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. BOE Meeting October 16, 2019 2
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. BOE Meeting October 16, 2019 3
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. BOE Meeting October 16, 2019 4
Decline in Borrowing Costs Since 2006 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. • AAA Rates At Prior District 2 Bond Issuance Dates 4.500% February 1, 2006 4.000% June 29, 2010 3.500% December 7, 2016 3.000% October 8, 2019 2.500% 2.000% 1.500% 1.000% 0.500% 0.000% 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 BOE Meeting October 16, 2019 5
Two Strategies Are Proposed Refinance Raise $29.375M of the current bonds up to $4.25M of additional at lower interest cost and capital for upcoming projects. revised payment schedule. BOE Meeting October 16, 2019 6
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. BOE Meeting October 16, 2019 7
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. BOE Meeting October 16, 2019 8
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. BOE Meeting October 16, 2019 9
Timeline Date Action Adopt Resolution of Intent to Issue Bonds and authorize October 16, 2019 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 Take final Board action to authorize new bonds and to December 18, 2019 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. Repay original bonds with proceeds from replacement May 1, 2020 bonds. February 3, 2023 Deadline for completing capital projects BOE Meeting October 16, 2019 10
Resolution of Intent to Borrow Up to $35 million Refund 2010A bonds $13,055,000 Maturing 2027 through 2040, paying net interest about 4.27% Refund 2010B bonds $900,000 Maturing 2024 through 2027, paying interest about 4.1% Refund 2010C bonds $15,420,000 Maturing 2031 through 2043, paying net interest about 4.25% Capital Projects $4,250,000 To be spent by February 3, 2023 Subtotal, anticipated gross proceeds $33,625,000 Principal in lieu of interest on discount bonds $1,375,000 Paid at maturity in exchange for below-market interest during bond life Total Face Amount $35,000,000 BOE Meeting October 16, 2019 11
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