Bond Issuance 101 and Continuing Disclosure

Transcription

1 Bond Issuance 101 and Continuing Disclosure Sandra Park, Vice President STIFEL Jean Dietrich, CPA CLAconnect.com

2 Objective Discuss the types of debt financing instruments Reporting and disclosure requirements The bond process Market pricing and closing Bond interest rates Post closing and continuing disclosure requirements Understand how to record long-term debt in the financial statements 2

3 Types of Debt Bonds Notes Loans Capital Leases Tax Anticipation Notes 3

4 Bonds General Obligation Bonds Revenue Bonds Special Assessment Debt Conduit Debt Deep Discount Debt Demand Bonds Refunding Bonds 4

5 General Obligation Bonds Long-term debt issued to finance capital acquisitions or construction of the local government Secured by secondary property taxes Subject to legal debt limits in the State of Arizona School District 15% or 30% of net secondary assessed valuation and 10% or 20% of net secondary assessed valuation for Class B bonds Municipalities 6% or 20% of net secondary assessed valuation 5

6 Revenue Bonds Long-term debt issued to finance capital acquisitions or construction of the local government Secured by a pledged revenue source Exempt from legal debt limits in the State of Arizona School Districts common revenue bonds include federal impact aid revenue bonds Municipalities common revenue bonds include excise tax revenue bonds, utility revenue bonds and HURF revenue bonds 6

7 Accounting Treatment for General Obligation and Revenue Bonds Current financial resources measurement focus The par amount of the bonds, the premium or discount are reported as an other financing source (use) Issuance costs are reported as a current expenditure Economic resource measurement focus The par amount of the bonds, the premium or discount are reported as a long-term liability Issuance costs are reported as an expense 7

8 Required Disclosures for General Obligation and Revenue Bonds Original face value of the bonds Face value of outstanding bonds at year-end Maturity dates Interest rate The premium or discount on the issuance and the amortization of the premium or discount 8

9 Special Assessment Debt Long-term debt issued to finance improvement projects that provide a clear and direct benefit to a specific subset of residents Secured by the collection of the special assessment revenues collected by property owners Exempt from legal debt limits in the state of Arizona 9

10 Accounting Treatment for Special Assessment Debt Even though special assessment debt is secured by future payments from property owners, a government normally remains obligated in some manner for the debt A liability is not reported for special assessment debt for which the government is not obligated in any manner Governments report general obligation debt to be repaid from special assessments as general obligation debt 10

11 Accounting Treatment for Special Assessment Debt Current financial resources measurement focus A special assessment receivable and a deferred in flow of resources is recorded in the governmental fund financial statements Revenue is recognized when collected or within 60 days of year end The par amount of the bonds, the premium or discount are reported as an other financing source (use) Issuance costs are reported as a current expenditure 11

12 Accounting Treatment for Special Assessment Debt Economic resource measurement focus A special assessment receivable and revenue is recorded at the settlement date Revenue is recognized when collected or within 60 days of year end The par amount of the bonds, the premium or discount are reported as a long-term liability Issuance costs are reported as an expense 12

13 Required Disclosures for Special Assessment Debt Original face value of the bonds Face value of outstanding bonds at year-end Maturity dates Interest rate The premium or discount on the issuance and the amortization of the premium or discount Disclose the amount of debt to be repaid from special assessments (special assessments) and the amount of debt to be repaid using resources other than assessments (general obligation debt) 13

14 Conduit Debt Limited-obligation debt issued to help finance capital acquisitions or construction by a third party outside the government, with the benefitting third party assuming sole responsibility for repayment of the debt Funded through the collection of debt service payments from the third party and remitted by the government to the debt holders 14

15 Accounting Treatment for Conduit Debt Governments may take one of two approaches to accounting for conduit debt Report a liability equal to amounts collected, but not yet remitted to debt holders or Report a liability equal to the conduit debt, along with a corresponding receivable from the benefitting third party responsible for its ultimate repayment In practice, governments normally report a liability only for amount collected, but not remitted 15

16 Required Disclosures for Conduit Debt Original face value of the bonds Face value of outstanding bonds at year-end Maturity dates Interest rate The premium or discount on the issuance and the amortization of the premium or discount Disclose the nature of the conduit debt 16

17 Deep Discount Bond Long-term debt issued to finance capital acquisitions or construction of the local government Can be secured by secondary property taxes, pledged revenue sources or by the collection of special assessments to property owners Debt issued at a discount in which the amount of the discount can be substantial (20 percent or more) Can be subject to legal debt limits in the State of Arizona School District 10% or 15% of net secondary assessed valuation Municipalities 6% or 20% of net secondary assessed valuation 17

18 Accounting Treatment Deep Discount Debt Current financial resources measurement focus The proceeds of deep discount debt (including the underwriter s discount and any other bond issuance costs paid from debt proceeds) are reported as an other financing source Economic resource measurement focus The par amount of the bonds is recorded as a long-term liability Interest is accrued each period as a level rate of interest so that at maturity principal plus accrued interest payable equals the face value of the debt Issuance costs are reported as an expense 18

19 Required Disclosures for Deep Discount Debt Original face value of the bonds Face value of outstanding bonds at year-end Maturity dates Interest rate The accreted interest (as a result of the deep discount) as a long-term liability Disclose the nature of the deep discount debt 19

20 Demand Bonds Long-term debt issued to finance capital acquisitions or construction of the local government Can be secured by secondary property taxes, pledged revenue sources or by the collection of special assessments to property owners Bonds issued that contain a put option (or tender option) that allows bondholders to demand repayment within a relatively short period Can be subject to legal debt limits in the State of Arizona School District 10% or 15% of net secondary assessed valuation Municipalities 6% or 20% of net secondary assessed valuation 20

21 Accounting Treatment for Demand Bonds Treatment of demand bonds as a long-term liability require the following elements to be met: The government has entered into a take-out agreement before the financial statements have been issued The take-out agreement does not expire within one year of the end of the reporting period Neither the take-out agreement itself, nor the obligations issued pursuant to that agreement, are cancelable by the lender within one year of the end of the reporting period The lender is expected to be financially capable of honoring the take-out agreement 21

22 Accounting Treatment for Demand Bonds If the demand bond can be treated as a long-term liability, then the accounting treatment under the current financial resources measurement focus and the economic resources measurement focus are similar to general obligation or revenue bonds If the demand bond cannot be treated as a long-term liability, then the debt would be recorded as a fund liability in the current financial resources measurement focus and as a current liability in the economic resources measurement focus 22

23 Required Disclosures for Demand Bonds Original face value of the bonds Face value of outstanding bonds at year-end Maturity dates Interest rate Disclose the nature of the demand bonds Disclose the financial arrangement for the take-out agreement 23

24 Refunding Bonds Current Refunding the issuance of debt to immediately redeem the refunded debt To qualify as a current refunding, the refunded debt must all mature or be redeemed within 90 days from the of issuance of the refunding debt Advance Refunding the issuance of debt to redeem future refunded debt Funds are placed in escrow with a trustee pending the debt s maturity or call date The refunded bonds are considered defeased and are no longer reported as a long-term liability 24

25 Accounting Treatment for Refunding Bonds Advance Refunding Current financial resources measurement focus The par amount of the bonds, the premium or discount is recorded as an other financing source The payment to escrow agent is recorded as an other financing use Issuance costs are recorded as a current expenditure Economic resources measurement focus The par amount of the bonds, the premium/discount is recorded as a long-term liability Issuance costs are recorded as an expense The deferred amount on the refunding (difference between the issued debt and the refunded debt) as a deferred inflow or outflow of resources 25

26 Accounting Treatment for Refunding Bonds Current Refunding Current financial resources measurement focus The par amount of the bonds, the premium/discount is recorded as an other financing source The principal reduction of the refunded debt is recorded as a current expenditure Issuance costs are recorded as a current expenditure Economic resources measurement focus The par amount of the bonds, the premium/discount is recorded as a long-term liability Issuance costs are recorded as an expense The refunded debt is reported as a current liability until the bonds are redeemed 26

27 Required Disclosures for Refunding Bonds Original face value of the refunding bonds Face value of outstanding refunding bonds at year-end Maturity dates Interest rate The economic gain or loss on the refunding The net present value of the savings or loss on the refunding The amount of debt defeased, but still outstanding at year-end The premium or discount on the issuance and the amortization of the premium or discount The deferred amount on the refunding and the amortization of the deferred amount on the refunding 27

28 Bond Process Overview Structuring Considerations Key Legal Documents Conference Calls and Pricing Quotes Credit Rating Marketing, Pricing and Closing

29 BOND PROCESS: Overview The actual timeline for conducting a bond sale depends upon Issuer objectives, the ability to coordinate other required efforts and market forces

30 BOND PROCESS: Overview Key Financing Steps Step 1: Initial Process Engage financing team members Identify funding needs, repayment sources and appropriate bond structure Step 2: Preparation of legal documents Bond documents outline security pledge and flow of funds Preliminary Official Statement ( POS ) describes security, issuer, project and any potential risks Step 3: Rating agency and bond insurance conversations Introduce rating agencies to issuer s credit Secure rating and solicit bond insurance bids, if applicable Step 4: Governing Board approval Approve financing terms and related financing documents Step 5: Bond marketing, pricing and closing Distribute POS to prospective investors Establish interest rates and final principal amounts on day of pricing Execute documents and deliver funds at closing, typically two weeks after pricing Step 6: Post closing Continuing disclosure Arbitrage rebate reporting Annual hearing requirement PARADISE VALLEY UNIFIED SCHOOL DISTRICT NO. 69 OF MARICOPA COUNTY, ARIZONA $49,000,000 SCHOOL IMPROVEMENT BONDS, PROJECT OF 2011, SERIES E (2015) & $21,325,000 REFUNDING BONDS, SERIES 2015 Tentative Financing Calendar (Negotiated Sale) December 2014 January 2015 February 2015 March 2015 S M T W S M T W S M T W S M T TH F S TH F S TH F S W TH F S Date Event Responsibility December 19 th January 8 th Week of January 12 th Week of January 26 th Week of February 2 nd Weeks after the Sale Week of March 2nd District and Stifel complete underwriter selection process for underwriters with SAVE contracts. Bond Resolution and draft financing documents, including draft POS, submitted to District for Governing Board packets. Distribute draft POS to Financing Team. Distribute POS and District financial information to credit rating agencies. Governing Board considers a Resolution authorizing the issuance of the Bonds. Conduct due diligence meeting at the offices of to discuss POS and other financing matters. Receive final FY 14 audited financial statements. Secure credit ratings. Finalize POS and distribute to potential investors. First possible week for the bond sale. Bond purchase agreement is executed following successful sale. Prepare Final Official Statement and distribute to Bond investors and financing team; prepare all closing documents; secure needed signatures from Governing Board and Administration and issue closing letter. Close the Bond issue. Improvement Bond proceeds deposited with County Treasurer and Refunding Bond proceeds deposited with Trustee. PVUSD = Paradise Valley Unified School District No. 69 Issuer GR = Gust Rosenfeld P.L.C. Bond Counsel ST = Stifel, Nicolaus & Company, Incorporated. Financial Advisor UW = RBC Capital Markets Underwriter UWC = Squire Patton Boggs Underwriter s Counsel PA = [To be determined] Bond Registrar, Paying Agent & Trustee PVUSD, ST GR, ST, UC ST PVUSD, GR All Parties All Parties All Parties All Parties

31 BOND PROCESS: Structuring Considerations Size of Financing How much in bond proceeds is needed Applicable expenditure limits Federal tax law considerations: 3 year reasonable expenditure expectations $15 million rebate exemption Bank Qualified status for issuers issuing less than $10 million within the calendar year Available bonding capacity Assessed value growth Principal repayment Tax rate policy parameters Debt Payment Structure Pace of bond funding needs Level or escalating payments Term of financing Prepayment Options/Call features Add issuer flexibility May have impact on debt service Maximum Net Premium Rule for General Obligation Bonds The net premium associated with a bond issue may not exceed the greater of 5% of the par value of the bond issue or $100,000 Net Premium is the difference between the par amount of the bond issue and the bond issue price

32 Key Legal Documents Authorizing Resolution Official Statement Bond Purchase Agreement Legal Opinion Continuing Disclosure Agreement

33 BOND PROCESS: Key Legal Documents Authorizing Resolution by Governing Board Authorizes the issuance of the bonds Sets terms and parameters for the bonds Delegates authority to administration and formally appoints financing team participants Official Statement: SEC Rule 15c2-12 = YOUR document (Stifel to assist) Includes all material information needed to make an informed investment decision SEC Rule 10b-5: Does not include any untrue or misleading statements nor does it omit any material information Governing Board Review of Official Statement Should review the Preliminary Official Statement Especially information on the Issuer and the community to identify any excluded information a bond investor would want to know or included information that is confusing or appears inaccurate

34 BOND PROCESS: Key Legal Documents Bond Purchase Agreement Contract between underwriter and issuer setting forth final terms, prices and conditions of underwriter s purchase of issuer s bonds Legal Opinion Bond Counsel attesting to the validity of the bonds Bond issuance consistent with applicable state and federal laws Voter authorization to issue Governing Board resolution authorizing issuance Bond Counsel attesting to the tax status of the bonds Continuing Disclosure Agreement Issuer s promise to keep investors informed about specified information and events and annual financial information

35 BOND PROCESS: Key Legal Documents Preliminary Official Statement (Before Pricing Sent to prospective purchasers) Does not include the final terms of the bonds 5 1) Par Amount Face amount or principal of borrowing 2) Dated Date Date on which bonds begin to accrue interest 3) Delivery Date Date on which bonds will be delivered to investors and proceeds delivered to issuer 4) Call Features Allows bonds to be retired before scheduled maturity Specify period of call protection and prepayment penalty 5) Ratings (if applicable) The assigned credit ratings for the bonds 6) Bond Insurer (if applicable)

36 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 and/or corrections Consider any material information not presently discussed in document Review timing of bond issue Rating Agency Call(s) Goal is to portray Issuer accurately Integral to determining Issuer interest rate Bond Insurance Pricing Quotes Integral to determining Issuer interest rate Requires cost/benefit analysis Registrar and Paying Agent Pricing Quotes Handles bond administration until fully redeemed Key link for bond holders

37 BOND PROCESS: Credit Rating Decreasing Credit Quality, LONG-TERM CREDIT RATING SCALE RISK GRADE Increasing Yields Aaa AAA AAA Highest quality Aa AA AA High quality A A A Strong Investment Baa BBB BBB Medium grade Ba, B BB, B BB, B Speculative Caa, Ca CCC, CC, C CCC, CC, C Highly speculative Junk C D D Default

38 BOND PROCESS: Credit Rating Standard & Poor s Rating Service Financial Management Assessment Strong Good/Standard Vulnerable Revenue and Expenditure Assumptions Budget Amendments and Updates Long-Term Financial Planning Long-Term Capital Planning Investment Management Policies Reserve and Liquidity Policies Debt Management Policies

39 Market, Pricing and Closing

40 BOND PROCESS: Pre-Marketing 7-10 Days Prior to Pricing Prepare sales force (internal discussion / materials) Preliminary Official Statement (POS) electronically distributed to investors Pre-marketing calls to investors Investor presentation, if applicable (web-based or in person) 1-2 Days Prior to Pricing Preliminary Pricing Call with Issuer, Stifel & Underwriting Desk 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 the interest and how do we effectively market the bonds to those market segments? Determine initial interest rates and yields with Issuer Set date, time and duration of bond order period Initial pricing information distributed to all retail and institutional sales force Online order monitor information sent after the call - allows Issuer real-time view of orders, providing transparency to the pricing process

41 BOND PROCESS: Day of Pricing Underwriter evaluates market conditions at the open Tone of tax exempt market investor demand Comparable new issue sales Secondary market activity Final adjustments (if any) to initial coupons and yields Order period commences, pricing wire sent out Online Order Entry System allows issuer to view orders as they are entered At conclusion of order period, a pricing call is typically held Conference call between Issuer, Underwriter and Underwriting Desk to discuss sale status Re-pricing Considerations Depending on investor demand, Underwriter may propose slight adjustments to yields or coupons Concluding the Pricing When a significant number of bonds have been sold, Underwriter commits to purchase all unsold bonds at proposed rates If Underwriter and Issuer reach agreement on final structure, interest rates (coupons) and yields of the bonds, terms entered on bond purchase agreement (BPA) presented to Issuer for approval BPA executed by Issuer (Governing Board Member) and Underwriter on day of sale Investor orders confirmed

42 BOND PROCESS: Pricing Order Period and Results Issuers are able to monitor order flow during order period Maturity Amount Total Priority ($000's) Total Member ($000's) Total ($000's) Balance ($000's) 07/01/ /01/ /01/ /01/ /01/ TOTAL:

43 BOND PROCESS: Closing Preparation for closing Official Statement distributed to buyers with final pricing information Preparations made for closing (2-3 weeks following sale) and delivery of bond proceeds to Issuer Before day of closing Closing documents reviewed Signature pages obtained by Bond Counsel (for those parties not physically attending the closing) Closing memorandums prepared by Bond Counsel/Underwriter Location and date of closing Final pricing numbers Wire transfer instructions Flow of funds On closing, bond proceeds delivered and proceeds available for use Flow of Funds Example Project Underwriter Bond Proceeds Proceeds deposited in Bond Funds Issuer Costs of Issuance

44 Bond Interest Rates

45 BOND INTEREST RATES: Defining Features Credit Rating Indicates credit quality Allows price/rate comparison Underlying and/or insured Par Amount Principal or face amount of borrowing 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 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 Call Features Allow bonds to be retired before scheduled maturity Specify period of call protection and prepayment penalty 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

46 BOND INTEREST RATES: Pricing Page Investor s Rate of Return Rate Issuer Pays = Coupon Investor Pays Principal x Price = Issue Price Premium Bond Maturity Dates Yield to Maturity Final Maturity Par Bond Yield to Call Discount Bond

47 BOND INTEREST RATES: Basis Point What does a basis point mean to you? Interest rates (and yields) are expressed in Basis Points (bp) 1 bp = 1/100 * 1.0% = = 4.50% % = 0.01% The dollar impact of 1 basis point is approximately $8,800 over the life of a 15-year, $10 million issue and $6,880 on a present value basis (i.e., change in price of the securities to investors)

48 Post Closing

49 POST CLOSING: Overview Documents to come after closing Transcript CD from Bond Counsel with all related legal documents Continuing Disclosure Filings Issuer s responsibility Consider adopting policies and procedures for continuing disclosure compliance IRS Tax Regulations, Arbitrage, Yield Restriction and Rebate IRS Form 8038G filed at closing indicates existence of adopted federal tax compliance policies Federal tax laws generally restrict ability to earn arbitrage in connection with tax-exempt bonds Certain exemptions and rebate requirements Use a qualified arbitrage rebate consultant to determine liability Documentation of appropriate interest earnings on bond proceeds Remittance of excess interest earnings on bond proceeds Violations can lead to IRS deeming bonds taxable or sizable fines and restrictions Credit Rating Surveillance Calls Do NOT ignore their calls! Refinancing Opportunities Adoption of Policies and Procedures related to Debt Management Record Retention / Assigned Responsibilities

50 POST CLOSING: Important Dates January: File Audited Financial Statements onto EMMA per Continuing Disclosure requirements February: Estimated Preliminary Assessed Valuation available May: Consult/procure arbitrage rebate provider and submit arbitrage rebate liability, if any, for tax levy setting May: [For Build America Bonds and Qualified School Construction Bond issuers only]: Work with Calculation/Filing Agent to submit necessary forms in order to receive federal interest subsidy payment November: [For Build America Bonds and Qualified School Construction Bond issuers only]: Work with Calculation/Filing Agent to submit necessary forms in order to receive federal interest subsidy payment J anuary S UN MON TUE WED THUR FRI S AT February S UN MON TUE WED THUR FRI S AT May S UN MON TUE WED THUR FRI S AT J uly S UN29 MON30 TUE WED THUR FRI S AT September S UN MON TUE WED THUR FRI S AT October S UN MON TUE WED THUR FRI S AT November S UN MON TUE WED THUR FRI S AT

51 POST CLOSING: Continuing Disclosure Mandated by Securities and Exchange Commission Rule 15c2-12 of the Securities Exchange Act of 1934 Intent is to deter fraud and manipulation by improving the availability of information about municipal securities outstanding in the secondary market Underwriters prohibited from purchasing or selling municipal securities unless Issuer enters into a Continuing Disclosure Agreement (CDA) Underwriter required to review disclosure in final official statement must disclose compliance failures from 2004 Securities Act of 1933 and Section 10(b) of the Exchange Act Anti-fraud provisions applied to munis

52 POST CLOSING: Continuing Disclosure Issuer contract with investors with: 1. Annual Financial Information: Audited annual financial information AND Operating Data as specified in the CDA 2. Notice(s) of Material Event(s) 3. To a single national repository hosted by the Municipal Securities Rulemaking Board (MSRB). Electronic Municipal Market Access (EMMA) portal located at 4. Voluntary Disclosures Specific to each bond issue outstanding Promise extends over the life of every bond issue outstanding

53 POST CLOSING: Continuing Disclosure General Exemptions: Some Private Placements Bond issues with par amounts $1 million or less Issues offered in $100,000 denominations and: Maturity of 9 months or less Sold to no more than 35 sophisticated investors for one account and/or no intention of distributing securities Variable rate demand obligation where at the option of the holder tenders to an issuer or its designated agent for redemption or purchase at par value or more at least as frequently as every 9 months until maturity, earlier redemption, or purchase by an issuer or its designated agent

54 POST CLOSING: Continuing Disclosure Two Types: 1. Continuing Disclosure Undertakings: Issuer has $10 million or more in outstanding debt 2. Limited Continuing Disclosure Undertakings: Issuer has less than $10 million in outstanding debt at issuance Elimination of Small Issuer Exemption (Limited Continuing Disclosure Undertakings): Old Requirement Provide Annual Financial Information to State Information Depository (SID) [Arizona did not have a SID, therefore, the Issuer did not have to file any annual financial information] Provide Annual Financial Information to Investors Upon Request Provide Notice of Material Event(s) Post July 1, 2009 Requirement Amendment to Rule 15c2-12 All references to SID replaced with MSRB [Issuers now required to file annual financial information with MSRB] Unchanged Unchanged

55 POST CLOSING: Continuing Disclosure 1) List of your outstanding debt GLENDALE UNION HIGH SCHOOL DISTRICT NO. 205 OF MARICOPA COUNTY, ARIZONA $50,000,000 $22,440,000 $50,495,000 $5,125,000 $22,800,000 $21,200,000 School Improvement Bonds School Improvement Bonds Taxable Refunding Bonds School Improvement Bonds School Improvement Bonds School Improvement Bonds Project of 2003 Project of 2011 Series 2012 Project of 2011 Project of 2011 Project of 2011 Series 2004 Series A (2012) Series B (2013) Series C (2013) Series D (2013) (Private Placement) (Private Placement) (Private Placement) Dated: 2/1/04 Dated: 3/15/12 Dated: 11/16/12 Dated: 6/4/13 Dated: 10/1/13 Dated: 10/1/13 2) Transcript for each outstanding issue

56 POST CLOSING: Continuing Disclosure 3) Extract the Continuing Disclosure Undertaking for each outstanding issue

57 POST CLOSING: Continuing Disclosure 4) Extract the Official Statement for each outstanding issue

58 POST CLOSING: Continuing Disclosure 5) Create a Matrix of your requirements for each outstanding issue $50,000,000 $22,440,000 $22,800,000 School Improvement Bonds School Improvement Bonds School Improvement Bonds Project of 2003 Project of 2011 Project of 2011 Series 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: 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

59 POST CLOSING: Continuing Disclosure 5) Create a Matrix of your requirements for each outstanding issue (continued) CUSIP Numbers: JS6, $50,000,000 $22,440,000 $22,800,000 School Improvement Bonds School Improvement Bonds School Improvement Bonds Project of 2003 Project of 2011 Project of 2011 Series 2004 Series A (2012) Series C (2013) Dated: 2/1/04 Dated: 3/15/12 Dated: 10/1/ JT4, JU1, JV9, JW7, JX5, KB1, JY3, JZ0, KA KM7, KN5, KP0, KQ8, KR6, KS4, KT2, KU9, KV7, KW5, KX3, KY1, KZ8, LA2, LB0, LC 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

60 POST CLOSING: Continuing Disclosure $50,000,000 $22,440,000 $22,800,000 School Improvement Bonds School Improvement Bonds School Improvement Bonds Project of 2003 Project of 2011 Project of 2011 Series 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

61 WHAT ARE MY REQUIREMENTS? Annual Filing Deadlines Using your Continuing Disclosure Undertaking, record Annual Filing Deadline for each outstanding issue Recommended: 180 days after fiscal year end

62 WHAT ARE MY REQUIREMENTS? $50,000,000 $22,440,000 $22,800,000 School Improvement Bonds School Improvement Bonds School Improvement Bonds Project of 2003 Project of 2011 Project of 2011 Series 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: 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

63 WHAT ARE MY REQUIREMENTS? Operating Data Using your Continuing Disclosure Undertakings, list all Operating Data tables for each outstanding issue

64 WHAT ARE MY REQUIREMENTS? Operating Data Using your Official Statements, match the required Operating Data tables for each outstanding issue Table numbers Lack of table numbers Content of Tables

65 WHAT ARE MY REQUIREMENTS? Operating Data (continued)

66 WHAT ARE MY REQUIREMENTS? Operating Data (continued)

67 WHAT ARE MY REQUIREMENTS? Operating Data (continued)

68 WHAT ARE MY REQUIREMENTS? Operating Data (continued)

69 WHAT ARE MY REQUIREMENTS? Operating Data (continued)

70 WHAT ARE MY REQUIREMENTS? Operating Data (continued)

71 WHAT ARE MY REQUIREMENTS? Operating Data (continued)

72 WHAT ARE MY REQUIREMENTS? Operating Data Operating Data: NOTE: The tables needed for continuing disclosure can change for each offering Let your auditors know! $50,000,000 $22,440,000 $22,800,000 School Improvement Bonds School Improvement Bonds School Improvement Bonds Project of 2003 Project of 2011 Project of 2011 Series 2004 Series A (2012) Series C (2013) Dated: 2/1/04 Dated: 3/15/12 Dated: 10/1/13 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

73 WHAT ARE MY REQUIREMENTS? CUSIP Numbers: JS6, $50,000,000 $22,440,000 $22,800,000 School Improvement Bonds School Improvement Bonds School Improvement Bonds Project of 2003 Project of 2011 Project of 2011 Series 2004 Series A (2012) Series C (2013) Dated: 2/1/04 Dated: 3/15/12 Dated: 10/1/ JT4, JU1, JV9, JW7, JX5, KB1, JY3, JZ0, KA KM7, KN5, KP0, KQ8, KR6, KS4, KT2, KU9, KV7, KW5, KX3, KY1, KZ8, LA2, LB0, LC LF1, 78334LG9, LH7, LJ3, LK0, LL8, LM6, LN4, LP9, LQ7

74 WHAT ARE MY REQUIREMENTS? CUSIP Association Using your Official Statement, make a list of CUSIP Numbers for each outstanding issue What is a CUSIP (Committee on Uniform Security Identification Procedures)? CUSIP-6 Provides base information for most filings Identification number assigned to each maturity of an issue (i.e. serial number) Example: A X 6 CUSIP-6 = base that uniquely identifies the Issuer i.e. Town of Nicolaus Municipal Property Corporation Identifies exact bond issue i.e. Sewer Revenue Bonds, Series 2011 check digit Add to CUSIP-6 for CUSIP-9 level

75 WHAT ARE MY REQUIREMENTS? CUSIP Association When in doubt select all Issues Select applicable issues by Issue Name by Dated Date All Issues

76 WHAT ARE MY REQUIREMENTS? Material Events Material Event Requirement Principal and interest payment delinquency Always Unscheduled draws on debt service reserves reflecting financial difficulties Always Unscheduled draws on credit enhancements reflecting financial difficulties Substitution of credit or liquidity providers, or their failure to perform Defeasances Rating changes Non-payment related defaults Modification to rights of security holders Bond calls Release, substitution or sale of property securing repayment of securities Certain events affecting the tax status of security and other material notices/determinations with respect to tax status of security, or other events affecting tax status of security Tender offers Bankruptcy, insolvency, receivership or similar event of issuer or obligated person Merger, consolidation or acquisition involving sale of all or substantially all of its assets (other than in ordinary course of business) or the entry into or termination of an agreement relating to such actions Appointment of successor or additional trustee or change in name of a trustee Always Always Always Always If material If material If material If material Always Always Always If material If material

77 WHAT ARE MY REQUIREMENTS? Material Events CDUs Dated Prior to 12/1/2010 CDUs Dated On or After 12/1/2010 "In a Timely Manner" Within 10 Business Days November 2010 December 2010 S M T W TH F S S M T W TH F S

78 WHAT ARE MY REQUIREMENTS? CUSIP Numbers: JS6, $50,000,000 $22,440,000 $22,800,000 School Improvement Bonds School Improvement Bonds School Improvement Bonds Project of 2003 Project of 2011 Project of 2011 Series 2004 Series A (2012) Series C (2013) Dated: 2/1/04 Dated: 3/15/12 Dated: 10/1/ JT4, JU1, JV9, JW7, JX5, KB1, JY3, JZ0, KA KM7, KN5, KP0, KQ8, KR6, KS4, KT2, KU9, KV7, KW5, KX3, KY1, KZ8, LA2, LB0, LC 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

79 WHAT ARE MY REQUIREMENTS? Material Events Using your Official Statements, list all Underlying Ratings and Insurer for each outstanding issue

80 WHAT ARE MY REQUIREMENTS? Material Events (continued)

81 WHAT ARE MY REQUIREMENTS? Material Events (continued)

82 WHAT ARE MY REQUIREMENTS? Material Events Using your Official Statements, list all Underlying Ratings for each outstanding issue Changes to your Underlying Ratings Recalibrations (Ex: Fitch in April 2010 / Moody s in May 2010) Using your Official Statements, list all Insurers for each outstanding issue Moody s S&P Fitch Insurer Rating Outlook Rating Outlook Rating Outlook ACA NR -- NR -- WD -- Ambac WR -- NR -- WD -- Assured Guaranty (AGC) A3 Neg AA Stable WD -- BAM NR -- AA Stable NR -- BHAC Aa1 Stable AA+ Stable NR -- CIFG WR -- NR -- WD -- FGIC WR -- NR -- WD -- AGM A2 Stable AA Stable WD -- NATL(formerly MBIA) A3 Neg AA- Stable WD -- MAC NR -- AA Stable NR -- Radian Ba1 Neg B+ Stable WD -- Syncora WR -- NR -- WD -- Source: Bloomberg Finance L.P., 08-Oct Upgrade Initial Downgrade Not Rated

83 Best Practices Have a clear understanding of your responsibilities as defined in the CDU prior to execution Adopt written policies for disclosures in municipal offerings and continuing disclosure documents Identify individuals responsible for CDU items and have a succession plan (ongoing staff training) Review your CDUs and verify that all the required tables are included in your audit (add your CDU tables to your audit checklist) Add your required CDU tables to your request for services needed in your audit contract (including due dates for your reporting requirements) Subscribe to MSRB s and sign up for alerts when new security information is added to EMMA Consider hiring a Dissemination Agent

84 Best Practices Develop policies and procedures that: Identify the information to be submitted in the annual filing and standardize as much as possible Disclose dates on which filings are made Establish clear timelines for responsibilities List the material events as stated by the SEC and in your CDU Identify the person who is designated to be responsible for making the filings Consider Agency-wide training seminars / coordinate with all applicable departments Record Retention Policy Provide ongoing training

85 Resources Dissemination Agent Providers: Applied Best Practices BLX Josh Lentz Jeff Higgins Digital Assurance Certification (DAC) NBS Lisa Olsen Tim Seufert Willdan Financial Services Dave Davies

86 Resources EMMA Dataport webpage = Manual for Continuing Disclosure Submission (PDF) Manual.pdf tmsrbscontinuingdisclosuresubmissionprocess.pdf Information and screenshots derived from the Municipal Securities Rulemaking Board ( MSRB s Market Information Department: EMMAOnline@msrb.org Municipal Securities Rulemaking Board 1900 Duke Street, Suite 600 Alexandria, VA Fax: GFOA (see following pages) Bond Counsel Investment Banker Dissemination Agent (see contact info herein) Disclosure-Preparing-to-Submit.pdf

87 Example Recording of Bond Issuance ABC organization issued $50,000,000 in general obligation bonds for the acquisition and construction of a general government building. The debt was issued at a premium of $250,000 and issuance costs of $225,000 were incurred. How would this long-term debt be recorded in the governmental fund financial statements and government-wide financial statements? 87

88 Governmental Fund Entry to Record Debt Issuance Description Debit Credit Cash (Asset) Issuance of Long-Term Debt (Other Financing Source) Premium on Issuance of Long-Term Debt (Other Financing Source) Issuance Costs (Expenditure) 50,025, ,000 50,000, ,000 88

89 Government-Wide Adjustment to Record Debt Issuance Description Debit Credit Issuance of Long-Term Debt (Eliminate Other Financing Source) Premium on Issuance of Long-Term Debt (Eliminate Other Financing Source) Long-Term Bonds Payable (Liability) Premium on Long-Term Bonds Payable (Liability) 50,000, ,000 50,000, ,000 89

90 Example Recording of Advance Refunding ABC organization issued $10,150,000 in general obligation refunding bonds to advance refund $9,925,000 in general obligation bonds by placing $10,795,972 on deposit with a refunding escrow agent. The bonds were issued at a premium of $825,000 and total issuance costs were $179,028. How would this transaction be recorded in the governmental fund financial statements and government-wide financial statements? 90

91 Governmental Fund Entry to Record Advance Refunding Debt Issuance Description Debit Credit Payment to Escrow Agent (Other Financing Use) Issuance of Long-Term Refunding Debt (Other Financing Source) Premium on Issuance of Long-Term Debt (Other Financing Source) Issuance Costs (Expenditure) 10,795, ,028 10,150, ,000 91

92 Government-Wide Adjustment to Record Advance Refunding Debt Issuance Description Debit Credit Payment to Escrow Agent (Eliminate Other Financing Use) Issuance of Long-Term Refunding Debt (Eliminate Other Financing Source) Premium on Issuance of Long-Term Debt (Eliminate Other Financing Source) Long-Term Bonds Payable (Liability) Long-Term Bonds Payable (Liability) Premium on Long-Term Bonds Payable (Liability) Deferred Amount on the Refunding (Deferred Outflow) 10,150, ,000 9,925, ,792 10,795,792 10,150, ,000 92

93 APPENDIX: Useful Terminology

94 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 and/or remove restrictive covenants. Defeasance Using available monies to provide for debt repayment prior to stated maturity.

95 USEFUL TERMINOLOGY: Payment Principal The face amount or par value of a security payable on the maturity date. Interest The amount paid by a borrower as compensation for the use of borrowed money. The interest rate is generally calculated as an annual percentage of the principal amount. Also known as a coupon rate. Debt Service The principal and interest payments on the bonds. Amortization (Debt Service) Schedule A table showing the periodic payments necessary to meet principal and interest rate requirements over the life of the outstanding bond issue. Basis Point (bp) - 1/100 of 1 percent (0.01%) of yield. For example, if yield increases from 4.25% to 4.26%, the difference is referred to as a one basis point increase. The dollar impact of 1 basis point is approximately $8,800 over the life of a 15-year, $10 million issue and $6,880 on a present value basis (i.e., change in price of the securities to investors) Redemption Provisions Call or prepayment provisions, giving the issuer the right to call or redeem outstanding bonds prior to stated maturity date.

96 USEFUL TERMINOLOGY: Pricing 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. 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. Coupon 5.00% Coupon 5.00% Coupon 5.10% Par Bond Price is equal to $100 Discount Bond Price is less than $100 Premium Bond Price is greater than $100 Yield 5.00% Yield 5.10% Yield 5.00%

97 USEFUL TERMINOLOGY: Documents Bond Purchase Agreement (BPA) Contract between underwriter and issuer setting final terms, prices and conditions for the purchase of a bond issue that is executed immediately following the bond pricing. Bond Resolution The document(s) adopted by the issuer s governing body authorizing the issuance and sale of bonds under the various terms, conditions and covenants described therein. Official Statement (OS) Issuer document with facts regarding the proposed financing and the issuer required by federal securities law to be sent to investors in a municipal bond sale. Referred to as a private placement memorandum for private sales.

98 USEFUL TERMINOLOGY: Miscellaneous Annual Financial Information Financial information and operating data of the type included in the final official statement with respect to the issuer. Arbitrage In the realm of municipal finance, arbitrage usually refers to the interest rate differential that exists when proceeds from the tax-exempt bonds are invested in higher-yielding taxable securities. Federal income tax laws generally restrict the ability to earn arbitrage in connection with tax-exempt bonds. Bank Qualified For IRS purposes, designation by issuer if issuer reasonably expects to issue no more than $10 million par amount in tax-exempt obligations within the calendar year, and relates to banks ability to receive tax deductions for interest cost of carry. Continuing Disclosure Disclosure of material information relating to municipal securities provided to the marketplace from time to time by the issuer of the securities. Such disclosures include, but are not limited to, annual financial information and material event notices provided by the issuer for the benefit of holders of the issuer s securities. Material Omission The failure to include in an OS any information that is necessary for an investor to make an informed decision and evaluate the credit quality of the issue.

99 Disclosure 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 with current effective date of implementation of July 1, 2014). 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 borrower 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 not acting as your municipal advisor and does not owe a fiduciary duty pursuant to Section 15B of the Exchange Act to the municipal entity or obligated party with respect to the information and materials contained in this communication.

100 Contact Information 2325 E. Camelback Road Suite 750 Phoenix, AZ E. Camelback Road Suite 750 Phoenix, AZ MICHAEL LAVALLEE Managing Director Phone: (602) Fax: (602) Cell: (602) SANDRA PARK Vice President Phone: (602) Fax: (602)

101 Jean Dietrich, CPA Assurance Manager Jean CLAconnect.com twitter.com/ CLAconnect facebook.com/ cliftonlarsonallen linkedin.com/company/ cliftonlarsonallen 101