1. Bond Issuance Presented by
Public School Academies
Bond Issuance
Presented by
Ann Fillingham, Esq.
Kathy O’Keefe
Danie Lynch
Dykema Gossett PLLC
Michigan Department of Treasury
Bureau of Bond Finance

2. Bonding Process
Negotiated Sale

3. Select 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

4. Finance Team Members Issuer Issuer’s Counsel Financial Advisor
Bond Counsel
Underwriter
Underwriter’s Counsel
Trustee
Rating Agencies
Credit Enhancement Providers

5. 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

6. “Size” the Deal Define the project needs
Find out how much money the borrower needs

7. “Structure” 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

8. Debt Instruments BONDS (Long-Term Financing)
A bond is written evidence of a borrower’s obligation to pay principal and interest at specified times and dates on money borrowed
NOTES (Short-Term Financing)
A note is essentially the same as a bond except that the debt must be repaid within one year

9. Types 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.

10. Forms 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.

11. Additional 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

12. Credit Structure Credit Ratings Moody’s Investors Service
A 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:
Moody’s Investors Service
Standard and Poor’s (S&P)
Fitch Ratings

13. Short-Term Credit Ratings
Category S & P Moody’s Fitch
Very Strong S&P MIG F-1
Satisfactory S&P MIG F-2
Satisfactory but susceptible MIG F-3
Speculative S&P MIG F-4

14. Long-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

15. Draft the Documents Board Resolutions Official Statement
The Bonds or Notes
Internal Revenue Service Documents

16. Sell the Deal Distribute offering document (Official Statement)
Underwriters market to banks, funds, and individuals
State (Authority) signs the purchase agreement

17. Sale of the Bonds Competitive vs. Negotiated Sale
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.

18. Who Buys Municipal Bonds?
Mutual Funds
Insurance Companies
Commercial Banks
Individual Investors commonly called “retail” investors

19. Holders of Municipal Debt

20. Close the Deal Sign bond purchase agreement Obtain legal opinions
Finalize offering document

21. Show 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

22. Bond Issuance Process

23. Michigan Public Educational Facilities Authority
MPEFA
Innovative Financing for School Facilities

24. Innovative Financing for School Facilities
MPEFA
Innovative Financing for School Facilities
MISSION STATEMENT
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.

25. Long-Term Facilities Financing
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.
MPEFA
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.

26. State 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.

27. Qualified 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

28. MPEFA 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

29. MPEFA Credit Policy
Bonds issued by the Authority should contain at least one of the following attributes:
Investment Grade Rating from a Nationally Recognized Agency; or
Letter of credit, bond insurance, or guarantee from an organization with an Investment Grade Rating; or
Privately placed with Institutional Investors, in minimum denominations of $100,000, which provide an Investor Letter; or
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
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.

30. MPEFA Issue List 1 State Aid Note (14 PSAs) 2003 $14,750,000 1.40%
CLOSING DATE
COLLEGE NAME
AMOUNT ISSUED
INTEREST 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
$2,615,000
1.04%
variable 3
8/20/2004
2004
$16,385,000
2.07% 4
10/28/2004
Holly Academy
$3,800,000
1.77% 5
8/19/2005
State Aid Note (24 PSAs)
2005
$20,325,000
4.25% 6
11/1/2005
Woodland Park Academy
$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-
2005 B
$245,000
6.50% 8
2/14/2006
Michigan Technical Academy
2006
$6,950,000 BB
$79,685,000

31. Letter of Credit/Underwriters
Fifth Third Bank
Michigan Public Finance
2501 Coolidge Road, Suite 203
East Lansing, MI 48823
Brian Lefler
Vice President and Manager
(517)
Stacy Truax
Assistant Vice President
(517)
National City Bank
One Woodward Plaza 16th Floor
Locator R-J65-4P
Detroit, MI 48226
Bill Roche
Managing Director
(313)
Winta Tedla
(313)
Paul Harris
(313)
Standard Federal Bank
2600 West Big Beaver Road
Troy, Michigan 48084
Rick Van Dresser
Vice President
(248)
Oppenheimer & Co.
Public Finance Department
300 River Place, Suite 4000
Detroit, Michigan
Kelli J. Lambrix
(313)
Jack Brusewitz
Vice President and Co-Manager
(313)
MPEFA

32. MPEFA

33. Michigan Public Educational Facilities Authority
Contact Information
Ann Fillingham
(517)
Kathy O’Keefe
Danie Lynch
Dykema Gossett PLLC
Michigan Public Educational Facilities Authority
124 West Allegan Street
800 Michigan National Tower
Lansing, MI
Location: Austin Building, 1st Floor (Formerly Treasury Building) 430 W. Allegan Lansing, MI Mail: P.O. Box Lansing, MI Phone: (517)