Transcript Document
Chimacum School District Interview for Underwriting Services June 11, 2014 MAURA LENTINI VICE PRESIDENT, ANALYST (206) 903-8687 [email protected] JON GORES MANAGING DIRECTOR (206) 389-4043 [email protected] 1 OVERVIEW OF D.A. DAVIDSON DEVELOP & IMPLEMENT A RATING STRATEGY PREPARE FOR 2015 BOND ELECTION 2 D.A. Davidson by the Numbers 118 + 78 + 1,370 + 37 + 68 + 175 = 1 “Not everything that can be counted, counts. And not everything that counts can be counted.” --Albert Einstein 3 D.A. Davidson by the Numbers 118 78 1,370 37 68 175 1 Combined years of Washington State school finance experience D.A. Davidson celebrates its 78th anniversary in 2014 D.A. Davidson employees in 86 locations Years of uninterrupted service to school districts Institutional sales professionals Firm’s capital base exceeds $175,000,000 D.A. Davidson’s position as the leading underwriter of Washington school district bond issues 4 Underwriting Rankings – Washington State Number 1 underwriter of Washington school district bonds for the seventh straight year Washington Schools 2007-2013 Negotiated Senior Manager Totals D.A. Davidson & Co. 190 Seattle-Northwest 88 Piper Jaffray 31 Martin Nelson 7 Source: Thomson Municipal Market Data. 5 School District Experience Washington State June 2013 - Present Par Amount $9,300,000 $15,000,000 $3,590,000 $7,600,000 $50,350,000 $4,355,000 $6,710,000 $2,500,000 $5,280,000 $9,530,000 $150,000,000 $5,195,000 $66,500,000 $21,550,000 $93,930,000 $4,000,000 $4,800,000 $33,500,000 Dated Date In Proces s In Proces s In Proces s In Proces s In Proces s In Proces s In Proces s In Proces s In Proces s 06/28/14 06/28/14 06/26/14 06/03/14 06/03/14 06/02/14 05/21/14 05/14/14 05/06/14 Name of Issuer Ri vervi ew School Di s tri ct Gra ni te Fa l l s School Di s tri ct Col umbi a School Di s tri ct Kel s o School Di s tri ct North Thurs ton School Di s tri ct Wi l l a pa Va l l ey School Di s tri ct Ra i ni er School Di s tri ct Ol ympi c Educa tiona l Servi ce Di s tri ct Uni on Ga p School Di s tri ct Freema n School Di s tri ct Edmonds School Di s tri ct Qui ncy School Di s tri ct Bethel School Di s tri ct Na ches School Di s tri ct North Thurs ton School Di s tri ct Li nd School Di s tri ct Ca s hmere School Di s tri ct Tumwa ter School Di s tri ct Type of Financing UTGO Ref UTGO Ref UTGO Ref UTGO Ref UTGO UTGO Ref UTGO Ref UTGO Ref UTGO Ref UTGO Ref UTGO UTGO Ref UTGO Ref UTGO UTGO Ref UTGO UTGO Ref UTGO Par Amount Dated Date Name of Issuer Type of Financing $69,190,000 04/28/14 Everett School Dis trict UTGO Ref $9,565,000 04/17/14 Wes t Va lley School Dis trict UTGO Ref $6,700,000 $10,000,000 $44,310,000 $7,000,000 $50,000,000 $780,000 $1,700,000 $5,120,000 $12,240,000 $5,600,000 $15,700,000 59,890,000 $4,500,000 $60,770,000 $850,000 04/09/14 02/13/14 02/07/14 01/08/14 10/30/13 10/10/13 07/27/13 07/17/13 07/16/13 06/27/13 06/25/13 06/18/13 06/11/13 06/04/13 06/04/13 Ba inbridge Is la nd School Dis trict La ke Stevens School Dis trict Auburn School Dis trict Ba inbridge Is la nd School Dis trict Everett School Dis trict Northport School Dis trict Na pa vine School Dis trict Roya l School Dis trict Gra peview School Dis trict Colton School Dis trict Arlington School Dis trict Ma rys ville School Dis trict Conwa y School Dis trict Richla nd School Dis trict Pa ters on School Dis trict UTGO Ref UTGO Ref UTGO&R UTGO UTGO Ref UTGO Ref UTGO Ref UTGO UTGO UTGO UTGO Ref UTGO Ref UTGO UTGO UTGO Ref 6 Why is D.A. Davidson Number 1? People & Experience Bond Distribution Capital & Employee ownership References Most importantly, we provide sleep insurance... 7 Education Finance Team Assigned to Chimacum School District Banker JON GORES Managing Director 28 Yrs Experience Backup Banker DAVID TRAGESER Managing Director 28 Yrs Experience Backup Banker JIM NELSON Sr. Vice President 27 Yrs Experience Financial and Quantitative Analysis SUZANNE EIDE Vice President 13 Yrs Experience Municipal Credit MAURA LENTINI Vice President 14 Yrs Experience Disclosure KELSEY THOMAS Assoc. Vice President 7 Yrs Experience Research Support MARY KIM Administrative Assistant 1 Yr Experience Underwriting MARK FROIO, CFA Vice President 27 Yrs Experience Marketing JOE BRADY Sr. Vice President/ Managing Director 28 Yrs Experience Marketing RICK TURNAGE Sr. Vice President/ Sales Manager 20 Yrs Experience 8 Bond Distribution – Marketing Advantage We operate 4 regional trading desks staffed with 68 institutional sales people. In addition, we operate 86 branch offices with 582 registered sales professionals. D.A. Davidson is the only regional firm equipped to market bonds to both market segments: institutional and retail. Our unique distribution system will ensure the broadest distribution of the District’s bonds, ensuring the lowest possible borrowing cost. Bond Distribution -- Who Buys Your Bonds (Bank Qualified Issues) Bond Distribution -- Who Buys Your Bonds (Non-Bank Qualified Issues) 2013 2013 Bank Trust 15% Broker-Dealer 3% Bank Portfolio 50% Bank Trust 10% Retail 7% Municipalities 5% Money Manager 25% Bond Fund 10% Money Manager 25% Source: D.A. Davidson Fixed Income Capital Markets Broker-Dealer 3% Retail 7% Bank Portfolio 5% Insurance 35% 9 Capital 2012 - Present Davidson can demonstrate our willingness to put our capital to work to ensure successful pricings for our clients in volatile market conditions. Date 01/17/12 01/18/12 02/21/12 02/27/12 03/06/12 03/15/12 03/15/12 03/22/12 03/27/12 03/28/12 04/19/12 04/23/12 04/30/12 05/02/12 05/07/12 05/16/12 06/12/12 06/26/12 06/26/12 06/27/12 08/14/12 08/15/12 09/12/12 Issuer Aberdeen SD Hood Canal SD Wahluke SD Omak SD Cashmere SD Okanogan SD Okanogan SD Lake Stevens SD Dieringer SD Cheney SD Bainbridge Island SD Auburn SD Mead SD Zillah SD Richland SD Cosmopolis SD College Place SD Lake Washington SD Lake Washington SD Yakima SD West Valley (Yakima) SD Orting SD Tumwater SD State WA WA WA WA WA WA WA WA WA WA WA WA WA WA WA WA WA WA WA WA WA WA WA Par Amount 8,955,000 5,305,000 6,130,000 7,155,000 6,875,000 5,695,000 5,695,000 10,000,000 4,515,000 9,330,000 9,995,000 9,290,000 9,360,000 4,155,000 14,050,000 1,385,000 36,010,000 23,025,000 31,195,000 34,145,000 9,330,000 9,740,000 5,840,000 Inventory 585,000 3,265,000 1,620,000 145,000 140,000 305,000 305,000 200,000 130,000 2,360,000 300,000 255,000 610,000 185,000 775,000 305,000 1,290,000 1,425,000 2,090,000 3,215,000 585,000 545,000 765,000 % 6.53% 61.55% 26.43% 2.03% 2.04% 5.36% 5.36% 2.00% 2.88% 25.29% 3.00% 2.74% 6.52% 4.45% 5.52% 22.02% 3.58% 6.19% 6.70% 9.42% 6.27% 5.60% 13.10% Date Issuer 11/14/12 Clover Park SD State WA Par Amount 44,695,000 Inventory 1,150,000 % 2.57% 11/13/12 Lake Stevens SD WA 10,000,000 1,460,000 14.60% 12/05/12 Eatonville SD WA 9,700,000 290,000 2.99% 12/03/12 Sumner SD WA 10,000,000 225,000 2.25% 12/06/12 West Valley (Yakima) SD WA 9,225,000 360,000 3.90% 12/10/12 Deer Park SD WA 10,000,000 400,000 4.00% 01/07/13 Bainbridge Island SD WA 9,010,000 1,645,000 18.26% 01/14/13 Mead SD WA 3,615,000 480,000 13.28% 05/06/13 Sumner SD WA 10,000,000 235,000 2.35% 05/09/13 Pullman SD WA 49,930,000 1,275,000 2.55% 05/23/13 Conway SD WA 9,030,000 410,000 4.54% 06/12/13 Colton SD WA 5,565,000 315,000 5.66% 06/25/13 Grapeview SD WA 10,000,000 340,000 3.40% 09/09/13 Napavine SD WA 168,000 15,000 8.93% 12/02/13 Bainbridge Island SD WA 675,000 150,000 22.22% 01/27/14 Lake Stevens SD WA 999,000 250,000 25.03% 03/17/14 Bainbridge Island SD WA 6,625,000 1,580,000 23.85% 04/07/14 West Valley (Yakima) SD WA 93,000 2,820 3.03% 05/26/14 Edmonds SD WA 150,000 35,000 23.33% 06/02/14 Oak Harbor SD WA 3,265,000 1,640,000 50.23% 06/09/14 Quincy SD WA 5,195,000 635,000 12.22% 06/11/14 Freeman SD WA 9,995,000 975,000 9.75% 10 Bond Rating Moody’s last reviewed the District’s credit in 2007, assigned an A3 The rating was adjusted to A1 in 2010 with Moody’s change to its Global Scale A1 is the third most common rating (shared by 29 districts) among the 121 Washington school districts that have a Moody’s rating. 11 Credit Strengths Moody’s cited these strengths: Absolute size and diversity of tax base New residential development due to influx of retirees Consistent maintenance of fund balances above the Board target of 5% Low debt burden Above-average wealth indicators Strong voter support 12 Credit Pressures Moody’s cited these credit pressure sources: Declining enrollment Limited local economy/dependence on timber and tourism We believe Moody’s would note these credit pressure sources today: Drop in AV over the past 5 years Low fund balances compared to the peer group in Washington and nationally 13 Credit Comparisons Number of Rated Issuers Finances Total General Fund Revenues ($000) General Fund Balance as % of Revenues Unreserved General Fund Balance as % of Revenues Unrestricted, Spendable Fund Balance as % of Revenues Tax Base Total Full Value ($000) Full Value Per Capita ($) Average Annual Increase in Full Value (%) Top Ten Taxpayers as % of Total Debt Direct Net Debt as % of Full Value* Payout, 10 Years, General Obligation Debt (%) Demographics Actual/Estimated Population, Annual Value Per Capita Income as % of U.S. (2000 Census) Median Family Income as % of U.S. (2000 Census) WA Aa2 Medians 32 WA Aa3 Medians 37 119,169 9.8 7.8 9 48,776 11.2 7.7 9.9 7,626,401 108,014 1.1 6 Chimacum School District 2013 WA A1 Medians 32 WA A2 Medians 13 10,637 9 7.2 7.2 20,607 11.6 9.3 11.2 7,776 10.7 7.7 9.8 3,132,129 94,880 3.3 5.7 1,657,794 144,735 -5.0 4.9 1,239,022 84,415 4.4 8.4 520,393 99,393 4.8 8.3 1.5 76.2 1.2 100 1.8 n/a 1.4 100 1.3 100 66,875 108 117 34,565 95 97 11,454 98 85 13,456 84 92 4,992 88 89 Source: Moody's Investors Service, January 2014 and Davidson's calculations * Direct debt figure for Chimacum SD is pro forma, assuming the full $30 million new debt. 10-year payout will depend on the issue structure. 14 Rating Considerations We believe the District would be rated A1 by Moody’s or an equivalent A+ by Standard & Poor’s If the District were planning to increase fund balances above 15%, S&P might be more inclined to upgrade in the future. Allow us to be your advocates 15 What Districts are saying about Davidson Jon Gores and his team worked closely with us through the bond rating process. We successfully maintained our bond rating despite a declining fund balance. Jon & Maura’s work on developing a rating strategy, rating presentation, preparing us for the call and facilitating and moderating the call were invaluable. --RYAN STOKES Dir. of Business, Snoqualmie Valley SD Our bond rating call went exceedingly well due to the preparation and planning of D.A. Davidson. We were able to maintain our rating and develop a strategy to improve our rating. --WAYNE LEONARD Assistant Superintendent, Mead SD I have worked with Jon Gores on a number of bond issues and have found him and his team to be a great asset in developing a strategy and navigating the challenges of the bond rating process. --MIKE NEWMAN Deputy Superintendent, Auburn SD 16 2015 Bond Election OVERALL TAX RATE PLANNING FUTURE BORROWING NEEDS CONSTRUCTION CASHFLOW COMMUNICATING THE TAX IMPACT 17 Level Debt: Results in level annual payments for the life of the bonds. $0.55 1,600,000 Debt Service 1,200,000 $0.45 1,000,000 800,000 $0.40 600,000 $0.35 400,000 Tax Rate $0.50 1,400,000 $0.30 200,000 - $0.25 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 New Debt Tax Rate Level Tax Rate: Attempts to result in a level annual tax rate over the life for the bonds * $0.55 1,600,000 $0.50 1,200,000 $0.45 1,000,000 800,000 $0.40 600,000 $0.35 Tax Rate Debt Service 1,400,000 400,000 $0.30 200,000 - $0.25 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 New Debt Tax Rate * Based on assessed value projections. Stepped Level Tax Rate: Allows for the issuance of future bonds 1,400,000 $1.00 $0.90 $0.80 1,000,000 $0.70 800,000 $0.60 $0.50 600,000 $0.40 400,000 $0.30 $0.20 200,000 $0.10 - $0.00 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 New Debt Tax Rate Tax Rate Debt Service 1,200,000 18 Bond Tax Rate Planning Assumptions: Issue Size: $30,000,000 Interest Rates: Future bond sales current plus 150 basis points Bond Rating: Aa1/State Guarantee District Rating: A1 (Pending) Assessed Value Growth: Final 2014: 0.45% growth; R&P: 2015-2036: .50% annual growth TAV: 2015-2036: 0% annual growth Bond Structure: Combined Level Tax Rate Summary 15 Year Term: $1.25 increase over 2014 total rate 20 Year Term: $0.96 increase over 2014 total rate Goal Produce an overall financing plan that meets the District’s short and long term goals 19 Tax Impact Analysis Chimacum School District No. 49 TAX IMPACT ANALYSIS Total Project Cost: State Funding Assistance: Bond Authorization Amount: $ $ $ 30,000,000.00 Estimated 2016 Tax Rate Increase over 2014 Tax Rate (per $1,000 assessed value): $ 0.96 Assessed Value of Gross Property Tax Increase Monthly Gross Property for Bonds Increase $75,000 85,000 100,000 125,000 150,000 $72.00 81.60 96.00 120.00 144.00 $6.00 6.80 8.00 10.00 12.00 NOTE: Net Tax Increase from Bonds After Allowing for Income Tax Deduction Federal Income Tax Bracket 25% 28% 33% 35% $54.00 61.20 72.00 90.00 108.00 $51.84 58.75 69.12 86.40 103.68 $48.24 54.67 64.32 80.40 96.48 $46.80 53.04 62.40 78.00 93.60 Qualified homeowners may apply for a senior exemption. Please contact Jefferson County Assessor for details. 50 20 Property Taxes 101 Increases in Home Values Will Not Increase School District Tax Collections Changes in home values don’t change the amount of taxes authorized. Local school taxes can only be increased by a vote of the people. Changing property values will change tax rates, but not tax collections. Tax collection impact 51 21 Property Taxes 101 $1,000 Levy $250 $250 $250 $250 52 22 Property Taxes 101 $1,000 Levy $250 $250 $200,000 $200,000 $250 $200,000 $250 $200,000 53 23 Property Taxes 101 $1,000 Levy $250 $250 $250 $250 54 24 Property Taxes 101 $1,000 Levy $187.50 $150,000 $250 $200,000 $250 $200,000 $312.50 $250,000 55 25 Property Taxes 101 $1,000 Levy $200 $100,000 *Spokane County Assessor $200 $100,000 $200 $200 $100,000 $100,000 $200 $100,000 56 26 Increases in Property Values Will Not Increase School District Tax Collections Changes in property values don’t change the amount of taxes authorized Local school taxes can only be increased by a vote of the people Changing property values will change tax rates, but not tax collections Year XYZ School District Home Value Home Value Tax Rate Tax Bill 2013 $100,000 $5.00/$1,000 $500 #1: 20% increase 2014 $120,000 $4.17/$1,000 $500 #2: 10% increase 2014 $110,000 $4.17/$1,000 $459 #3: 30% increase 2014 $130,000 $4.17/$1,000 $542 Assume a 20% increase in Assessed Value for XYZ School District 56 27 Decreases in Property Values Will Not Decrease School District Tax Collections Changes in property values don’t change the amount of taxes authorized Local school taxes can only be increased by a vote of the people Changing property values will change tax rates, but not tax collections Year XYZ School District Home Value Home Value Tax Rate Tax Bill 2013 $100,000 $5.00/$1,000 $500 #1: 10% decrease 2014 $90,000 $5.55/$1,000 $500 #2: 5% decrease 2014 $95,000 $5.55/$1,000 $528 #3: 20% decrease 2014 $80,000 $5.55/$1,000 $444 Assume a 10% increase in Assessed Value for XYZ School District 28 Property Taxes 101 Summary If your property value increases at a lower rate than the average increase for the school district, the amount of taxes you pay will decrease. If your property value increases at a higher rate than the average increase for the school district, the amount of taxes you pay will increase. 29 What Districts Are saying about Davidson Mr. Gores continues to provide on-going support and bond information. He is exceedingly knowledgeable and has the ability to explain bond, tax and financing information in simple terms. He has distinguished himself by consistently providing exceptionally well researched and well documented information and guidance. --ANGELA WATTS Asst. Superintendent, West Valley SD Three areas that I appreciate most about working with Jon and his team are their incredible preparation, quick, yet thorough, responses to questions, as well as the short and long range planning they developed for new and updated schools through the capital levy and bond. --MIKE NEWMAN Deputy Superintendent, Auburn SD 30 Fee Proposal Davidson is compensated entirely from the underwriting spread. The District would make no payments to Davidson, nor enter into any financial obligation prior to the completion of the bond sale. The underwriting spread has three main components: 1) 2) 3) Management fee—salaries, personnel costs Expenses—overhead costs, i.e., travel, telephone, printing, etc. Takedown—sales commission paid to sales people to market the bonds Underwriter's Discount $/1,000 Management Fee Expenses* Takedown Total *Assuming $30 million par amount $/1,000 0.75 0.12 2.75 $ 3.62 31 Why is Davidson the best fit for Chimacum School District? We’ve worked with 20 out of 33 of the school districts with 1,000-1,999 FTE We’ve worked on 14 out of 15 school districts receiving initial bond ratings of A3/A- or better We’ve worked with 4 out of 6 school districts that received bond rating upgrades We’ve successfully closed 100% of our transactions on time 32 D.A. Davidson’s Vision & Mission Vision: Continue to be the leader in school finance in Washington State Mission: To allocate all available human, intellectual and financial resources to each and every transaction and client, thereby ensuring the lowest cost of capital while providing exceptional service. Going the extra mile and doing whatever it takes to go above and beyond our clients’ expectations. Thank You 33 Services Pre-Election Provide bond/levy planning Develop long range financing plan Attend community meetings and facility meetings Election Finance Workshops Brief County Assessor and Treasurer Provide Voter Profile 34 Services Post-Election - Issue Develop District Bond Sale Schedule and Distribution List Provide input for Delegation and State Guarantee Resolution Draft State Guarantee application Prepare Preliminary and Final Official Statements Review and comment on all necessary documents Prepare credit evaluation and rating presentation Organize local sales effort with local firms Price and market bonds and report to the Board Notify County Assessor, Treasurer and ESD of final pricing results and debt service requirements Disclosure compliance update 35 Services Post Sale – Ongoing Annual debt service fund cash flow Continuing disclosure assistance M&O levy tax rate projections Arbitrage rebate assistance Refunding monitoring Evaluate alternative financings (LGO borrowing for energy grants, etc.) Budget revision assistance & notes to financial statement Briefings on legislation that may potentially impact bonds and elections Annual Board updates Guest lecturer for High School 36 References Monroe School District No. 103 Dr. Ken Hoover, Superintendent Phone: (360) 804-2501 [email protected] Marysville School District No. 25 Dr. Becky Berg, Superintendent Phone: (360) 653-0800 [email protected]. Sequim School District No. 323 Mr. Kelly Shea, Superintendent Phone: (360) 582-3262 [email protected] Ms. Brenda Hunt, Ex. Director, Fiscal Services Phone: (360) 804-2510 [email protected] Mr. Jim Baker, Ex. Director of Finance Phone: (360) 653-0803 [email protected] Mr. Brian Lewis, Business Manager Phone: (360- 582-3266 [email protected] Auburn School District No. 408 Dr. Kip Herren, Superintendent Phone: (253) 931-4914 [email protected] Mead School District No. 354 Dr. Thomas Rockefeller, Superintendent Phone: (509) 465-6019 [email protected] Quillayute Valley School District No. 402 Ms. Diana Reaume, Superintendent Phone: (360) 374-6262 [email protected] Mr. Wayne Leonard, Ex. Director, Business Services Phone: (509) 465-6017 [email protected] Ms. Jan Haugen, Director of Finance Phone: (360) 374-6262 ext. 102 [email protected] Shelton School District No. 309 Mr. Wayne Massie, Superintendent Superintendent Phone: (360) 426-1687 ext. 10010 [email protected] Port Angeles School District No. 121 Ms. Jane S. Pryne, Superintendent Phone: (360) 565- 3700 [email protected] Mr. Mike Newman, Associate Supt., Business/Operations Phone: (253) 931-4930 [email protected] Olympia School District No. 111 Mr. DIck Cvitanich, Superintendent Phone: (360) 596-6100 [email protected] Ms. Jennifer Priddy, Assistant Superintendent Phone: (360) 596-6117 [email protected] Olympic Educational Service District No. 114 Mr. Steve McIntire, Fiscal Officer Phone: (360) 782-5001 [email protected] Ms. Brenda Trogstad, Ex. Director of Finance Phone: (360) 426-1687 ext. 10020 [email protected] Sumner School District No. 320 Ms. Debbie Campbell, Ex. Director, Business Services Phone: (253) 891-6010 [email protected] Ms. Kelly Pearson, Dir. of Finance and Operations Phone: (360) 565.3755 [email protected] Nooksack Valley School District No. 506 Mr. Mark Johnson, Superintendent Phone: (360) 988-4754 [email protected] 37 Neither this material nor any of its contents may be disclosed, sold, or redistributed, electronically or otherwise, without prior written consent of Davidson Companies. The information presented herein is based on public information we believe to be reliable, prevailing market conditions, as well as our views at this point in time. We make no representation or warranty with respect to the accuracy or completeness of this material. Past performance is not necessarily indicative of future results. Davidson Companies does not assume any liability for any loss which may result from the reliance by any person upon such material. We make no representations regarding the legal, tax, regulatory, or accounting implications of entering into a Transaction. Required Disclosure Pursuant to MSRB Rule G-23: An underwriter’s primary role will be to purchase as principal, or arrange for the placement of the securities in a commercial arm’s length transaction with the issuer, and may have financial and other interests that differ from those of the issuer. In its capacity as underwriter and not as financial advisor, an underwriter may provide incidental financial advisory services at the issuer’s request, including advice regarding the structure, timing, terms and other similar matters concerning the issuance. However, an underwriter does not assume any financial advisory or fiduciary responsibilities with respect to the issuer.