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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)[email protected]
Jay MahoneVPSA Program Manager
(804) [email protected]
Financial AdvisorDavenport & Company
Jamie TraudtTy Wellford
VPSA Bond CounselMcGuire WoodsArthur Anderson
T.W. Bruno
Melissa PalmerSenior Financial Analyst
(804) [email protected]
http://www.trs.virginia.gov/Debt/vpsa.aspx
