Selling Your Bond After Passage Lyn Gruber – Koppel & Gruber Public Finance

Debt Management Policies Should be adopted by board Provides a road map Debt structure, issuance, and management Review periodically

Team Members Municipal Advisor Only team member with a fiduciary responsibility Represents the district Bond Counsel Renders opinion on the validity of the issue Drafts resolutions and other legal documents

Team Members Underwriter Works with district on negotiated sale Develops bond structure and timing Sells the bonds to investors Underwriter’s Counsel Typically selected by underwriter

Team Members Rating Agency Assigns a rating to the bond after reviewing the credit quality of the bond Periodically reviews the credit quality and may change the rating Credit Enhancer/ Bond Insurer Increases the district’s credit rating by providing insurance or other credit enhancement

Team Member Trustee/Fiscal Agent Makes sure the bondholders are paid Holds/invests proceeds Represents bondholders Disclosure Consultant/Dissemination Agent Works with district on continuing disclosure report Monitors rating changes and other “Material Events”

Method of Sale Competitive Sale Bonds advertised for sale Any broker dealer can bid on bonds Bonds awarded to the lowest interest rate bidder Negotiated Sale Underwriter brought on early in the process Bond terms negotiated between issuer and underwriter

Method of Sale Private Placement Debt sold to one or a few sophisticated investors Direct Placement Debt sold directly to a bank as an investment

Competitive Sale Recommended whenever feasible Credit rating of at least single A Issuer is well known to the Market Bonds are full faith and credit of the issuer (GOs are!) Structure is not innovative Method of Sale

Reasons for Negotiated Sale Poor credit Unusually large issue New to the market Volatile market Innovative structure “Story Bond”

Sizing the Bonds Bond Program=Dollar Amount on Ballot Multi-Year program Tranche an issue of bonds derived from a pooling of like obligations that is differentiated from other issues especially by maturity or rate of return ( Each tranche should be sized to last 3 years

Most Common Types of Bonds Current Interest Bonds (CIBs) Interest paid every 6 mos. Capital Appreciation Bonds (CABs) Investor receives a single payment at maturity Initial principal amount is reinvested at a stated compounded rate until maturity Convertible Capital Appreciation Bonds CABs for a limited period, then CIBs

CAB Restrictions (AB 182) Maximum Maturity of 25 Years Ratio of total debt service to principal amount not to exceed 4 to 1 for any bond series Must have a call provision beginning in year 10 Maximum interest rate of 8% Board resolution stating intent to sell CABs Discussion at two Board meetings Board must be presented with overall costs

Post Bond Issuance Annual Continuing Disclosure Report Updates certain information from the Official Statement Requires disclosure of Material Events Arbitrage Calculations IRS Regulation Must be completed every 5 years Recommend having a calculation done in year 1, then evaluate frequency

Investor and Taxpayer Relations Investors Keep up with disclosure Answer rating agency questionnaires Taxpayers Keep promises made during election Communicate with stakeholders Remember-Always prepare for the next election

Resources Government Finance Officers Association Municipal Securities Rulemaking Board Electronic Municipal Market Access