
Introductory VocabularyIssuer Legal authority to approve and issue BondPrincipal Total amount borrowed (also known as par value)Coupon Nominal interest rate charged on the PrincipalInterest Additional amount paid on Principal (calculated with Principal times Coupon)Debt Service Annual Principal and Interest payments on the BondMaturity Date Principal is due
8
Interest Payment
Principal Repayment
AnnualDebt
Service
Bond Structuresbull Bonds are secured by different revenue sourcesbull Some require voter approval
9
Bonds Repaid With Dedicated Taxes
bull General Obligation (GO) (Local)
bull Sales Tax Revenuebull Special Taxbull Assessmentbull Tax Allocation
(Redevelopment)
Bonds Repaid From General Fund
bull Lease Revenue (LRB)
bull Certificates of Participation (COP)
bull Pension Obligationbull GO (State level
only)
Special Revenue Fund Bonds
bull Enterprise RevenueWaterSewerParkingRefuseAirportGolf Course
Voter Approval Required for Certain Types of Bondsbull Once a municipality has decided to issue bonds it may require voter approval to proceedbull Typically includes general obligation bonds or special tax type obligations
10
55 Approval
REQUIRED VOTER APPROVALFOR SCHOOL DISTRICT BONDS
67 Approval
REQUIRED VOTER APPROVALFOR LOCAL AGENCIES
50 Approval
REQUIRED VOTER APPROVAL FOR STATE BONDS
Major Exceptions to Voter Approval Requirement
1 General Fund Lease Bondsbull Secured by lease payments for use of an assetbull Example Financing Authority leases City Hall to City in exchange for ldquorentrdquo payments which
equal debt service on Bondsbull Similar to equipment or vehicle lease
2 Special Revenue Fundsbull Debt service comes from specific revenue sourcebull Utility rates may be subject to approval process (Prop 218)bull Example Water sewer parking refuse airport convention center and golf course
3 Obligation Imposed by Lawbull Involuntary debt obligations enacted by a courtbull Example Pension Obligation or Bankruptcy
11
Process of Issuing a BondFrom Start to Finish
Financing Plan
13
Identify Project Needs and Cash Flowbull Timing of expenditures
Quantify Available Cash Resources to Apply towards Project
Project Repayment Resources for ongoing Debt Service
Develop Financial Modelbull Sources of Project Funding (Bonds andor Cash)bull Bond Debt Servicebull Available Annual Revenuesbull Coverage (RevenuesDebt Service)
Debt Policy Considerations
bull Essentiality of Projectbull Reserve levels to be maintainedbull Available cash to be applied towards Projectbull Financing structure
bull Limit financial exposure to critical services (general fund)bull Financial Assumptions
bull Conservative revenue growth assumptionsbull Drought impact on water revenuesbull Credit rating implications and impact on market interest rates
bull Continuing Disclosure Obligation
14
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
15
The Underwriting Process
bull The underwriter has a unique role they act as the middle-man buying bonds wholesale from the issuer and selling them on the market
bull Involved in pricing the bond and determining market-appropriate interest rates
bull Solicits investor interest
16
Mun
icip
al Is
suer Issues Bond
andReceives Proceeds from Underwriter U
nder
writ
er Buys entire Bond issue and reoffers to investors In
vest
ors Purchase Bond
from Underwriter
Receive periodic interest and principal payments
The Underwriting SELECTION Process
Competitive Salebull Financing Structure
created with Issuer Bond Counsel and Municipal Advisor
bull Underwriter services bid like construction project
bull Typically traditional Bond structure or higher rated credits
17
Negotiated Salebull Underwriter selected early
to assist in creation of Financing Structure
bull Allows Underwriter to better understand the credit to improve sale of bonds
bull Typically used on weaker rated credits
Bond Sources and Usesbull Sources
bull PrincipalPar Amount ndash Total obligation amount (face value of Bond)
bull Purchase Premium ndash Amount generated from bondholders when Coupon is higher than market rate for similar maturity
bull Usesbull Project Fund ndash Project requirementbull Capitalized Interest Fund ndash Proceeds used to make interest
payments while Project is being completedbull Debt Service Reserve Fund ndash Proceeds set aside in trust
account to protect bondholders and make debt service payment if Issuer is unable to make payment Typically the lesser of 3 tests
1 Maximum annual debt service2 10 of par value3 125 of average annual debt service
bull Cost of Issuance Financing costs for bond amp disclosure counsel municipal advisor rating agency trustee title or property insurance official statement distribution
bull Underwriterrsquos Discount Fee paid to underwriter to sell Bonds
18
Sources
Bond Principal $10000000
Purchase Premium $500000
Total Proceeds $10500000
Uses of Funds
Project Fund $8000000
Capitalized Interest 1500000
Debt Service Reserve $800000
Costs of Issuance $150000
Underwriter Discount $50000
Total Proceeds $10500000
Serial and Term Bondsbull Bond issue will include multiple
maturities that can be either Serial or Term Bonds
bull Serial Bonds ndash Single bond with one maturity
bull Term Bonds ndash Single Bond with annual redemption of identified portion of Principal prior to final maturity
bull Sinking Fund provision ensures that the municipality pays off portions of the term bond each year
bull Bondholder does not know if their portion of Term Bond will be paid on sinking date or at final maturity (trustee uses lottery to determine who is paid early)
bull Bond amortization similar to mortgage schedule with portion including interest and principal
19
Matures Principal Coupon Interest Debt Service
Serial 6302017 $ - 150 $ 150000 $ 150000
Serial 6302018 $ 500000 175 $ 168966 $ 668966
Serial 6302019 $ 550000 180 $ 167586 $ 717586
Serial 6302020 $ 560000 200 $ 179310 $ 739310
Serial 6302021 $ 575000 225 $ 193966 $ 768966
Serial 6302022 $ 590000 250 $ 206897 $ 796897
Serial 6302023 $ 600000 275 $ 218103 $ 818103
Term 6302026 $ 2000000 400 $ 303448 $ 2303448
Term 6302030 $ 2400000 425 $ 307759 $ 2707759 Mandatory Sinking Fund Prepayment for 6302026 Term Bond
Payment Date Principal Amount
6302024 $ 600000
6302025 $ 650000
6302026 (maturity) $ 750000
Determining Debt Service Schedulebull Structure the debt service according to the unique needs and situation of Project
bull Amortization refers to payment of Principal and the Interest due on the outstanding Principal balance each year
bull Level Debt service characterized by increasing Principal payments and decreasing Interest payments over time
bull Current Interest Bonds pay semi-annual Interest throughout the life of the Bondbull Capital Appreciation Bonds pay accrued Interest at maturity (Zero Coupon)bull Part of the financing costs can be defrayed using investment earnings on bond proceeds (with
restrictions)
20
$0
$50000
$100000
$150000
$200000
$250000
$300000
$350000
$400000
$450000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Level Debt Service Schedule
Principal Interest
Alternative Debt Structures
21
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years
Level Principal Debt Schedule
Principal Interest
$0
$100000
$200000
$300000
$400000
$500000
$600000
$700000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure New Principal Payments Interest
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Basic Reasons for Issuing Bonds
bull Project Fundingbull RestructuringRefinancing Existing
Debtbull Some bonds can be redeemed prior
to maturity (called)bull If current market interest rates are
lower now than when the bond was issued it may make financial sense to issue new bonds at the lower interest rate to refund the outstanding bonds
bull Responsible practices dictate refunding should result in minimum 3-5 present value savings barring extenuating circumstances
bull Working Capital or Cash Flow Management (short-term notes)
6
Shor
t-te
rm N
otes
Refu
ndR
efin
ance
New
Mon
ey
Capital Improvement Projects
Infrastructure Development
Take advantage of lower interest rates to lower debt repayments
Simplify debt structure
TaxRevenueAnticipationNotes
(TRANs)
BondAnticipationNotes
(BAN)
Tax Exempt Nature of Municipal Bonds
bull Most municipal bonds are tax-exemptbull Bondholders do not pay State of Federal income tax on interest earnings from
municipal bondbull Investors are willing to purchase bond at lower interest ratebull IRS reprieve to help local governments fund projects and compete in the capital market
for investors against corporate bond issuers
bull Issuers are not allowed to earn ldquoArbitragerdquobull General rule ndash Issuers can invest bond proceeds and earn yield no higher than weighted
average cost of funds on bond (known as Arbitrage Yield)bull All excess earnings must be ldquoRebatedrdquo to IRS ndash 100 tax
bull Government gives up income tax revenues from bondholders on the interest of the bond
7
Introductory VocabularyIssuer Legal authority to approve and issue BondPrincipal Total amount borrowed (also known as par value)Coupon Nominal interest rate charged on the PrincipalInterest Additional amount paid on Principal (calculated with Principal times Coupon)Debt Service Annual Principal and Interest payments on the BondMaturity Date Principal is due
8
Interest Payment
Principal Repayment
AnnualDebt
Service
Bond Structuresbull Bonds are secured by different revenue sourcesbull Some require voter approval
9
Bonds Repaid With Dedicated Taxes
bull General Obligation (GO) (Local)
bull Sales Tax Revenuebull Special Taxbull Assessmentbull Tax Allocation
(Redevelopment)
Bonds Repaid From General Fund
bull Lease Revenue (LRB)
bull Certificates of Participation (COP)
bull Pension Obligationbull GO (State level
only)
Special Revenue Fund Bonds
bull Enterprise RevenueWaterSewerParkingRefuseAirportGolf Course
Voter Approval Required for Certain Types of Bondsbull Once a municipality has decided to issue bonds it may require voter approval to proceedbull Typically includes general obligation bonds or special tax type obligations
10
55 Approval
REQUIRED VOTER APPROVALFOR SCHOOL DISTRICT BONDS
67 Approval
REQUIRED VOTER APPROVALFOR LOCAL AGENCIES
50 Approval
REQUIRED VOTER APPROVAL FOR STATE BONDS
Major Exceptions to Voter Approval Requirement
1 General Fund Lease Bondsbull Secured by lease payments for use of an assetbull Example Financing Authority leases City Hall to City in exchange for ldquorentrdquo payments which
equal debt service on Bondsbull Similar to equipment or vehicle lease
2 Special Revenue Fundsbull Debt service comes from specific revenue sourcebull Utility rates may be subject to approval process (Prop 218)bull Example Water sewer parking refuse airport convention center and golf course
3 Obligation Imposed by Lawbull Involuntary debt obligations enacted by a courtbull Example Pension Obligation or Bankruptcy
11
Process of Issuing a BondFrom Start to Finish
Financing Plan
13
Identify Project Needs and Cash Flowbull Timing of expenditures
Quantify Available Cash Resources to Apply towards Project
Project Repayment Resources for ongoing Debt Service
Develop Financial Modelbull Sources of Project Funding (Bonds andor Cash)bull Bond Debt Servicebull Available Annual Revenuesbull Coverage (RevenuesDebt Service)
Debt Policy Considerations
bull Essentiality of Projectbull Reserve levels to be maintainedbull Available cash to be applied towards Projectbull Financing structure
bull Limit financial exposure to critical services (general fund)bull Financial Assumptions
bull Conservative revenue growth assumptionsbull Drought impact on water revenuesbull Credit rating implications and impact on market interest rates
bull Continuing Disclosure Obligation
14
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
15
The Underwriting Process
bull The underwriter has a unique role they act as the middle-man buying bonds wholesale from the issuer and selling them on the market
bull Involved in pricing the bond and determining market-appropriate interest rates
bull Solicits investor interest
16
Mun
icip
al Is
suer Issues Bond
andReceives Proceeds from Underwriter U
nder
writ
er Buys entire Bond issue and reoffers to investors In
vest
ors Purchase Bond
from Underwriter
Receive periodic interest and principal payments
The Underwriting SELECTION Process
Competitive Salebull Financing Structure
created with Issuer Bond Counsel and Municipal Advisor
bull Underwriter services bid like construction project
bull Typically traditional Bond structure or higher rated credits
17
Negotiated Salebull Underwriter selected early
to assist in creation of Financing Structure
bull Allows Underwriter to better understand the credit to improve sale of bonds
bull Typically used on weaker rated credits
Bond Sources and Usesbull Sources
bull PrincipalPar Amount ndash Total obligation amount (face value of Bond)
bull Purchase Premium ndash Amount generated from bondholders when Coupon is higher than market rate for similar maturity
bull Usesbull Project Fund ndash Project requirementbull Capitalized Interest Fund ndash Proceeds used to make interest
payments while Project is being completedbull Debt Service Reserve Fund ndash Proceeds set aside in trust
account to protect bondholders and make debt service payment if Issuer is unable to make payment Typically the lesser of 3 tests
1 Maximum annual debt service2 10 of par value3 125 of average annual debt service
bull Cost of Issuance Financing costs for bond amp disclosure counsel municipal advisor rating agency trustee title or property insurance official statement distribution
bull Underwriterrsquos Discount Fee paid to underwriter to sell Bonds
18
Sources
Bond Principal $10000000
Purchase Premium $500000
Total Proceeds $10500000
Uses of Funds
Project Fund $8000000
Capitalized Interest 1500000
Debt Service Reserve $800000
Costs of Issuance $150000
Underwriter Discount $50000
Total Proceeds $10500000
Serial and Term Bondsbull Bond issue will include multiple
maturities that can be either Serial or Term Bonds
bull Serial Bonds ndash Single bond with one maturity
bull Term Bonds ndash Single Bond with annual redemption of identified portion of Principal prior to final maturity
bull Sinking Fund provision ensures that the municipality pays off portions of the term bond each year
bull Bondholder does not know if their portion of Term Bond will be paid on sinking date or at final maturity (trustee uses lottery to determine who is paid early)
bull Bond amortization similar to mortgage schedule with portion including interest and principal
19
Matures Principal Coupon Interest Debt Service
Serial 6302017 $ - 150 $ 150000 $ 150000
Serial 6302018 $ 500000 175 $ 168966 $ 668966
Serial 6302019 $ 550000 180 $ 167586 $ 717586
Serial 6302020 $ 560000 200 $ 179310 $ 739310
Serial 6302021 $ 575000 225 $ 193966 $ 768966
Serial 6302022 $ 590000 250 $ 206897 $ 796897
Serial 6302023 $ 600000 275 $ 218103 $ 818103
Term 6302026 $ 2000000 400 $ 303448 $ 2303448
Term 6302030 $ 2400000 425 $ 307759 $ 2707759 Mandatory Sinking Fund Prepayment for 6302026 Term Bond
Payment Date Principal Amount
6302024 $ 600000
6302025 $ 650000
6302026 (maturity) $ 750000
Determining Debt Service Schedulebull Structure the debt service according to the unique needs and situation of Project
bull Amortization refers to payment of Principal and the Interest due on the outstanding Principal balance each year
bull Level Debt service characterized by increasing Principal payments and decreasing Interest payments over time
bull Current Interest Bonds pay semi-annual Interest throughout the life of the Bondbull Capital Appreciation Bonds pay accrued Interest at maturity (Zero Coupon)bull Part of the financing costs can be defrayed using investment earnings on bond proceeds (with
restrictions)
20
$0
$50000
$100000
$150000
$200000
$250000
$300000
$350000
$400000
$450000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Level Debt Service Schedule
Principal Interest
Alternative Debt Structures
21
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years
Level Principal Debt Schedule
Principal Interest
$0
$100000
$200000
$300000
$400000
$500000
$600000
$700000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure New Principal Payments Interest
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Tax Exempt Nature of Municipal Bonds
bull Most municipal bonds are tax-exemptbull Bondholders do not pay State of Federal income tax on interest earnings from
municipal bondbull Investors are willing to purchase bond at lower interest ratebull IRS reprieve to help local governments fund projects and compete in the capital market
for investors against corporate bond issuers
bull Issuers are not allowed to earn ldquoArbitragerdquobull General rule ndash Issuers can invest bond proceeds and earn yield no higher than weighted
average cost of funds on bond (known as Arbitrage Yield)bull All excess earnings must be ldquoRebatedrdquo to IRS ndash 100 tax
bull Government gives up income tax revenues from bondholders on the interest of the bond
7
Introductory VocabularyIssuer Legal authority to approve and issue BondPrincipal Total amount borrowed (also known as par value)Coupon Nominal interest rate charged on the PrincipalInterest Additional amount paid on Principal (calculated with Principal times Coupon)Debt Service Annual Principal and Interest payments on the BondMaturity Date Principal is due
8
Interest Payment
Principal Repayment
AnnualDebt
Service
Bond Structuresbull Bonds are secured by different revenue sourcesbull Some require voter approval
9
Bonds Repaid With Dedicated Taxes
bull General Obligation (GO) (Local)
bull Sales Tax Revenuebull Special Taxbull Assessmentbull Tax Allocation
(Redevelopment)
Bonds Repaid From General Fund
bull Lease Revenue (LRB)
bull Certificates of Participation (COP)
bull Pension Obligationbull GO (State level
only)
Special Revenue Fund Bonds
bull Enterprise RevenueWaterSewerParkingRefuseAirportGolf Course
Voter Approval Required for Certain Types of Bondsbull Once a municipality has decided to issue bonds it may require voter approval to proceedbull Typically includes general obligation bonds or special tax type obligations
10
55 Approval
REQUIRED VOTER APPROVALFOR SCHOOL DISTRICT BONDS
67 Approval
REQUIRED VOTER APPROVALFOR LOCAL AGENCIES
50 Approval
REQUIRED VOTER APPROVAL FOR STATE BONDS
Major Exceptions to Voter Approval Requirement
1 General Fund Lease Bondsbull Secured by lease payments for use of an assetbull Example Financing Authority leases City Hall to City in exchange for ldquorentrdquo payments which
equal debt service on Bondsbull Similar to equipment or vehicle lease
2 Special Revenue Fundsbull Debt service comes from specific revenue sourcebull Utility rates may be subject to approval process (Prop 218)bull Example Water sewer parking refuse airport convention center and golf course
3 Obligation Imposed by Lawbull Involuntary debt obligations enacted by a courtbull Example Pension Obligation or Bankruptcy
11
Process of Issuing a BondFrom Start to Finish
Financing Plan
13
Identify Project Needs and Cash Flowbull Timing of expenditures
Quantify Available Cash Resources to Apply towards Project
Project Repayment Resources for ongoing Debt Service
Develop Financial Modelbull Sources of Project Funding (Bonds andor Cash)bull Bond Debt Servicebull Available Annual Revenuesbull Coverage (RevenuesDebt Service)
Debt Policy Considerations
bull Essentiality of Projectbull Reserve levels to be maintainedbull Available cash to be applied towards Projectbull Financing structure
bull Limit financial exposure to critical services (general fund)bull Financial Assumptions
bull Conservative revenue growth assumptionsbull Drought impact on water revenuesbull Credit rating implications and impact on market interest rates
bull Continuing Disclosure Obligation
14
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
15
The Underwriting Process
bull The underwriter has a unique role they act as the middle-man buying bonds wholesale from the issuer and selling them on the market
bull Involved in pricing the bond and determining market-appropriate interest rates
bull Solicits investor interest
16
Mun
icip
al Is
suer Issues Bond
andReceives Proceeds from Underwriter U
nder
writ
er Buys entire Bond issue and reoffers to investors In
vest
ors Purchase Bond
from Underwriter
Receive periodic interest and principal payments
The Underwriting SELECTION Process
Competitive Salebull Financing Structure
created with Issuer Bond Counsel and Municipal Advisor
bull Underwriter services bid like construction project
bull Typically traditional Bond structure or higher rated credits
17
Negotiated Salebull Underwriter selected early
to assist in creation of Financing Structure
bull Allows Underwriter to better understand the credit to improve sale of bonds
bull Typically used on weaker rated credits
Bond Sources and Usesbull Sources
bull PrincipalPar Amount ndash Total obligation amount (face value of Bond)
bull Purchase Premium ndash Amount generated from bondholders when Coupon is higher than market rate for similar maturity
bull Usesbull Project Fund ndash Project requirementbull Capitalized Interest Fund ndash Proceeds used to make interest
payments while Project is being completedbull Debt Service Reserve Fund ndash Proceeds set aside in trust
account to protect bondholders and make debt service payment if Issuer is unable to make payment Typically the lesser of 3 tests
1 Maximum annual debt service2 10 of par value3 125 of average annual debt service
bull Cost of Issuance Financing costs for bond amp disclosure counsel municipal advisor rating agency trustee title or property insurance official statement distribution
bull Underwriterrsquos Discount Fee paid to underwriter to sell Bonds
18
Sources
Bond Principal $10000000
Purchase Premium $500000
Total Proceeds $10500000
Uses of Funds
Project Fund $8000000
Capitalized Interest 1500000
Debt Service Reserve $800000
Costs of Issuance $150000
Underwriter Discount $50000
Total Proceeds $10500000
Serial and Term Bondsbull Bond issue will include multiple
maturities that can be either Serial or Term Bonds
bull Serial Bonds ndash Single bond with one maturity
bull Term Bonds ndash Single Bond with annual redemption of identified portion of Principal prior to final maturity
bull Sinking Fund provision ensures that the municipality pays off portions of the term bond each year
bull Bondholder does not know if their portion of Term Bond will be paid on sinking date or at final maturity (trustee uses lottery to determine who is paid early)
bull Bond amortization similar to mortgage schedule with portion including interest and principal
19
Matures Principal Coupon Interest Debt Service
Serial 6302017 $ - 150 $ 150000 $ 150000
Serial 6302018 $ 500000 175 $ 168966 $ 668966
Serial 6302019 $ 550000 180 $ 167586 $ 717586
Serial 6302020 $ 560000 200 $ 179310 $ 739310
Serial 6302021 $ 575000 225 $ 193966 $ 768966
Serial 6302022 $ 590000 250 $ 206897 $ 796897
Serial 6302023 $ 600000 275 $ 218103 $ 818103
Term 6302026 $ 2000000 400 $ 303448 $ 2303448
Term 6302030 $ 2400000 425 $ 307759 $ 2707759 Mandatory Sinking Fund Prepayment for 6302026 Term Bond
Payment Date Principal Amount
6302024 $ 600000
6302025 $ 650000
6302026 (maturity) $ 750000
Determining Debt Service Schedulebull Structure the debt service according to the unique needs and situation of Project
bull Amortization refers to payment of Principal and the Interest due on the outstanding Principal balance each year
bull Level Debt service characterized by increasing Principal payments and decreasing Interest payments over time
bull Current Interest Bonds pay semi-annual Interest throughout the life of the Bondbull Capital Appreciation Bonds pay accrued Interest at maturity (Zero Coupon)bull Part of the financing costs can be defrayed using investment earnings on bond proceeds (with
restrictions)
20
$0
$50000
$100000
$150000
$200000
$250000
$300000
$350000
$400000
$450000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Level Debt Service Schedule
Principal Interest
Alternative Debt Structures
21
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years
Level Principal Debt Schedule
Principal Interest
$0
$100000
$200000
$300000
$400000
$500000
$600000
$700000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure New Principal Payments Interest
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Introductory VocabularyIssuer Legal authority to approve and issue BondPrincipal Total amount borrowed (also known as par value)Coupon Nominal interest rate charged on the PrincipalInterest Additional amount paid on Principal (calculated with Principal times Coupon)Debt Service Annual Principal and Interest payments on the BondMaturity Date Principal is due
8
Interest Payment
Principal Repayment
AnnualDebt
Service
Bond Structuresbull Bonds are secured by different revenue sourcesbull Some require voter approval
9
Bonds Repaid With Dedicated Taxes
bull General Obligation (GO) (Local)
bull Sales Tax Revenuebull Special Taxbull Assessmentbull Tax Allocation
(Redevelopment)
Bonds Repaid From General Fund
bull Lease Revenue (LRB)
bull Certificates of Participation (COP)
bull Pension Obligationbull GO (State level
only)
Special Revenue Fund Bonds
bull Enterprise RevenueWaterSewerParkingRefuseAirportGolf Course
Voter Approval Required for Certain Types of Bondsbull Once a municipality has decided to issue bonds it may require voter approval to proceedbull Typically includes general obligation bonds or special tax type obligations
10
55 Approval
REQUIRED VOTER APPROVALFOR SCHOOL DISTRICT BONDS
67 Approval
REQUIRED VOTER APPROVALFOR LOCAL AGENCIES
50 Approval
REQUIRED VOTER APPROVAL FOR STATE BONDS
Major Exceptions to Voter Approval Requirement
1 General Fund Lease Bondsbull Secured by lease payments for use of an assetbull Example Financing Authority leases City Hall to City in exchange for ldquorentrdquo payments which
equal debt service on Bondsbull Similar to equipment or vehicle lease
2 Special Revenue Fundsbull Debt service comes from specific revenue sourcebull Utility rates may be subject to approval process (Prop 218)bull Example Water sewer parking refuse airport convention center and golf course
3 Obligation Imposed by Lawbull Involuntary debt obligations enacted by a courtbull Example Pension Obligation or Bankruptcy
11
Process of Issuing a BondFrom Start to Finish
Financing Plan
13
Identify Project Needs and Cash Flowbull Timing of expenditures
Quantify Available Cash Resources to Apply towards Project
Project Repayment Resources for ongoing Debt Service
Develop Financial Modelbull Sources of Project Funding (Bonds andor Cash)bull Bond Debt Servicebull Available Annual Revenuesbull Coverage (RevenuesDebt Service)
Debt Policy Considerations
bull Essentiality of Projectbull Reserve levels to be maintainedbull Available cash to be applied towards Projectbull Financing structure
bull Limit financial exposure to critical services (general fund)bull Financial Assumptions
bull Conservative revenue growth assumptionsbull Drought impact on water revenuesbull Credit rating implications and impact on market interest rates
bull Continuing Disclosure Obligation
14
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
15
The Underwriting Process
bull The underwriter has a unique role they act as the middle-man buying bonds wholesale from the issuer and selling them on the market
bull Involved in pricing the bond and determining market-appropriate interest rates
bull Solicits investor interest
16
Mun
icip
al Is
suer Issues Bond
andReceives Proceeds from Underwriter U
nder
writ
er Buys entire Bond issue and reoffers to investors In
vest
ors Purchase Bond
from Underwriter
Receive periodic interest and principal payments
The Underwriting SELECTION Process
Competitive Salebull Financing Structure
created with Issuer Bond Counsel and Municipal Advisor
bull Underwriter services bid like construction project
bull Typically traditional Bond structure or higher rated credits
17
Negotiated Salebull Underwriter selected early
to assist in creation of Financing Structure
bull Allows Underwriter to better understand the credit to improve sale of bonds
bull Typically used on weaker rated credits
Bond Sources and Usesbull Sources
bull PrincipalPar Amount ndash Total obligation amount (face value of Bond)
bull Purchase Premium ndash Amount generated from bondholders when Coupon is higher than market rate for similar maturity
bull Usesbull Project Fund ndash Project requirementbull Capitalized Interest Fund ndash Proceeds used to make interest
payments while Project is being completedbull Debt Service Reserve Fund ndash Proceeds set aside in trust
account to protect bondholders and make debt service payment if Issuer is unable to make payment Typically the lesser of 3 tests
1 Maximum annual debt service2 10 of par value3 125 of average annual debt service
bull Cost of Issuance Financing costs for bond amp disclosure counsel municipal advisor rating agency trustee title or property insurance official statement distribution
bull Underwriterrsquos Discount Fee paid to underwriter to sell Bonds
18
Sources
Bond Principal $10000000
Purchase Premium $500000
Total Proceeds $10500000
Uses of Funds
Project Fund $8000000
Capitalized Interest 1500000
Debt Service Reserve $800000
Costs of Issuance $150000
Underwriter Discount $50000
Total Proceeds $10500000
Serial and Term Bondsbull Bond issue will include multiple
maturities that can be either Serial or Term Bonds
bull Serial Bonds ndash Single bond with one maturity
bull Term Bonds ndash Single Bond with annual redemption of identified portion of Principal prior to final maturity
bull Sinking Fund provision ensures that the municipality pays off portions of the term bond each year
bull Bondholder does not know if their portion of Term Bond will be paid on sinking date or at final maturity (trustee uses lottery to determine who is paid early)
bull Bond amortization similar to mortgage schedule with portion including interest and principal
19
Matures Principal Coupon Interest Debt Service
Serial 6302017 $ - 150 $ 150000 $ 150000
Serial 6302018 $ 500000 175 $ 168966 $ 668966
Serial 6302019 $ 550000 180 $ 167586 $ 717586
Serial 6302020 $ 560000 200 $ 179310 $ 739310
Serial 6302021 $ 575000 225 $ 193966 $ 768966
Serial 6302022 $ 590000 250 $ 206897 $ 796897
Serial 6302023 $ 600000 275 $ 218103 $ 818103
Term 6302026 $ 2000000 400 $ 303448 $ 2303448
Term 6302030 $ 2400000 425 $ 307759 $ 2707759 Mandatory Sinking Fund Prepayment for 6302026 Term Bond
Payment Date Principal Amount
6302024 $ 600000
6302025 $ 650000
6302026 (maturity) $ 750000
Determining Debt Service Schedulebull Structure the debt service according to the unique needs and situation of Project
bull Amortization refers to payment of Principal and the Interest due on the outstanding Principal balance each year
bull Level Debt service characterized by increasing Principal payments and decreasing Interest payments over time
bull Current Interest Bonds pay semi-annual Interest throughout the life of the Bondbull Capital Appreciation Bonds pay accrued Interest at maturity (Zero Coupon)bull Part of the financing costs can be defrayed using investment earnings on bond proceeds (with
restrictions)
20
$0
$50000
$100000
$150000
$200000
$250000
$300000
$350000
$400000
$450000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Level Debt Service Schedule
Principal Interest
Alternative Debt Structures
21
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years
Level Principal Debt Schedule
Principal Interest
$0
$100000
$200000
$300000
$400000
$500000
$600000
$700000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure New Principal Payments Interest
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Bond Structuresbull Bonds are secured by different revenue sourcesbull Some require voter approval
9
Bonds Repaid With Dedicated Taxes
bull General Obligation (GO) (Local)
bull Sales Tax Revenuebull Special Taxbull Assessmentbull Tax Allocation
(Redevelopment)
Bonds Repaid From General Fund
bull Lease Revenue (LRB)
bull Certificates of Participation (COP)
bull Pension Obligationbull GO (State level
only)
Special Revenue Fund Bonds
bull Enterprise RevenueWaterSewerParkingRefuseAirportGolf Course
Voter Approval Required for Certain Types of Bondsbull Once a municipality has decided to issue bonds it may require voter approval to proceedbull Typically includes general obligation bonds or special tax type obligations
10
55 Approval
REQUIRED VOTER APPROVALFOR SCHOOL DISTRICT BONDS
67 Approval
REQUIRED VOTER APPROVALFOR LOCAL AGENCIES
50 Approval
REQUIRED VOTER APPROVAL FOR STATE BONDS
Major Exceptions to Voter Approval Requirement
1 General Fund Lease Bondsbull Secured by lease payments for use of an assetbull Example Financing Authority leases City Hall to City in exchange for ldquorentrdquo payments which
equal debt service on Bondsbull Similar to equipment or vehicle lease
2 Special Revenue Fundsbull Debt service comes from specific revenue sourcebull Utility rates may be subject to approval process (Prop 218)bull Example Water sewer parking refuse airport convention center and golf course
3 Obligation Imposed by Lawbull Involuntary debt obligations enacted by a courtbull Example Pension Obligation or Bankruptcy
11
Process of Issuing a BondFrom Start to Finish
Financing Plan
13
Identify Project Needs and Cash Flowbull Timing of expenditures
Quantify Available Cash Resources to Apply towards Project
Project Repayment Resources for ongoing Debt Service
Develop Financial Modelbull Sources of Project Funding (Bonds andor Cash)bull Bond Debt Servicebull Available Annual Revenuesbull Coverage (RevenuesDebt Service)
Debt Policy Considerations
bull Essentiality of Projectbull Reserve levels to be maintainedbull Available cash to be applied towards Projectbull Financing structure
bull Limit financial exposure to critical services (general fund)bull Financial Assumptions
bull Conservative revenue growth assumptionsbull Drought impact on water revenuesbull Credit rating implications and impact on market interest rates
bull Continuing Disclosure Obligation
14
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
15
The Underwriting Process
bull The underwriter has a unique role they act as the middle-man buying bonds wholesale from the issuer and selling them on the market
bull Involved in pricing the bond and determining market-appropriate interest rates
bull Solicits investor interest
16
Mun
icip
al Is
suer Issues Bond
andReceives Proceeds from Underwriter U
nder
writ
er Buys entire Bond issue and reoffers to investors In
vest
ors Purchase Bond
from Underwriter
Receive periodic interest and principal payments
The Underwriting SELECTION Process
Competitive Salebull Financing Structure
created with Issuer Bond Counsel and Municipal Advisor
bull Underwriter services bid like construction project
bull Typically traditional Bond structure or higher rated credits
17
Negotiated Salebull Underwriter selected early
to assist in creation of Financing Structure
bull Allows Underwriter to better understand the credit to improve sale of bonds
bull Typically used on weaker rated credits
Bond Sources and Usesbull Sources
bull PrincipalPar Amount ndash Total obligation amount (face value of Bond)
bull Purchase Premium ndash Amount generated from bondholders when Coupon is higher than market rate for similar maturity
bull Usesbull Project Fund ndash Project requirementbull Capitalized Interest Fund ndash Proceeds used to make interest
payments while Project is being completedbull Debt Service Reserve Fund ndash Proceeds set aside in trust
account to protect bondholders and make debt service payment if Issuer is unable to make payment Typically the lesser of 3 tests
1 Maximum annual debt service2 10 of par value3 125 of average annual debt service
bull Cost of Issuance Financing costs for bond amp disclosure counsel municipal advisor rating agency trustee title or property insurance official statement distribution
bull Underwriterrsquos Discount Fee paid to underwriter to sell Bonds
18
Sources
Bond Principal $10000000
Purchase Premium $500000
Total Proceeds $10500000
Uses of Funds
Project Fund $8000000
Capitalized Interest 1500000
Debt Service Reserve $800000
Costs of Issuance $150000
Underwriter Discount $50000
Total Proceeds $10500000
Serial and Term Bondsbull Bond issue will include multiple
maturities that can be either Serial or Term Bonds
bull Serial Bonds ndash Single bond with one maturity
bull Term Bonds ndash Single Bond with annual redemption of identified portion of Principal prior to final maturity
bull Sinking Fund provision ensures that the municipality pays off portions of the term bond each year
bull Bondholder does not know if their portion of Term Bond will be paid on sinking date or at final maturity (trustee uses lottery to determine who is paid early)
bull Bond amortization similar to mortgage schedule with portion including interest and principal
19
Matures Principal Coupon Interest Debt Service
Serial 6302017 $ - 150 $ 150000 $ 150000
Serial 6302018 $ 500000 175 $ 168966 $ 668966
Serial 6302019 $ 550000 180 $ 167586 $ 717586
Serial 6302020 $ 560000 200 $ 179310 $ 739310
Serial 6302021 $ 575000 225 $ 193966 $ 768966
Serial 6302022 $ 590000 250 $ 206897 $ 796897
Serial 6302023 $ 600000 275 $ 218103 $ 818103
Term 6302026 $ 2000000 400 $ 303448 $ 2303448
Term 6302030 $ 2400000 425 $ 307759 $ 2707759 Mandatory Sinking Fund Prepayment for 6302026 Term Bond
Payment Date Principal Amount
6302024 $ 600000
6302025 $ 650000
6302026 (maturity) $ 750000
Determining Debt Service Schedulebull Structure the debt service according to the unique needs and situation of Project
bull Amortization refers to payment of Principal and the Interest due on the outstanding Principal balance each year
bull Level Debt service characterized by increasing Principal payments and decreasing Interest payments over time
bull Current Interest Bonds pay semi-annual Interest throughout the life of the Bondbull Capital Appreciation Bonds pay accrued Interest at maturity (Zero Coupon)bull Part of the financing costs can be defrayed using investment earnings on bond proceeds (with
restrictions)
20
$0
$50000
$100000
$150000
$200000
$250000
$300000
$350000
$400000
$450000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Level Debt Service Schedule
Principal Interest
Alternative Debt Structures
21
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years
Level Principal Debt Schedule
Principal Interest
$0
$100000
$200000
$300000
$400000
$500000
$600000
$700000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure New Principal Payments Interest
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Voter Approval Required for Certain Types of Bondsbull Once a municipality has decided to issue bonds it may require voter approval to proceedbull Typically includes general obligation bonds or special tax type obligations
10
55 Approval
REQUIRED VOTER APPROVALFOR SCHOOL DISTRICT BONDS
67 Approval
REQUIRED VOTER APPROVALFOR LOCAL AGENCIES
50 Approval
REQUIRED VOTER APPROVAL FOR STATE BONDS
Major Exceptions to Voter Approval Requirement
1 General Fund Lease Bondsbull Secured by lease payments for use of an assetbull Example Financing Authority leases City Hall to City in exchange for ldquorentrdquo payments which
equal debt service on Bondsbull Similar to equipment or vehicle lease
2 Special Revenue Fundsbull Debt service comes from specific revenue sourcebull Utility rates may be subject to approval process (Prop 218)bull Example Water sewer parking refuse airport convention center and golf course
3 Obligation Imposed by Lawbull Involuntary debt obligations enacted by a courtbull Example Pension Obligation or Bankruptcy
11
Process of Issuing a BondFrom Start to Finish
Financing Plan
13
Identify Project Needs and Cash Flowbull Timing of expenditures
Quantify Available Cash Resources to Apply towards Project
Project Repayment Resources for ongoing Debt Service
Develop Financial Modelbull Sources of Project Funding (Bonds andor Cash)bull Bond Debt Servicebull Available Annual Revenuesbull Coverage (RevenuesDebt Service)
Debt Policy Considerations
bull Essentiality of Projectbull Reserve levels to be maintainedbull Available cash to be applied towards Projectbull Financing structure
bull Limit financial exposure to critical services (general fund)bull Financial Assumptions
bull Conservative revenue growth assumptionsbull Drought impact on water revenuesbull Credit rating implications and impact on market interest rates
bull Continuing Disclosure Obligation
14
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
15
The Underwriting Process
bull The underwriter has a unique role they act as the middle-man buying bonds wholesale from the issuer and selling them on the market
bull Involved in pricing the bond and determining market-appropriate interest rates
bull Solicits investor interest
16
Mun
icip
al Is
suer Issues Bond
andReceives Proceeds from Underwriter U
nder
writ
er Buys entire Bond issue and reoffers to investors In
vest
ors Purchase Bond
from Underwriter
Receive periodic interest and principal payments
The Underwriting SELECTION Process
Competitive Salebull Financing Structure
created with Issuer Bond Counsel and Municipal Advisor
bull Underwriter services bid like construction project
bull Typically traditional Bond structure or higher rated credits
17
Negotiated Salebull Underwriter selected early
to assist in creation of Financing Structure
bull Allows Underwriter to better understand the credit to improve sale of bonds
bull Typically used on weaker rated credits
Bond Sources and Usesbull Sources
bull PrincipalPar Amount ndash Total obligation amount (face value of Bond)
bull Purchase Premium ndash Amount generated from bondholders when Coupon is higher than market rate for similar maturity
bull Usesbull Project Fund ndash Project requirementbull Capitalized Interest Fund ndash Proceeds used to make interest
payments while Project is being completedbull Debt Service Reserve Fund ndash Proceeds set aside in trust
account to protect bondholders and make debt service payment if Issuer is unable to make payment Typically the lesser of 3 tests
1 Maximum annual debt service2 10 of par value3 125 of average annual debt service
bull Cost of Issuance Financing costs for bond amp disclosure counsel municipal advisor rating agency trustee title or property insurance official statement distribution
bull Underwriterrsquos Discount Fee paid to underwriter to sell Bonds
18
Sources
Bond Principal $10000000
Purchase Premium $500000
Total Proceeds $10500000
Uses of Funds
Project Fund $8000000
Capitalized Interest 1500000
Debt Service Reserve $800000
Costs of Issuance $150000
Underwriter Discount $50000
Total Proceeds $10500000
Serial and Term Bondsbull Bond issue will include multiple
maturities that can be either Serial or Term Bonds
bull Serial Bonds ndash Single bond with one maturity
bull Term Bonds ndash Single Bond with annual redemption of identified portion of Principal prior to final maturity
bull Sinking Fund provision ensures that the municipality pays off portions of the term bond each year
bull Bondholder does not know if their portion of Term Bond will be paid on sinking date or at final maturity (trustee uses lottery to determine who is paid early)
bull Bond amortization similar to mortgage schedule with portion including interest and principal
19
Matures Principal Coupon Interest Debt Service
Serial 6302017 $ - 150 $ 150000 $ 150000
Serial 6302018 $ 500000 175 $ 168966 $ 668966
Serial 6302019 $ 550000 180 $ 167586 $ 717586
Serial 6302020 $ 560000 200 $ 179310 $ 739310
Serial 6302021 $ 575000 225 $ 193966 $ 768966
Serial 6302022 $ 590000 250 $ 206897 $ 796897
Serial 6302023 $ 600000 275 $ 218103 $ 818103
Term 6302026 $ 2000000 400 $ 303448 $ 2303448
Term 6302030 $ 2400000 425 $ 307759 $ 2707759 Mandatory Sinking Fund Prepayment for 6302026 Term Bond
Payment Date Principal Amount
6302024 $ 600000
6302025 $ 650000
6302026 (maturity) $ 750000
Determining Debt Service Schedulebull Structure the debt service according to the unique needs and situation of Project
bull Amortization refers to payment of Principal and the Interest due on the outstanding Principal balance each year
bull Level Debt service characterized by increasing Principal payments and decreasing Interest payments over time
bull Current Interest Bonds pay semi-annual Interest throughout the life of the Bondbull Capital Appreciation Bonds pay accrued Interest at maturity (Zero Coupon)bull Part of the financing costs can be defrayed using investment earnings on bond proceeds (with
restrictions)
20
$0
$50000
$100000
$150000
$200000
$250000
$300000
$350000
$400000
$450000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Level Debt Service Schedule
Principal Interest
Alternative Debt Structures
21
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years
Level Principal Debt Schedule
Principal Interest
$0
$100000
$200000
$300000
$400000
$500000
$600000
$700000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure New Principal Payments Interest
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Major Exceptions to Voter Approval Requirement
1 General Fund Lease Bondsbull Secured by lease payments for use of an assetbull Example Financing Authority leases City Hall to City in exchange for ldquorentrdquo payments which
equal debt service on Bondsbull Similar to equipment or vehicle lease
2 Special Revenue Fundsbull Debt service comes from specific revenue sourcebull Utility rates may be subject to approval process (Prop 218)bull Example Water sewer parking refuse airport convention center and golf course
3 Obligation Imposed by Lawbull Involuntary debt obligations enacted by a courtbull Example Pension Obligation or Bankruptcy
11
Process of Issuing a BondFrom Start to Finish
Financing Plan
13
Identify Project Needs and Cash Flowbull Timing of expenditures
Quantify Available Cash Resources to Apply towards Project
Project Repayment Resources for ongoing Debt Service
Develop Financial Modelbull Sources of Project Funding (Bonds andor Cash)bull Bond Debt Servicebull Available Annual Revenuesbull Coverage (RevenuesDebt Service)
Debt Policy Considerations
bull Essentiality of Projectbull Reserve levels to be maintainedbull Available cash to be applied towards Projectbull Financing structure
bull Limit financial exposure to critical services (general fund)bull Financial Assumptions
bull Conservative revenue growth assumptionsbull Drought impact on water revenuesbull Credit rating implications and impact on market interest rates
bull Continuing Disclosure Obligation
14
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
15
The Underwriting Process
bull The underwriter has a unique role they act as the middle-man buying bonds wholesale from the issuer and selling them on the market
bull Involved in pricing the bond and determining market-appropriate interest rates
bull Solicits investor interest
16
Mun
icip
al Is
suer Issues Bond
andReceives Proceeds from Underwriter U
nder
writ
er Buys entire Bond issue and reoffers to investors In
vest
ors Purchase Bond
from Underwriter
Receive periodic interest and principal payments
The Underwriting SELECTION Process
Competitive Salebull Financing Structure
created with Issuer Bond Counsel and Municipal Advisor
bull Underwriter services bid like construction project
bull Typically traditional Bond structure or higher rated credits
17
Negotiated Salebull Underwriter selected early
to assist in creation of Financing Structure
bull Allows Underwriter to better understand the credit to improve sale of bonds
bull Typically used on weaker rated credits
Bond Sources and Usesbull Sources
bull PrincipalPar Amount ndash Total obligation amount (face value of Bond)
bull Purchase Premium ndash Amount generated from bondholders when Coupon is higher than market rate for similar maturity
bull Usesbull Project Fund ndash Project requirementbull Capitalized Interest Fund ndash Proceeds used to make interest
payments while Project is being completedbull Debt Service Reserve Fund ndash Proceeds set aside in trust
account to protect bondholders and make debt service payment if Issuer is unable to make payment Typically the lesser of 3 tests
1 Maximum annual debt service2 10 of par value3 125 of average annual debt service
bull Cost of Issuance Financing costs for bond amp disclosure counsel municipal advisor rating agency trustee title or property insurance official statement distribution
bull Underwriterrsquos Discount Fee paid to underwriter to sell Bonds
18
Sources
Bond Principal $10000000
Purchase Premium $500000
Total Proceeds $10500000
Uses of Funds
Project Fund $8000000
Capitalized Interest 1500000
Debt Service Reserve $800000
Costs of Issuance $150000
Underwriter Discount $50000
Total Proceeds $10500000
Serial and Term Bondsbull Bond issue will include multiple
maturities that can be either Serial or Term Bonds
bull Serial Bonds ndash Single bond with one maturity
bull Term Bonds ndash Single Bond with annual redemption of identified portion of Principal prior to final maturity
bull Sinking Fund provision ensures that the municipality pays off portions of the term bond each year
bull Bondholder does not know if their portion of Term Bond will be paid on sinking date or at final maturity (trustee uses lottery to determine who is paid early)
bull Bond amortization similar to mortgage schedule with portion including interest and principal
19
Matures Principal Coupon Interest Debt Service
Serial 6302017 $ - 150 $ 150000 $ 150000
Serial 6302018 $ 500000 175 $ 168966 $ 668966
Serial 6302019 $ 550000 180 $ 167586 $ 717586
Serial 6302020 $ 560000 200 $ 179310 $ 739310
Serial 6302021 $ 575000 225 $ 193966 $ 768966
Serial 6302022 $ 590000 250 $ 206897 $ 796897
Serial 6302023 $ 600000 275 $ 218103 $ 818103
Term 6302026 $ 2000000 400 $ 303448 $ 2303448
Term 6302030 $ 2400000 425 $ 307759 $ 2707759 Mandatory Sinking Fund Prepayment for 6302026 Term Bond
Payment Date Principal Amount
6302024 $ 600000
6302025 $ 650000
6302026 (maturity) $ 750000
Determining Debt Service Schedulebull Structure the debt service according to the unique needs and situation of Project
bull Amortization refers to payment of Principal and the Interest due on the outstanding Principal balance each year
bull Level Debt service characterized by increasing Principal payments and decreasing Interest payments over time
bull Current Interest Bonds pay semi-annual Interest throughout the life of the Bondbull Capital Appreciation Bonds pay accrued Interest at maturity (Zero Coupon)bull Part of the financing costs can be defrayed using investment earnings on bond proceeds (with
restrictions)
20
$0
$50000
$100000
$150000
$200000
$250000
$300000
$350000
$400000
$450000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Level Debt Service Schedule
Principal Interest
Alternative Debt Structures
21
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years
Level Principal Debt Schedule
Principal Interest
$0
$100000
$200000
$300000
$400000
$500000
$600000
$700000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure New Principal Payments Interest
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Process of Issuing a BondFrom Start to Finish
Financing Plan
13
Identify Project Needs and Cash Flowbull Timing of expenditures
Quantify Available Cash Resources to Apply towards Project
Project Repayment Resources for ongoing Debt Service
Develop Financial Modelbull Sources of Project Funding (Bonds andor Cash)bull Bond Debt Servicebull Available Annual Revenuesbull Coverage (RevenuesDebt Service)
Debt Policy Considerations
bull Essentiality of Projectbull Reserve levels to be maintainedbull Available cash to be applied towards Projectbull Financing structure
bull Limit financial exposure to critical services (general fund)bull Financial Assumptions
bull Conservative revenue growth assumptionsbull Drought impact on water revenuesbull Credit rating implications and impact on market interest rates
bull Continuing Disclosure Obligation
14
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
15
The Underwriting Process
bull The underwriter has a unique role they act as the middle-man buying bonds wholesale from the issuer and selling them on the market
bull Involved in pricing the bond and determining market-appropriate interest rates
bull Solicits investor interest
16
Mun
icip
al Is
suer Issues Bond
andReceives Proceeds from Underwriter U
nder
writ
er Buys entire Bond issue and reoffers to investors In
vest
ors Purchase Bond
from Underwriter
Receive periodic interest and principal payments
The Underwriting SELECTION Process
Competitive Salebull Financing Structure
created with Issuer Bond Counsel and Municipal Advisor
bull Underwriter services bid like construction project
bull Typically traditional Bond structure or higher rated credits
17
Negotiated Salebull Underwriter selected early
to assist in creation of Financing Structure
bull Allows Underwriter to better understand the credit to improve sale of bonds
bull Typically used on weaker rated credits
Bond Sources and Usesbull Sources
bull PrincipalPar Amount ndash Total obligation amount (face value of Bond)
bull Purchase Premium ndash Amount generated from bondholders when Coupon is higher than market rate for similar maturity
bull Usesbull Project Fund ndash Project requirementbull Capitalized Interest Fund ndash Proceeds used to make interest
payments while Project is being completedbull Debt Service Reserve Fund ndash Proceeds set aside in trust
account to protect bondholders and make debt service payment if Issuer is unable to make payment Typically the lesser of 3 tests
1 Maximum annual debt service2 10 of par value3 125 of average annual debt service
bull Cost of Issuance Financing costs for bond amp disclosure counsel municipal advisor rating agency trustee title or property insurance official statement distribution
bull Underwriterrsquos Discount Fee paid to underwriter to sell Bonds
18
Sources
Bond Principal $10000000
Purchase Premium $500000
Total Proceeds $10500000
Uses of Funds
Project Fund $8000000
Capitalized Interest 1500000
Debt Service Reserve $800000
Costs of Issuance $150000
Underwriter Discount $50000
Total Proceeds $10500000
Serial and Term Bondsbull Bond issue will include multiple
maturities that can be either Serial or Term Bonds
bull Serial Bonds ndash Single bond with one maturity
bull Term Bonds ndash Single Bond with annual redemption of identified portion of Principal prior to final maturity
bull Sinking Fund provision ensures that the municipality pays off portions of the term bond each year
bull Bondholder does not know if their portion of Term Bond will be paid on sinking date or at final maturity (trustee uses lottery to determine who is paid early)
bull Bond amortization similar to mortgage schedule with portion including interest and principal
19
Matures Principal Coupon Interest Debt Service
Serial 6302017 $ - 150 $ 150000 $ 150000
Serial 6302018 $ 500000 175 $ 168966 $ 668966
Serial 6302019 $ 550000 180 $ 167586 $ 717586
Serial 6302020 $ 560000 200 $ 179310 $ 739310
Serial 6302021 $ 575000 225 $ 193966 $ 768966
Serial 6302022 $ 590000 250 $ 206897 $ 796897
Serial 6302023 $ 600000 275 $ 218103 $ 818103
Term 6302026 $ 2000000 400 $ 303448 $ 2303448
Term 6302030 $ 2400000 425 $ 307759 $ 2707759 Mandatory Sinking Fund Prepayment for 6302026 Term Bond
Payment Date Principal Amount
6302024 $ 600000
6302025 $ 650000
6302026 (maturity) $ 750000
Determining Debt Service Schedulebull Structure the debt service according to the unique needs and situation of Project
bull Amortization refers to payment of Principal and the Interest due on the outstanding Principal balance each year
bull Level Debt service characterized by increasing Principal payments and decreasing Interest payments over time
bull Current Interest Bonds pay semi-annual Interest throughout the life of the Bondbull Capital Appreciation Bonds pay accrued Interest at maturity (Zero Coupon)bull Part of the financing costs can be defrayed using investment earnings on bond proceeds (with
restrictions)
20
$0
$50000
$100000
$150000
$200000
$250000
$300000
$350000
$400000
$450000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Level Debt Service Schedule
Principal Interest
Alternative Debt Structures
21
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years
Level Principal Debt Schedule
Principal Interest
$0
$100000
$200000
$300000
$400000
$500000
$600000
$700000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure New Principal Payments Interest
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Financing Plan
13
Identify Project Needs and Cash Flowbull Timing of expenditures
Quantify Available Cash Resources to Apply towards Project
Project Repayment Resources for ongoing Debt Service
Develop Financial Modelbull Sources of Project Funding (Bonds andor Cash)bull Bond Debt Servicebull Available Annual Revenuesbull Coverage (RevenuesDebt Service)
Debt Policy Considerations
bull Essentiality of Projectbull Reserve levels to be maintainedbull Available cash to be applied towards Projectbull Financing structure
bull Limit financial exposure to critical services (general fund)bull Financial Assumptions
bull Conservative revenue growth assumptionsbull Drought impact on water revenuesbull Credit rating implications and impact on market interest rates
bull Continuing Disclosure Obligation
14
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
15
The Underwriting Process
bull The underwriter has a unique role they act as the middle-man buying bonds wholesale from the issuer and selling them on the market
bull Involved in pricing the bond and determining market-appropriate interest rates
bull Solicits investor interest
16
Mun
icip
al Is
suer Issues Bond
andReceives Proceeds from Underwriter U
nder
writ
er Buys entire Bond issue and reoffers to investors In
vest
ors Purchase Bond
from Underwriter
Receive periodic interest and principal payments
The Underwriting SELECTION Process
Competitive Salebull Financing Structure
created with Issuer Bond Counsel and Municipal Advisor
bull Underwriter services bid like construction project
bull Typically traditional Bond structure or higher rated credits
17
Negotiated Salebull Underwriter selected early
to assist in creation of Financing Structure
bull Allows Underwriter to better understand the credit to improve sale of bonds
bull Typically used on weaker rated credits
Bond Sources and Usesbull Sources
bull PrincipalPar Amount ndash Total obligation amount (face value of Bond)
bull Purchase Premium ndash Amount generated from bondholders when Coupon is higher than market rate for similar maturity
bull Usesbull Project Fund ndash Project requirementbull Capitalized Interest Fund ndash Proceeds used to make interest
payments while Project is being completedbull Debt Service Reserve Fund ndash Proceeds set aside in trust
account to protect bondholders and make debt service payment if Issuer is unable to make payment Typically the lesser of 3 tests
1 Maximum annual debt service2 10 of par value3 125 of average annual debt service
bull Cost of Issuance Financing costs for bond amp disclosure counsel municipal advisor rating agency trustee title or property insurance official statement distribution
bull Underwriterrsquos Discount Fee paid to underwriter to sell Bonds
18
Sources
Bond Principal $10000000
Purchase Premium $500000
Total Proceeds $10500000
Uses of Funds
Project Fund $8000000
Capitalized Interest 1500000
Debt Service Reserve $800000
Costs of Issuance $150000
Underwriter Discount $50000
Total Proceeds $10500000
Serial and Term Bondsbull Bond issue will include multiple
maturities that can be either Serial or Term Bonds
bull Serial Bonds ndash Single bond with one maturity
bull Term Bonds ndash Single Bond with annual redemption of identified portion of Principal prior to final maturity
bull Sinking Fund provision ensures that the municipality pays off portions of the term bond each year
bull Bondholder does not know if their portion of Term Bond will be paid on sinking date or at final maturity (trustee uses lottery to determine who is paid early)
bull Bond amortization similar to mortgage schedule with portion including interest and principal
19
Matures Principal Coupon Interest Debt Service
Serial 6302017 $ - 150 $ 150000 $ 150000
Serial 6302018 $ 500000 175 $ 168966 $ 668966
Serial 6302019 $ 550000 180 $ 167586 $ 717586
Serial 6302020 $ 560000 200 $ 179310 $ 739310
Serial 6302021 $ 575000 225 $ 193966 $ 768966
Serial 6302022 $ 590000 250 $ 206897 $ 796897
Serial 6302023 $ 600000 275 $ 218103 $ 818103
Term 6302026 $ 2000000 400 $ 303448 $ 2303448
Term 6302030 $ 2400000 425 $ 307759 $ 2707759 Mandatory Sinking Fund Prepayment for 6302026 Term Bond
Payment Date Principal Amount
6302024 $ 600000
6302025 $ 650000
6302026 (maturity) $ 750000
Determining Debt Service Schedulebull Structure the debt service according to the unique needs and situation of Project
bull Amortization refers to payment of Principal and the Interest due on the outstanding Principal balance each year
bull Level Debt service characterized by increasing Principal payments and decreasing Interest payments over time
bull Current Interest Bonds pay semi-annual Interest throughout the life of the Bondbull Capital Appreciation Bonds pay accrued Interest at maturity (Zero Coupon)bull Part of the financing costs can be defrayed using investment earnings on bond proceeds (with
restrictions)
20
$0
$50000
$100000
$150000
$200000
$250000
$300000
$350000
$400000
$450000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Level Debt Service Schedule
Principal Interest
Alternative Debt Structures
21
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years
Level Principal Debt Schedule
Principal Interest
$0
$100000
$200000
$300000
$400000
$500000
$600000
$700000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure New Principal Payments Interest
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Debt Policy Considerations
bull Essentiality of Projectbull Reserve levels to be maintainedbull Available cash to be applied towards Projectbull Financing structure
bull Limit financial exposure to critical services (general fund)bull Financial Assumptions
bull Conservative revenue growth assumptionsbull Drought impact on water revenuesbull Credit rating implications and impact on market interest rates
bull Continuing Disclosure Obligation
14
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
15
The Underwriting Process
bull The underwriter has a unique role they act as the middle-man buying bonds wholesale from the issuer and selling them on the market
bull Involved in pricing the bond and determining market-appropriate interest rates
bull Solicits investor interest
16
Mun
icip
al Is
suer Issues Bond
andReceives Proceeds from Underwriter U
nder
writ
er Buys entire Bond issue and reoffers to investors In
vest
ors Purchase Bond
from Underwriter
Receive periodic interest and principal payments
The Underwriting SELECTION Process
Competitive Salebull Financing Structure
created with Issuer Bond Counsel and Municipal Advisor
bull Underwriter services bid like construction project
bull Typically traditional Bond structure or higher rated credits
17
Negotiated Salebull Underwriter selected early
to assist in creation of Financing Structure
bull Allows Underwriter to better understand the credit to improve sale of bonds
bull Typically used on weaker rated credits
Bond Sources and Usesbull Sources
bull PrincipalPar Amount ndash Total obligation amount (face value of Bond)
bull Purchase Premium ndash Amount generated from bondholders when Coupon is higher than market rate for similar maturity
bull Usesbull Project Fund ndash Project requirementbull Capitalized Interest Fund ndash Proceeds used to make interest
payments while Project is being completedbull Debt Service Reserve Fund ndash Proceeds set aside in trust
account to protect bondholders and make debt service payment if Issuer is unable to make payment Typically the lesser of 3 tests
1 Maximum annual debt service2 10 of par value3 125 of average annual debt service
bull Cost of Issuance Financing costs for bond amp disclosure counsel municipal advisor rating agency trustee title or property insurance official statement distribution
bull Underwriterrsquos Discount Fee paid to underwriter to sell Bonds
18
Sources
Bond Principal $10000000
Purchase Premium $500000
Total Proceeds $10500000
Uses of Funds
Project Fund $8000000
Capitalized Interest 1500000
Debt Service Reserve $800000
Costs of Issuance $150000
Underwriter Discount $50000
Total Proceeds $10500000
Serial and Term Bondsbull Bond issue will include multiple
maturities that can be either Serial or Term Bonds
bull Serial Bonds ndash Single bond with one maturity
bull Term Bonds ndash Single Bond with annual redemption of identified portion of Principal prior to final maturity
bull Sinking Fund provision ensures that the municipality pays off portions of the term bond each year
bull Bondholder does not know if their portion of Term Bond will be paid on sinking date or at final maturity (trustee uses lottery to determine who is paid early)
bull Bond amortization similar to mortgage schedule with portion including interest and principal
19
Matures Principal Coupon Interest Debt Service
Serial 6302017 $ - 150 $ 150000 $ 150000
Serial 6302018 $ 500000 175 $ 168966 $ 668966
Serial 6302019 $ 550000 180 $ 167586 $ 717586
Serial 6302020 $ 560000 200 $ 179310 $ 739310
Serial 6302021 $ 575000 225 $ 193966 $ 768966
Serial 6302022 $ 590000 250 $ 206897 $ 796897
Serial 6302023 $ 600000 275 $ 218103 $ 818103
Term 6302026 $ 2000000 400 $ 303448 $ 2303448
Term 6302030 $ 2400000 425 $ 307759 $ 2707759 Mandatory Sinking Fund Prepayment for 6302026 Term Bond
Payment Date Principal Amount
6302024 $ 600000
6302025 $ 650000
6302026 (maturity) $ 750000
Determining Debt Service Schedulebull Structure the debt service according to the unique needs and situation of Project
bull Amortization refers to payment of Principal and the Interest due on the outstanding Principal balance each year
bull Level Debt service characterized by increasing Principal payments and decreasing Interest payments over time
bull Current Interest Bonds pay semi-annual Interest throughout the life of the Bondbull Capital Appreciation Bonds pay accrued Interest at maturity (Zero Coupon)bull Part of the financing costs can be defrayed using investment earnings on bond proceeds (with
restrictions)
20
$0
$50000
$100000
$150000
$200000
$250000
$300000
$350000
$400000
$450000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Level Debt Service Schedule
Principal Interest
Alternative Debt Structures
21
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years
Level Principal Debt Schedule
Principal Interest
$0
$100000
$200000
$300000
$400000
$500000
$600000
$700000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure New Principal Payments Interest
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
15
The Underwriting Process
bull The underwriter has a unique role they act as the middle-man buying bonds wholesale from the issuer and selling them on the market
bull Involved in pricing the bond and determining market-appropriate interest rates
bull Solicits investor interest
16
Mun
icip
al Is
suer Issues Bond
andReceives Proceeds from Underwriter U
nder
writ
er Buys entire Bond issue and reoffers to investors In
vest
ors Purchase Bond
from Underwriter
Receive periodic interest and principal payments
The Underwriting SELECTION Process
Competitive Salebull Financing Structure
created with Issuer Bond Counsel and Municipal Advisor
bull Underwriter services bid like construction project
bull Typically traditional Bond structure or higher rated credits
17
Negotiated Salebull Underwriter selected early
to assist in creation of Financing Structure
bull Allows Underwriter to better understand the credit to improve sale of bonds
bull Typically used on weaker rated credits
Bond Sources and Usesbull Sources
bull PrincipalPar Amount ndash Total obligation amount (face value of Bond)
bull Purchase Premium ndash Amount generated from bondholders when Coupon is higher than market rate for similar maturity
bull Usesbull Project Fund ndash Project requirementbull Capitalized Interest Fund ndash Proceeds used to make interest
payments while Project is being completedbull Debt Service Reserve Fund ndash Proceeds set aside in trust
account to protect bondholders and make debt service payment if Issuer is unable to make payment Typically the lesser of 3 tests
1 Maximum annual debt service2 10 of par value3 125 of average annual debt service
bull Cost of Issuance Financing costs for bond amp disclosure counsel municipal advisor rating agency trustee title or property insurance official statement distribution
bull Underwriterrsquos Discount Fee paid to underwriter to sell Bonds
18
Sources
Bond Principal $10000000
Purchase Premium $500000
Total Proceeds $10500000
Uses of Funds
Project Fund $8000000
Capitalized Interest 1500000
Debt Service Reserve $800000
Costs of Issuance $150000
Underwriter Discount $50000
Total Proceeds $10500000
Serial and Term Bondsbull Bond issue will include multiple
maturities that can be either Serial or Term Bonds
bull Serial Bonds ndash Single bond with one maturity
bull Term Bonds ndash Single Bond with annual redemption of identified portion of Principal prior to final maturity
bull Sinking Fund provision ensures that the municipality pays off portions of the term bond each year
bull Bondholder does not know if their portion of Term Bond will be paid on sinking date or at final maturity (trustee uses lottery to determine who is paid early)
bull Bond amortization similar to mortgage schedule with portion including interest and principal
19
Matures Principal Coupon Interest Debt Service
Serial 6302017 $ - 150 $ 150000 $ 150000
Serial 6302018 $ 500000 175 $ 168966 $ 668966
Serial 6302019 $ 550000 180 $ 167586 $ 717586
Serial 6302020 $ 560000 200 $ 179310 $ 739310
Serial 6302021 $ 575000 225 $ 193966 $ 768966
Serial 6302022 $ 590000 250 $ 206897 $ 796897
Serial 6302023 $ 600000 275 $ 218103 $ 818103
Term 6302026 $ 2000000 400 $ 303448 $ 2303448
Term 6302030 $ 2400000 425 $ 307759 $ 2707759 Mandatory Sinking Fund Prepayment for 6302026 Term Bond
Payment Date Principal Amount
6302024 $ 600000
6302025 $ 650000
6302026 (maturity) $ 750000
Determining Debt Service Schedulebull Structure the debt service according to the unique needs and situation of Project
bull Amortization refers to payment of Principal and the Interest due on the outstanding Principal balance each year
bull Level Debt service characterized by increasing Principal payments and decreasing Interest payments over time
bull Current Interest Bonds pay semi-annual Interest throughout the life of the Bondbull Capital Appreciation Bonds pay accrued Interest at maturity (Zero Coupon)bull Part of the financing costs can be defrayed using investment earnings on bond proceeds (with
restrictions)
20
$0
$50000
$100000
$150000
$200000
$250000
$300000
$350000
$400000
$450000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Level Debt Service Schedule
Principal Interest
Alternative Debt Structures
21
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years
Level Principal Debt Schedule
Principal Interest
$0
$100000
$200000
$300000
$400000
$500000
$600000
$700000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure New Principal Payments Interest
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
The Underwriting Process
bull The underwriter has a unique role they act as the middle-man buying bonds wholesale from the issuer and selling them on the market
bull Involved in pricing the bond and determining market-appropriate interest rates
bull Solicits investor interest
16
Mun
icip
al Is
suer Issues Bond
andReceives Proceeds from Underwriter U
nder
writ
er Buys entire Bond issue and reoffers to investors In
vest
ors Purchase Bond
from Underwriter
Receive periodic interest and principal payments
The Underwriting SELECTION Process
Competitive Salebull Financing Structure
created with Issuer Bond Counsel and Municipal Advisor
bull Underwriter services bid like construction project
bull Typically traditional Bond structure or higher rated credits
17
Negotiated Salebull Underwriter selected early
to assist in creation of Financing Structure
bull Allows Underwriter to better understand the credit to improve sale of bonds
bull Typically used on weaker rated credits
Bond Sources and Usesbull Sources
bull PrincipalPar Amount ndash Total obligation amount (face value of Bond)
bull Purchase Premium ndash Amount generated from bondholders when Coupon is higher than market rate for similar maturity
bull Usesbull Project Fund ndash Project requirementbull Capitalized Interest Fund ndash Proceeds used to make interest
payments while Project is being completedbull Debt Service Reserve Fund ndash Proceeds set aside in trust
account to protect bondholders and make debt service payment if Issuer is unable to make payment Typically the lesser of 3 tests
1 Maximum annual debt service2 10 of par value3 125 of average annual debt service
bull Cost of Issuance Financing costs for bond amp disclosure counsel municipal advisor rating agency trustee title or property insurance official statement distribution
bull Underwriterrsquos Discount Fee paid to underwriter to sell Bonds
18
Sources
Bond Principal $10000000
Purchase Premium $500000
Total Proceeds $10500000
Uses of Funds
Project Fund $8000000
Capitalized Interest 1500000
Debt Service Reserve $800000
Costs of Issuance $150000
Underwriter Discount $50000
Total Proceeds $10500000
Serial and Term Bondsbull Bond issue will include multiple
maturities that can be either Serial or Term Bonds
bull Serial Bonds ndash Single bond with one maturity
bull Term Bonds ndash Single Bond with annual redemption of identified portion of Principal prior to final maturity
bull Sinking Fund provision ensures that the municipality pays off portions of the term bond each year
bull Bondholder does not know if their portion of Term Bond will be paid on sinking date or at final maturity (trustee uses lottery to determine who is paid early)
bull Bond amortization similar to mortgage schedule with portion including interest and principal
19
Matures Principal Coupon Interest Debt Service
Serial 6302017 $ - 150 $ 150000 $ 150000
Serial 6302018 $ 500000 175 $ 168966 $ 668966
Serial 6302019 $ 550000 180 $ 167586 $ 717586
Serial 6302020 $ 560000 200 $ 179310 $ 739310
Serial 6302021 $ 575000 225 $ 193966 $ 768966
Serial 6302022 $ 590000 250 $ 206897 $ 796897
Serial 6302023 $ 600000 275 $ 218103 $ 818103
Term 6302026 $ 2000000 400 $ 303448 $ 2303448
Term 6302030 $ 2400000 425 $ 307759 $ 2707759 Mandatory Sinking Fund Prepayment for 6302026 Term Bond
Payment Date Principal Amount
6302024 $ 600000
6302025 $ 650000
6302026 (maturity) $ 750000
Determining Debt Service Schedulebull Structure the debt service according to the unique needs and situation of Project
bull Amortization refers to payment of Principal and the Interest due on the outstanding Principal balance each year
bull Level Debt service characterized by increasing Principal payments and decreasing Interest payments over time
bull Current Interest Bonds pay semi-annual Interest throughout the life of the Bondbull Capital Appreciation Bonds pay accrued Interest at maturity (Zero Coupon)bull Part of the financing costs can be defrayed using investment earnings on bond proceeds (with
restrictions)
20
$0
$50000
$100000
$150000
$200000
$250000
$300000
$350000
$400000
$450000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Level Debt Service Schedule
Principal Interest
Alternative Debt Structures
21
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years
Level Principal Debt Schedule
Principal Interest
$0
$100000
$200000
$300000
$400000
$500000
$600000
$700000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure New Principal Payments Interest
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
The Underwriting SELECTION Process
Competitive Salebull Financing Structure
created with Issuer Bond Counsel and Municipal Advisor
bull Underwriter services bid like construction project
bull Typically traditional Bond structure or higher rated credits
17
Negotiated Salebull Underwriter selected early
to assist in creation of Financing Structure
bull Allows Underwriter to better understand the credit to improve sale of bonds
bull Typically used on weaker rated credits
Bond Sources and Usesbull Sources
bull PrincipalPar Amount ndash Total obligation amount (face value of Bond)
bull Purchase Premium ndash Amount generated from bondholders when Coupon is higher than market rate for similar maturity
bull Usesbull Project Fund ndash Project requirementbull Capitalized Interest Fund ndash Proceeds used to make interest
payments while Project is being completedbull Debt Service Reserve Fund ndash Proceeds set aside in trust
account to protect bondholders and make debt service payment if Issuer is unable to make payment Typically the lesser of 3 tests
1 Maximum annual debt service2 10 of par value3 125 of average annual debt service
bull Cost of Issuance Financing costs for bond amp disclosure counsel municipal advisor rating agency trustee title or property insurance official statement distribution
bull Underwriterrsquos Discount Fee paid to underwriter to sell Bonds
18
Sources
Bond Principal $10000000
Purchase Premium $500000
Total Proceeds $10500000
Uses of Funds
Project Fund $8000000
Capitalized Interest 1500000
Debt Service Reserve $800000
Costs of Issuance $150000
Underwriter Discount $50000
Total Proceeds $10500000
Serial and Term Bondsbull Bond issue will include multiple
maturities that can be either Serial or Term Bonds
bull Serial Bonds ndash Single bond with one maturity
bull Term Bonds ndash Single Bond with annual redemption of identified portion of Principal prior to final maturity
bull Sinking Fund provision ensures that the municipality pays off portions of the term bond each year
bull Bondholder does not know if their portion of Term Bond will be paid on sinking date or at final maturity (trustee uses lottery to determine who is paid early)
bull Bond amortization similar to mortgage schedule with portion including interest and principal
19
Matures Principal Coupon Interest Debt Service
Serial 6302017 $ - 150 $ 150000 $ 150000
Serial 6302018 $ 500000 175 $ 168966 $ 668966
Serial 6302019 $ 550000 180 $ 167586 $ 717586
Serial 6302020 $ 560000 200 $ 179310 $ 739310
Serial 6302021 $ 575000 225 $ 193966 $ 768966
Serial 6302022 $ 590000 250 $ 206897 $ 796897
Serial 6302023 $ 600000 275 $ 218103 $ 818103
Term 6302026 $ 2000000 400 $ 303448 $ 2303448
Term 6302030 $ 2400000 425 $ 307759 $ 2707759 Mandatory Sinking Fund Prepayment for 6302026 Term Bond
Payment Date Principal Amount
6302024 $ 600000
6302025 $ 650000
6302026 (maturity) $ 750000
Determining Debt Service Schedulebull Structure the debt service according to the unique needs and situation of Project
bull Amortization refers to payment of Principal and the Interest due on the outstanding Principal balance each year
bull Level Debt service characterized by increasing Principal payments and decreasing Interest payments over time
bull Current Interest Bonds pay semi-annual Interest throughout the life of the Bondbull Capital Appreciation Bonds pay accrued Interest at maturity (Zero Coupon)bull Part of the financing costs can be defrayed using investment earnings on bond proceeds (with
restrictions)
20
$0
$50000
$100000
$150000
$200000
$250000
$300000
$350000
$400000
$450000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Level Debt Service Schedule
Principal Interest
Alternative Debt Structures
21
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years
Level Principal Debt Schedule
Principal Interest
$0
$100000
$200000
$300000
$400000
$500000
$600000
$700000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure New Principal Payments Interest
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Bond Sources and Usesbull Sources
bull PrincipalPar Amount ndash Total obligation amount (face value of Bond)
bull Purchase Premium ndash Amount generated from bondholders when Coupon is higher than market rate for similar maturity
bull Usesbull Project Fund ndash Project requirementbull Capitalized Interest Fund ndash Proceeds used to make interest
payments while Project is being completedbull Debt Service Reserve Fund ndash Proceeds set aside in trust
account to protect bondholders and make debt service payment if Issuer is unable to make payment Typically the lesser of 3 tests
1 Maximum annual debt service2 10 of par value3 125 of average annual debt service
bull Cost of Issuance Financing costs for bond amp disclosure counsel municipal advisor rating agency trustee title or property insurance official statement distribution
bull Underwriterrsquos Discount Fee paid to underwriter to sell Bonds
18
Sources
Bond Principal $10000000
Purchase Premium $500000
Total Proceeds $10500000
Uses of Funds
Project Fund $8000000
Capitalized Interest 1500000
Debt Service Reserve $800000
Costs of Issuance $150000
Underwriter Discount $50000
Total Proceeds $10500000
Serial and Term Bondsbull Bond issue will include multiple
maturities that can be either Serial or Term Bonds
bull Serial Bonds ndash Single bond with one maturity
bull Term Bonds ndash Single Bond with annual redemption of identified portion of Principal prior to final maturity
bull Sinking Fund provision ensures that the municipality pays off portions of the term bond each year
bull Bondholder does not know if their portion of Term Bond will be paid on sinking date or at final maturity (trustee uses lottery to determine who is paid early)
bull Bond amortization similar to mortgage schedule with portion including interest and principal
19
Matures Principal Coupon Interest Debt Service
Serial 6302017 $ - 150 $ 150000 $ 150000
Serial 6302018 $ 500000 175 $ 168966 $ 668966
Serial 6302019 $ 550000 180 $ 167586 $ 717586
Serial 6302020 $ 560000 200 $ 179310 $ 739310
Serial 6302021 $ 575000 225 $ 193966 $ 768966
Serial 6302022 $ 590000 250 $ 206897 $ 796897
Serial 6302023 $ 600000 275 $ 218103 $ 818103
Term 6302026 $ 2000000 400 $ 303448 $ 2303448
Term 6302030 $ 2400000 425 $ 307759 $ 2707759 Mandatory Sinking Fund Prepayment for 6302026 Term Bond
Payment Date Principal Amount
6302024 $ 600000
6302025 $ 650000
6302026 (maturity) $ 750000
Determining Debt Service Schedulebull Structure the debt service according to the unique needs and situation of Project
bull Amortization refers to payment of Principal and the Interest due on the outstanding Principal balance each year
bull Level Debt service characterized by increasing Principal payments and decreasing Interest payments over time
bull Current Interest Bonds pay semi-annual Interest throughout the life of the Bondbull Capital Appreciation Bonds pay accrued Interest at maturity (Zero Coupon)bull Part of the financing costs can be defrayed using investment earnings on bond proceeds (with
restrictions)
20
$0
$50000
$100000
$150000
$200000
$250000
$300000
$350000
$400000
$450000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Level Debt Service Schedule
Principal Interest
Alternative Debt Structures
21
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years
Level Principal Debt Schedule
Principal Interest
$0
$100000
$200000
$300000
$400000
$500000
$600000
$700000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure New Principal Payments Interest
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Serial and Term Bondsbull Bond issue will include multiple
maturities that can be either Serial or Term Bonds
bull Serial Bonds ndash Single bond with one maturity
bull Term Bonds ndash Single Bond with annual redemption of identified portion of Principal prior to final maturity
bull Sinking Fund provision ensures that the municipality pays off portions of the term bond each year
bull Bondholder does not know if their portion of Term Bond will be paid on sinking date or at final maturity (trustee uses lottery to determine who is paid early)
bull Bond amortization similar to mortgage schedule with portion including interest and principal
19
Matures Principal Coupon Interest Debt Service
Serial 6302017 $ - 150 $ 150000 $ 150000
Serial 6302018 $ 500000 175 $ 168966 $ 668966
Serial 6302019 $ 550000 180 $ 167586 $ 717586
Serial 6302020 $ 560000 200 $ 179310 $ 739310
Serial 6302021 $ 575000 225 $ 193966 $ 768966
Serial 6302022 $ 590000 250 $ 206897 $ 796897
Serial 6302023 $ 600000 275 $ 218103 $ 818103
Term 6302026 $ 2000000 400 $ 303448 $ 2303448
Term 6302030 $ 2400000 425 $ 307759 $ 2707759 Mandatory Sinking Fund Prepayment for 6302026 Term Bond
Payment Date Principal Amount
6302024 $ 600000
6302025 $ 650000
6302026 (maturity) $ 750000
Determining Debt Service Schedulebull Structure the debt service according to the unique needs and situation of Project
bull Amortization refers to payment of Principal and the Interest due on the outstanding Principal balance each year
bull Level Debt service characterized by increasing Principal payments and decreasing Interest payments over time
bull Current Interest Bonds pay semi-annual Interest throughout the life of the Bondbull Capital Appreciation Bonds pay accrued Interest at maturity (Zero Coupon)bull Part of the financing costs can be defrayed using investment earnings on bond proceeds (with
restrictions)
20
$0
$50000
$100000
$150000
$200000
$250000
$300000
$350000
$400000
$450000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Level Debt Service Schedule
Principal Interest
Alternative Debt Structures
21
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years
Level Principal Debt Schedule
Principal Interest
$0
$100000
$200000
$300000
$400000
$500000
$600000
$700000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure New Principal Payments Interest
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Determining Debt Service Schedulebull Structure the debt service according to the unique needs and situation of Project
bull Amortization refers to payment of Principal and the Interest due on the outstanding Principal balance each year
bull Level Debt service characterized by increasing Principal payments and decreasing Interest payments over time
bull Current Interest Bonds pay semi-annual Interest throughout the life of the Bondbull Capital Appreciation Bonds pay accrued Interest at maturity (Zero Coupon)bull Part of the financing costs can be defrayed using investment earnings on bond proceeds (with
restrictions)
20
$0
$50000
$100000
$150000
$200000
$250000
$300000
$350000
$400000
$450000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Level Debt Service Schedule
Principal Interest
Alternative Debt Structures
21
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years
Level Principal Debt Schedule
Principal Interest
$0
$100000
$200000
$300000
$400000
$500000
$600000
$700000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure New Principal Payments Interest
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Alternative Debt Structures
21
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Years
Level Principal Debt Schedule
Principal Interest
$0
$100000
$200000
$300000
$400000
$500000
$600000
$700000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure New Principal Payments Interest
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Credit Rating Agencies
bull Three Big Agencies are 3rd party assessors of credit quality
bull Standard amp Poorrsquosbull Moodyrsquos Investors Servicebull Fitch Ratings
bull Credit rating reflects likelihood that the Issuer will repay Bond
bull Rating reflects the security of the bond and the ability of the issuer to make debt service payments
bull Higher rated Bonds are considered safer and will have lower required interest rates
bull ldquoAAArdquo rated agencies like Beverly Hills can issue Bonds at lower rates than ldquoArdquo rated agencies
bull Municipalities may issue non-rated bonds as an alternative to paying for a credit rating
bull Investor require higher interest ratebull If the issue is small or if the municipality expects a sub-
BBB rating a non-rated bond may be the financially wiser option
22
SampP Moodys FitchAAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 AA- A3 A-
BBB+ Baa1 BBB+BBB Baa2 BBB BBB- Baa3 BBB-BB+ Ba1 BB+BB Ba2 BBBB- Ba3 BB-B+ B1 B+B B2 BB- B3 B-
CCC+ Caa1 CCC+CCC Caa2 CCC CCC- Caa3 CCC-CC Ca CC+C CC
CC-D D D
Highest Grade
Upper Mid Grade
Non-Investment Grade
Lower Mid Grade
Highly Speculative
In Default
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Credit Ratings and Yields
bull Currently required yield on a ldquoArdquo rated GO bond with 30 years to maturity is about 055 higher than the required Yield on a ldquoAAArdquo rated GO bond with the same maturity
bull Compensate investors for the higher risk of purchasing a bond with a lower credit rating (ie a higher chance of default)
bull An issuer that pays for bond insurance and effectively increases their rating from an ldquoArdquo rating to an ldquoAArdquo rating can save up to 025 on interest payments
bull From a historical perspective required yields on GO bonds are lower than they have been in the past 30 years
bull Implication is that refinancing done now will save money for the municipality in the long run (ie amount saved is equivalent to the difference in yields multiplied by time)
23
050
100
150
200
250
300
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
ds (
)
Years to Maturity
How Credit Rating Affects Yields(2016)
AAA GO Bond AA GO Bond A GO Bond
050
150
250
350
450
550
650
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Yiel
d (
)
Maturity
Historical Yields on AA GO Bonds
2016 2006 1986Sources MMD
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Credit Enhancements
bull Bond insurance companies can ldquocredit wraprdquo an Issuerrsquos Bondsbull Guarantees the BondholderInvestor additional protection in the event
Issuer cannot make the paymentbull Issuer pays a one-time premium to Bond Insurance Company for ldquoinsured
Ratingrdquobull Rating agencies assign rating to Bond Insurance Company based on financial
reserves credit exposure
bull Issuer Bond rating becomes rating of Bond Insurance Companybull Could change over time if financial position of Bond Insurance Company improves
or becomes weaker
24
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Determine Market Interest Ratesbull Market rates based on Bond rating and Issuer
credit qualitiesbull Principal amount will also determine
bondholder interestbull Too small and institutional investors will ignore
regardless of credit ratingbull Market transparency makes finding
comparable bond issues easy (TM3 database)bull Special Bond Characteristics
bull Green Bonds ndash Special class of investorsbull Bank Qualified ndash Smaller Issuers provide traditional
banks with tax credits if invested in ldquoBank Qualified Bondsrdquo ndash typically under $10000000 in a single year
25
$26165000 $23710000 $95240000
OAKDALE IRRIGATION DISTRICT MADERA IRRIGATION DISTRICT MODESTO CALIF IRR DIST
WATER REVENUE REFUNDING BONDS SERIES 2016
WWATER REVENUE REFUNDING BONDS SERIES 2016
ELECTRIC SYSSTEM REFUNDING REVENEU BONDS SERIES 2016
SampP AA SampP AA (AGM) A (UNDERLYING) SampP A+ FITCH A+
NA AGM NAAugust 1 September 1 October 1
812023 PAR 912026 PAR 1012026 PAR
WELLS FARGO SECURITIES CITIGROUP GLOBAL MARKETS INC
CITIGROUP GLOBAL MARKETS INC
8232016 8242016 98201682316
MMD Coupon YieldSpread
to MMD82416
MMD Coupon YieldSpread
to MMD9816 MMD Coupon Yield
Spreadto MMD
0460 3000 0460 0000 0600 3000 0630 0030 0600 2000 0640 00400520 4000 0560 0040 0700 3000 0600 -0100 0700 5000 0730 00300600 4000 0670 0070 0770 4000 0710 -0060 0770 5000 0810 00400710 4000 0780 0070 0860 4000 0870 0010 0860 5000 0900 00400840 2000 0940 0100 0950 5000 1050 0100 0950 5000 1010 00601020 5000 1130 0110 1080 5000 1280 0200 1080 5000 1170 00901130 2000 1260 0130 1190 5000 1440 0250 1190 5000 1320 01301220 5000 1350 0130 1280 5000 1560 0280 1280 5000 1460 01801310 5000 1460 0150 1360 5000 1670 0310 1360 5000 1570 02101400 5000 1550 0150 1450 5000 1780 0330 1450 5000 1710 02601490 5000 1640 0150 1530 5000 1900 0370 1530 5000 1820 02901570 5000 1720 0150 1610 5000 1990 0380 1610 5000 1900 02901640 5000 1790 0150 1680 5000 2070 0390 1680 5000 1980 03001700 5000 1850 0150 1730 4000 2380 0650 1730 5000 2030 03001750 5000 1900 0150 1780 4000 2420 0640 1780 5000 2080 03001800 5000 1950 0150 1840 4000 2450 0610 1840 5000 2130 02901850 5000 2000 0150 1890 4000 2500 0610 1890 5000 2180 02901900 5000 2020 0120 1940 3000 3000 1060 1940 5000 2210 02701950 5000 2100 0150 1990 3000 3020 1030 19901990 2030 3000 3030 1000 20302010 2050 3000 3040 0990 20502030 3000 3020 0990 2070 20702040 2080 20802050 2090 20902060 2100 21002070 2110 21102080 2120 21202090 2130 21302100 2140 21402110 2150 2150
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Pricing the Bondsbull Reoffering Yield Return to Bondholder after
adjusting Coupon for initial purchase premium or discount
bull ldquoReturn on investmentrdquo from the perspective of the investor
bull As price increases yield (return) decreases
bull Premium Bonds have a Coupon higher than the current market rates Purchase price above 100
bull Premium bond prices typically less volatile but have higher risk of being called later
bull Par Bonds have a Coupon rate that matches current market rates Purchase price 100
bull Discount Bonds have a Coupon lower than the current market rates Purchase price below 100
bull Discount Bonds less likely to be called
26
SettlementDate
Maturity Date Coupon
MarketYield Price
1212016 1212021 500 400 104452
1212016 1212021 500 425 103316
1212016 1212021 500 450 102195
1212016 1212021 500 475 101090
1212016 1212021 500 500 100000
1212016 1212021 500 525 98925
1212016 1212021 500 550 97865
1212016 1212021 500 575 96819
1212016 1212021 500 600 95788
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Effect of Price on Bond Size
bull Issuing a premium Bond can decrease need to issue as many Bonds
bull Increasing the coupon by 100 basis points (bps) or 100 has a big effect on bond price
bull In the example both the premium Bonds and the discount Bonds raised the same amount of money
ExampleIssue $10MM in 30-yr bonds Market Yield is 3501 Issue Premium Bonds at
450 price at $11839 Need to issue 8500 bonds to reach $10MM
2 Issue Par Bonds at 350 results in a price of $100 Need to issue 10000 bonds to reach $10MM
3 Issuing Discount Bonds at 250 results in a price of $8161 Need to issue 12250bonds to reach $10MM
27
As price increases
Size of the issue decreases
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Calculating Purchase Premiumsbull Purchase premium is a
function of the difference between the Underwriterrsquos purchase price and the re-offer price to the public
bull It depends on yields bond maturity and coupon rates
bull Total premium is an aggregate of premiums on individual issues
28
Maturity Par Amount Coupon Market YieldUnderwriter
Purchase Price
Reoffering Price Premium
1212017 $10000 500 475 $9900 $10024 $124
1212018 $10000 513 500 $9900 $10023 $123
1212019 $10000 525 513 $9900 $10034 $134
1212020 $10000 525 525 $9900 $10000 $100
1212021 $10000 525 550 $9900 $9893 -$107Total
Premium$474
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
The Official Statementbull Document created by Disclosure Counselbull Securities document required to educate bondholders prior to purchasing Bondbull Preliminary Official Statement (POS) must include
bull Issuer Profile and Legal Authoritybull Tax-Exempt or Taxable Bond Statusbull Principal Amount Maturity Datesbull RedemptionCall Provisionsbull Source of RepaymentSecurity for Bondholdersbull Remedies of Delinquencybull Issuer Credit and Community Demographics and Descriptionbull Credit EnhancementBond insurance information (if applicable)bull Finance team playersbull Continuing Disclosure requirements
bull Final Official Statement (FOS)bull Will include final Principal Amounts and Interest RatesCoupons
29
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Continuing Disclosure Requirementsbull Continuing Disclosure Certificate in the
Official Statement (OS) requires the issuer to
1 Post Financial Information and Operating Data to MSRBrsquos EMMA system annuallybull Generally due 9 months after end of public
agencyrsquos fiscal year
2 Provide notices of significant eventsbull Principal and interest payment delinquenciesbull Unscheduled draws on DSRFbull Unscheduled use of Credit enhancementbull Substitution of creditliquidity providersbull Rating changesbull Adverse tax opinions by IRSbull Bond calls and tender offersbull Defeasancesbull Bankruptcy insolvency receivership
30
bull Continuing Disclosure Certificate is legally binding
bull SEC has heightened scrutiny of Continuing Disclosure compliance
bull Failure to comply could lead to the SEC taking action against an issuer andor underwriter
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Bond Covenants
bull These promises commit the municipality to take action to preserve investor interests
bull Underscores the importance of maintaining documentation at the Issuer level to assure that these covenants are being honored
31
Promise to repay principal and interest
Promise to take necessary action to ensure payment
Promise to maintain tax exempt status
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Basic Bond MathPriceYield
TIC (Total Interest Cost)Debt Service Payments
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Basic Bond Math
bull Municipal Finance Professionals typically use customized financial software or complex Excel spreadsheets to make their calculations
bull Excel functions provide a fairly accurate approximation1 Bond Price2 Yield to Maturity3 Annual Debt Service Payments4 True Interest Cost
33
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Calculating Price on a Bond
bull You can use the equation
C=coupon payments i=interest rate M=payment at maturity n=number of periods
bull Excel function=PRICE(delivery date maturity date coupon yield value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Yield 450Maturity Value $100Coupon Payments per Year 1Day Count Basis 0 (0 = 360 daysyear)
Price
34
$10396
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Calculating Yield to Maturity
bull EquationBack-solves using bond price to determine yield
bull Excel Function=YIELD(delivery date maturity date coupon price value at maturity coupon payments per year day count basis)
ExampleDelivery Date 1212016Maturity Date 1212026Coupon (Interest Rate) 500Purchase Price $11000Maturity Value $10000Coupon Payments per Year 1Day Count Basis 0 (0=360 daysyr)
YTM35
378
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Calculating Debt Service Payments
bull If public agency needs to issue Bonds to pay for a police station knowing the expected cost of the station how can you approximate the yearly debt service
bull Excel Function=PMT(Rate Number of periods Present Value Future Value when payment due)
Bond Issue Size $25000000PV $25000000FV $000Coupon 3500Years to Maturity 30When Payment Due 0 (0= end of period)
Approximate Yearly Debt Service
36
$1359283
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
Calculating True Interest Cost
bull Calculation of effective rate representing the present value of payments made on Bond to the NET price from Bond
bull All-inclusive borrowing rate on Bond
Excel function=IRR(values guess)
Values are a series of payments (cash outflows must have negative number cash inflows are positive)Guess gives Excel a place to start solving
Example$10000000 Bond with a 10 year maturity Knowing the Debt Service Schedule what is the TIC
Note Annual Debt Service as negative cash flows(money going out)
TIC
37
3727
Cash FlowDate
Annual Debt Service
Amount1212016 10000000$ 1212017 (1050000)$ 1212018 (1050000)$ 1212019 (1050000)$ 1212020 (1050000)$ 1212021 (1150000)$ 1212022 (1150000)$ 1212023 (1150000)$ 1212024 (1250000)$ 1212025 (1250000)$ 1212026 (2250000)$
Level Debt Service
Principal44827587799999979551724154339999666551724306799995275862070701999997862068983359999849655172596999997106896553603999961172413812379999712758620887199996137931036505999951482758641399999315862069177399995168965519407999931793103470419999218965517467599994200000002309999922103448299439999122068965757799993231034485211999912413793128459999251724140479999892620689681139999272413795747999922827586233819999293103451015999893034482786499998831379310628399986324137933917999853344827615519998934482758918599988Interest300000289655172366000012793103447320000326896551709799998258620689464248275861830000012379310341960000222758620656200001217241378928000022068965512940000319655172366000005186206896026000031758620683920000416551724075800006155172413124000041448275854900000613448275785600007124137930222000071137931025880000710344827495400008931034473200000798275861968600007872413792052000092620689644180000915172413678400009741379309150000103310344815160001022068965388200010410344826248000105-13859998947009444E-3
Level Principal Debt Schedule
Principal333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333Interest300000290000000128000000020000001270000000299999962600000003999999925000000049999997240000000599999972300000006999999822000000079999998210000000899999982000000009999999619000000109999996180000001199999971700000012999999716000000139999995150000001499999951400000015999999613000000169999996120000001799999951100000018999999610000000199999995900000020999999548000000219999994470000002299999949600000023999999475000000249999994440000002599999942300000026999999392000000279999993710000002899999936
Years
Debt Structure with Wrap Around Solution
Pre-Existing Debt Structure300000300000300000300000300000300000300000300000300000300000300000300000New Principal Payments003333336666669999991333332166666500000000011999998000000000323333310000000005266666400000000072999997000000000840000345000360000375000390000405000420000435000450000465000480000495000510000525000540000555000570000585000600000Interest3000003000003000002999000001299700000299999962994000005999999729900000099999999298500001499999952979000020999999329720000279999992964000035999998829550000449999986294300004499999862839500044999998627315000449999986261900004499999892502000044999998923805000449999989225450004499999892124000044999998919890000449999989184950004499999891705500044999998915570000449999989140400004499999891246500044999998910845000449999989918000044999998947470000449999989457150004499999901
Years
How Credit Rating Affects Yields
AAA GO Bond12345678910111213141516171819202122232425262728293007207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233AA GO Bond07608509410611499999999999999128143159171819220821321800000000000002224000000000000022292342392430000000000000224624900000000000002250999999999999982522529999999999999825425499999999999998256257258A GO Bond0890991110000000000000112814155171920099999999999998212212319999999999999824124625099999999999998257262267271275277279281282283284285286287288
Years to Maturity
Yields ()
Historical Yields on AA GO Bonds
201607207808609610411499999999999999127139148157166175183188193199204209214218000000000000022212240000000000000222599999999999998227227999999999999982292299999999999999823123199999999999998233200634834834834935135335636364369374378382386389392395397399401403405407409411000000000000034134150000000000000441641741719864254750999999999999996535557596616263646566676756756868686856856856856856969696969
Maturity
Yield ()
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Sources | Matures | Principal | Coupon | Interest | Debt Service | |||||||||||||
Bond Proceeds | 63017 | $ - | 150 | $ 150000 | $ 150000 | |||||||||||||
Par Amount | $ 1000000000 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | ||||||||||||
Net Amount of Premium | $ 120000000 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | ||||||||||||
Total | $ 1120000000 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | ||||||||||||
63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||
Uses | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | |||||||||||||
Project Fund Deposits | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | |||||||||||||
Project Fund | $ 930000000 | |||||||||||||||||
Other Fund Deposits | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | |||||||||||||
Capitalized Interest Fund | $ 134000000 | |||||||||||||||||
Debt Service Reserve Fund | $ 22575550 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||
Delivery Date Expenses | ||||||||||||||||||
Costs of Issuance | $ 15000000 | |||||||||||||||||
Underwriters Discount | $ 18340000 | |||||||||||||||||
Additional Proceeds | $ 124450 | |||||||||||||||||
Total | $ 1120040000 | |||||||||||||||||
SampP | Moodys | Fitch | ||||||
AAA | Aaa | AAA | Highest Grade | |||||
AA+ | Aa1 | AA+ | ||||||
AA | Aa2 | AA | ||||||
AA- | Aa3 | AA- | ||||||
A+ | A1 | A+ | Upper Medium Grade | |||||
A | A2 | A | ||||||
A- | A3 | A- | ||||||
BBB+ | Baa1 | BBB+ | Lower Medium Grade | |||||
BBB | Baa2 | BBB | ||||||
BBB- | Baa3 | BBB- | ||||||
BB+ | Ba1 | BB+ | Non-Investment Grade | |||||
BB | Ba2 | BB | ||||||
BB- | Ba3 | BB- | ||||||
B+ | B1 | B+ | Highly Speculative | |||||
B | B2 | B | ||||||
B- | B3 | B- | ||||||
CCC+ | Caa1 | CCC+ | ||||||
CCC | Caa2 | CCC | ||||||
CCC- | Caa3 | CCC- | ||||||
CC | Ca | CC+ | In Default | |||||
C | CC | |||||||
CC- | ||||||||
D | D | D |
AAA GO | AA GO | A GO | |||||
92116 | 92116 | 92116 | |||||
1 | 072 | 076 | 089 | ||||
2 | 078 | 085 | 099 | ||||
3 | 086 | 094 | 111 | ||||
4 | 096 | 106 | 128 | ||||
5 | 104 | 115 | 14 | ||||
6 | 115 | 128 | 155 | ||||
7 | 127 | 143 | 17 | ||||
8 | 139 | 159 | 19 | ||||
9 | 148 | 17 | 201 | ||||
10 | 157 | 18 | 21 | ||||
11 | 166 | 19 | 221 | ||||
12 | 175 | 2 | 232 | ||||
13 | 183 | 208 | 241 | ||||
14 | 188 | 213 | 246 | ||||
15 | 193 | 218 | 251 | ||||
16 | 199 | 224 | 257 | ||||
17 | 204 | 229 | 262 | ||||
18 | 209 | 234 | 267 | ||||
19 | 214 | 239 | 271 | ||||
20 | 218 | 243 | 275 | ||||
21 | 221 | 246 | 277 | ||||
22 | 224 | 249 | 279 | ||||
23 | 226 | 251 | 281 | ||||
24 | 227 | 252 | 282 | ||||
25 | 228 | 253 | 283 | ||||
26 | 229 | 254 | 284 | ||||
27 | 23 | 255 | 285 | ||||
28 | 231 | 256 | 286 | ||||
29 | 232 | 257 | 287 | ||||
30 | 233 | 258 | 288 | ||||
AAA GO | AAA GO | AAA GO | |||||
92116 | 92106 | 92286 | |||||
1 | 072 | 348 | 425 | ||||
2 | 078 | 348 | 47 | ||||
3 | 086 | 348 | 51 | ||||
4 | 096 | 349 | 53 | ||||
5 | 104 | 351 | 55 | ||||
6 | 115 | 353 | 57 | ||||
7 | 127 | 356 | 59 | ||||
8 | 139 | 36 | 6 | ||||
9 | 148 | 364 | 61 | ||||
10 | 157 | 369 | 62 | ||||
11 | 166 | 374 | 63 | ||||
12 | 175 | 378 | 64 | ||||
13 | 183 | 382 | 65 | ||||
14 | 188 | 386 | 66 | ||||
15 | 193 | 389 | 67 | ||||
16 | 199 | 392 | 675 | ||||
17 | 204 | 395 | 675 | ||||
18 | 209 | 397 | 68 | ||||
19 | 214 | 399 | 68 | ||||
20 | 218 | 401 | 68 | ||||
21 | 221 | 403 | 685 | ||||
22 | 224 | 405 | 685 | ||||
23 | 226 | 407 | 685 | ||||
24 | 227 | 409 | 685 | ||||
25 | 228 | 411 | 685 | ||||
26 | 229 | 413 | 69 | ||||
27 | 23 | 415 | 69 | ||||
28 | 231 | 416 | 69 | ||||
29 | 232 | 417 | 69 | ||||
30 | 233 | 417 | 69 |
Settlement Date | Maturity Date | Coupon | MarketYield | Price | Calculated Yield | |||||||||||||||||||||||
12116 | 12121 | 500 | 400 | 104452 | P | 004 | IRRTIC | |||||||||||||||||||||
R | 2 Bonds | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 425 | 103316 | E | 00425 | Amount | Maturity Date | ||||||||||||||||||||
M | 1st Bond | |||||||||||||||||||||||||||
12116 | 12121 | 500 | 450 | 102195 | I | 0045 | 2nd Bond | |||||||||||||||||||||
U | ||||||||||||||||||||||||||||
12116 | 12121 | 500 | 475 | 101090 | M | 00475 | ||||||||||||||||||||||
12116 | 12121 | 500 | 500 | 100000 | PAR | 005 | ||||||||||||||||||||||
12116 | 12121 | 500 | 525 | 98925 | D | 00525 | ||||||||||||||||||||||
I | Par Value | 100 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 550 | 97865 | S | 0055 | Coupon | 500 | ||||||||||||||||||||
C | UW Purchase Price | 9998 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 575 | 96819 | O | 00575 | Re-Offer Price | 104452 | ||||||||||||||||||||
U | Purchase Premium | 4472 | ||||||||||||||||||||||||||
12116 | 12121 | 500 | 600 | 95788 | N | 006 | ||||||||||||||||||||||
T | ||||||||||||||||||||||||||||
Maturity | Par Amount | Coupon | Market Yield | UnderwriterPurchase Price | Re-Offer Price | Premium | ||||||||||||||||||||||
Price and Yield Calcs | PMT Calcs | 12116 | Prem | 12117 | $10000 | 500 | 475 | $9900 | $10024 | $124 | ||||||||||||||||||
Market Yield | 0035 | 12116 | ($135928329) | Prem | 12118 | $10000 | 513 | 500 | $9900 | $10023 | $123 | |||||||||||||||||
Premium | 0045 | 12126 | Prem | 12119 | $10000 | 525 | 513 | $9900 | $10034 | $134 | ||||||||||||||||||
Discount | 0025 | 5 | Par | 12120 | $10000 | 525 | 525 | $9900 | $10000 | $100 | ||||||||||||||||||
12116 | 450 | 110 | Disc | 12121 | $10000 | 525 | 550 | $9900 | $9893 | -$007 | ||||||||||||||||||
12146 | 100 | Totals | Total Premium | $474 | ||||||||||||||||||||||||
100 | 1 | |||||||||||||||||||||||||||
0 | ||||||||||||||||||||||||||||
Premium Price | 1183920454114 | 1039563590886 | 00378052414 | |||||||||||||||||||||||||
Discount Price | 816079545886 | |||||||||||||||||||||||||||
Cash FlowDate | Annual Debt Service Amount | |||||||||||||||||||||||||||
12116 | $ 10000000 | |||||||||||||||||||||||||||
12117 | $ (1050000) | |||||||||||||||||||||||||||
12118 | $ (1050000) | |||||||||||||||||||||||||||
12119 | $ (1050000) | |||||||||||||||||||||||||||
12120 | $ (1050000) | |||||||||||||||||||||||||||
12121 | $ (1150000) | |||||||||||||||||||||||||||
12122 | $ (1150000) | |||||||||||||||||||||||||||
12123 | $ (1150000) | |||||||||||||||||||||||||||
12124 | $ (1250000) | |||||||||||||||||||||||||||
12125 | $ (1250000) | |||||||||||||||||||||||||||
12126 | $ (2250000) | |||||||||||||||||||||||||||
3727 |
Level Debt Service | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | |||||||||||||||||||||||
2 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | |||||||||||||||||||||||
3 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | |||||||||||||||||||||||
4 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | |||||||||||||||||||||||
5 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | |||||||||||||||||||||||
6 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | |||||||||||||||||||||||
7 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | |||||||||||||||||||||||
8 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | |||||||||||||||||||||||
9 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | |||||||||||||||||||||||
10 | 68965517098 | 137931036506 | 003 | 206896551294 | 3448275878 | |||||||||||||||||||||||
11 | 6551724122 | 14827586414 | 003 | 19655172366 | 3448275878 | |||||||||||||||||||||||
12 | 62068965342 | 158620691774 | 003 | 186206896026 | 3448275878 | |||||||||||||||||||||||
13 | 58620689464 | 168965519408 | 003 | 175862068392 | 3448275878 | |||||||||||||||||||||||
14 | 55172413586 | 179310347042 | 003 | 165517240758 | 3448275878 | |||||||||||||||||||||||
15 | 51724137708 | 189655174676 | 003 | 155172413124 | 3448275878 | |||||||||||||||||||||||
16 | 4827586183 | 20000000231 | 003 | 14482758549 | 3448275878 | |||||||||||||||||||||||
17 | 44827585952 | 210344829944 | 003 | 134482757856 | 3448275878 | |||||||||||||||||||||||
18 | 41379310074 | 220689657578 | 003 | 124137930222 | 3448275878 | |||||||||||||||||||||||
19 | 37931034196 | 231034485212 | 003 | 113793102588 | 3448275878 | |||||||||||||||||||||||
20 | 34482758318 | 241379312846 | 003 | 103448274954 | 3448275878 | |||||||||||||||||||||||
21 | 3103448244 | 25172414048 | 003 | 931034473200001 | 3448275878 | |||||||||||||||||||||||
22 | 27586206562 | 262068968114 | 003 | 827586196860001 | 3448275878 | |||||||||||||||||||||||
23 | 24137930684 | 272413795748 | 003 | 724137920520001 | 3448275878 | |||||||||||||||||||||||
24 | 20689654806 | 282758623382 | 003 | 620689644180001 | 3448275878 | |||||||||||||||||||||||
25 | 17241378928 | 293103451016 | 003 | 517241367840001 | 3448275878 | |||||||||||||||||||||||
26 | 1379310305 | 30344827865 | 003 | 413793091500001 | 3448275878 | |||||||||||||||||||||||
27 | 10344827172 | 313793106284 | 003 | 310344815160001 | 3448275878 | |||||||||||||||||||||||
28 | 689655129400003 | 324137933918 | 003 | 206896538820001 | 3448275878 | |||||||||||||||||||||||
29 | 344827541600003 | 334482761552 | 003 | 103448262480001 | 3448275878 | |||||||||||||||||||||||
30 | -00461999965 | 344827589186 | 003 | -000 | 3448275878 | |||||||||||||||||||||||
Level Principal | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | ||||||||||||||||||||||||
1 | 10000000 | 33333333 | 003 | 300000 | 63333333 | |||||||||||||||||||||||
2 | 966666667 | 33333333 | 003 | 2900000001 | 6233333301 | |||||||||||||||||||||||
3 | 933333334 | 33333333 | 003 | 2800000002 | 6133333302 | |||||||||||||||||||||||
4 | 900000001 | 33333333 | 003 | 2700000003 | 6033333303 | |||||||||||||||||||||||
5 | 866666668 | 33333333 | 003 | 2600000004 | 5933333304 | |||||||||||||||||||||||
6 | 833333335 | 33333333 | 003 | 2500000005 | 5833333305 | |||||||||||||||||||||||
7 | 800000002 | 33333333 | 003 | 2400000006 | 5733333306 | |||||||||||||||||||||||
8 | 766666669 | 33333333 | 003 | 2300000007 | 5633333307 | |||||||||||||||||||||||
9 | 733333336 | 33333333 | 003 | 2200000008 | 5533333308 | |||||||||||||||||||||||
10 | 700000003 | 33333333 | 003 | 2100000009 | 5433333309 | |||||||||||||||||||||||
11 | 66666667 | 33333333 | 003 | 200000001 | 533333331 | |||||||||||||||||||||||
12 | 633333337 | 33333333 | 003 | 1900000011 | 5233333311 | |||||||||||||||||||||||
13 | 600000004 | 33333333 | 003 | 1800000012 | 5133333312 | |||||||||||||||||||||||
14 | 566666671 | 33333333 | 003 | 1700000013 | 5033333313 | |||||||||||||||||||||||
15 | 533333338 | 33333333 | 003 | 1600000014 | 4933333314 | |||||||||||||||||||||||
16 | 500000005 | 33333333 | 003 | 1500000015 | 4833333315 | |||||||||||||||||||||||
17 | 466666672 | 33333333 | 003 | 1400000016 | 4733333316 | |||||||||||||||||||||||
18 | 433333339 | 33333333 | 003 | 1300000017 | 4633333317 | |||||||||||||||||||||||
19 | 400000006 | 33333333 | 003 | 1200000018 | 4533333318 | |||||||||||||||||||||||
20 | 366666673 | 33333333 | 003 | 1100000019 | 4433333319 | |||||||||||||||||||||||
21 | 33333334 | 33333333 | 003 | 100000002 | 433333332 | |||||||||||||||||||||||
22 | 300000007 | 33333333 | 003 | 900000021 | 4233333321 | |||||||||||||||||||||||
23 | 266666674 | 33333333 | 003 | 800000021999999 | 4133333322 | |||||||||||||||||||||||
24 | 233333341 | 33333333 | 003 | 700000022999999 | 4033333323 | |||||||||||||||||||||||
25 | 200000008 | 33333333 | 003 | 600000023999999 | 3933333324 | |||||||||||||||||||||||
26 | 166666675 | 33333333 | 003 | 500000024999999 | 3833333325 | |||||||||||||||||||||||
27 | 133333342 | 33333333 | 003 | 400000025999999 | 3733333326 | |||||||||||||||||||||||
28 | 100000009 | 33333333 | 003 | 300000026999999 | 3633333327 | |||||||||||||||||||||||
29 | 666666759999998 | 33333333 | 003 | 200000027999999 | 3533333328 | |||||||||||||||||||||||
30 | 333333429999998 | 33333333 | 003 | 1000000 | 3433333329 | |||||||||||||||||||||||
31 | 0 | 33333333 | 003 | 000 | 333333333 | |||||||||||||||||||||||
Wrap Option | ||||||||||||||||||||||||||||
PrincipalOutstanding | Principal Paid | Coupon | Interest | Debt Service | Pre-Existing Debt | |||||||||||||||||||||||
1 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
2 | 10000000 | 0 | 003 | 300000 | 600000 | 300000 | ||||||||||||||||||||||
3 | 10000000 | 333333 | 003 | 300000 | 60333333 | 300000 | ||||||||||||||||||||||
4 | 999666667 | 666666 | 003 | 2999000001 | 6065666601 | 300000 | ||||||||||||||||||||||
5 | 999000001 | 999999 | 003 | 2997000003 | 6096999903 | 300000 | ||||||||||||||||||||||
6 | 998000002 | 1333332 | 003 | 2994000006 | 6127333206 | 300000 | ||||||||||||||||||||||
7 | 99666667 | 1666665 | 003 | 299000001 | 615666651 | 300000 | ||||||||||||||||||||||
8 | 995000005 | 1999998 | 003 | 2985000015 | 6184999815 | 300000 | ||||||||||||||||||||||
9 | 993000007 | 2333331 | 003 | 2979000021 | 6212333121 | 300000 | ||||||||||||||||||||||
10 | 990666676 | 2666664 | 003 | 2972000028 | 6238666428 | 300000 | ||||||||||||||||||||||
11 | 988000012 | 2999997 | 003 | 2964000036 | 6263999736 | 300000 | ||||||||||||||||||||||
12 | 985000015 | 40000 | 003 | 2955000045 | 6355000045 | 300000 | ||||||||||||||||||||||
13 | 981000015 | 345000 | 003 | 2943000045 | 6393000045 | |||||||||||||||||||||||
14 | 946500015 | 360000 | 003 | 2839500045 | 6439500045 | |||||||||||||||||||||||
15 | 910500015 | 375000 | 003 | 2731500045 | 6481500045 | |||||||||||||||||||||||
16 | 873000015 | 390000 | 003 | 2619000045 | 6519000045 | |||||||||||||||||||||||
17 | 834000015 | 405000 | 003 | 2502000045 | 6552000045 | |||||||||||||||||||||||
18 | 793500015 | 420000 | 003 | 2380500045 | 6580500045 | |||||||||||||||||||||||
19 | 751500015 | 435000 | 003 | 2254500045 | 6604500045 | |||||||||||||||||||||||
20 | 708000015 | 450000 | 003 | 2124000045 | 6624000045 | |||||||||||||||||||||||
21 | 663000015 | 465000 | 003 | 1989000045 | 6639000045 | |||||||||||||||||||||||
22 | 616500015 | 480000 | 003 | 1849500045 | 6649500045 | |||||||||||||||||||||||
23 | 568500015 | 495000 | 003 | 1705500045 | 6655500045 | |||||||||||||||||||||||
24 | 519000015 | 510000 | 003 | 1557000045 | 6657000045 | |||||||||||||||||||||||
25 | 468000015 | 525000 | 003 | 1404000045 | 6654000045 | |||||||||||||||||||||||
26 | 415500015 | 540000 | 003 | 1246500045 | 6646500045 | |||||||||||||||||||||||
27 | 361500015 | 555000 | 003 | 1084500045 | 6634500045 | |||||||||||||||||||||||
28 | 306000015 | 570000 | 003 | 918000044999999 | 6618000045 | |||||||||||||||||||||||
29 | 249000015 | 585000 | 003 | 747000044999999 | 6597000045 | |||||||||||||||||||||||
30 | 190500015 | 600000 | 003 | 5715000 | 6571500045 | |||||||||||||||||||||||
31 | 130500015 | 003 | 3915000 | 391500044999999 | ||||||||||||||||||||||||
869499985 | ||||||||||||||||||||||||||||
Principal | Coupon | Interest | Debt Service | Principal | Coupon | Interest | Debt Service | Mandatory Sinking Fund Prepayment | ||||||||||||||||||||
63017 | 10000000 | 448275878 | 003 | 300000 | 3448275878 | 63017 | $ - | 150 | $ 150000 | $ 150000 | Payment Date | Principal Amount | ||||||||||||||||
63018 | 96551724122 | 55172415434 | 003 | 289655172366 | 3448275878 | 63018 | $ 500000 | 175 | $ 168966 | $ 668966 | 63024 | $ 60000000 | ||||||||||||||||
63019 | 93103448244 | 65517243068 | 003 | 279310344732 | 3448275878 | 63019 | $ 550000 | 180 | $ 167586 | $ 717586 | 63025 | $ 65000000 | ||||||||||||||||
63020 | 89655172366 | 75862070702 | 003 | 268965517098 | 3448275878 | 63020 | $ 560000 | 200 | $ 179310 | $ 739310 | 6302026 (maturity) | $ 75000000 | ||||||||||||||||
63021 | 86206896488 | 86206898336 | 003 | 258620689464 | 3448275878 | 63021 | $ 575000 | 225 | $ 193966 | $ 768966 | ||||||||||||||||||
63022 | 8275862061 | 9655172597 | 003 | 24827586183 | 3448275878 | 63022 | $ 590000 | 250 | $ 206897 | $ 796897 | ||||||||||||||||||
63023 | 79310344732 | 106896553604 | 003 | 237931034196 | 3448275878 | 63023 | $ 600000 | 275 | $ 218103 | $ 818103 | ||||||||||||||||||
63026 | 75862068854 | 117241381238 | 003 | 227586206562 | 3448275878 | 63026 | $ 2000000 | 400 | $ 303448 | $ 2303448 | ||||||||||||||||||
63030 | 72413792976 | 127586208872 | 003 | 217241378928 | 3448275878 | 63030 | $ 2400000 | 425 | $ 307759 | $ 2707759 | ||||||||||||||||||
Mandatory Sinking Fund Prepayment | ||||||||||||||||||||||||||||
Payment Date | Principal Amount | |||||||||||||||||||||||||||
63024 | 600000 | |||||||||||||||||||||||||||
63025 | 650000 | |||||||||||||||||||||||||||
6302026 (maturity) | 750000 |
What is Arbitrage
bull Internal Revenue Service defines ldquoArbitragerdquo as the earnings on bond proceeds that exceed the allowable yield
bull The Arbitrage Yield is the rate the Issuer is paying for the Bondsbull Includes principal interest and any reoffering premium or discountbull Also includes any credit enhancement premiumbull Does NOT include underwriter discount or costs of issuance
bull Issuer must ldquoRebaterdquo 100 of excess earnings on Bonds back to the Federal Government
bull IRS does not want Issuers making money on the money they borrow
38
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Real life ExampleSacramento Golden 1 Center
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Recent Example Golden 1 Center FinancingFuture Sports and Entertainment Complex Cost $299995000bull Sacramento Public Financing
Authority issued Lease Revenue Bonds (LRB)
bull Security Lease agreement with the City of Sacramento
bull Repayment Source Net Parking Revenues and Rent Payments from the Kings)
bull Exempt from State income tax Federally taxable
bull Final Maturity 2050bull Serial Bonds 2016-2023bull Term Bonds 2050 (Sinking Fund Provision)
bull Credit Rating ldquoArdquo (Fitch) ldquoA+rdquo (SampP) 40
Imag
e So
urce
ww
wg
olde
n1ce
nter
com
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
41Bond Investors
Rent from Kings Basketball Team
Parking Revenues Collected by City
Double-Barrel Pledge
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Assemble Financing Teambull IssuerBorrower Public agency responsible for approval and repayment obligationbull Municipal Advisor Project manager who develops and implements financing plan
on behalf of issuerbull Bond Counsel legal representation regarding the tax-exempt status and legitimacy
of the Bondsbull Disclosure Counsel legal representation to Issuer amp Bondholders on disclosure of
credit - Official Statement (OS)bull Bond Underwriter serves as a middle-man to aggregate bondholders to sell Issuer Bonds
bull Makes an offer to the Issuer to purchase Bonds and resell to bondholders (individual institutional)bull If Bonds are not all pre-sold underwriter ldquoholdsrdquo the balance for future resale
bull Trustee Administrative duties related to protecting bondholders including collecting payments from Issuer and disbursement to bondholders
bull Rating Agency 3rd party credit review firm responsible for assigning rating based on creditworthiness of Issuer and Bond structure (relied on by Bondholders)
42
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Golden 1 Center Debt Service and Sources and Uses Tables
Level Annual Debt Service
43
Usesbull Project Fundbull Capitalized Interest to make interest
payments until project completion (October 2016)
bull Reserve Fund (MADS)bull COI Fund (costs of financing)
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Golden 1 Center OSbull Par Amount Issuer Issue Type Credit
Rating
bull Date of Issuance
bull Purpose of the Bonds
bull Project DescriptionObligations of Issuer
bull Security for Bonds
bull Tax Status
bull Underwriters44
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Summary of Presentation
bull Understand Bond Basicsbull Develop Financial Plan for Projectbull Adopt Debt Policies and Procedures to Guide Processbull Work with Finance Team to Implement Best Financial Solutionbull Understand and Prepare for ongoing Continuing Disclosure
Requirements once Bonds are issued
45
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46
Contact Information
bull Brad Koehn Director of Finance amp Administrative Servicesbull City of Elk Grove (Issuer ndash Public Agency)bull 9166273221bull BkoehnElkGroveCityorg
bull Craig Hill Principalbull NHA Advisors LLC (Municipal Advisors)bull 4157852025bull CraigNHAadvisorscom
46