Bond IssuancePresented by

Public School AcademiesPublic School Academies

Ann Fillingham, Esq. Kathy O’Keefe Danie LynchDykema Gossett PLLC Michigan Department of Treasury

Bureau of Bond Finance

Bonding ProcessBonding Process

Authority/State

Underwriters Bondholders

Borrower

Bonds Bonds

$$ $

LoanAgreement

Negotiated Sale

Select the TeamSelect the Team

Underwriters: sell/place the bonds with investors

Bond counsel: provides legal advice as well as opinions on the legality and taxability of bonds

Trustee: manages the flow of funds

Financial Advisor: independent third party that advises the borrower regarding the terms and structure of the deal

Finance Team MembersFinance Team Members

Issuer Issuer’s Counsel Financial Advisor Bond Counsel Underwriter Underwriter’s Counsel Trustee Rating Agencies Credit Enhancement Providers

Timing is Everything!Timing is Everything!

Find out when the borrower needs the money

Work with team members to develop a schedule to ensure the borrower receives the money when needed

Schedule of Events

Completed Event ParticipantsJune 19 Yes Bank approves letter of credit. LOC & BOR

July 15 Yes Conference call with Working Group to describe theProject, plan of finance, and schedule of meetings.

All

Aug - firsthalf of month

yes Borrowers Board of Trustees’ adopts Bond AuthorizingResolution.

BOR & CC

Aug 8th yes Bond Counsel distributes 1st draft of bond and trustdocuments, and TEFRA Notice.

BC

Aug 8th yes First draft of front portion of the Preliminary OfficialStatement (POS) circulated

BC

Aug 18th yes 1:00 pm – First Working Group session at Bond Counsel’soffice, Lansing, MI.

All

Aug 25th

(week of)Distribute 1st draft of Reimbursement Agreement, and formof Letter of Credit.

CB

Aug 22nd yes Circulate 2nd draft of documents to Working Group BC, AG,

Aug 27th 11:00 am Second Working Group session; dial-in conf call. All

Sept 1st

(Week of)Attorney General circulates 1st draft of the Authority’sResolution – 2 weeks in advance

AG

Sept 1st

(Week of)Circulate revised 2nd draft of documents to Moody’s. BC & BC

Sept 3rd Publish TEFRA notice (14-days min. prior to meeting.) AU

Sept Corporate Counsel circulates form of Approving Opinion. CC

Sept 18th TEFRA public hearing – Lansing. AU

Sept 19th Receive rating confirmations UW

Sept 29th

(Week of)Due diligence BC, CC & BOR

Sept 29th

(Week of)If necessary, conference call regarding final form ofdocuments.

All

Sept 23rd 3:00 pm –Authority public meeting - Lansing - adoptParameters Resolution.

BOR, BC, AG, &UW

Oct 2nd Final comments taken for the POS. BC

Oct 3rd Print and mail Preliminary Official Statement BC

Oct 14th 4:30 pm preliminary pricing conference call UW, BOR, AU

Oct 15th 9:00 am pricing conference call10:00 am open order period for the Bonds

UW, BOR, AU

Oct 16th Sign Bond Purchase Agreement BOR, AG, & UW

Oct 22nd Pre-closing @ Bond Counsel All

Oct 23rd Closing & delivery UW, BC, TRU, &AG

Participants:AG Office of the Attorney GeneralBC Bond CounselCC Corporate Counsel -UW UnderwriterBOR BorrowerAU Issuer/AuthorityTRU TrusteeCB Counsel to the BankLOC Letter of Credit Provider

““Size” the DealSize” the Deal

Define the project needs Find out how much money

the borrower needs

““Structure” the DealStructure” the Deal

Determine the maturity of the bonds - When the investor is repaid the principal on their investment

Determine the security for the bonds - The strength of the security will affect the interest rate on the bonds

Ascertain the most cost effective interest rate mode, income tax status, and terms of re-payment

Debt InstrumentsDebt Instruments

BONDS (Long-Term Financing)

NOTES (Short-Term Financing)A note is essentially the same as a bond except that the debt must be repaid within one year

A bond is written evidence of a borrower’s obligation to pay principal and interest at specified times and dates on money borrowed

Types of BondsTypes of Bonds

Municipal Bonds (when issued for a public purpose project) are exempt from federal and state income taxes.

General Obligation (G.O.) Bonds are secured by the “full faith and credit” of the issuer. Full Faith and Credit Bonds are payable as a first budget obligation.

Revenue Bonds are payable from specific sources of revenues, other than property taxes, and are not backed by the “full faith and credit” of the issuer.

Forms of Bonds & NotesForms of Bonds & Notes

Serial Bonds - Repayment of principal on an annual basis.

Term Bonds - Single repayment (maturity) of principal.

Fixed Rate Bonds - Bond with an interest rate that remains constant or fixed during the life of the bond.

Variable Rate Demand Bonds (VDRO’s) - Bonds issued with a variable interest rate. Investors have the right to ‘put’ the bonds back to the issuer. VDRO’s require liquidity in the form of a letter of credit.

State Aid Anticipation Notes (SANs) - are issued in anticipation of state aid payments.

Additional SecurityAdditional Security

Rating - Obtain a credit rating from an independent third party to verify the credit worthiness of the borrower

Insurance - Guaranteed payment of the bonds from a third party

Letter of Credit - Guaranteed payment from a bank

Credit StructureCredit Structure

Moody’s Investors ServiceStandard and Poor’s (S&P)Fitch Ratings

Credit RatingsA credit rating agency evaluates the “credit worthiness” of the borrower or credit support and the ability to repay the debt.

Three independent companies publish credit ratings upon request for both corporate and municipal debt. They are:

Short-Term Credit RatingsShort-Term Credit Ratings

Category S & P Moody’s FitchVery Strong S&P-1 MIG-1 F-1

Satisfactory S&P-2 MIG-2 F-2

Satisfactory but susceptible MIG-3 F-3

Speculative S&P-3 MIG-4 F-4

Long-Term Credit RatingsLong-Term Credit Ratings

Category S & P/Fitch Moody’s Highest AAA Aaa

Very Strong AA+ / AA / AA- Aa1 / Aa2 / Aa3

Strong but susceptible A+ / A / A- A1 / A2 / A3

Adequate BBB+ / BBB / BBB- Baa1 / Baa2 / Baa3

Vulnerable - “Junk” Status BB+ / BB / BB- Ba1 / Ba2 / Ba3

B+ / B / B- B1/ B2 / B3

CCC+ / CCC / CCC- Caa1 / Caa2 / Caa3

Lowest Grades CC / C / D Ca / C

Draft the DocumentsDraft the Documents

Board Resolutions

Official Statement

The Bonds or Notes

Internal Revenue Service Documents

Sell the DealSell the Deal

Distribute offering document (Official Statement)

Underwriters market to banks, funds, and individuals

State (Authority) signs the purchase agreement

Sale of the BondsSale of the Bonds

Competitive Sale: the issuer sets a date for the sale and accepts sealed bids from potential buyers. At a specified date/time the issuer opens the bids and awards the bond sale to the lowest interest cost bidder.

Negotiated Sale: the issuer selects an underwriter who then structures and sells the bond issue.

Competitive vs. Negotiated Sale

Who Buys Municipal Bonds?Who Buys Municipal Bonds?

Mutual Funds

Insurance Companies

Commercial Banks

Individual Investors commonly called “retail” investors

Holders of Municipal DebtHolders of Municipal Debt

35%

16%

11%

5%

16%7%

10%

Individuals

Mutual Funds

Insurance Companies

Bank Personal Trusts

Money Market Funds

Commercial Banks

All Others

Close the DealClose the Deal

Sign bond purchase agreement

Obtain legal opinions

Finalize offering document

Show Me The MoneyShow Me The Money

Once the documents have been signed and the deal has been closed, the funds (money) is sent via wire transfer

Release bonds to the investors

Bond Issuance ProcessBond Issuance Process

Action includesborrower

Action includesbondholder

Borrower submits loanapplication to issuing

Authority

Authority staff, lawyers(bond counsels), bankers,

and the borrower and/orthe borrower's counselhave conference calls todevelop all the necessary

legal documents

Authority directs a banker(underwriter), who

specializes in bonds, tosell the bonds on the

market

Underwriter markets thebonds to people or

organizations, who want aninvestment (bondholders),and agree on a purchase

price (pricing)

Borrower signs a contract(known as the Purchase

Contract) with the Authorityand the authority signs one

with the underwriteragreeing to the price and

committing to the sale (loan)

Authority, borrower,underwriter and legal

counsels meet to sign thelegal documents (closing)

Trustee (fund custodianrepresenting bondholders)

receives funds

Trustee transfers funds toBorrower

Borrower makes scheduledpayments to the Authoritythrough the paying agent

(often the trustee)

Paying agent makesscheduled payments to

bondholders

Innovative Financing for School Facilities

MPEFA

Michigan Public Educational Facilities Authority

The Michigan Public Educational Facilities Authority is dedicated to providing opportunities for low cost financing and technical assistance for (i) qualified public educational facilities and (ii) public school academies through its bonding and loan programs.

MISSION STATEMENTMISSION STATEMENT

MPEFA

Innovative Financing for School Facilities

Long-Term Facilities FinancingLong-Term Facilities Financing

MPEFA

Financing is a challenge to most public schools, for public school academies there are additional challenges to securing financing without access to local property tax.

This program is designed to provide public school academies with a low cost alternative for the purpose of financing land, facilities, equipment, or refinancing existing debt.

State Aid Note for PSAsState Aid Note for PSAs

The State Aid Note for Public School Academies (PSAs) a short-term financing option for cash flow needs for operating purposes prior to the receipt of October State Aid payments.

MPEFA

The State Aid Note (SAN) Program for PSAs offers a simplified low-cost borrowing process, equivalent to the program available for public school districts. However, this is a program designed specifically for PSAs with their particular needs in mind.

Qualified Public Educational Facilities BondsQualified Public Educational Facilities Bonds

The Qualified Public Educational Facilities (QPEF) Bonds can be used to construct, rehabilitate, refurbish or equip a public school facility.

A public-private partnership agreement needs to be entered into between the public school and a private, for-profit corporation (developer) .

The bond proceeds are loaned to the developer who owns the school facility and leases it to a public school.

The public school leases the school facility from the developer and at the end of the lease term, the facility is transferred to the public school for no additional consideration.

MPEFA

MPEFA Credit DefinitionsMPEFA Credit Definitions

Institutional Investor: A firm that purchases large volumes of municipal securities, including mutual funds, banks, insurance and finance companies.

Investment Grade Rating: Minimum rating of BBB- or Baa3

Investor Letter: A letter signed by each Institutional Investor acknowledging the risks associated with the securities being purchased and a representation of its financial ability to take such risks, its access to information on the securities and its intent to hold the securities for investment purposes. The letter must state that the Institutional Investors have not relied on information provided by the Authority.

Nationally Recognized Agency: Fitch Ratings, Standard & Poor's Ratings Services, or Moody’s Investors Service

Underwriter: A registered broker-dealer of municipal securities

MPEFA

MPEFA Credit PolicyMPEFA Credit Policy

1. Investment Grade Rating from a Nationally Recognized Agency; or

2. Letter of credit, bond insurance, or guarantee from an organization with an Investment Grade Rating; or

3. Privately placed with Institutional Investors, in minimum denominations of $100,000, which provide an Investor Letter; or

4. Limited offering to Institutional Investors, in minimum denominations of $100,000. The bonds will be sold through an Underwriter with an acceptable disclosure document and legal opinion.

MPEFA

Bonds issued by the Authority should contain at least one of the following attributes:

The Authority reserves the right to grant exceptions to the foregoing upon its determination through a preliminary resolution that the bond transaction does not create unnecessary exposure or risk to the Authority.

MPEFA Issue ListMPEFA Issue ListMPEFA

 

CLOSING DATE COLLEGE NAME

 

AMOUNT ISSUEDINTEREST

RATE

 

  SERIES RATING STATUS

1 8/21/2003 State Aid Note (14 PSAs) 2003 $14,750,000 1.40% SP-1+ Fixed

2 12/10/2003

West Michigan Academy of Environmental Science 2003 $2,615,000 1.04%   variable

3 8/20/2004 State Aid Note (14 PSAs) 2004 $16,385,000 2.07% SP-1+ Fixed

4 10/28/2004 Holly Academy 2004 $3,800,000 1.77%   variable

5 8/19/2005 State Aid Note (24 PSAs) 2005 $20,325,000 4.25% SP-1+ Fixed

6 11/1/2005 Woodland Park Academy 2005 $3,750,000 2.66%   Variable

7 

12/13/2005 

C.R. Smith Foundation on behalf of Old Redford Academy

2005 A $10,865,000 multiple BBB- 

Fixed

2005 B $245,000 6.50% Fixed

8 2/14/2006 Michigan Technical Academy 2006 $6,950,000 multiple BB Fixed

$79,685,000

Letter of Credit/UnderwritersLetter of Credit/Underwriters

MPEFA

Fifth Third BankMichigan Public Finance

2501 Coolidge Road, Suite 203

East Lansing, MI 48823

Brian LeflerVice President and Manager

(517) 324-4058

Stacy TruaxAssistant Vice President

(517) 324-4040

National City BankOne Woodward Plaza 16th Floor

Locator R-J65-4P

Detroit, MI 48226

Bill RocheManaging Director

(313) 230-1625

Winta Tedla(313) 230-1628

Paul Harris(313) 230-1627

Standard Federal Bank2600 West Big Beaver Road

Troy, Michigan 48084

Rick Van Dresser Vice President

(248) 637-2729

Oppenheimer & Co.Public Finance Department

300 River Place, Suite 4000

Detroit, Michigan 48207

Kelli J. LambrixVice President

(313) 566-2330

Jack BrusewitzVice President and Co-Manager

(313) 566-2373

MPEFA

Contact InformationContact Information

Ann Fillingham afillingham@dykema.com

(517) 374-9146

Kathy O’KeefeOKeefeK@michigan.gov

517-373-8885

Danie LynchLynchDC@michigan.gov

517-241-1765

Dykema Gossett PLLC Michigan Public Educational Facilities Authority

124 West Allegan Street800 Michigan National Tower

Lansing, MI 48933-1707

Location: Austin Building, 1st Floor(Formerly Treasury Building)

430 W. AlleganLansing, MI 48922

Mail: P.O. Box 15128Lansing, MI 48901

Phone: (517) 335-0994

www.dykema.com/corporate Treas_MPEFA@michigan.gov

www.michigan.gov/mpefa