west contra costa usd general obligation bonds, election of 2010, series b general obligation bonds,...

West Contra Costa USDGeneral Obligation Bonds, Election of 2010, Series BGeneral Obligation Bonds, Election of 2012, Series AReview of Costs of Issuance

Presentation to the Facilities SubcommitteeDecember 10, 2013

Primary Goals

Presentation to the West Contra Costa Unified School District Facilities Subcommittee | page

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The financing team has three primary goals. To develop a financing plan that meets the District’s needs in

a reasonable, equitable, and cost effective way.

To implement such financing plan effectively and efficiently, and in a way that retains flexibility for plan adjustment to the extent possible.

To effect transactions in a manner that reflects best practices and at the lowest possible cost given the goals of the program.

Reducing Financing Costs

In terms of providing low financing costs, we want to stay focused on the areas that provide the highest benefit. Program Structure. Assuming interest at 5% and a 30-year term, a

$125 million bond issue structured with level debt service will be $80 million less expensive than a $125 million bond issue structured with 4% escalation over the same term.

Interest Rates. Assuming a $125 million bond issue structured with 4% escalation and a 30-year term, achieving a 4.90% interest rate will save nearly $4 million in interest versus the 5% interest rate transaction described above.

UW Spread. Reducing underwriter’s spread by $2 per bond can save up to $250,000 on a $125 million transaction.

Direct COI. To the extent the District were able to reduce “controllable” direct costs of issuance by half, the District would have saved $150,000.


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Costs of Issuance

That being said, costs of issuance (both underwriter’s spread and direct costs of issuance) are significant and require active management. Combined, the two components totaled more than $1 million on

Series 2013 Bonds, $450,000 of which was paid from the District’s Building Fund.

This is an amount that has increased significantly since the early 2000s (for some legitimate reasons).

Additional money in the building fund can go directly to much needed facility projects.

The District has a fiduciary duty to its taxpayers to keep costs low.


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West Contra Costa USD Strategy

In West Contra Costa USD, our strategy tries to achieve the best of both worlds with regard to service and costs.


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Service Fees

We want to have a full team in place at all times.

Long term contracts provide broad parameters for fee discussions.

By convention, a number of team members serve under long term contracts.

Actual fees are negotiated after structure is developed based on fees for comparable transactions.

All financing team members provide services between financings.

Target is to have final fees negotiated before documents are drafted.

Comparable Transactions – Underwriter Spread

In terms of underwriter’s spread, we looked at large number of similarly sized new money transactions priced since the beginning of the year. We develop different comparables for different purposes.

Underwriter’s spread will vary with market conditions, and with transaction size, term, and credit characteristics.

Underwriter’s spread should reflect the level of banking support provided during the process.

The level of underwriter’s spread can have an impact on pricing.


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Underwriter Spread Comparison

Based on these comparables and other factors, the District negotiated a fee of $5 per bond.


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[1] General obligation bonds sold by California K-14 education issuers in amounts ranging from $70 million and $200 million between 1/1/13 and 6/30/13.

[2] Figures for tax-exempt, new money, current interest bond component only.

CI B Component Reported UWSale Principal Underwriter SpreadDate I ssuer Amount Lead UW Spread per Bond

1/24/2013 North Orange County CCD 145,910,000 Piper 576,345 3.95

2/6/2013 William Hart USD 168,280,123 Stifel 757,261 4.50

2/14/2013 San Ramon Valley USD 74,995,000 Stifel 204,197 2.72

3/21/2013 Chaffey HSD 100,000,000 RBC 450,000 4.50

4/10/2013 San Bernardino CCD 198,570,000 Piper 992,850 5.00

4/18/2013 Saddleback Valley USD 71,865,000 Piper 359,325 5.00

5/22/2013 San Bernardino USD 86,000,000 Piper 430,000 5.00

6/5/2013 Santa Monica CCD 108,405,000 RBC 455,301 4.20

Factors Impacting Costs of Issuance

There are three primary factors that drive direct costs of issuance on comparable transactions. Aggregate size of the offering.

Complexity of the transaction structure.

Number of separate series involved.


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Comparable Transactions – Direct Costs of Issuance

In terms of direct costs of issuance, KNN identified six reasonably comparable transactions. Again we develop different comparables for different purposes.


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[1] General obligation bonds sold by California K-14 education issuers in multiple series between 7/1/12 and 6/30/13.

[2] Figures for combined financing, all series.

TotalSale PrincipalDate I ssuer Amount Description

8/21/2012 West Valley - Mission CCD [2] 128,345,000 New Money and Refunding Bonds

10/9/2012 Fontana USD [2] 125,374,440 New Money and Refunding Bonds

2/27/2013 Gilroy USD 110,670,000 J PA Bond Structure

4/2/2013 San Diego USD 113,000,000 Tax-Exempt and Taxable Bonds

5/22/2013 San Bernardino USD 128,665,000Tax-Exempt and Taxable New Money Bonds and Refunding Bonds

6/4/2013 Solano CCD 129,996,899 Tax-Exempt and Taxable Bonds

6/5/2013 Santa Monica CCD 131,855,000 Tax-Exempt and Taxable Bonds

Costs of Issuance Table

For the Series 2013 Bonds, direct costs of issuance totaled approximately $450,000.


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[1] Listed costs include billable expenses charged at cost.

$85 million $40 millionE of 2012, E of 2010, Combined

Firm Role Series A Series B Total

KNN Public Finance Financial Advisor $68,000 $32,000 $100,000

Stradling Yocca Bond Counsel 100,000 44,000 144,000

GCR Legal Disclosure Counsel 24,820 11,680 36,500

Moody's I nvestors Service Rating Agency 40,800 19,200 60,000

Standard & Poor's Rating Agency 31,960 15,040 47,000

Fitch Ratings Rating Agency 37,400 17,600 55,000

BNY Mellon Trust Paying Agent 900 1,100 2,000

Elabra Printer 1,756 826 2,582

California Municipal Statistics Data Service 935 440 1,375

$306,571 $141,886 $448,457

Allocated Cost

Comparison to Recent Transactions

In aggregate, such costs are higher than they have been for most of the District’s recent transactions, largely due to the larger size and increased number of series.


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Sale Principal AggregateDate I ssue Amount Description Costs

8/12/2009 Election of 2005, Series C-1 162,769,759 CI Bs (BABs), CABs, and Refunding Bonds. $450,245Election of 2005, Series C-22009 GO Refunding Bonds

10/10/2013 Election of 2010, Series B 125,000,000 Separate authorizations. $448,457Election of 2012, Series A

11/8/2011 Election of 2010, Series A 100,000,000 T/E CI Bs and QSCBs. $370,589Election of 2010. Series A-1

6/19/2012 2012 GO Refunding Bonds 98,200,000 CI Bs only. $291,113

8/10/2011 2011 GO Refunding Bonds 85,565,000 CI Bs only. $279,856

6/10/2010 Election of 2005, Series D-1 27,499,949 CI Bs (QSCBs) and CABs. $225,805Election of 2005, Series D-2

Costs of Issuance Components

In terms of the selected comparable transactions fees were the primary “controllable” cost components for the 2013 bonds were relatively high but not outside of reasonable bounds.


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(1) Pricing Consultant.(2) Disclosure Counsel fee not reported, may be included in Bond Counsel fee.

(3) Data not provided to CDIAC.(4) Both the Financial Advisor fee and Bond Counsel fee were negotiated down from the originally contracted maximums.

Sale Principal FA BC DCDate Issuer Amount Fee Fee Fee

8/21/2012 West Valley - Mission CCD 128,345,000 91,000 128,000 40,000

10/9/2012 Fontana USD 125,374,440 91,575 31,500 (2)

2/27/2013 Gilroy USD 110,670,000 63,000(1) 87,500 22,500

4/2/2013 San Diego USD 113,000,000 (3) 80,655 13,432

5/22/2013 San Bernardino USD 128,665,000 N/A 121,200 80,800

6/4/2013 Solano CCD 129,996,899 65,000 149,000 (2)

6/5/2013 Santa Monica CCD 131,855,000 25,000 136,350 20,000

10/10/2013 West Contra Costa USD 125,000,000 95,000(4) 144,000(4) 35,000

Strategies for Reducing Fees

To the extent the District wishes to reduce fees on future transactions, the District might consider any number of alternatives. Maintain alternate year issuance schedule.

Utilize “vanilla” transaction structures.

Institute a more formal process for fee approval.

Re-negotiate current consultant contracts or conduct a new selection process.

Reduce use of consultants between transactions.


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Longer Objectives

Reducing costs, however, is not always the best way to achieve the District’s broader objectives. The District’s communications infrastructure is as strong as

any in the State.

There are many cases where such open communication has been responsible for the development of good ideas that have improved the program and saved taxpayers money.

We believe the quality of the District’s bond program is an essential component of its success.


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