Introduction to the Bond Issuance Process

Introduction to the Bond Issuance Process Patrick T. King Managing Director (614) 453-9538 [email protected] Stifel, Nicolaus & Company, Incorporated

February 11, 2021

Disclosure

2

Stifel, Nicolaus & Company, Incorporated (“Stifel”) has prepared the attached materials. Such material consists of factual or general information (as defined in the SEC’s Municipal Advisor Rule). Stifel is not hereby providing a municipal entity or obligated person with any advice or making any recommendation as to action concerning the structure, timing or terms of any issuance of municipal securities or municipal financial products. To the extent that Stifel provides any alternatives, options, calculations or examples in the attached information, such information is not intended to express any view that the municipal entity or obligated person could achieve particular results in any municipal securities transaction, and those alternatives, options, calculations or examples do not constitute a recommendation that any municipal issuer or obligated person should effect any municipal securities transaction. Stifel is acting in its own interests, is not acting as your municipal advisor and does not owe a fiduciary duty pursuant to Section 15B of the Securities Exchange Act of 1934, as amended, to the municipal entity or obligated party with respect to the information and materials contained in this communication. Stifel is providing information and is declaring to the proposed municipal issuer and any obligated person that it has done so within the regulatory framework of MSRB Rule G-23 as an underwriter (by definition also including the role of placement agent) and not as a financial advisor, as defined therein, with respect to the referenced proposed issuance of municipal securities. The primary role of Stifel, as an underwriter, is to purchase securities for resale to investors in an arm’s- length commercial transaction. Serving in the role of underwriter, Stifel has financial and other interests that differ from those of the issuer. The issuer should consult with its’ own financial and/or municipal, legal, accounting, tax and other advisors, as applicable, to the extent it deems appropriate. These materials have been prepared by Stifel for the client or potential client to whom such materials are directly addressed and delivered for discussion purposes only. All terms and conditions are subject to further discussion and negotiation. Stifel does not express any view as to whether financing options presented in these materials are achievable or will be available at the time of any contemplated transaction. These materials do not constitute an offer or solicitation to sell or purchase any securities and are not a commitment by Stifel to provide or arrange any financing for any transaction or to purchase any security in connection therewith and may not relied upon as an indication that such an offer will be provided in the future. Where indicated, this presentation may contain information derived from sources other than Stifel. While we believe such information to be accurate and complete, Stifel does not guarantee the accuracy of this information. This material is based on information currently available to Stifel or its sources and is subject to change without notice. Stifel does not provide accounting, tax or legal advice; however, you should be aware that any proposed indicative transaction could have accounting, tax, legal or other implications that should be discussed with your advisors and /or counsel as you deem appropriate. This presentation may not be distributed or duplicated without the permission of Stifel. Stifel invests significant time and effort in preparing these materials and requests that you respect our prerogative to limit distribution to our clients and as we deem consistent with our business plan.

SECTION I: The Basics

THE BASICS: What is a Municipal Bond?

4

• A debt security issued by states, counties, cities, or their agencies to finance public-purpose projects such as schools, roads, bridges, and airports

• Regulated by the Securities and Exchange Commission

• Mechanism for obtaining money today

– Conversion of expected future revenue stream of income (whether from tax receipts, general fund revenues or other sources) into currently available funds for capital projects

• Promise to repay money

– On a date certain – With interest at a specific rate – From specific revenues

• Generally tax-exempt

(generally)

(generally)

5

THE BASICS: Key Considerations for Issuing Bonds

• Issuer’s Objectives What kind of projects are planned? When are funds needed? What revenues are available - or could be raised - to repay debt?

Can existing revenues support new debt payments? Can outstanding debt be refinanced to create capacity for new debt? Are new revenue sources needed?

How much payment flexibility does the issuer need?

• Legal and Policy Constraints What kind of debt can be issued? What kind of approvals by a legislative body or electorate are required? Are there any other policy constraints to consider?

• Financing Options How much debt can the revenue support? How strong is the credit? Is any other debt outstanding? Any parity debt requirements? Can existing debt be

refinanced? What debt option provides the best balance of cost and flexibility?

6

THE BASICS: Tax Exempt Debt

• Interest paid on bonds (or other obligations) is exempt from federal, state, and local income taxes

• Two Keys necessary for debt to qualify as tax-exempt: Use of Proceeds (governmental purpose; limited private

business use) Expenditure of Proceeds (spent within a certain time

period)

7

THE BASICS: Tax Exempt Debt – Use of Proceeds

Debt must be issued for a governmental purpose Private Business Use is limited

Private Business Use – “use” of bond financed property by a person or entity in a trade or business in excess of 10% of proceeds. Leases create “use” Management and service contracts create “use”

Other special legal entitlements create “use”

8

THE BASICS: Tax Exempt Debt – Expenditure of Proceeds

• Temporary Period Exception Three-Part Test Expenditure Test – 85% of proceeds must be spent within

three years of the date of the issue Time Test – within six months of the date of the issue, the

issuer must incur a substantial binding obligation (5% of debt proceeds)

Due Diligence Test – work on the project must proceed with due diligence

9

THE BASICS: Why Do Investors Buy Municipal Bonds?

• Generate tax-free predictable income stream

• Wealth preservation (high credit quality)

• Predictable stream of income

• Diversification with a wide variety of choices – Investment quality – Maturity ranges – Issuers – Bond type – Geography

• Liquidity

• Generally attractive to risk-averse investors

Investors

Retail Investors

• High net-worth individuals − Often older high tax

bracket • Professional retail/

investment advisors

Institutional Investors

• Bond funds, mutual funds • Investment advisors • Commercial banks • Bank trust departments • Insurance companies • Hedge funds

(a) Includes households and nonprofit organizations. (b) Includes mutual funds, money market funds, closed-end funds and exchange traded funds. (c) Includes U.S. chartered depository institutions, foreign banking offices in the U.S., banks in

U.S. affiliated areas, credit unions, and broker dealers. (d) Includes property-casualty and life insurance companies. (e) Includes nonfinancial corporate business, nonfinancial noncorporate business, state and

local governments and retirement funds, government-sponsored enterprises and foreign holders.

Source: Securities Industry and Financial Markets Association (SIFMA), Federal Reserve System, Financial Accounts of the United States.

[CATEGORY NAME] 45%

Mutual Funds (b) 26%

Banking Institutions (c)

12%

Insurance Companies (d)

12%

Other (e) 4%

Holders of U.S Municipal Securities

10

THE BASICS: Tax Exemption

• Sixteenth Amendment to the U.S. Constitution created an income tax • Because Municipal Bonds are generally tax-exempt, investors are

willing to accept lower interest rates on tax-exempt debt • It’s not what you earn, it’s what you get to keep! • Concept of the “taxable yield equivalent”

Example: 3.65% tax-exempt interest rate = 5.62% equivalent taxable yield for investor in 35% tax bracket

= Tax Free Bond Yield

= (1 – Tax Bracket)

THE BASICS: World of Securities – U.S. Debt Markets

(a) Data through third quarter 2020.

Sources: Thomson Reuters (SIFMA) and The Bond Buyer. 11

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020(a)

Billi

ons

Outstanding U.S Debt Market: 2010 to 2020 (a)

Municipal Treasury Mortgage Related

Corporate Debt Federal Agency Securities Money Markets

Asset-Backed

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Billio

ns

Municipal Issuance: 2010 to 2020

GO Revenue

12

THE BASICS: Useful Terminology – Kinds of Bonds

• Tax-Exempt Bond – Interest on most municipal securities is exempt from federal income taxes and income taxes for the state of the issuer. Taxable Equivalent Yield: The yield on a theoretical taxable investment that, after

subtracting income taxes, results in the tax exempt bond yield. Taxable Equivalent Yield = Yield on the tax exempt bond ÷ (100% - Income Tax Bracket) Example: Taxable Equivalent Yield for a 4.00% Tax-Exempt Bond Yield = 4.00% ÷ (100% - 30%

Income Tax Bracket) = 4.00% ÷ 70% = 5.71%

• Taxable Bond – A security where the interest is not exempt from federal income taxes. However, state income taxes may or may not still apply. The IRS can declare original issue tax-exempt bonds to be taxable if federal tax laws are violated.

• New Money Bonds – Bonds issued for financing new capital, not refunding outstanding bonds.

• Refunding Bonds – Issuance of a new bond for the purpose of retiring an already outstanding bond issue, usually to reduce interest costs, restructure the amortization schedule or remove a restrictive covenants.

• Defeasance – Using available monies to provide for debt repayment prior to their stated maturity.

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THE BASICS: New Money vs. Refunding Bonds

• New Money: Bonds used to fund new projects Match payments to the useful life of an asset Share the burden of an asset with future taxpayers Ability to leverage a future revenue stream to incent economic

development today

• Refunding: Bonds used to refinance existing debt (proceeds used to pay prior bonds) Typically done for interest rate savings, may also accomplish other non-

economic goals (ex: releasing the issuer from restrictive covenants)

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THE BASICS: Refunding Bonds

“Refunding Bonds”:

• Applies to all types of bonds. • Most bonds are callable after 10 years; sometimes a redemption premium

applies. • Refund in lower interest rate environment (hi to low).

Two Types:

1. Current Refunding: Bonds being refunded are outstanding < 90 days after the date of the refunding.

2. Advance Refunding: Bonds being refunded are outstanding > 90 days after the date of the refunding.

• Advance refunding authority removed with Tax Cuts and Jobs Act of 2017

passed in December 2017. The only option for advance refundings available now are taxable advance refundings

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Years (Term)1051 15 20

Call Date

Yield Curve%

(Normal/standard serial bond amortization)

16


Years (Term) 10 (20) 5 (15) 1(10) 15 (25) 20 (30)

% As time progresses

Long Callable Maturities

Can be refunded at lower

Current Market Rates

Call Date

Nearly all callable bonds are refunded for savings due to the natural upward sloping shape of the yield curve (i.e. short-term rates are nearly always lower than long-term rates).

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THE BASICS: How are Municipal Bonds Sold?

• Competitive Auction of Bonds Highest price, lowest yield wins Underwriter not involved until bid No pre-marketing to investors Lower Due Diligence standards

• Negotiated Terms negotiated Underwriter involved early in the process High due diligence standard Pre-marketing to investors Underwriter(s) liable for unsold balance

• Private Placement Entire issuer is brought by a single investor Purchaser is typically a bank Rate may be higher but staff work lower

[CATEGORY NAME]

[PERCENTAGE]

[CATEGORY NAME]

[PERCENTAGE]

[CATEGORY NAME]

[PERCENTAGE]

2020 National Market(1) (By Type of Sale)

(1) Source: Securities Industry and Financial Markets Association (SIFMA)

SECTION II: Bond Process

A. Overview

B. Structuring Considerations

C. Key Documents

D. Official Statement

E. Conference Calls and Pricing Quotes

F. Marketing, Pricing and Closing

G. Post Closing

Bond Process

A. Overview


C. Key Documents




G. Post Closing

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BOND PROCESS: Overview

PHASE 1

Initial Process

• Engage financing team members

• Identify funding needs, repayment sources and appropriate bond structure

• Request information for POS/rating and insurance agencies provided by issuer

Documents and Due Diligence

• Coordinate with counsels on legal documents

• Draft Preliminary Official Statement (“POS”)

• Conduct due diligence call with financing team

Rating Agency and Bond Insurance

• Introduce rating agency to issuer’s credit and secure rating(s)

• Solicit bond insurance pricing quotes and conduct cost-benefit analysis, if applicable

Board/Council Approvals

• Approve financing terms and related financing documents

• Formally appoint financing team and delegates authority to administration to execute final documents

Marketing, Pricing and Closing

• Distribute POS to potential investors

• Establish interest rates and final principal amounts on day of pricing

Post Closing

• Continuing disclosure

• Investment earnings/ arbitrage rebate reporting

• Budget and tax rate setting

• Annual hearing requirement

• Debt report

PHASE 2 PHASE 3 PHASE 4 PHASE 5 PHASE 6

The actual timeline for conducting a bond sale depends upon District objectives, the ability to coordinate other required efforts and market forces

Structures financing and provides underwriting and markets bonds, sets prices, sells bonds to investors

Commits capital to unsold bonds

Assembles Official Statement on behalf of Issuer

Underwriter

21

BOND PROCESS: Overview – Participants

Drafts Authorizing Resolution, Legal Opinion and closing documents

Provides legal advice to issuer based on existing federal, State and local legislation and arbitrage/tax law

Bond Counsel

Review structure of transaction and Issuer’s credit strengths and weaknesses

Applies a formal rating and published rating report or press release

Rating Agency

Manages Due Diligence call and prepares Bond Purchase Agreement

Advises Underwriter on legal issues

Underwriter’s Counsel

Commercial bank that maintains list of bondholders

Pays principal and interest to bondholders

Bond Registrar and Paying Agent

Selects financing team Determines borrowing needs and key parameters of debt Authorizes issuance of bonds

ISSUER

Bond Process

A. Overview


C. Key Documents




G. Post Closing

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BOND PROCESS: Structuring Considerations

Bond Issue Objectives

Bond Proceeds Terms &

Conditions

Bond Issue Financial Options Maturity Structure Investor Appetite

Call Provisions Reserve Fund Options Premium vs. Discounts

Bond Issue Credit & Legal Analysis Bond Ratings

Capacity Constraints Structure

Optimal Financing

24

BOND PROCESS: Structuring Considerations

Size of Financing

How much in bond proceeds is needed

When are proceeds needed

State expenditure limits: • Voter Information Pamphlet • Authorization for 10 years

Federal tax law considerations: • 3 year reasonable expenditure

expectations • Bank Qualified status for issuing less than

$10 million in calendar year

Class B bond capacity

Assessed value change

Tax rate parameters

Principal repayment

Outstanding debt

Bond authorization

Debt Payment Structure

Pace of bond funding needs

Level, escalating or decreasing payments

Term of financing

Capitalized interest

Prepayment Options/Call Features

Issuer flexibility

Possible pricing impact

Refinancing Existing Bonds

Savings

Modify structure and/or terms

Bond Process

A. Overview


C. Key Documents




G. Post Closing

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BOND PROCESS: Key Documents

• Authorized by Governing Board

Debt Policies and Procedures

• Post Issuance Compliance ‒ Attest in Form 8038-G

• Tax Exemption Status • Continuing Disclosure

Authorizing Resolution

• Sets terms and parameters • Authorizes issuance • Formally appoints financing team participants • Delegates authority to administration to execute final documents

Draft Financing Documents

• Preliminary Official Statement ‒ Governing Board should review the POS, especially information related to the

District and the community • Continuing Disclosure Certificate • Registrar Contract • Depository Trust Agreement (if applicable) • Bond Purchase Agreement

Agenda Language • Provided by Bond Counsel

27

BOND PROCESS: Key Documents

• S.E.C. Rule 15c2-12 = ISSUER’S DOCUMENT Includes all material information needed to make an informed investment decision

• S.E.C. Rule 10b-5 Does not include any untrue or misleading statements nor does it omit any

material information • POS Deemed Final Certificate

• Bond Counsel attesting to the validity of the bonds Bond issuance consistent with applicable state and federal laws Voter authorization to issue

• Bond Counsel attesting to the tax status of the bonds

• Issuer’s promise to keep investors informed about specific information/events and annual financial information and operating data

• Contract between the underwriter and the issuer setting forth the final terms, prices and

conditions of the underwriter’s purchase of the issuer’s bonds Signature from Board President or Board Member (preferred)

Preliminary Official Statement (“POS”)

Legal Opinion

Bond Purchase Agreement (“BPA”)

Continuing Disclosure Undertaking (“CDU”)

Sample: POS Deemed Final Certificate

Bond Process

A. Overview


C. Key Documents




G. Post Closing

29

BOND PROCESS: Preliminary Official Statement

Preliminary Official Statement (sent to prospective purchasers before pricing)

• Does not include the final terms of the bonds

1) Par Amount

• Face amount or principal of borrowing

2) Dated Date

• The date that the bonds being to accrue interest

3) Delivery Date

• The first date when bonds will be delivered to investors and proceeds delivered to issuer

4) Call Features

•

•

Allow Issuer the right to call or redeem outstanding bonds prior to stated maturity Specify period of call protection and prepayment penalty

5) Rating(s)

6) Bond Insurer (if applicable)

3

1

2

4

5

6

30

BOND PROCESS: Assembling the Official Statement

Current Year’s Adopted Budget

Most recent AFR or unaudited figures

Audited financial statements for last 5 fiscal years

Financial Information

Names and Grade Ranges

of Schools Review names and grade ranges of schools

Use of Proceeds

Review use of proceeds per the Voter Information Pamphlet

Governing Board

Members

Review names and positions of Governing Board Members

Average Daily Membership

ADM information for last 5 fiscal years

National School Lunch Program

Free and reduced lunch % per facility (> 50%)

31

BOND PROCESS: Assembling the Official Statement

Provide current personnel figures for certified, classified, principal and administrators

Provide student-to-teacher ratios for schools (including non-classroom teachers)

Provide estimated full-time equivalent employment figure

Personnel

Post Employment

Benefits

Provide Other Post-Employment Retirement benefits provided in client letter and/or updates since last audited financial statement regarding policies

Square Miles Provide square miles District encompasses

Other Obligations

Provide item, annual payment amount and payment end date for any lease purchase agreements, Tax Anticipation Notes or other capital leases

Population Estimated population served by the District

32

BOND PROCESS: Official Statement – Continuing Disclosure

Third Party CDU Report • Required for any issue underwritten • 1-2 week request time • Any outstanding issues must be resolved prior to underwriting/posting the POS

Missing

Late

Satisfactory

Bond Process

A. Overview


C. Key Documents




G. Post Closing

34

BOND PROCESS: Conference Calls and Pricing Quotes

Due Diligence Call

Participants: Issuer, Bond Counsel, Stifel and Underwriter’s Counsel

Occurs before electronic distribution of Preliminary Official Statement

Document review to make updates, corrections and/or additions

Consider any material information not presently discussed in document

Review timing of bond issue

Rating Agency Call

Participants: Issuer, Stifel, Rating Agency

Goal is to portray District accurately

Integral to determining Issuer interest rate

Bond Insurance Pricing Quotes

Depends on underlying credit rating(s)

Integral to determining Issuer interest rate

Requires cost/benefit analysis

Bond Registrar/Paying Agent Pricing Quotes

Handles bond “administration” until fully redeemed

Key link for bondholders

[ISSUER] OF [ISSUER COUNTY] COUNTY, ARIZONA

SCHOOL IMPROVEMENT BONDS, PROJECT OF 2017, SERIES A (2018)

DISCLOSURE REVIEW CALL

Thursday, November 30, 2017, 1:00 P.M. (AZ) Call-in information: 1-877-301-2573; passcode: 599-776-1985#

POSSIBLE TOPICS FOR DISCUSSION

Expected on the Call: [Issuer Representatives] – District [Stifel Team] – Stifel Nicolaus [Bond Counsel] [Underwriter’s Counsel] I. Schedule and Remaining Actions • Status of ratings? • Printing, pricing and closing?l II. Purpose of Call

• To make sure that everything included in the POS is accurate. • To make sure that nothing material has been left out of the POS. • To make sure that the information included in the POS has been given an appropriate and balanced

presentation. III. Preliminary Official Statement Review (Draft II dated 11-28-17) A. Cover Page/Participants Page • Any issues or concerns? • Confirm that first interest payment will be July 1, 2018. • Are the names (and spelling) of the governing board members and District administration correct? B. Page 1 – Authorization and Purpose • Confirm that the District Board is scheduled to adopt the bond resolution on December 12, 2017, and

that open meeting procedures will be followed. C. Page 3 – Plan of Refinancing • Schedule of Bonds Being Refunded correct? • Confirm that verification agent will verify sufficiency of moneys/obligations held in escrow to pay

interest on Refunding Bonds prior to the crossover date. D. Page 8 – Litigation/Legal Matters • Anything pending or threatened that is not within insurance or would materially adversely affect the

District financially or operationally? • Any recall petitions, boundary disputes or allegations of open meetings violations? • Any significant labor, employment or disciplinary issues? • Any significant environmental liabilities? • Any state or federal investigations? • Any Arizona Department of Education or Auditor General findings or reports? • Any current or pending investigations against any of the District’s board members? • Any action in the current legislative session adversely affecting the District? E. Pages 10-11 – Tax Exemption • Any special issues with these bonds or the facilities to be refinanced (e.g., leases to charter schools or

other private users)?

Sample: Due Diligence List

35

BOND PROCESS: Credit Quality

Decreasing Credit Quality,

Increasing Yields

• Outlook – potential direction of rating over medium term: Positive / Negative / Stable / Developing / No Outlook

Investment Grade

Prime Aaa AAA AAA

High Grade Aa1, Aa2, Aa3 AA+, AA, AA- AA+, AA, AA-

Upper Medium Grade A1, A2, A3 A+, A, A- A+, A, A-

Lower Medium Grade Baa1, Baa2, Baa3 BBB+, BBB, BBB- BBB+, BBB, BBB-

Non-Investment

Grade

Speculative Ba1, Ba2, Ba3 BB+, BB, BB- BB+, BB, BB-

Highly Speculative B1, B2, B3 B+, B, B- B+, B, B-

Substantial Risks Caa1, Caa2, Caa3 CCC+, CCC, CCC- CCC+, CCC, CCC-

• On January 26, 2021 Moody’s adjusted its U.S K-12 public school district methodology. The change in methodology has lead to numerous ratings changes across the country.

36

BOND PROCESS: Credit Quality

• Vary based on security type – all rating agencies provide information on their Rating Criteria

Credit Rating

Demand Analysis (Geographic, competition)

Finances (revenues, expenditures, risk

management)

Liquidity (Cash & Investments,

unrestricted resources,

expendable resources)

Management & Governance

(Tenure, strategic plan & policies, Board

composition, track record)

Debt Load (Debt Coverage, % annual operating

expenses, expendable resources to total

debt service)

Bond Provisions (Security pledge, rate covenant, additional

bonds test)

37

BOND PROCESS: Credit Enhancement

Credit Enhancement • Bond Insurance

Description • Guarantees debt service payments • Surety policy to fund reserve fund (if applicable)

Premium • Up-front premium calculated as % of total debt service over the life of the issue

Cost-Benefit Analysis • Analyze cost of premium versus interest savings from better credit rating • Sell at insured rates (higher credit rating, lower yields)

Moody’s S&P

Insurer Rating Outlook Rating Outlook

NR -- AA Stable

A2 Stable AA Stable

NR -- AA Stable

Source: Moody’s and S&P.

Bond Process

A. Overview


C. Key Documents




G. Post Closing

Internal Marketing

Distribute POS, rating report, maturity structure

internally

Receive feedback from underwriting / trading / sales teams on structure

Internal distributions to institutional and retail sales

teams

Distribute POS, rating reports, maturity structure

to investors

Advertisements (if any)

Credit Approval

Schedule individual meetings or calls with credit

analysts

Answer questions and receive feedback from

investors

Receive credit approvals for the transaction

Pricing Process

Review overall market conditions and municipal

flows

Review recent comparables and trading levels

Develop “price thoughts”

Pre-pricing call with Issuer and Underwriting Desk

Hold order period -- review order book with Issuer and

make adjustments as necessary

Obtain approval on final interest rate scale and

confirm orders with investors

Subscribe for SLGs or bid and award Open Market Securities (if applicable)

Individual Investors

Professional Retail

Middle Market

Institutions

Tier One Institutions

BOND PROCESS: Pricing

39

BOND PROCESS: Pre-Marketing

40

7-10 Days Prior to Pricing

Prepare sales force (internal discussion/materials) Preliminary Official Statement electronically distributed to investors Pre-marketing calls with investors

• Investor presentation, if applicable (web-based or in person) Local advertisements (if any)

1-2 Days Prior to Pricing

Preliminary Pricing Call with Issuer, Stifel and Underwriting Desk to discuss: • General market conditions • Comparable sales in the market • Visible supply • Upcoming releases of key economic news (i.e. jobs,

CPI, PPI, etc.) • Investor segments – where is interest and how do

we effectively market to those segments Determine initial interest rates and yields with issuer – solicit Price Thoughts Set date, time and duration of bond order period Initial pricing information distributed to all retail and institutional sales force – Preliminary

Scale Online order monitor log-in information sent – allowing Issuer to view orders in real-time,

providing transparency in the pricing process – Ipreo Online Order Monitor

BOND PROCESS: Day of Pricing

41

Day of Pricing

• Underwriter evaluates market conditions at the open: Tone of market and investor demand Comparable new issue sales Secondary market activity Final adjustments (if any) to initial coupons and yields

• Order Period commences and pricing wire sent out Ipreo Online Order Monitor

• Post-Pricing Call with Issuer, Stifel and Underwriting desk to discuss sale status Re-pricing considerations depending on investor demand Concluding the pricing When significant number of bonds have been sold, Underwriter commits to purchase all

unsold bonds at proposed rates (take into inventory) If Underwriter and District reach agreement on final structure, interest rates (coupons)

and yields of the bonds, District provides Verbal Award Bond Purchase Agreement (“BPA”) executed by the District and the Underwriter Investor orders confirmed Underwriter allots Bonds


42

Mandatory Sinking Fund 7/1/2029 4,320,000 7/1/2030 4,535,000 7/1/2031 4,760,000 7/1/2032 5,000,000 7/1/2033 5,250,000 7/1/2034 5,510,000 7/1/2035 5,790,000 7/1/2036 6,075,000

41,240,000

Bond Component

Maturi ty Date Amount Rate Yield Price

Yield to Maturi ty Cal l Date Cal l Price

Premium(-Discount)

Seria l Bond:

7/1/2019 2,015,000 5.000% 2.350% 103.241 65,306.15

7/1/2020 2,990,000 5.000% 2.400% 105.658 169,174.20

7/1/2021 2,140,000 5.000% 2.480% 107.818 167,305.20

7/1/2022 1,765,000 4.000% 2.630% 105.471 96,563.15

7/1/2023 1,385,000 4.000% 2.780% 105.917 81,950.45

7/1/2024 3,510,000 4.000% 4.150% 99.176 -28,922.40

7/1/2025 3,650,000 3.500% 3.500% 100.000

7/1/2026 3,775,000 3.750% 3.750% 100.000

7/1/2027 3,915,000 5.000% 4.000% 107.662 299,967.30

7/1/2028 4,115,000 5.000% 4.250% 105.680 C 4.308% 7/1/2027 100.000 233,732.00

29,260,000 1,085,076.05

Seria l Bond:

7/1/2021 1,000,000 2.250% 2.480% 99.284 -7,160.00

7/1/2022 1,500,000 3.000% 2.630% 101.476 22,140.00

7/1/2023 2,000,000 3.500% 2.780% 103.491 69,820.00

4,500,000 84,800.00

Term Bond:

7/1/2036 41,240,000 5.000% 4.720% 102.071 C 4.827% 7/1/2027 100.000 854,080.40

75,000,000 2,023,956.45

Rate Issuer pays = Coupon

Investor'srate of return

Yield to Call

Premium bond

Discount bond

Bifurcated maturities

Term bond

Par bond

Price paid by

investor

Yield to Maturity

Principal x

Price = Issue Price

43


• Pricing – The process by which the issuer and underwriter(s) determine the interest rates and prices at which the new issue will be offered to the public.

• Coupon – The rate of interest the Issuer pays.

• Yield – The rate of interest the investor receives.

• Price – amount of dollars or percent of principal paid by an investor for a bond, including accrued interest, if any

‒ Equivalent to present value of the P&I payments on the bond using yield as discount rate and semi-annual compounding

• Discount – Bonds sold at a price less than the par (face value) amount. In this situation the coupon is less than the yield.

• Premium – Bonds sold at a price greater than the par amount. In this situation the coupon is greater than the yield.

• Yield to Call – For premium bonds, rate that makes the sum of the present value of cash flows to the call date equal the price plus accrued interest.

• Yield to Maturity – For par and discount bonds, the rate that makes the sum of the present value of cash flows to maturity equal price plus accrued interest.

• Yield to Worst – Per convention, the lowest possible return a buyer can get factoring in call provisions.

• Term Bonds – Bonds that come due in a single maturity which the Issuer agrees to make periodic payments into a sinking fund.

Coupon

5.00%

Yield

5.00%

Par Bond

Price is equal to $100

Price is less than $100

Yield

5.10% Coupon

5.00%

Discount Bond

Price is greater than $100

Yield

5.00%

Coupon

5.10%

Premium Bond


44

Yield Curve

• Compilation of interest rates paid for different maturities

• Varying investor interest • Short term versus long term

rate

Yield – Market Return

• Varies over time • Shape of the yield curve • Short term versus long term

borrowing • Taxable versus tax-exempt

borrowing • Level of risk • Market supply and demand • Comparative prices

Call Features

• Allow bonds to be retired before scheduled maturity

• Specify period of call protection and prepayment penalty

Credit rating • Indicates credit quality • Allows price/rate comparison • Underlying and/or insured

Par/Annual Principal Amount

• Principal or face amount of borrowing

• Size matters (i.e. $1MM versus $55,000 maturity)

Coupon

• Rate at which interest is paid • Fixed rate: set at time of

pricing • Variable rate: may be reset

daily, weekly, monthly… • Interest is usually paid semi-

annually

Maturity

• Date at which principal is repaid

• Serial bond: principal is. due on a particular date

• Term bond: principal is amortized over several years, may have sinking fund

BOND PROCESS: Closing

45

7-10 Days Post Pricing

Official Statement electronically distributed to buyers with final pricing information Closing documents reviewed Signatures obtained by Bond Counsel Draft closing letter:

• Wire transfer instructions • Date and time of closing • Costs of issuance

Day of Closing

Funds are wired • Financing team confirms wires have been received

Bond Counsel releases opinions The financing team calls DTC to formally close the deal Funds become available to the District

Bond Process

A. Overview


C. Key Documents




G. Post Closing

BOND PROCESS: Post Closing

47

BOND PROCESS: Continuing Disclosure

48

• CDU form approved by Council • To a single national repository hosted by the Municipal Securities Rulemaking Board (MSRB).

Electronic Municipal Market Access (EMMA) portal located at www.emma.msrb.org • Specific to each bond issue outstanding • Promise extends over the life of every bond issue outstanding

Continuing Disclosure Requirements

(1) Financial / Operating Filing

• Audited annual financial information

• Operating data as specified in each CDU

(2) Event Filing • Listed Event, including Bank

Loan/Alternative Financing Filing

Asset-Backed Securities Filing • Asset-backed securities filing

http://www.emma.msrb.org/

BOND PROCESS: Continuing Disclosure – Requirements

49

$50,000,000 $22,440,000 $22,800,000School Improvement Bonds School Improvement Bonds School Improvement Bonds

Project of 2003 Project of 2011 Project of 2011Series 2004 Series A (2012) Series C (2013)

Dated: 2/1/04 Dated: 3/15/12 Dated: 10/1/13

� Annual Filing Date: February 1 February 1 February 1

� Operating Data from OS Tables:

Current Year Statistics Direct General Obligation Bonded Debt Outstanding and to be Outstanding Constitutional Debt Limitation/Unused Borrowing Capacity after Bond Issuance Average Daily Membership Statutory Debt Limit/Unused Borrowing Capacity after Bond Issuance Direct and Overlapping Bonded Debt Ratios Property Tax Assessment Ratios Real and Secured Property Taxes Levied and Collected Total Tax Rates per $100 Assessed Valuation Secondary Assessed Valuations by Property Classification Assessed Valuation of Major Taxpayers

� CUSIP-6: 378334 378334 378334

CUSIP-9: JS6, JT4, JU1, JV9, JW7, JX5, KB1, JY3, JZ0, KA3

KM7, KN5, KP0, KQ8, KR6, KS4, KT2, KU9, KV7, KW5, KX3, KY1,

KZ8, LA2, LB0, LC8

LF1, 78334LG9, LH7, LJ3, LK0, LL8, LM6, LN4, LP9, LQ7

� Underlying Rating(s):

Moody's NR NR NR

Standard & Poor's "A+" "A+" "A+"

Fitch NR NR NR

� Insurer: AGM (formerly FSA) AGM BAM

� Latest Final Maturity: 7/1/2018 7/1/2031 7/1/2028

BOND PROCESS: Continuing Disclosure – Listed Events

50

Securities and Exchange Commission Rule 15c2-12 – Listed Events

1) Principal and interest payment delinquencies

2) Non-payment related defaults

3) Unscheduled draws on debt service reserves reflecting financial difficulties

4) Unscheduled draws on credit enhancements reflecting financial difficulties

5) Substitution of credit or liquidity providers, or their failure to perform

6) Adverse tax opinions or events affecting the tax-exempt status of the security

7) Modifications to rights of security holders

8) Bond calls and tender offers

9) Defeasances

10) Release, substitution or sale of property securing repayment of securities

11) Rating changes

12) Bankruptcy, insolvency or receivership

13) Merger, acquisition or sale of all issuer assets

14) Appointment of successor trustee

15) Incurrence of a financial obligation of the obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the obligated person, any of which affect security holders, if material; and

16) Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of the obligated person, any of which reflect financial difficulties

CDUs Dated on or after February 27, 2019

Within 10 business days of the event

51

BOND PROCESS: Post Closing – Online Resources

RESOURCES

Glossary • http://www.msrb.org/glossary.aspx

Electronic Municipal Market Access (EMMA)

• https://emma.msrb.org/ToolsAndResources/ • http://www.msrb.org/msrb1/EMMA/pdfs/EMMACDManual.pdf

Government Finance Officers Association

• http://www.gfoa.org/post-issuance-policies-and-procedures • http://www.gfoa.org/developing-and-implementing-procedures-post-

issuance-tax-compliance-issuers-governmental-bonds

Internal Revenue Service • https://www.irs.gov/tax-exempt-bonds/about-tax-exempt-bonds • http://www.irs.gov/pub/irs-tege/bonds_act_0607.pdf

SECTION III: Market Outlook

MARKET OUTLOOK: 2020 Overview

53

• Bloomberg estimates 2020 GDP YOY Growth at -3.5% and forecasts 2021 GDP at 3.9%. • SIFMA estimates 2020 unemployment at 6.8% and 2021 unemployment at 5.4% (4Q Average).

Economics

• 2-Year and 10-Year UST yields declined by 237 bps and 173 bps, respectively. • SIFMA anticipates that 2-Year and 10-Year UST yields will increase by 13 bps and 40 bps, in 2021, respectively.

UST Yields

• During 2020, 2-Year, 10-Year and 30-Year AAA MMD yields declined by 88 bps, 73 bps and 68 bps, respectively.

High Grade Municipal Rates

• 2020 set a record for municipal issuance, at $474 billion. • 2020 recorded the second largest annual taxable muni issuance, with $145 billion, trailing only 2010 which

included Build America Bonds (BABs).

Gross Municipal Supply

• Net supply was negative through 2020 and demand was strong, keeping rates near historically low levels.

Tax Exempt Net Supply

Source: SIFMA Economic Advisory Roundtable, Thomson Reuters, Bloomberg, Stifel Research. As of 12/31/2020

Source: Stifel Research. As of 12/23/2020.

MARKET OUTLOOK: Stifel’s Economic Outlook for 2021

54

Resurgence and Vaccine Distribution COVID-19 • A return to economic stability is contingent on the market’s ability to return to “normal”, which will depend on the ability to

separate the healthy from the sick. • Vaccines remains at forefront of recovery, but that recovery depends on each individual state’s ability to distribute to their

residents. • Current vaccine distribution expectations do not anticipate any major distribution hiccups, and as a result Stifel anticipates

widespread distribution of a vaccine to the American public in the second half of 2021.

Growth and Recovery Shape GDP • The anticipated Q420 growth is as a result of lingering growth in October an November, before virus resurgence. • Resurgence of the COVID-19 virus, before widespread vaccine distribution in the United States, is a reasonable concern for

1H21. • The economy appears well along the way for a W-shaded recovery or even K-shaped, as a result of a sizable segment of the

economy may taking longer to rebound, despite certain sectors showing a return to normal in a “snapback recovery” style.

Incoming Administration Politics • The incoming administration wants to increase stimulus without tax hikes or budget cuts, which will increase the deficit and set

the stage for increased rates and inflation in the long term.

Stifel’s economic outlook for 2021 anticipates a “A Bumpy and Uncertain Road to Recovery”. The graphic below outlines Stifel’s rationale for a more negative outlook.

MARKET OUTLOOK: Market Predictions

55

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Geopolitical Conflicts

Brexit

Eurozone Economy

Other

China Economy

US Trade Policy

Private Credit Markets

Business & Consumer Confidence

US Monetary Policy

US Fiscal Policy/Budget

COVID-19

2020

2021

Factors Impacting 2020 Growth Compared to Factors Anticipated to Impact 2021 US Economic Growth

0%

0%

13%

13%

20%

53%

0% 10% 20% 30% 40% 50% 60%

U-Shaped

L-Shaped

V-Shaped

K-Shaped

W-Shaped

Swoosh

Expected Type of Recovery for US GDP Expected Nominal GDP Return to Pre-COVID-19 Level

0%

6%

44%

50%

0% 10% 20% 30% 40% 50% 60%

End-2020

Beyond 2021

1H21

2H21

Note: Ranked by percentage of economists that listed a factor

Note: Figures may not add to 100% due to rounding Note: Figures may not add to 100% due to rounding

Source: SIFMA Economic Advisory Roundtable. As of 12/23/2020

Tax-Exempt v. Taxable Interest Rates

56

0.00

1.00

2.00

3.00

4.00

5.00

AAA GO 10 Year History

10 Year AAA GO 30 Year AAA GO

0.00

1.00

2.00

3.00

4.00

5.00

U.S. Treasury Rates 10 Year History

10 Year Treasury 30 Year Treasury

Source: Thomson Reuters (TM3)

MARKET OUTLOOK: Interest Rate Forecast and Market Drivers

57

• GDP Growth

– After a devastating 2nd quarter in 2020, there was a snap-back recovery indicated by a 33.4% GDP Growth in Q320.

• Vaccine Discovery

– The discovery of the Pfizer and BioNTech's COVID-19 vaccine is anticipated to drive the economic recovery.

• Stimulus

– About $4 trillion, over the course of ten months, has been committed to U.S. Economic Stimulus.

Market Consensus Yield Curve Projections

Current Q1-21 Q2-21 Q3-21 Q4-21

Fed Funds 0.25% 0.25% 0.25% 0.25% 0.25%

2-Yr UST 0.12% 0.20% 0.24% 0.28% 0.33%

10-Yr UST 0.92% 0.96% 1.07% 1.14% 1.24%

30-Yr UST 1.65% 1.69% 1.79% 1.85% 1.93%

Source: Bloomberg

Stifel Yield Curve Projections

Current Q1-21 Q2-21 Q3-21 Q4-21

Fed Funds 0.25% 0.25% 0.25% 0.25% 0.25%

2-Yr UST 0.12% 0.11% 0.15% 0.17% 0.21%

10-Yr UST 0.92% 0.70% 0.80% 1.00% 0.95%

30-Yr UST 1.65% 1.45% 1.53% 1.65% 1.60%

Source: Stifel Research

Source: Stifel Research, Bloomberg. As of 1/4/2021.

MARKET OUTLOOK: 2021 Forecast Summary

58

• SIFMA Estimates 2020 unemployment at 6.8% and 2021 unemployment at 5.4% (4Q Average).

Economics

• SIFMA anticipates that 2-Year and 10-Year UST yields will increase by 13 bps and 40 bps, in 2021, respectively.

UST Yields

• AAA MMD yields are anticipated to increase in 2021, as opposed to the notable decrease experienced in 2020.

High Grade Municipal Rates

• 2021 gross municipal supply is anticipated to exceed historic averages, but not to the record breaking level that categorized 2020 municipal issuance.

Gross Municipal Supply

• The tax-exempt net supply in 2021 is anticipated to remain negative, but not to the degree of 2020.

Tax Exempt Net Supply

Source: SIFMA Economic Advisory Roundtable, Stifel Research. As of 12/23/2020

Introduction to the Bond Issuance Process

Documents

Transcript of Introduction to the Bond Issuance Process