Philip Cosson - Ehlers John Mehan - Baird David …...Final Structure Debt Service Coverage 1.20x Project Amount $30,350,000 Total Estimated Bond Size $33,340,000 Dated Date 8/15/2018

Financing Complex ProjectsPhilip Cosson - EhlersJohn Mehan - Baird David Mullen - Dougherty & Company

• Introductions

• Federal & state regulations

• Security type

• Case study: John Mehan

• Case study: David Mullen

• Q & A

Session summary

• Well-planned debt use can greatly enhance ability to complete projects

• Debt issuance & management is successful only when you:

Understand financing options

Receive clear information on implications of decisions

Have a basic understanding of rules & regulations

Know the players, their roles & for whom they “work”

Understand how bonds are sold

Introduction

• Debt must be secured by something

• Two main security types for municipal debt in Wisconsin:

1. General obligation (G.O.)

Backed by full faith & credit of municipality (subject to 5% of EV)

Commitment to levy a tax if no other revenues available

Typically considered most secure pledge, meaning lowest interest rates

Security type

2. Revenue Backed by specific revenue source, most commonly utilities but

also TID, lease, hospital or other revenues

Interest rates depend on source of financing, source of revenue (essential vs. non-essential service) and revenue history

Security type (continued)

• Maximum term General obligation: 20 years (statutorily defined) Revenue: 40 years (typically market driven)

• Use of proceeds Notes (term of 10 years or less): any public purpose Bonds (term longer than 10 years): restricted purposes

If issued for purpose not specifically enumerated, referendum required

• General obligation debt limit Outstanding G.O. debt can’t exceed 5% of municipality’s EV

State regulations

Tax-exempt financing considers 2 tests:

if either are met = taxable issue

1. Private loan test:

Are there loans to private parties greater than either $5M or 5% of proceeds (which ever is the lesser amount)?

Federal tax-exempt regulations

1. Private activity test: additional considerations:

Private Use: Are 10% of the proceeds used for benefit of private entity?

Private Pay: Are 10% of debt service payments secured by private parties?

Both tests must be met to require taxable issue

Federal tax-exempt regulations

• You determined project doesn’t fit cleanly in either bucket (GO or a Essential Purpose Revenue)

Limited borrowing capacity or don’t want to use GO for TID/Economic Development projects

Local financial institution isn’t willing to participate due to cost of project, credit or term needed

How to fund large water/sewer projects

How to access interim financing for projects with a takeout coming from USDA/CWF & SDW

Financing issues & concerns

2/19/2020 9

When most of these conditions are met, a negotiated sale may be a better option.

Financing issues & concerns

2/19/2020 10

Current market issues

2/19/2020 11

• John Mehan

• Dave Mullen

Case studies

2/19/2020 12

U:\NON_IB_FOLDERS\Fixed Income_Public Finance\[MINIMAL] FICM Pitchbook - 2018_110918.pptx 11/9/18 12:22 pm

1

Financing Complex Projects

Robert W. Baird & Co. Incorporated is providing this information to you for discussion purposes. The materials do not contemplate or relate to a future issuance of municipal securities. Baird is not recommending that you take any action, and this information is not intended to be regarded as “advice” within the meaning of Section 15B of the Securities Exchange Act of 1934 or the rules thereunder.


2

Financing Initiation

Room Tax Commission

ProjectTimeline Revenues

Convention and Visitors Bureau


3

The Project - Fox Cities Champions Center (“FCCC”)

X

Project (Fox Cities Champion Center) Timeline

October 2019 Targeted completion date

Premier indoor sports venue 164,000 sq. ft. building Year-round NHL-sized ice rinks Seating for 1,000 people A fieldhouse with four basketball courts or

eight volleyball courts and seating for 800 people

A seasonal arena that can operate as an ice rink or as four basketball or six volleyball courts, depending on the demand for use (seating available for 300-500 people)


4

Revenues Supporting Debt ServiceMunicipalities Agreeing to Hotel/Motel Tax

10% Hotel / Motel Tax

Utilized by Municipalities and CVB

FCCC 3%


5

Unknowns

Team

Issuer

Tax Treatment

Rating

Structure


6

How do we build the financing team?

Revenue SourceConsiderations

Municipal Advisor

Investment Banker

Underwriter’s Counsel

Bond Counsel

Bond Counsel opinion matters

Providing security for the Bonds

Proven experience Issuer


7

Will you be my Issuer?

Outagamie County WHEFA

Town of Grand Chute

Grand Chute

CDA (NEW)

Are you willing to take on the project

liability?

Who will manage the project construction?

How to address cashflow constraints

(go beyond 20 years)?


8

Members of the financing team

CVB/Room Tax Convention & Visitors

Bureau

Municipal Advisor

InvestmentBanker

Underwriter’sCounsel

BondCounsel

Town of Grand Chute

Champion Center physically located in Grand Chute, WI

Town was willing to partner to create the CDA, and would also be responsible for the debt

Bond pricing benefitted from Town’s underlying rating

Ability to issue debt for beyond 20 years per state statues

Community Development Director

Issuer


9

Will the bonds be taxable or tax-exempt?

Tax-Exempt Taxable

Management Contract

Revenue Sourceto Pay Debt

Issuer

Project


10

How available revenues effect debt structure?

3% Increase YOY

Factors to Consider:

Hoteliers pay room tax directly to trustee instead of the municipalities.

Debt amortization – beyond 20 years

Project entrusted to the town to manage construction

Will the hotel/motel tax be enough to pay debt service? What if there is a shortfall/surplus?

How will the bonds be secured?

Room Tax – Projecting Revenue


What is attractive to investors?

How will the structure effect the rating?

How will it effect the timing of debt payments?

What structure achieves the most efficient financing?

What is the best financing structure?

DebtService

Reserve Fund (“DSRF”)

Bond Fund

Room Tax

StabilizationFund

(“RTSF”) Redemption

Fund

RevenueFund

Reimbursementto Town

11


12

How Do Tax Revenues Flow?

Bond Fund • Annual debt service paid• Subsequent calendar year debt service held 1 yr. in advance of Bond Payments

DebtService

Reserve Fund (“DSRF”)

•Trustee tests DSRF balance requirement

Room Tax Stabilization

Fund (“RTSF”)

•Trustee tests RTSF balance requirement•Withdrawals trigger notification to the Town of Grand Chute and Baird

RedemptionFund •Semi-annual redemptions on interest payment dates

•$100,000 minimum redemption

RevenueFund

• All Room Taxes from Hotels Directly Deposited with Trustee • Any Lease Payments & Investment Income• Distributed Quarterly to Each Fund in Accordance with Flow of Funds Below

Reimbursementto Town •Trustee reimburses Town for any advances on Lease Payments


13

Which Rating Agency?

S&P Moody’s

Town of Grand Chute’s Underlying Rating

High Grade Bond Rating

Related Rating Experiences

Minor League Stadiums and Expo Centers

Rating Agency Methodologies

Bond Counsel Position

Factors to Consider:

The Town of Grand Chute, WI currently holds

an underlying General Obligation rating of “Aa2” by Moody’s

The Appleton Redevelopment Authority

(“ARA”) currently holds an underlying rating of

“AA” by S&P Global


14

Strong economy, with access to a broad and diverse metropolitan statistical area (MSA);

Strong management, with "good" financial policies and practices under our Financial Management Assessment (FMA) methodology;

Strong budgetary performance, with operating surpluses in the general fund and at the total governmental fund level in fiscal 2017;

Very strong budgetary flexibility, with an available fund balance in fiscal 2017 of 35% of operating expenditures;

Very strong liquidity, with total government available cash at 1.5x total governmental fund expenditures and 8.1x governmental debt service, and access to external liquidity we consider strong;

Very weak debt and contingent liability position, with debt service carrying charges at 14.8% of expenditures and net direct debt that is 240.5% of total governmental fund revenue; and

Adequate institutional framework score

“AA” Rating from S&P Global Rating Highlights

Source: S&P Rating Report as of June 13, 2018


15

Essential Pre-Marketing Process

Marketing Time Period

Sales Memo (Internal) Investor Presentation/Webinar Timing

Internal, one-page document highlighting key components of financing that serves as a reference for Baird’s sales force

High level overview of project,financing, debt structure, revenue sources, and rating available as a handout and presentation led by Robert Buckingham, Community Development Director, Mike Harrigan, Advisor, and John Mehan, Banker, that was recorded and made available electronically

• 7/10 – Recording of Investor Presentation Webinar• 7/12 – Release of Email “Investor Toolkit” to Baird’s

Institutional Sales Force• 7/13 – Included in Baird negotiated sales calendar

distributed to sales force• 7/19-20 – Bankers fielded investor calls requesting

additional information about the financing• 7/23 – Preliminary Pricing wires released• 7/25 – Order period complete

More than 80 views of investor webinar by Baird Sales force and institutional investor


16

Final Structure

Debt Service Coverage 1.20x

Project Amount $30,350,000

Total Estimated Bond Size $33,340,000

Dated Date 8/15/2018

Final Maturity 4/1/2051

All-Inclusive TIC 4.493547%

Interest Payments Semi-annually, commencing October 1, 2018

Security Quiet Enjoyment Lease between Town and CDA

Principal Payments

Annually, beginning April 1, 2020

Amortization 2020 - 2051

Tax Status Federally Taxable.State Tax-Exempt for Wisconsin Residents.

Rating S&P AA Stable outlook

Optional Redemption

8-years

Mandatory Redemption

Funded by surplus room taxes

Financing Highlights

• April 1, 2020 extraordinary call will allow $100,000 of outstanding debt to be paid

• Debt service shortened to 2044 instead of 2051

• $9.0 million in savings

Extraordinary Call Option


17

Impactful Community Project

Economic Development projects are possible for any entity regardless of size

Multiple variables must be explored, primarily revenues and structure

Don’t have to be the “issuer” – there are benefits of collaboration

Anticipated $8 million of annual economic activity for the Fox Cities

40 events booked including tournaments

“…a once-in-a-generation tourism facility."

Offering community-based leagues, open recreational time, rentals, camps and clinics

'Premier sports tourism destination in the Midwest'

Key Takeaways


18

Important Disclosures

Robert W. Baird & Co. Incorporated is providing this information to you for discussion purposes only. The information does not contemplate or relate to a future issuance of municipal securities. Baird is not recommending that you take any action, and this information is not intended to be regarded as “advice” within the meaning of Section 15B of the Securities Exchange Act of 1934 or the rules thereunder. In providing this information, Baird is not acting as an advisor to you and does not owe you a fiduciary duty pursuant to Section 15B of the Securities Exchange Act of 1934. You should discuss the information contained herein with any and all internal or external advisors and experts you deem appropriate before acting on the information.

Unique Financing Structures

• Short Term Bridge Loans

• Small Tax Increment Revenue Bonds

Case Study 1How to finance a sewerage system expansion for a small Wisconsin town related to a single, large

private userChallenges: How to determine future TIF revenues to offset sewerage rate

increase as a result of a project expansion The TIF revenues and sewer rates need to be in place in order

to close the permanent financing through the WI Clean Water Fund

Initial TIF revenues lag the project commencement by approximately two years

Case Study 1 ‐ Solution

• Issue a $6.09 million short term (22 month) Revenue Bond Anticipation Notes to finance the sewerage system expansion for the new project

• The private plant expansion had already commenced• Once the private plant expansion is complete and the TIF

revenues are determined, the WI Clean Water Fund Loan can close

Case Study 1 – Key Underwriting Issues

• Key user of the sewerage system provided 67% of sewerage system revenue

• We needed comfort that the new project was moving forward and the private business was a long term user

• Needed to understand the various “takeout” options

Case Study 2

How to finance the construction of a new hospital that has a USDA permanent financing commitment that

closes upon completion of construction

Challenges The construction loan finances 100% of the construction costs

Minimize capitalized interest during construction


• Find larger, regional banks willing to rely on the USDA takeout and finance 100% of the construction costs

‐ OR –

• Issue Publicly Offered Bond Anticipation Notes

Case Study 2 – Key Underwriting Issues

• A Bank loan offers the advantage of a draw‐down loan, reducing capitalized interest – However, most banks will not offer 100% financing

• Publically offered Bond Anticipation Notes – Likely a lower interest rate but not a draw‐down structure so increased capitalized interest

Case Study 2 – Examples

$22,590,000Roane County, WV General HospitalExpansion and Renovation of Local HospitalRevenue Bond Anticipation NotesTwo Year, 2.55% Interest Rate (Fully advanced at closing)Secured by Hospital Revenues and USDA Takeout

$29,023,000Boone County, NE Health CenterConstruction of a New HospitalTwo Year, 3.52% Interest Rate (Draw Down Loan)Secured by Hospital Revenues and USDA Takeout

Case Study 3 Refinance a high yielding, taxable tax increment

revenue bond secured by a single user in a manufacturing facility

Challenges• Single property tax payer which is a private business

• Bond payments subject to annual appropriation• No minimum assessment agreement, no company guaranty, no access to company financial statements


• Structure a taxable refunding bond• Projected debt service coverage of 1.25x• Visit plant and meet with senior management to obtain long term viability of the tax payer

• Add further security with a subordinate pledge from a separate, single payer tax increment district increasing debt service coverage to 2.0x

Your presenters

2/19/2020 13

Philip Cosson, CIPMASenior Municipal [email protected](262) 796-6161

John MehanManaging [email protected]

David MullenSenior Vice [email protected]

Documents

Philip Cosson - Ehlers John Mehan - Baird David …...Final Structure Debt Service Coverage 1.20x Project Amount $30,350,000 Total Estimated Bond Size $33,340,000 Dated Date 8/15/2018