PREPARING FOR A BOND SALE

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PREPARING FOR A BOND SALE

• NOVEMBER 16, 2005

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INTRODUCTION

• A bond sale is your organizations involvement in
  the financial markets
• Financial Planning is critical as you prepare for
  this process
• Involvement of numerous functions within the
  organization will result in a more complete and a
  better process
• Preparing for a bond sale is a time consuming and
  can be a difficult process

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PROCESS

• Decision to Sell
• Management Involvement
• Cost Impact
• In house legal counsel
• Financial Advisor
• Bond Counsel

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PROCESS

• General Operations Bonds vs. Revenue Bonds
• Official Statement
• Audited Financial Statements
• Organizations involvement
• Concurrent processes

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Decision to Sell

• Basis for Decision
• Financial Planning
• Capital Budget/Program
• Commercial Paper Program
• Capitalization Decision

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MANAGEMENT INVOLVEMENT

• Recommendation for bond sale
• Sale or no sale
• Costs Discussion
• Sale Date
• Briefing
• Decision

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COST IMPACT

• Amount of Sale
• Debt Service Payment
• Determination
• Other Strategies
• Selling Costs
• Financial Advisor
• Bond Counsel
• Insurance
• Rate or Ad valorem Tax Rate Increase
• Meeting Financial Criteria
• Coverage
• Debt to Equity Ratios

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IN HOUSE LEGAL COUNSEL

• Legal Advice and Counsel
• Criteria
• Structure
• Benefits
• Costs
• Date of Sale
• Legal aspects

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FINANCIAL ADVISOR AND LEGAL COUNSEL

• Initial Meeting
• Structure the Debt
• Type of Sale
• Negotiated
• Competitive Bid
• Private Placement
• Decision to Refinance Outstanding Debt or Not
• Review Information

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Preparation of Official Statement

• Information required
• Financial Information
• Debt Information
• Operating Information
• Capital Program
• Accomplishment
• Planning
• Other

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Official Statement- cont

• Information- the information gathered is
  extensive and should be presented in such a way
  that the reader is learning about your
  organization. What do you want to tell the
  interested parties?
• Routine information
• New information that presents a picture of what
  you are trying to accomplish

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Official Statement-cont

• Financial Information
• Audited Financial Statement
• Summary of operations
• Revenues
• Expenditures
• Coverage
• Fund Balance
• System Equity and Long Term Debt
• Current Investments
• Financial Planning

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Official Statement-cont

• Operations
• The System
• Customer Information
• Treated Water Pumpage
• Treated Wastewater Flows
• Regulatory Compliance
• Treated Water Consumption
• Rates and Charges
• Largest Users

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Official Statement-cont

• Debt Information
• Outstanding Debt
• Bond Requirements
• Historical Coverage Ratios
• Contractual Obligations for Water Supply and
  Wastewater Treatment
• Financial Planning information

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Official Statement-cont

• Capital Information
• Capital Program
• Capital Budget
• Funding sources
• Capital Plan for the future

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Official Statement-cont

• Planning for the future- An item that is
  important to the bondholders and the rating
  agencies is that you are planning for the future
• Water Supply
• Treatment capacity
• Distribution and Collection capacity
• Human Resource capacity and experience

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Official Statement-cont

• Accomplishments
• Financial
• Meet your revenue projections
• Meet your coverage projections
• Operating
• Meet demand
• Meet all regulatory requirements
• Planning Goals
• Meet Capital Program Projections
• Future plans

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Official Statement-cont

• Elected and Administrative Staff
• Other
• Indices
• Ratings
• Litigation and Legal Opinion
• Other Disclosures
• Changes to Financial Statements-GASB 34
• Financial Advisors
• Other General Information

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Official Statement-cont

• Review the information
• Review the information
• Review the information
• There are changes that occur, misinformation,
  misspelling or miscalculations that somehow end
  up in your document- Make sure these are caught
  and corrected

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Organization Involvement

• The different functions within the organization
  need to be involved
• The official statement information requires input
  from a variety of staff members
• Potential bondholders and rating agencies want to
  know the organization is planning for the future.
• Potential bondholders and rating agencies want to
  know the organization is providing adequate
  service to all its customers
• Potential bondholders and rating agencies want to
  know the organization values a financially strong
  organization.

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Organizations Rating

• After reviewing your information and doing some
  analysis and some trend analysis, the rating
  agencies will rate or grade your organization
• The analysis conducted by the rating agencies is
  quite extensive. It must be absolutely correct
  because the potential bond holders will rely on
  the information provided by the rating agencies
• Important to have sound financial practices
  formally adopted by the City Council. Then, you
  need to demonstrate compliance with those
  practices.

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Organizations Rating

• Meeting with Rating Agencies
• Prior to final ratings
• City Management and Department management should
  be there to answer questions
• Prepare a Rating Book
• Latest Financial information
• Other information that will boost your rating

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Organizations Rating

• Rating Agencies
• Standard and Poors
• Moodys
• Fitch
• Types of rating
• Highest Rating AAA (Standard Poors, Fitch)
• Aaa (Moodys)
• Lowest Rating C
• A plus () or a minus (-) can be added to the
  end
• Capital letters and/or little letters can be
  included and combined to designate rating
• Underlying ratings can be enhanced through the
  purchase of insurance.

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THE SALE

• Decision as to the type is made based primarily
  on cost almost at the beginning of the process
• Receive the bids and compare if competitive bid
• Negotiate the price if negotiated placement
• Place with private buyer if private placement

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Conclusion

• A bond sale is your organizations involvement
  with the financial market
• The process gives you a grade to measure how
  well you are operating the organization and how
  financially strong you are judged
• The process is time consuming and remember to
  review, review, review