Refinancing Existing Debt and Funding Capital Projects Board of - - PowerPoint PPT Presentation

Refinancing Existing Debt

and

Funding Capital Projects

Board of Education Meeting October 16, 2019

Actions Proposed for this Meeting

• 1. Adopt resolution indicating intent to issue

bonds.

– Resolution sets in motion the public notice requirements to issue bonds. – It does not bind the District to actually issue. – Binding action will be proposed in December or January, depending on market conditions.

• 2. Authorize a bond hearing for November 20.

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Recap of Prior Presentations

See the June presentation here and the August presentation here.

• The District has $34.5M of bonds outstanding,

maturing between now and 2046.

• On May 1, 2020, $29.375M can be called, all from

2010 construction financings.

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Debt Markets are Near 20-Year Low

• Especially for long-term bonds, rates are

exceptionally low by historical standards.

• Demand for municipal bonds is strong.
• District anticipates a strong credit rating,

which lowers interest cost.

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Decline in Borrowing Costs Since 2006

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0.000% 0.500% 1.000% 1.500% 2.000% 2.500% 3.000% 3.500% 4.000% 4.500% 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 to Final Maturity Source: Municipal Market Data (MMD) from Mesirow Financial

AAA Rates At Prior District 2 Bond Issuance Dates

February 1, 2006 June 29, 2010 December 7, 2016 October 8, 2019

• AAA-rated debt is shown here as an example of the trend.
• For AA+ (the District’s recent rating), the trend is similar.
• AA+ rates today equal AAA plus 0.4% to 1.0%, depending on the maturity.

Two Strategies Are Proposed

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Refinance

$29.375M of the current bonds at lower interest cost and revised payment schedule.

Raise

up to $4.25M of additional capital for upcoming projects.

Strategy 1: Refinance

• $29.375M of bonds were issued in 2010 for

the Tioga and Johnson construction projects.

– Average interest rates of about 4.25% after subsidy.

• Save from 1.5% to 2.4%, depending on

maturity, if current rates hold.

– Gross savings could exceed $5 million through 2043 if current rates hold until bonds can be sold.

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Strategy 2: Raise Capital

• Efficiently raise additional cash for capital

projects when rates are low

• Only capital projects may be funded with new

proceeds. Available Capital Projects

– Renovate four science labs at Blackhawk Middle School. – Replace roof at Blackhawk Middle School. – Add garage behind Admin Center for bus maintenance, truck parking, and storage. – Add 4 or 8 classrooms at Tioga School Early Learning Center.

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How Does District Repay the Bonds?

• Expecting to pay annual debt service on these bonds at the same levels

as in recent years on other District debt.

• These bonds will be “Alternate Revenue Bonds,” the same as the

existing bonds that are being refinanced.

• ARBs are commonly used for school finance.

– “Alternate” because not primarily backed by property tax. – ARBs permit maturities greater than 20 years, which is desirable when rates are low and the assets are long-lived. – No tax increase is proposed for these bonds.

• Illinois State Aid and CPPTRT are pledged to repay the bonds.

– These are the same sources already standing behind the current $29.375M of bonds. – These sources total $5.5M in 2019-20, far exceeding annual debt service. – If those two revenues failed to be received, then taxes would be levied. This is an exceedingly unlikely event given the history of the two pledged revenue sources.

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Timeline

Date Action October 16, 2019 Adopt Resolution of Intent to Issue Bonds and authorize notice of hearing for November Second half October, 2019 Publish notice of hearing and of intent to issue bonds November 20, 2019 Hold public hearing on borrowing December 3-5, 2020 Review bonds with ratings agency December 16-18, 2019 Market bonds and obtain firm offers and interest rates December 18, 2019 Take final Board action to authorize new bonds and to accept offers received. Defer this action to January if required by market conditions. February 4, 2020 Closing date: issue bonds, establish escrow for May 1. May 1, 2020 Repay original bonds with proceeds from replacement bonds. February 3, 2023 Deadline for completing capital projects

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Resolution of Intent to Borrow Up to $35 million

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Refund 2010A bonds

Maturing 2027 through 2040, paying net interest about 4.27%

$13,055,000 Refund 2010B bonds

Maturing 2024 through 2027, paying interest about 4.1%

$900,000 Refund 2010C bonds

Maturing 2031 through 2043, paying net interest about 4.25%

$15,420,000 Capital Projects

To be spent by February 3, 2023

$4,250,000 Subtotal, anticipated gross proceeds $33,625,000 Principal in lieu of interest on discount bonds

Paid at maturity in exchange for below-market interest during bond life

$1,375,000 Total Face Amount $35,000,000