Hays Consolidated Independent School District Discussion Regarding - - PowerPoint PPT Presentation

Discussion Regarding Soft Put Bonds June 2018

Hays Consolidated Independent School District

• R. Dustin Traylor

Managing Director RBC Capital Markets, LLC 303 Pearl Parkw ay Suite 220 Tel: (210) 805-1117 San Antonio, TX 78215 Fax: (210) 805-1119 robert.d.traylor@rbccm.com

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202 275 304 392 428 641 1,115 1,654 25 48 35 27

• 75

265 552 11.0% 14.8% 10.3% 6.5% 0.0% 10.5% 19.2% 25.0% Variable % 500 1,000 1,500 2,000 2,500 Hutto ISD Georgetown ISD Lake Travis ISD Pflugerville ISD Hays CISD Round Rock ISD North East ISD Northside ISD Debt Outstanding ($ millions) Fixed Rate Variable

Source: Municipal Advisory Council of Texas

Hays CISD Portfolio Comparison

• A number of Texas school districts utilize a type of variable rate bonds in their bond portfolio to allow them to take advantage of the short end of the yield
• curve. These are commonly referred to as soft put bonds. These bonds carry a fixed rate of interest for a predetermined term (generally 1-5 years) at the

end of that term the District has the ability to remarket the bonds into any interest rate mode (long term fixed rate, variable rate, or term modes). Below is a list of a number of Districts in the area that are utilize these types of bonds as a portion of their portfolio.

• The general guidance from the rating agencies is that not more than 25% of a district’s bonds should be in a variable rate mode.

Peer Institutions: Portfolio Composition

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Fixed-Rate Soft Put Overview

Sell Put Bond Today End of Short- Term Rate Period

Soft Put: If the District is not able to remarket the Bonds, the District will pay a max rate of up to 7% until they are refinanced or repaid.

Mandatory Tender Date Final Maturity Short Term Fixed Fixed Rate or Short Term Rate Bonds

Structure & Timing

Term of Debt 1-5 Years Timing of Execution 4-6 Weeks Cost of Funds through Tender Date Fixed Rate

Security Provisions

Credit Enhancement PSF Prepayment Provisions Callable (6 months before maturity)

Risks

Interest Rate Risk At end of initial rate period Liquidity Renewal Risk No Market Access Risk Yes, mitigated with a soft put Third Party Credit Risk No Tax Event Risk No

Fixed Rate Soft Put Bonds

▲ Effective tax rate management tool ▲ Locks in low fixed interest rates through the put date ▲ Captures low rates on short-end of the yield curve ▲ No new issuance ▲ No bank support needed Benefits ▼ Subject to remarketing risk at put date ▼ Market access could be limited ▼ Ongoing responsibility to remarket the bonds at the put date Risks & Considerations

Variable Rate Pricing Indications

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0.00 0.50 1.00 1.50 2.00 2.50 3.00 1 3 5 7 9 11 13 15 17 19 21 23 MMD %

Municipal Market Data (“MMD”)

Initial Rate Period

Years 1 – 5

• Soft Put

Pricing Amortization

Years 19 – 24

• Bond Amortization
• Pay short-term

interest rates on long-dated bonds MMD as of 6/5/2018

Year Maturity "AAA" MMD 1 2019 1.600 2 2020 1.730 3 2021 1.830 4 2022 1.900 5 2023 1.990 6 2024 2.120 7 2025 2.240 8 2026 2.330 9 2027 2.390 10 2028 2.440 11 2029 2.490 12 2030 2.530 13 2031 2.570 14 2032 2.610 15 2033 2.660 16 2034 2.710 17 2035 2.750 18 2036 2.780 19 2037 2.800 20 2038 2.820 21 2039 2.840 22 2040 2.860 23 2041 2.870 24 2042 2.880

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Debt Service Savings

Preliminary; subject to change

$30MM Project Fund | Fixed-Rate Soft Put vs. Fixed-Rate Debt Service

• For a $30MM project fund, the Soft Put Bond structure is estimated to save the amounts below during the initial term:
• 2-Year Put: $1.80 million
• 3-Year Put: $2.55 million
• 4-Year Put: $3.26 million
• 5-Year Put: $3.87 million
• The Soft Put Bonds could be structured with long-dated bullet maturity to maximize savings – no need for amortization of

principal during the initial period. Cost Savings During Initial Term

• With positive slope on the yield curve, the District can benefit from yield curve roll as each year would result in a lower

yield.

• At the Tender Date, the District could redeem bonds, permanently finance with long-term bonds, or roll the Soft Put

Bonds for another term. Potential Future Savings

FYE (8/31) Soft Put Debt Service Savings vs. Fixed Rate Soft Put Debt Service Savings vs. Fixed Rate Soft Put Debt Service Savings vs. Fixed Rate Soft Put Debt Service Savings vs. Fixed Rate 2019 $658,657 $917,078 $702,778 $872,957 $737,444 $838,291 $778,413 $797,322 2020 634,002 882,749 676,471 840,280 709,839 806,911 749,275 767,476 2021 676,471 840,280 709,839 806,911 749,275 767,476 2022 709,839 806,911 749,275 767,476 2023 749,275 767,476 2024 Total $1,292,659 $1,799,826 $2,055,719 $2,553,516 $2,866,961 $3,259,024 $3,775,511 $3,867,224 Reset Rate Reset Rate Reset Rate Reset Rate 3-Year Soft Put @ 2.23% 4-Year Soft Put @ 2.34% 5-Year Soft Put @ 2.47% 2-Year Soft Put @ 2.09%

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