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CAUBO Annual Conference CONSORTIA BORROWING Saskatoon,Saskatchewan JUNE 12, 2004.

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Presentation on theme: "CAUBO Annual Conference CONSORTIA BORROWING Saskatoon,Saskatchewan JUNE 12, 2004."— Presentation transcript:

1 CAUBO Annual Conference CONSORTIA BORROWING Saskatoon,Saskatchewan JUNE 12, 2004

2 Agenda OSBFC Story - Our Team OSBFC’s Process Benefits of OSBFC Costs

3 3 “ SIGNIFICANT FINANCIAL BENEFITS TO THE SECTOR ”$200,000,000 (conservatively!!!)

4 4 “ROWING WITH THE PEOPLE”  25 BOARDS  25 CEO’S  25 CFO’S  235 TRUSTEES  7 INVESTMENT BANKS  3 LEGAL FIRMS  2 MINISTRY’S  ONTARIO FINANCING AUTHOURITY SO FAR……..

5 5 HOW DID WE GET STARTED? April 1998 – RESTRUCTURING OF BOARDS Seed $ from Ministry of Education Set up Catholic School Board Services Corporation; spun off OSBFC Initiatives: Purchasing Construction, Facility & Energy Utilities Employee Benefits IT Consultants

6 6 Our Story - Our Team Financing Structure Description  Ontario School Boards Financing Corporation (“OSBFC”) was formed as a vehicle to issue debt on behalf of Ontario School Boards  OSBFC is a non-share capital, not-for-profit, special purpose corporation  Each participating Board issues a debenture to OSBFC representing its debt obligation  The amount of the underlying debenture issued by each participating Board is based on that Board’s capital requirements  The liability of each Board is only for amounts owing under its own debenture. There is no joint and several liability  The underlying debenture for each participating Board ranks pari passu with all other debentures and financial instruments issued by that Board  OSBFC sells Ownership Interests that represent undivided co-ownership interests in the debentures issued by the participating boards

7 7 Participating School Boards OSBFC Investors Custodian Debentures Deposited Debentures Ownership Interests Semi-Annual Payments on Debentures Semi-Annual Payments Net Proceeds of Offering Our Story - Our Team Financing Structure Diagram

8 8 Series 2003 Offering Credit Ratings  Prior to the 2003 offering, OSBFC obtained a third rating from Moody’s –Three ratings are preferred by investors for frequent and large issuers  OSBFC offerings enjoy the following strong credit ratings:  CIBC World Markets works with OSBFC and participating school boards to obtain and maintain the highest possible ratings

9 9 Our Story - Our Team OFA PETER HOWARTH CSBSA Peter Derochie - President (Simcoe Muskoka Catholic District School Board) John Sabo - Vice President (York Catholic District School Board) Cathy Dempsey - Secretary-Treasurer (Halton Catholic District School Board) David Visser - Director (Durham Catholic District School Board) Terry Miller - Director (Dufferin-Peel Catholic District School Board) Paul McMahon - Director (Toronto Catholic District School Board) MILLER THOMSON MINISTRY OF FINANCE MINISTRY OF EDUCATION CIBC WORLD MARKETS McMILLAN BINCH DAVIES WARD PHILLIPS & VINEBERG UNDERWRITING SYNDICATE: CIBC World Markets - Lead RBC-Dominion Securities National Bank Scotia Capital Markets BMO Nesbitt Burns Laurentian Bank TD Securities

10 10 OSBFC Board of Directors  GOVERNING BODY  CONTRACTING ORGANIZATION – Dealers, Lawyers, Trustee, Fund Manager, Executive Director  APPROVES FINANCING TERMS, STRUCTURE, PROJECTS  AUTHOURIZES THE EXECUTIVE (any 2) TO “PULL THE PIN”  REPRESENTS INTERESTS OF ALL PARTICIPANTS

11 11 OSBFC Executive DO THE DEAL AS APPROVED BY EACH TEAM  FACILITATE/APPROVE THE PARTICIPANTS ACCESS  DRIVE TO CONSENSUS TO MEET ALL NEEDS  MARKET OSBFC  LIASE WITH BOARDS, MINISTRY OF EDUCATION, OFA, SYNDICATE, LAWYERS  NEGOTIATE CONTRACTS  ASSESS PERFORMANCE OF DEALS, PARTICIPANTS & PARTNERS  RESPOND TO INVESTOR QUERIES  STRATEGIZE & RUN THE DAY TO DAY!

12 12 OSBFC Participants Team  HAVE MET CREDIT QUALITY  ESTABLISH VOLUME  SET TERM(S), STRUCTURE,TIMING  AUTHOURIZE OSBFC EXECUTIVE TO COMPLETE TRANSACTION WITHIN PARAMETERS  TELL OUR STORY!!  REALIZE SIGNIFICANT BENEFITS AND RISK SHARING

13 13 OTHER OSBFC PROGRAMS  POOLED MONEY MARKET INVESTMENTS  POOLED SINKING FUND & INVESTMENT FUND MANAGEMENT  INTER-BOARD BORROWING & INVESTING  EXPLORING A LEASING PROGRAM

14 14 Our Story - Our Team The originating school boards had a number of key objectives to meet when assessing financing alternatives:  Cost  To minimize all-in funding costs for participating boards  To minimize cross subsidies between participating boards  Minimization of Risk  To ensure that participating boards are responsible only for their own debt  To ensure that debt servicing requirements are consistent with grant payments from the Province  To minimize refinancing risk

15 15 Our Story - Our Team  Flexibility  To avoid restrictive covenants  To minimize constraints on raising additional debt to meet future capital requirements  To maintain flexibility to add new boards  To enable participating boards to access the market as quickly as possible and with relative ease of execution  Legal and Regulatory  To ensure consistency with the current legal and regulatory framework  To ensure a default by one participant has no effect on the other participants

16 16 Summary of OSBFC Issue Participation by School Board  25 school boards (17 Catholic, 8 Public) have participated in OSBFC pools III. The OSBFC Story

17 17 Alternate Financing Approaches  Comparison of various long-term financing approaches

18 18 Alternate Financing Approaches  Comparison of financing approaches

19 19 Alternate Financing Approaches  One consideration for school boards is whether to develop a “pooled approach” or a “go it alone” approach  Over the past year, school boards in Ontario have demonstrated the viability of both approaches:  25 school boards have raised debt through a pooled approach  3 school boards have raised debt through individual debt issues  Many have “gone alone” to banks etc.  The choice of a pooled financing approach vs. individual financings will be influenced by:  Financing objectives  Size of financings  Relative cost  Risk minimization  Financing flexibility  Work effort required

20 20 Benefits of OSBFC Multiple Member Benefits of Pooled Financing  Most competitive terms and conditions  Costs distributed over many participating members Process Benefits of Pooled Financing  Efficient Process  Centralized negotiations  Centralized documentation  Limited time and resources committed by individual participating members  Individual participating member credit ratings not necessary  Only OSBFC, the special purpose funding corporation, is rated  Established framework for subsequent issues  Orderly, well understood risk profile  Ease of subsequent debt issues  Reduced costs of subsequent issues

21 21 Benefits of OSBFC Size Benefits of Pooled Financing  Ability to negotiate attractive issuance costs  Legal fees  Marketing costs  Underwriting commissions  Increased liquidity  Wider investor base  Individual investors able to purchase larger amounts  Lower spreads  Regular issuance  Borrow only for current capital requirements  Borrow in small or large amounts on attractive terms  Participate only in subsequent issues if new capital is required Intermediary Cost Benefits of Pooled Financing  No fees payable to municipalities for issuing debt on behalf of participating member

22 22 Benefits of OSBFC  A pooled financing results in a number of important benefits, including:  Provides participants with modest financing requirements an opportunity to efficiently access the capital markets  Provides participants with economies of scale by spreading issue costs among multiple parties  Creates a special purpose vehicle that can be used by different groups of participants at different times to access the capital markets  Pooled issues are generally more attractive to investors as the larger issue size results in better market liquidity and therefore tighter spreads  Enables investors to diversify their exposure to a particular market segment amongst multiple issuers, while only investing in a single instrument  In general, the pooled financing concept works best for groups of participants that have the following characteristics  Each participant’s borrowing requirements cannot be optimally achieved independently  Each participant has similar strong credit quality  Consensus among participants on financing structure

23 23 Benefits of OSBFC Benefits for Investors  The OSBFC debt issues have many attractive features for investors:  Strong credit ratings  Strong provincial support of educational funding and OSBFC financing structure  Large issue size provides good liquidity  Pooled structure enables investors to diversify risk among participating school boards  Amortizing structure or sinking fund reduces refinancing risk  OSBFC debt issues are the benchmarks for school board financings

24 24 Syndicate  In order to create a liquid market for the OSBFC bonds, a syndicate of investment dealers is required  On a go forward basis, it’s expected that the syndicate will be adjusted based on those dealers that can add the most value

25 25 Costs  Objective of pooled financing is achieve the lowest rate of interest for school board debenture and to minimize all-in funding costs for participating school boards  The most significant expenses are:  Commission fees  Legal fees  Rating agency costs  Printing costs  Commission fees are calculated as a percentage of the total debenture issue  Legal fees are shared equally and were 50% lower in the second issue (savings will depend on the number of boards participating)  Rating agency fees are shared equally and totaled approximately $90,000 on the first issue and zero for the second issue  Printing costs were 50% lower in the second issue and were shared equally  All-in funding costs for OSBFC Issue #1 amounted to approximately 1.04%  Time commitments for each board to structure and bring an issue to market have not been included; however, pooling structure should reduce aggregate time commitment

26 Contacts

27 27 Questions and Answers


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