California Debt and Investment California Debt and Investment - - PowerPoint PPT Presentation

California Debt and Investment California Debt and Investment Advisory Commission Advisory Commission

Mechanics of a Bond Sale: Mechanics of a Bond Sale: The Legal Documents The Legal Documents Presenters: Geoff Gibbs and Steve Walsh Presenters: Geoff Gibbs and Steve Walsh Oakland , CA Oakland , CA March 13, 2008 March 13, 2008

Presenters Presenters

Geoffrey T. Gibbs Geoffrey T. Gibbs --

• - Attorney

Attorney

The Gibbs Law Group, LLP The Gibbs Law Group, LLP Oakland, CA Oakland, CA ggibbs@gotolawfirm.com ggibbs@gotolawfirm.com (510) 834 (510) 834-

• 8885

8885

Steve Walsh Steve Walsh --

• - Issuer

Issuer

County of Alameda County of Alameda Oakland, CA Oakland, CA stephen.walsh@acgov.org stephen.walsh@acgov.org (510) 272 (510) 272-

• 3844

3844

The Roadmap Documents The Roadmap Documents

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Time and Responsibility Schedule Time and Responsibility Schedule

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Issuer must seize control of this document (you will live with i Issuer must seize control of this document (you will live with it) t)

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Holidays, Super Bowl Sunday, etc.: they matter Holidays, Super Bowl Sunday, etc.: they matter

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Allow enough time for the team to read your documents Allow enough time for the team to read your documents

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Distribution List Distribution List

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The people on this list will be your The people on this list will be your “ “family family” ” for 8 for 8-

• 16 weeks

16 weeks

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Closing Memo Closing Memo

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Review an earlier example sooner rather than later: you need to Review an earlier example sooner rather than later: you need to know know now now what you will have to produce at the end what you will have to produce at the end

Sample Time and Responsibility Schedule Sample Time and Responsibility Schedule

The Right Schedule The Right Schedule – – Making The Timetable Work for You Making The Timetable Work for You

„ „

Work backwards from the closing date Work backwards from the closing date

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Be aware of notice periods for board meetings Be aware of notice periods for board meetings

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Allow enough time for the team to review Allow enough time for the team to review documents documents

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Be realistic about weekends and holidays Be realistic about weekends and holidays

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Consult all key players before you reschedule Consult all key players before you reschedule key all key all-

• hands sessions

hands sessions

Sample Closing Memo Sample Closing Memo

Sample Closing Memo (additional pages) Sample Closing Memo (additional pages)

Types of Financings Types of Financings

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Bonds Bonds

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General Obligation General Obligation

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Lease Revenue Lease Revenue

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Enterprise Enterprise

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Fixed or Variable Rate Fixed or Variable Rate

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Certificates of Participation Certificates of Participation

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Notes Notes

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Refundings Refundings

Financing Documents Financing Documents --

• - Resolution

Resolution

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Approves and Authorizes the Financing Approves and Authorizes the Financing

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Establishes Financing Parameters: Establishes Financing Parameters:

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Maximum interest rate (or minimum savings) Maximum interest rate (or minimum savings)

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Maximum amount of borrowing Maximum amount of borrowing

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Underwriter Underwriter’ ’s discount s discount

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Other provisions (delegation of authority, insurance, Other provisions (delegation of authority, insurance, credit enhancement, ratification and approval of all other credit enhancement, ratification and approval of all other necessary actions) necessary actions)

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Approves the other documents and the Preliminary Approves the other documents and the Preliminary Official Statement in substantially final form Official Statement in substantially final form

Remember signature authority and “all other necessary actions”

Financing Documents Financing Documents --

• - Indenture

Indenture

„ „

This document lays out the legal structure and terms of This document lays out the legal structure and terms of the financing. It will specify: the financing. It will specify:

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The maturities of the bonds The maturities of the bonds

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The principal and interest payment dates The principal and interest payment dates

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The revenues and accounts pledged to the repayment of the The revenues and accounts pledged to the repayment of the bonds bonds

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The flow of funds for the accounts (the mechanics of the The flow of funds for the accounts (the mechanics of the cashflow cashflow) )

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Parity debt provisions (ability to issue future bonds) Parity debt provisions (ability to issue future bonds)

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Default and remedy provisions (what happens if something Default and remedy provisions (what happens if something goes wrong?) goes wrong?)

Parity debt provisions bind you now and in future years --- make sure you understand their effect

Financing Documents Financing Documents – – Indenture (II) Indenture (II)

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This document lays out the legal structure and terms of the fina This document lays out the legal structure and terms of the financing. It will

• ncing. It will

specify: specify:

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Prepayment or redemption provisions Prepayment or redemption provisions

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• ptional, extraordinary, or sinking fund
• ptional, extraordinary, or sinking fund

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Permitted Investments Permitted Investments

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Amendment process Amendment process

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With Bondholder consent With Bondholder consent

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Without Bondholder consent Without Bondholder consent

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Defeasance provisions (in the event the bonds are refunded or pr Defeasance provisions (in the event the bonds are refunded or prepaid) epaid)

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Issuer Covenants (tax covenants, rate covenants, or foreclosure Issuer Covenants (tax covenants, rate covenants, or foreclosure covenants, depending on type of financing) covenants, depending on type of financing)

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Many of the key points in your financing will be addressed withi Many of the key points in your financing will be addressed within the n the “ “defined terms defined terms” ” at the beginning of this document at the beginning of this document Parties to the Agreement: Issuer and Trustee Parties to the Agreement: Issuer and Trustee

Covenants you enter into re: taxes and rates will directly affect your budgets and operations for years to come.

Sample Sample Indenture

Indenture-

• Table of Contents

Table of Contents

Financing Documents Financing Documents – – COP or Lease Revenue Structure COP or Lease Revenue Structure

Public Agency JPA or Nonprofit Public Benefit Corporation (1) Site lease: Public agency leases property to JPA (2) Facility Lease: JPA leases back property to public agency in return for ongoing lease payments (4) Bond purchase agreement: Underwriter commits to purchase of bonds Trustee Underwriter (3) Indenture: JPA pledges to repay bonds

Financing Documents Financing Documents – – COP or Lease Revenue Agreements COP or Lease Revenue Agreements

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Site Lease Site Lease

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Lease from public agency to financing entity Lease from public agency to financing entity

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Sets up leaseback to public agency Sets up leaseback to public agency

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Lease Lease

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Lessor is Joint Powers Authority or Nonprofit Public Benefit Co Lessor is Joint Powers Authority or Nonprofit Public Benefit Corporation rporation

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Lessee is public agency Lessee is public agency

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Important Provisions: Important Provisions:

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Lease Payments (Interest and Principal Components) Lease Payments (Interest and Principal Components)

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Abatement (Beneficial use and occupancy) Abatement (Beneficial use and occupancy)

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Insurance (Liability, Hazard, Title, etc.) Insurance (Liability, Hazard, Title, etc.)

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Remedies (Re Remedies (Re-

• enter and re

enter and re-

• let)

let)

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Restrictions on Use of Facility Restrictions on Use of Facility

Financing Documents Financing Documents – – COP or Lease Revenue Agreements (II) COP or Lease Revenue Agreements (II)

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Assignment Agreement Assignment Agreement

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Assigns rights un Assigns rights u der the Lease to the Trustee nder the Lease to the Trustee Parties: Public Agency (lessee) and Authority (lessor) Parties: Public Agency (lessee) and Authority (lessor)… ….Trustee (Assignment Agreement) .Trustee (Assignment Agreement) Pay attention to important economic concepts

• f Fair Rental Value and Useful Economic Life

Financing Documents Financing Documents – – Refunding Transactions Refunding Transactions

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Escrow Agreement Escrow Agreement

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Verification Report Verification Report

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Defeasance Opinion Defeasance Opinion

Financing Documents Financing Documents – – Preliminary Official Statement Preliminary Official Statement

„ „

Distributed by Underwriter to prospective investors prior to sal Distributed by Underwriter to prospective investors prior to sale e so investor can make informed purchase decisions. Should be as so investor can make informed purchase decisions. Should be as close as final as possible (must be close as final as possible (must be “ “deemed final deemed final” ” pursuant to pursuant to executed certificate by Issuer) with actual pricing terms (inter executed certificate by Issuer) with actual pricing terms (interest est rates and principal amounts) left blank pursuant to Rule 15c2 rates and principal amounts) left blank pursuant to Rule 15c2-

• 12

12

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Final Official Statement, including all final pricing informatio Final Official Statement, including all final pricing information, n, distributed by underwriter to all actual purchasers no later tha distributed by underwriter to all actual purchasers no later than 7 n 7 business days after date of bond purchase agreement. business days after date of bond purchase agreement.

POS Threshold Issues POS Threshold Issues

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Who Prepares? Who Prepares?

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Disclosure Counsel Disclosure Counsel

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Underwriter Underwriter’ ’s Counsel s Counsel

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Who Reviews? Who Reviews?

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Staff Staff

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Public Officials Public Officials

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Working Group Working Group

Financing Documents Financing Documents – – Preliminary Official Statement (II) Preliminary Official Statement (II)

„ „

Rule 10b Rule 10b-

• 5 Materiality Standard:

5 Materiality Standard:

„ „

Do not Do not omit

• mit or
• r misstate

misstate a a material material fact fact

„ „

What is What is “ “material material” ”? ?

„ „

A misstatement or omission is material if there is a reasonable A misstatement or omission is material if there is a reasonable likelihood that a reasonable (not likelihood that a reasonable (not “ “any any” ”) investor would (not ) investor would (not “ “could could” ”) consider it important (not ) consider it important (not “ “interesting interesting” ”) in making the ) in making the decision to purchase or sell the securities decision to purchase or sell the securities

Do not fall into the 3 Big Materiality Traps: (1)“It’s not in writing” (2)“It’s only a draft report” (3)“There’s a difference of opinion”

Financing Documents Financing Documents – – Preliminary Official Statement (III) Preliminary Official Statement (III)

„ „

Contents of POS (Describes the Debt, Issuer, and Sources of Contents of POS (Describes the Debt, Issuer, and Sources of Repayment) Repayment)

„ „

The Bonds or Certificates The Bonds or Certificates

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Purpose of the financing Purpose of the financing

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Security and sources of payment Security and sources of payment

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Estimated sources and uses of bond proceeds Estimated sources and uses of bond proceeds

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The The project(s project(s) )

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The Issuer The Issuer

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Risk factors Risk factors

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Other (e.g., tax matters, ratings, litigation, continuing disclo Other (e.g., tax matters, ratings, litigation, continuing disclosure sure

• bligation)
• bligation)

„ „

Appendices (audited financial statements, issuer economic and st Appendices (audited financial statements, issuer economic and statistical atistical data, form of bond counsel opinion credit enhancement, summary o data, form of bond counsel opinion credit enhancement, summary of f legal documents) legal documents) Executed by the Issuer --- THIS IS THE ISSUER’S DOCUMENT

The Dual Purpose of the POS and The Dual Purpose of the POS and Basic Cost Basic Cost-

• Benefit Analysis

Benefit Analysis

„ „

Offering document serves not only as the sales Offering document serves not only as the sales document to investors but also as an insurance document to investors but also as an insurance policy with respect to lawsuits policy with respect to lawsuits

„ „

Accordingly, there is little benefit to: Accordingly, there is little benefit to:

„ „

Not telling the whole story Not telling the whole story

„ „

Trying to save a paragraph or two in a 75 Trying to save a paragraph or two in a 75-

• page

page document document

Financing Documents Financing Documents – – Bond Purchase Agreement Bond Purchase Agreement

„ „

This contract, executed on the day of the bond This contract, executed on the day of the bond sale, specifies: sale, specifies:

„ „

Principal amount of bonds to be sold, maturity Principal amount of bonds to be sold, maturity schedule, interest rates and prices. schedule, interest rates and prices.

„ „

Underwriter commits to purchase bonds at Closing Underwriter commits to purchase bonds at Closing and issuer commits to sell bonds and issuer commits to sell bonds

„ „

Underwriter Underwriter’ ’s Discount s Discount

Financing Documents Financing Documents – – Bond Purchase Agreement (II) Bond Purchase Agreement (II)

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Representations and Warranties Representations and Warranties

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Due authorization Due authorization

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No conflict No conflict

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No litigation No litigation

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No prior continuing disclosure default No prior continuing disclosure default

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Duty to update Official Statement Duty to update Official Statement

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Termination Provisions (Pay Particular Attention to These) Termination Provisions (Pay Particular Attention to These)

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“ “War out War out” ”

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Other market or regulatory disruptions (e.g. recent rating downg Other market or regulatory disruptions (e.g. recent rating downgrades) rades)

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Closing Documents and Opinions Closing Documents and Opinions

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This is the final roadmap: understand what is called for This is the final roadmap: understand what is called for Parties: Issuer and Underwriter Parties: Issuer and Underwriter

Financing Documents Financing Documents – – Tax Certificate Tax Certificate

„ „

Specifies factual information on which Bond Specifies factual information on which Bond Counsel relies for tax analysis Counsel relies for tax analysis

„ „

Contains covenants and obligations of the Issuer Contains covenants and obligations of the Issuer regarding matters such as use of proceeds and regarding matters such as use of proceeds and arbitrage calculations arbitrage calculations

Financing Documents Financing Documents – – Continuing Disclosure Certificate Continuing Disclosure Certificate

„ „

Contents of Annual Report Contents of Annual Report

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Certain relevant Certain relevant “ “annual financial information annual financial information” ”

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Audited financial statements Audited financial statements

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Notice of occurrence of 11 Notice of occurrence of 11 “ “material events material events” ”

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Notice of any failure to file the above Notice of any failure to file the above

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Dissemination Agent Dissemination Agent

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NRMSIRS NRMSIRS

This document establishes the annual reporting requirements for the Issuer for the life of the bonds. M ake sure your agency has the capacity to meet these deadlines before you finalize the document.

Financing Agreements Financing Agreements – – Credit Enhancement Documents Credit Enhancement Documents

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Bond Insurance Bond Insurance

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Commitment Letter Commitment Letter

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Bond Insurance Policy Bond Insurance Policy

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Letters of Credit Letters of Credit

„ „

Reimbursement Agreement Reimbursement Agreement

If You Don If You Don’ ’t Remember t Remember Anything Else Anything Else… ….. ..

„ „

Issuers need to read and understand their bond Issuers need to read and understand their bond documents documents— —it it’ ’s hard work and it takes time. s hard work and it takes time.

„ „

If you don If you don’ ’t understand what a provision in a t understand what a provision in a document means, ask the members of your document means, ask the members of your finance team. finance team.

„ „

Give yourself plenty of time, especially when Give yourself plenty of time, especially when you you’ ’re starting out on your first few deals. re starting out on your first few deals.

300 Frank H. Ogawa Plaza 300 Frank H. Ogawa Plaza Suite 345 Suite 345 Oakland, CA 94612 Oakland, CA 94612 Telephone: (510) 834 Telephone: (510) 834-

• 8885

8885 ggibbs@gotolawfirm.com ggibbs@gotolawfirm.com

Thank You Thank You

For further information contact: For further information contact: Geoffrey T. Gibbs Geoffrey T. Gibbs The Gibbs Law Group LLP The Gibbs Law Group LLP