2 Ultimate Goals of the Bond Program Renovate and Upgrade existing classrooms and school facilities of the Mt. Diablo USD Go Green, Install Energy Efficient Utility/Solar Systems Pay off outstanding debt to provide General Fund relief
3 Specific Financing Objectives Maintain and /or upgrade existing credit ratings and secure insurance at cost effective rates Utilize the Districts entire Clean Renewable Energy Bond (CREB) allocation Maximize construction fund proceeds and minimize interest rate expense Pay off outstanding leases to provide general fund relief Maintain the tax rate as estimated to voters
4 Ratings and Insurance District staff and finance team met with rating agencies Moodys and Standard and Poors in San Francisco in August Moodys Investor Services assigned the District an Aa3 rating. Moodys cited the Districts large-sized tax base, above average income levels of district residents…and modest debt burdens as part of the strong ratings rationale. The District received an affirmed A+ rating from S&P. In the opinion of S&P the ratings reflect Large and diverse property tax base; High wealth and income indicators, evidenced by extremely strong per capita market values; and History of good financial performance, although management expects reserves to decline in the near term. District secured an insurance bid from Assured Guaranty, which allowed the bonds to be sold as AAA
5 Selling the CREBs The CREB program is a federal subsidy for which the District qualified that provides for low interest loans to participating agencies for the implementation of clean renewable energy projects Negotiating with the IRS - Allocation by specific school site or in the aggregate approximately $5 million for the first five years followed by $3 million annually thereafter 47 school district sites to benefit by the CREB program 17 year borrowing to fund solar installation $59,540,000 in CREBs were sold with a true interest cost of 1.689%, representing $11,107,099.54 in total interest costs Benefit to the District are annual utility savings of
6 Maximizing Proceeds, Minimizing Interest Favorable market conditions at the time of the September 22 pricing with interest rates near 30-year lows Underwriting team of Stone and Youngberg, George K. Baum, and Brandis Tallman began to premarket the bonds to their pool of investors Due to the strong underlying credit scores, the AAA rating, and competitive structure among underwriters, the District was able to sell $109,996,475 of bonds for projects at a TIC of 4.392% The ratio of debt service to principal is 1.94, which means that for every dollar of principal there is.94 cents of interest District has approximately $238 million in remaining authorization
7 Logistics of Negotiated Bond Sales Bonds are pre-marketed to investors prior to the sale Retail order period held Underwriter conducts auction among investors for each maturity of the bond issue Final purchase price is awarded based on lowest interest rate orders submitted by investors Issuer Underwriter Term Bond 2 Term Bond 1 Serial Bonds US Trust Citibank Trust Citibank Trust Eaton Vance Eaton Vance Putnam Nuveen Fidelity Issuer District Underwriter Stone & Youngberg Term Bond 2 Taxable Serials Term Bond 1 Convert. CABS Serial Bonds CABS US Trust Investors Citibank Trust Investors Eaton Vance Investors Putnam Investors Nuveen Investors Fidelity Investors Brandis TallmanGeorge K. Baum Taxable Term
8 Relief to the General Fund Paying off Existing General Fund Obligations will free up much needed Operating Capital Pre-paying the outstanding obligations will save the General Fund over $1.4 million annually with over $19.4 million through 2025.
11 Specific Financing Objectives Maintain and /or upgrade existing credit ratings and secure insurance at cost effective rates Utilize the Districts entire Clean Renewable Energy Bond (CREB) allocation Maximize Construction Fund Proceeds and minimize interest rate expense Pay off leases to provide general fund relief Maintain the tax rate as estimated to voters
12 Appendix A Municipal Market Conditions and Pricing Comparables
Market Statistics Crude Oil continues to trade around $81/barrel Gold currently trading around $1,335/oz Deflation is a going concern Bond Insurance still provides significant interest rate savings to issuers with credit ratings lower than AA The District Can Expect Average Annual Savings from Insurance of approximately 10 basis points 30-Day Visible Supply is expected to increase through the rest of year. The District timed the issuance of its debt before supply continued to increase
Historical Tax-Exempt Interest Rates 30-Year AAA MMD (1981 - Present) The 29-Year average AAA MMD is 6.27% Interest Rates are very close to 30 Year Lows 9/30/2010: 3.7% High: 12.70% Low: 3.67%
Municipal Credit Spreads Impact of the Credit Crunch is visible in credit spreads during 2009, but 2010 has seen increased liquidity in the market, causing spreads to decline. 10 Year Maturities: Credit Spreads to AAA MMD
Tax-Exempt Bond Market Highlights Reduced Spreads on A and BBB rated debt allow for improved access to the tax exempt bond market for lower rated issuers. Interest Rates remain very Attractive for issuers with A rated debt and above Mt. Diablo Unified School District 2010 General Obligation Bonds were priced within a month of the 30-Year Record Low Rate of 3.67% The flight of Capital to the safety of the US Treasury Market has caused rates to fall in the Taxable Market The popularity of the Build America Bond Program continues, with the market remaining strong for these types of federally subsidized financing structures, including Qualified School Construction Bonds and Clean Renewable Energy Bonds. Anticipated heavy BAB issuance toward the end of the 2010 Calendar year due to the pending expiration of the program.