0 Virginia Public School Authority Providing Financing for Virginia’s Schools for over 50 Years...

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Virginia Public School Authority

Providing Financing for Virginia’s Schools for over 50 Years

VASBO – Helping Shape the FutureFall Conference - October 16, 2015

School Financing Options

Virginia local officials have a number of options available to address financing needs for school projects

General Obligation Bond issue by locality following a successful referendum

Lease Revenue Bonds through a conduit issuer

Bank loan

Literary Fund loan

Virginia Public School Authority (VPSA)

The option selected may depend on funding availability, circumstances in the locality, and the attributes of the project

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School Financing Options, continued

Local OptionsGeneral Obligation Bonds – Issued directly by you. Your rating. Secured by

full faith and credit of your locality. Referendum required.Lease Revenue Bonds – Requires conduit issuer such as your Economic

Development Authority. Secured by appropriation. No referendum required.

Bank Loans – Lending bank negotiates terms of loan.Literary Fund Loan – Issued by DOE. No direct Literary Loans or interest rate

subsidies for foreseeable future *All subject to your own debt policy, i.e. types of debts and limitations on

indebtedness.

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School Financing Options, continued

VPSA’s Pooled Bond ProgramFlagship program

Bond bankAuthority issues bonds and uses the proceeds to purchase general obligation local

school bonds

Payments on local schools bonds held by the Authority provide for the debt service on the VPSA bonds

Schools and only schools All types of real and personal property for public schools, including land, buildings

and equipment

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VPSA Pooled Bond Program Program Highlights.....

Provides Market access – particularly helpful to localities not frequently in the bond market

Highly Rated (AA+/Aa1/AA+)

“Credit enhancement” through state-aid intercept/sum sufficient provisions

Streamlined application process with no application fee

Minimizes burden on local officials

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Why VPSA?

Experience

Administrative ease Cost

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Why VPSA?

ExperienceEstablished in 1962 and completed first bond issue in 1963$ 6.6 billion has been issued through the Pooled Bond Program alone$ 2.6 billion in local school bonds from 104 different localities are

currently held by the VPSAPooled Bond Program has been enhanced and refined over the years to

simplify and streamline

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Why VPSA?

Administrative EaseLocal GO Bonds sold to the VPSA do not require voter referendumStreamlined application process with no application feeMarket access – particularly helpful to localities that are not frequently in

the bond marketAuthority does the heavy lifting for the bond sale

Bond documents, ratings, public offering documents, coordination of sale

Decreased administrative burden on local officials Arbitrage rebate compliance, continuing disclosure and monitoring for refunding

opportunities

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Why VPSA? Cost

No application fee

Administrative costs are low – 5 basis points added to local debt service

Covers VPSA costs of issuance and administrative costs

Local costs of issuance (local counsel, FA) paid by locality or financed as part of the bond issue

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Sample VPSA/Local Loan

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VPSA Locality

Maturity Principal Coupon Interest Total Principal Coupon Interest Total

2015 $ 500,000.00 3.00% $ 300,000.00 $ 800,000.00 $ 500,000.00 3.05% $ 305,000.00 $ 805,000.00

2016 $ 500,000.00 3.00% $ 285,000.00 $ 785,000.00 $ 500,000.00 3.05% $ 289,750.00 $ 789,750.00

2017 $ 500,000.00 3.00% $ 270,000.00 $ 770,000.00 $ 500,000.00 3.05% $ 274,500.00 $ 774,500.00

2018 $ 500,000.00 3.00% $ 255,000.00 $ 755,000.00 $ 500,000.00 3.05% $ 259,250.00 $ 759,250.00

2019 $ 500,000.00 3.00% $ 240,000.00 $ 740,000.00 $ 500,000.00 3.05% $ 244,000.00 $ 744,000.00

2020 $ 500,000.00 3.00% $ 225,000.00 $ 725,000.00 $ 500,000.00 3.05% $ 228,750.00 $ 728,750.00

2021 $ 500,000.00 3.00% $ 210,000.00 $ 710,000.00 $ 500,000.00 3.05% $ 213,500.00 $ 713,500.00

2022 $ 500,000.00 3.00% $ 195,000.00 $ 695,000.00 $ 500,000.00 3.05% $ 198,250.00 $ 698,250.00

2023 $ 500,000.00 3.00% $ 180,000.00 $ 680,000.00 $ 500,000.00 3.05% $ 183,000.00 $ 683,000.00

2024 $ 500,000.00 3.00% $ 165,000.00 $ 665,000.00 $ 500,000.00 3.05% $ 167,750.00 $ 667,750.00

2025 $ 500,000.00 3.00% $ 150,000.00 $ 650,000.00 $ 500,000.00 3.05% $ 152,500.00 $ 652,500.00

2026 $ 500,000.00 3.00% $ 135,000.00 $ 635,000.00 $ 500,000.00 3.05% $ 137,250.00 $ 637,250.00

2027 $ 500,000.00 3.00% $ 120,000.00 $ 620,000.00 $ 500,000.00 3.05% $ 122,000.00 $ 622,000.00

2028 $ 500,000.00 3.00% $ 105,000.00 $ 605,000.00 $ 500,000.00 3.05% $ 106,750.00 $ 606,750.00

2029 $ 500,000.00 3.00% $ 90,000.00 $ 590,000.00 $ 500,000.00 3.05% $ 91,500.00 $ 591,500.00

2030 $ 500,000.00 3.00% $ 75,000.00 $ 575,000.00 $ 500,000.00 3.05% $ 76,250.00 $ 576,250.00

2031 $ 500,000.00 3.00% $ 60,000.00 $ 560,000.00 $ 500,000.00 3.05% $ 61,000.00 $ 561,000.00

2031 $ 500,000.00 3.00% $ 45,000.00 $ 545,000.00 $ 500,000.00 3.05% $ 45,750.00 $ 545,750.00

2033 $ 500,000.00 3.00% $ 30,000.00 $ 530,000.00 $ 500,000.00 3.05% $ 30,500.00 $ 530,500.00

2034 $ 500,000.00 3.00% $ 15,000.00 $ 515,000.00 $ 500,000.00 3.05% $ 15,250.00 $ 515,250.00

Total $ 10,000,000.00 $ 3,150,000.00 $ 13,150,000.00 $ 10,000,000.00 $ 3,202,500.00 $ 13,202,500.00

Why VPSA? Cost (continued)

Strength of local GO’s issued for essential public purposes (schools) helps maintain high credit quality of the program and…..

Helps keep the Authority’s costs low; minimal credit analysis High ratings mean lower interest rates

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MMD Yields September 8, 2015

Municipal Market Data General Obligation Yields

Aaa Aa AAa to A Spread

2016 0.23 0.27 0.39 0.12

2017 0.61 0.67 0.8 0.13

2020 1.37 1.5 1.75 0.25

2025 2.18 2.39 2.74 0.35

2030 2.64 2.88 3.26 0.38

2035 2.88 3.12 3.5 0.38

2040 3.04 3.28 3.66 0.38

2045 3.11 3.35 3.73 0.38

1/1/

2016

1/1/

2018

1/1/

2020

1/1/

2022

1/1/

2024

1/1/

2026

1/1/

2028

1/1/

2030

1/1/

2032

1/1/

2034

1/1/

2036

1/1/

2038

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

Series 2015B Yield

AAA MMD 4/23/2015

AA MMD 4/23/2015

A MMD 4/23/2015

Positive Credit Features Essential public purpose – schools Three levels of security provide high degree of confidence

General obligation (GO) bonds of locality State-aid intercept mechanism

If a payment default occurs on a local school bond, state comptroller can withhold any amounts appropriated to that locality and apply the withheld amount to their local school bond

Prevents default on the VPSA bonds

Sum-sufficient appropriation If the amount intercepted is insufficient, an appropriation from the

Commonwealth covers the shortfall Literary Fund General Fund

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Positive Credit Features The three levels of bondholder security are unique, and result in

VPSA’s high credit ratings

This means borrowers in the program – regardless of the localities’ underlying rating realize the benefit from the Authority’s ratings

There has never been a local default on a VPSA Bond

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Key Features - VPSA’s Pooled Bond Program

Bonds sales conducted two times each year – Spring & Fall

Local GO Bonds only

Maintains credit quality

Requires minimum credit analysis

Local school bonds sold to the VPSA are excluded from referendum requirement

Financing terms can range from 10 to 30 years Amortization is typically level debt service or level principal Delayed principal and other structuring features are possible

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Refunding Opportunities Savings opportunities for the pool are rigorously monitored Refunding issues are regularly undertaken by the Authority Savings are passed through to local participants through a debt

service creditIssue Par Amount

SeriesRefunded

SavingsDistributed

LocalitiesInvolved

March 2005 $230.6mm 5 $8.7mm 61

February/March 2009 $114.2mm 4 $6.9mm 33

October 2009 $481.3mm 7 $28.7mm 29

September 2010 $85.5mm 2 $3.4mm 15

February 2012 $282.2mm 6 $21.9mm 25

May 2014 $227.3mm 3 $19.9mm 20

February 2015 $466.6mm 7 $55.4mm 24

Total $1,421.1mm $144.9mm

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Other VPSA Financing Programs, continued

Stand-Alone Bond Program

VPSA serves as the conduit issuer for a locality

Useful for highly rated localities that do not benefit from the VPSA’s credit enhancements (i.e., have a rating higher than that of the Authority)

Bond rating based on that of the local borrower

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Other VPSA Financing Programs - continued VPSA Technology Grant Program

Five year notesAuthorized through the Appropriation Act – DOE formulaFinances computer based instructional and testing system for Standards of

Learning (SOL) and high speed Internet connectivityTypically Spring saleRepaid from an appropriation from the Literary Fund

VPSA School Security Equipment Grant ProgramFive year notesAuthorized through the Appropriation Act

Awarded on a competitive basis Up to $100,000 per division with a 25% local match

Applications available on DOE website and due August 1, 2016Repaid from an appropriation from the Literary Fund

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VPSA Process VPSA establishes sale calendar (January/July) Application packages distributed to localities Applications reviewed; questions resolved VPSA Board of Commissioners meets; approves applications;

authorizes issuance of bonds Ratings applied for Bond documents (POS/NOS), sizing finalized VPSA sells bonds and formally accepts bond sale agreements

from localities Closing documents drafted and reviewed by VPSA bond counsel Bond closing – bond proceeds wired to locality accounts in SNAP

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Key Responsibilities of the Borrower/Borrowers’ Counsel

Obtain School Board approval of application to VPSA Submit application for participating in Fall/Spring Pooled Sale

Project information Obtain Board of Supervisors approval of bond resolution Review and verify preliminary numbers Resolutions/ordinances filed with Circuit Court Bond Sale Agreement returned to Authority with tax

questionnaire Draft closing documents submitted to VPSA/bond counsel Account registration forms to SNAP for bond proceeds Comply with Proceeds Agreement

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Key Responsibilities…(continued) Post – issuance

Localities’ obligations set out in Use of Proceeds AgreementArbitrage rebate Change in use/private use of tax-exempt financed facility

Spend-down requirements Practice Continuing Disclosure!!

Are you a MOP? www.emma.msrb.org State and Local Government Toolkit

www.msrb.org/MSRB-For/Issuers/Issuer-Toolkit.aspx Learning about Municipal Bond Issuance

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Future Challenges and Opportunities

VPSA well positioned for future with its programs Direct Literary Loans and/or Interest Rate Subsidies – unlikely Interest rates expected to remain low Commonwealth ties to Federal Government Sequestration reduced the amount of QSCB/BAB subsidy, but

not significantly

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VPSA Financing Team

Virginia Public School Authority - Virginia Department of the Treasury

Janet AylorDirector of Debt Management

(804)371-6006janet.aylor@trs.virginia.gov

Jay MahoneVPSA Program Manager

(804) 225-4928Jay.mahone@trs.virginia.gov

Financial AdvisorDavenport & Company

Jamie TraudtTy Wellford

VPSA Bond CounselMcGuire WoodsArthur Anderson

T.W. Bruno

Melissa PalmerSenior Financial Analyst

(804) 225-4926Melissa.palmer@trs.virginia.gov

http://www.trs.virginia.gov/Debt/vpsa.aspx