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Bond Financing in 2011 Presented to Wisconsin Private Colleges and Universities March 2010 Robert W. Baird & Co. John A. Mehan Managing Director 414-765-3719.

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Presentation on theme: "Bond Financing in 2011 Presented to Wisconsin Private Colleges and Universities March 2010 Robert W. Baird & Co. John A. Mehan Managing Director 414-765-3719."— Presentation transcript:

1 Bond Financing in 2011 Presented to Wisconsin Private Colleges and Universities March 2010 Robert W. Baird & Co. John A. Mehan Managing Director Ann Erickson Gifford Managing Director

2 WHEFA Presentation Page 2 Timeline – What the heck happened? Nov 10 Rate on 20 year AAA muni is greater than Treasury and stays for 2+ months First of 4 consecutive week of municipal bond outflows Dec 10 Meredith Whitney predicts mass municipal bond defaults Dec 07 S&P downgrades A rated ACA Multiple AAA rated insurers receive negative outlooks Oct 08 Wells Fargo acquires Wachovia Banks accept capital from US Treasury Municipal bond volume down 50.6% 30 yr AAA MMD hits 5.94% Dec 08 Spread between AAA and A rates peaks at 126 bps Oct 10 Last AAA insurer downgraded to AA+ Jan 11 Municipal bond volume down 63% May 08 UBS closes Public Finance Mar 08 JP Morgan acquires Bear Stearns Feb 08 Massive Auction Rate Securities failures Sep 08 BofA acquires Merrill Lynch Lehman files for bankruptcy Common Fund liquidity limited SIFMA hits 7.96% Mar 09 First ARRA bonds authorized Jun 09 Credit spreads begin to narrow Jan 10 SIFMA hits 0.15% Aug year AAA MMD falls to 3.67% Oct 09 U.S. unemployment rate increased to 10.1%, the highest rate since 1983 Jan 08 Downgrades of AAA rated insurers begin BofA announces purchase of Countrywide Finance

3 WHEFA Presentation Page 3 Short-Term Rates Source: The Bond Buyer and SourceMedia Inc.

4 WHEFA Presentation Page 4 SIFMA Basis Points Source: The Bond Buyer and SourceMedia Inc.

5 WHEFA Presentation Page 5 Historical Revenue Bond Index The Bond Buyer Revenue Bond Index consists of 25 various revenue bonds that mature in 30 years. The average rating is roughly equivalent to Moodys A1 and S&Ps A+. Source: The Bond Buyer and SourceMedia Inc. Current Rate as of 3/3/ % Average Rate5.60% Avg. Rate4.99%

6 WHEFA Presentation Page 6 Municipal Bond Fund Redemptions Dollar figure in millions Source: Investment Company Institute *Estimated *

7 WHEFA Presentation Page 7 Defaults of Bonds Rated by S&P Data below is based on 16,845 rated obligations as of January 1, 2011 Includes the following credit types: general obligation, lease/appropriation/moral obligation, special tax (sales, gas, etc.), special district, water and sewer revenue, public power, airports, ports, toll roads and bridges, parking, various types of bond pools, transit, public and private higher education, auxiliary higher education debt, independent schools, hospitals (stand-alone and systems), continuing care, and physicians' practices. Source: Standard & Poors Number of Transactions 5Tax-Secured Bonds 3Appropriation Backed Debt 6Utility Backed 4Transportation 2Higher Education 22Healthcare 42Total Transactions

8 WHEFA Presentation Page 8 Investors – Preferred Maturities Institutions Retail – Trust Departments and Money Managers Retail - Individuals Bond Funds and Insurance Companies: 20+ years, with demand from Intermediate Bond Funds for the year range 1-10 years The last (highest yielding) maturity of a given issue 1-5 years The last (highest yielding) maturity of a given issue Corporations: 1-3 years

9 WHEFA Presentation Page 9 Investors – Purchase Preferences Institutions Retail – Trust Departments and Money Managers Retail - Individuals Sensitive to initial yield and resale opportunities Focused on initial yield Very interest rate sensitiveModerately interest rate sensitiveLess interest rate sensitive Generally looking for premium bonds in a rising rate environment Generally looking for bonds sold close to par May have portfolio restrictions on ratings Generally looking for AA and AAA ratings Prefer A and higher but may compromise to get higher yield Often performs own credit analysis Looks for solid ratings Considers personal knowledge, broker recommendation and yield in conjunction with rating Seeks geographically diverse portfolio Diversity less of a concern Prefers issuers with which s/he has personal familiarity Buys blocks of $500,000+ Buys blocks of $100,000 - $2,000,000 Buys blocks of $5,000 - $1,000,000

10 WHEFA Presentation Page 10 Targeting InvestorsStructure Premium/Discount Institutional preference for non-par bonds Retail preference for par bonds Bifurcated coupons Different coupons for institutional and retail Consistent yield Serial/term structure Move bonds to maturities where there is demand Create block size as needed Premarketing Radio advertisements Newspaper ads and/or print mailings Press releases Internet roadshow Internal sales materials Underwriting Syndicate Underwriters with institutional and/or retail investor focus in syndicate or selling group

11 WHEFA Presentation Page 11 Marquette University - Comparing the Bond Issues December 2009January 2011 Fixed Rate A2 rating by Moodys Investor Services rating with stable outlook Uninsured No Letter of Credit Excellent for institutional and retail investors Four Week Marketing Period Favorable Municipal Bond Market Strong Retail Demand Two Week Marketing Period Volatile Municipal Bond Market Cautionary Retail Demand

12 WHEFA Presentation Page 12 Marketing Plan – 2009 Three weeks prior Sales memo distributed to all Baird institutional salespeople 1 st announcement to all Baird retail brokers including Marquette Toolkit (Ready-to- go Compliance-approved marketing materials and information on purpose of the bonds) Press Release Draft provided to Marquette Public Relations Two weeks prior Conference call with Bairds Wisconsin retail office managers for sole purpose of discussing Marquette bonds 2nd announcement to all Baird retail brokers, including updated Marquette Toolkit Announcement in FOCUS (Baird internal newsletter distributed to all retail brokers) Posting of bond sale flyer on Baird client access page of One week prior Conference call with Bairds institutional salespeople for sole purpose of discussing Marquette bonds 3rd announcement to all Baird retail brokers, including updated Marquette Toolkit Press Release posted on Marquette News center on website and summary of Announcement published in internal newsletter Radio advertisements begin on 620 – WTMJ with 60 second ad played 8 times daily Preliminary Reoffering Circular and Moodys Rating Report distributed to both institutional and retail sales force & posted on Baird internal website Week of Pricing Print Advertisement placed in Sunday publication of Wausau Daily News paid for by Baird Wausau Retail Office 4 th & Final announcement to all Baird retail brokers, including updated Marquette Toolkit and yields/Day of Sale Radio advertisements continue on WTMJ Bond Marketing: Multiple Internal s Financial Advisor Flyer WTMJ Radio Advertisements Press Release Marquette Internal Newsletter Announcement Marquette Distributed to Staff Print advertisements Baird FA Internal Newsletter Announcement Institutional Sales Force Conference Call 20 business days

13 WHEFA Presentation Page 13 Marketing Plan Radio Advertisements on WTMJAM 620 Morning 6 – 10 AM : Four Times Mid-morning 10 AM – 6 PM: Four Times Played throughout Wisconsin and some parts of southern Illinois Marquette University Toolkit provided to Retail Financial Advisors and Institutional Sales Force which included: Preliminary Official Statement Sales Memo – one page summary of the POS Sales Flyer: One Page Flyer for external retail distribution Sales template for external retail distribution Radio Advertisement dates and area Investor Presentation and Conference call with Bairds Wisconsin retail office brokers, Institutional Sales Force, and Institutional Sales Contacts for presenting bond sale by Marquette Finance office and Baird Public Finance Press Release posted on Marquette News center website and distributed to local media Radio Advertisements on WTMJAM 620 reminder announcement to Retail Brokers with pricing information Radio Advertisements on WTMJAM 620 Retail order period and pricing of bonds Radio advertisements continue on WTMJ Bond Marketing: Multiple Internal s Financial Advisor Flyer and WTMJ Radio Advertisements Press Release Marquette Distributed to Staff Retail Broker and Institutional Sales Force Conference Call One week priorWeek of pricing 10 business days

14 WHEFA Presentation Page 14 Marquettes 2009 Coupon Structure $31,795, Series B-1 Maturity (October 1) Maturity ValueCouponYield , %0.800% , %1.350% , %1.700% , %2.050% , %2.450% , %2.850% 20161,005, %3.150% 20171,040, %3.450% 20181,080, %3.650% 20191,120, %3.850% 20201,165, %4.050% 20211,210, %4.150% 20221,260, %4.300% 20231,310, %4.350% 20241,375, %4.450% 20251,445, %4.500% 20261,515, %4.600% Term Bonds 20306,865, %4.900% 20336,105, %5.125% $18,765, Series B-2 Maturity (October 1) Maturity ValueCouponYield , %0.800% , %1.350% , %1.700% , %2.050% , % , % , % , %3.450% , %3.650% , % , % , %4.150% , %4.300% , %4.350% , %4.450% , %4.500% , %4.600% Term Bonds 20303,970, %4.900% 20333,530, %5.125% $33,100, Series B-3 Maturity (October 1) Maturity ValueCouponYield , %0.800% , %1.350% , %1.700% , %2.050% , %2.450% , %2.850% 20161,045, %3.150% 20171,080, %3.450% 20181,125, %3.650% 20191,165, %3.850% 20201,210, %4.050% 20211,260, %4.150% 20221,310, %4.300% 20231,365, %4.350% 20241,435, %4.450% 20251,505, %4.500% 20261,580, %4.600% Term Bonds 20307,150, %4.900% 20336,355, %5.125% Retail targeted couponing

15 WHEFA Presentation Page 15 Marquettes 2011 Coupon Structure $27,265, Series A-1 MaturityMaturity ValueCouponYield 20114,860, %0.90% 20122,155, %1.40% 20132,210, % / 4.00%2.00% 20142,285, %2.50% 20152,375, % / 5.00%2.95% 20162,475, % 20172,560, % / 4.00%3.65% 20182,665, % / 4.00%4.00% 20192,785, %4.15% 20202,895, %4.35% Bifurcated coupon

16 WHEFA Presentation Page 16 Marquette University – 2011 Allocation of Bonds (000s) Retail Breakdown

17 WHEFA Presentation Page 17 Conclusion Understanding of market conditions and factors affecting the marketThoughtful targeting of investorsWell-planned and executed bond marketing strategyWhen possible, willingness to be flexible on timing and couponing Colleges and universities have been faced with volatile bond market conditions over the past several years. Success is contingent on the following when entering the market:


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