Bond Financing in 2011 Presented to Wisconsin Private Colleges and Universities March 2010 Robert W....

Bond Financing in 2011Bond Financing in 2011

Presented to Presented to

Wisconsin Private Colleges and UniversitiesWisconsin Private Colleges and Universities

March 2010March 2010

Robert W. Baird & Co.

John A. MehanManaging [email protected]

Ann Erickson GiffordManaging [email protected]

WHEFA Presentation • Page 2

Timeline – What the heck happened?

Nov ’10•Rate on 20 year AAA muni is greater than Treasury and stays for 2+ months•First of 4 consecutive week of municipal bond outflows

Dec ‘10•Meredith Whitney predicts mass municipal bond defaults

Dec ‘07•S&P downgrades A rated ACA•Multiple AAA rated insurers receive negative outlooks

Oct ‘08•Wells Fargo acquires Wachovia•Banks accept capital from US Treasury•Municipal bond volume down 50.6%•30 yr AAA MMD hits 5.94%

Dec ‘08•Spread between AAA and A rates peaks at 126 bps

Oct ‘10•Last AAA insurer downgraded to AA+

Jan ’11•Municipal bond volume down 63%May ‘08

•UBS closes Public Finance

Mar ‘08•JP Morgan acquires Bear Stearns

Feb ‘08•Massive Auction Rate Securities failures

Sep ‘08•BofA acquires Merrill Lynch•Lehman files for bankruptcy•Common Fund liquidity limited•SIFMA hits 7.96%

Mar ‘09•First ARRA bonds authorized

Jun ‘09•Credit spreads begin to narrow

Jan ‘10•SIFMA hits 0.15%

Aug ‘10•30-year AAA MMD falls to 3.67%

Oct ‘09•U.S. unemployment rate increased to 10.1%, the highest rate since 1983

Jan ‘08•Downgrades of AAA rated insurers begin•BofA announces purchase of Countrywide Finance


Short-Term Rates

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

SIFMA Historical Rates

Source: The Bond Buyer and SourceMedia Inc.


SIFMA + 125 Basis Points



Historical Revenue Bond IndexThe Bond Buyer Revenue Bond Index consists of 25 various revenue bonds that mature in 30 years.

The average rating is roughly equivalent to Moody’s “A1” and S&P’s “A+”.


Current Rate as of 3/3/2011 5.56%

Average Rate 5.60%

Avg. Rate 4.99%


Municipal Bond Fund Redemptions

Source: Investment Company Institute*Estimated


0

1

2

3

4

5

6

'86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10Utility Health Care Tax SecuredTransportation Higher Education Appropriation

Defaults of Bonds Rated by S&P

Data below is based on 16,845 rated obligations as of January 1, 2011

Includes the following credit types: general obligation, lease/appropriation/moral obligation, special tax (sales, gas, etc.), special district, water and sewer revenue, public power, airports, ports, toll roads and bridges, parking, various types of bond pools, transit, public and private higher education, auxiliary higher education debt, independent schools, hospitals (stand-alone and systems), continuing care, and physicians' practices.

Source: Standard & Poor’s

Number of Transactions

5 Tax-Secured Bonds

3 Appropriation Backed Debt

6 Utility Backed

4 Transportation

2 Higher Education

22 Healthcare

42 Total Transactions


Investors – Preferred Maturities

InstitutionsInstitutionsRetail – Trust Retail – Trust

Departments and Departments and Money ManagersMoney Managers

Retail - IndividualsRetail - Individuals

Bond Funds and Insurance Companies: 20+ years, with demand from Intermediate Bond Funds for the 11-20 year range

• 1-10 years• The last (highest

yielding) maturity of a given issue

• 1-5 years• The last (highest

yielding) maturity of a given issue

Corporations: 1-3 years


Investors – Purchase Preferences

InstitutionsInstitutionsRetail – Trust Retail – Trust

Departments and Departments and Money ManagersMoney Managers

Retail - IndividualsRetail - Individuals

Sensitive to initial yield and resale opportunities

Sensitive to initial yield and resale opportunities

Focused on initial yield

Very interest rate sensitive Moderately interest rate sensitive Less interest rate sensitive

Generally looking for premium bonds in a rising rate environment

Generally looking for premium bonds in a rising rate environment

Generally looking for bonds sold close to par

May have portfolio restrictions on ratings

Generally looking for “AA” and “AAA” ratings

Prefer “A” and higher but may compromise to get higher yield

Often performs own credit analysis

Looks for solid ratingsConsiders personal knowledge, broker recommendation and yield in conjunction with rating

Seeks geographically diverse portfolio

Diversity less of a concernPrefers issuers with which s/he has personal familiarity

Buys blocks of $500,000+Buys blocks of $100,000 - $2,000,000

Buys blocks of $5,000 - $1,000,000


Targeting Investors


Marquette University - Comparing the Bond Issues

December 2009 January 2011

• Fixed Rate

• “A2” rating by Moody’s Investor Services rating with stable outlook

• Uninsured

• No Letter of Credit

• Excellent for institutional and retail investors

• Four Week Marketing Period

• Favorable Municipal Bond Market

• Strong Retail Demand

• Two Week Marketing Period

• Volatile Municipal Bond Market

• Cautionary Retail Demand


Marketing Plan – 2009

Bond Marketing:

•Multiple Internal Emails•Financial Advisor Flyer•WTMJ Radio Advertisements

•Press Release•Marquette Internal Newsletter Announcement•Marquette Email Distributed to Staff

•Print advertisements•Baird FA Internal Newsletter Announcement•Institutional Sales Force Conference Call

20 business days 20 business days


Marketing Plan - 2011

Bond Marketing:

•Multiple Internal Emails•Financial Advisor Flyer and Email •WTMJ Radio Advertisements

•Press Release•Marquette Email Distributed to Staff

• Retail Broker and Institutional Sales Force Conference Call

One week prior Week of pricing

10 business days 10 business days


Marquette’s 2009 Coupon Structure

$31,795,000.00Series B-1

Maturity (October 1)

Maturity Value Coupon Yield

2010 845,000.00 2.000% 0.800%2011 835,000.00 2.500% 1.350%2012 860,000.00 2.500% 1.700%2013 880,000.00 5.000% 2.050%2014 925,000.00 3.500% 2.450%2015 955,000.00 5.000% 2.850%2016 1,005,000.00 3.500% 3.150%2017 1,040,000.00 3.750% 3.450%2018 1,080,000.00 3.750% 3.650%2019 1,120,000.00 4.000% 3.850%2020 1,165,000.00 4.000% 4.050%2021 1,210,000.00 4.000% 4.150%2022 1,260,000.00 4.125% 4.300%2023 1,310,000.00 5.000% 4.350%2024 1,375,000.00 5.000% 4.450%2025 1,445,000.00 5.000% 4.500%2026 1,515,000.00 5.000% 4.600%

Term Bonds2030 6,865,000.00 5.000% 4.900%2033 6,105,000.00 5.000% 5.125%

$18,765,000.00Series B-2



2010 500,000.00 2.000% 0.800%2011 535,000.00 2.000% 1.350%2012 545,000.00 2.250% 1.700%2013 555,000.00 2.250% 2.050%2014 570,000.00 2.450% 2.450%2015 580,000.00 2.850% 2.850%2016 600,000.00 3.150% 3.150%2017 615,000.00 3.350% 3.450%2018 640,000.00 3.850% 3.650%2019 665,000.00 3.850% 3.850%2020 690,000.00 4.050% 4.050%2021 715,000.00 4.050% 4.150%2022 745,000.00 4.200% 4.300%2023 775,000.00 4.250% 4.350%2024 810,000.00 4.350% 4.450%2025 845,000.00 4.400% 4.500%2026 880,000.00 4.500% 4.600%

Term Bonds2030 3,970,000.00 5.000% 4.900%2033 3,530,000.00 5.000% 5.125%

$33,100,000.00Series B-3



2010 880,000.00 2.000% 0.800%2011 870,000.00 2.500% 1.350%2012 895,000.00 2.500% 1.700%2013 915,000.00 5.000% 2.050%2014 960,000.00 3.500% 2.450%2015 995,000.00 5.000% 2.850%2016 1,045,000.00 3.500% 3.150%2017 1,080,000.00 3.750% 3.450%2018 1,125,000.00 3.750% 3.650%2019 1,165,000.00 4.000% 3.850%2020 1,210,000.00 4.000% 4.050%2021 1,260,000.00 4.000% 4.150%2022 1,310,000.00 4.125% 4.300%2023 1,365,000.00 5.000% 4.350%2024 1,435,000.00 5.000% 4.450%2025 1,505,000.00 5.000% 4.500%2026 1,580,000.00 5.000% 4.600%

Term Bonds2030 7,150,000.00 5.000% 4.900%2033 6,355,000.00 5.000% 5.125%

Retail targeted couponing


Marquette’s 2011 Coupon Structure

$27,265,000.00

Series A-1

Maturity Maturity Value Coupon Yield

2011 4,860,000.00 2.00% 0.90%

2012 2,155,000.00 2.00% 1.40%

2013 2,210,000.00 3.00% / 4.00% 2.00%

2014 2,285,000.00 3.00% 2.50%

2015 2,375,000.00 3.00% / 5.00% 2.95%

2016 2,475,000.00 3.30% 3.30%

2017 2,560,000.00 3.50% / 4.00% 3.65%

2018 2,665,000.00 5.00% / 4.00% 4.00%

2019 2,785,000.00 4.05% 4.15%

2020 2,895,000.00 4.25% 4.35%

Bifurcated coupon


Marquette University – 2011 Allocation of Bonds (000’s)

Retail Breakdown


Conclusion

Colleges and universities have been faced with volatile bond market conditions over the past several years.

Success is contingent on the following when entering the market:

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