sws bond program over view sept 2013
TRANSCRIPT
Texas Permanent School Fund
Bond Guarantee Program
Committee of School Finance/Permanent School Fund September 2013
1
“To guarantee bonds issued by school districts or by the state for the purpose of making loans to or purchasing the bonds of school districts for the purpose of acquisition, construction, or improvement of instructional facilities including all furnishings thereto.” – State of Texas Constitution, Article VII, Section V (2)(d)
2
Bond Guarantee Program Mission
Established 1983 by Texas Constitutional Amendment
Bonds are fully guaranteed by the corpus of the Permanent School Fund
Guarantee Capacity is Limited IRS Limit Statutory Limit
Since inception TPSF has guaranteed 5,227 issues Currently there are 2,796 bonds outstanding *07/31/2013
No district has ever defaulted 3
Bond Guarantee Program Overview
1989 – IRS §1.148-11(d)(1)(vi) allows the fund to guarantee bonds up to 250% lower cost or fair market value of the TPSF.
1994 – SEC makes amendments to Rule 15c2-12. 2003 – 78th Regular Session of the Legislature increased the State
Capacity to 250% lower cost or fair market value of the TPSF. 2007 – 80th Regular Session of the Legislature authorized the Board to
increase the limit up to 500% of the cost value of the TPSF, as long as increase is consistent with federal requirements and does not prevent the bonds to be guaranteed from receiving the highest available credit rating (AAA).
Dec 2009 – IRS increases capacity limit to 500% of the total cost of the assets held by the TPSF as of December 16, 2009.
May 2010 – State Capacity Limit is increased by the State Board of Education to 300% the cost value of the TPSF.
4
Bond Guarantee Program Regulatory Highlights
District must be accredited by the State Have at least one credit rating below a AAA Bonds must be for the purpose of constructing,
renovating, acquiring, and equipping school buildings
Applications must be approved by the Commissioner of Education
Bonds must be approved by the Office of the Attorney General
5
Bond Guarantee Program BGP Participation Requirements
If a participating District cannot make the next principal or interest payment on a guaranteed bond, the amount needed to pay will be transferred from the TPSF to the District’s paying agent.
The Commissioner of Education will direct the Comptroller of Public Accounts to withhold the amount paid, plus interest, from the first State money payable to the District, regardless of source.
Unmatured bond payments are not accelerated upon default by a District.
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Bond Guarantee Program What the Program Guarantees
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Bond Guarantee Program Guarantee Process Flow
School District determines it will be unable to pay the next interest and/or principal payment due on
a guaranteed bond.
District immediately notifies the Commissioner of Education on
inability to pay.
Commissioner notifies the PSF to generate cash for transfer.
PSF generates the required amount of cash and transfers it to
State Treasury.
Commissioner instructs the Comptroller to transfer amount
necessary to pay defaulted amount from the PSF’s State
Treasury account to the District’s paying agent.
Bond holders are paid by the paying agent.
The Commissioner directs the Comptroller to withhold the
amount paid, plus interest, from the first State money payable to
the District, regardless of source, including the ASF.
The Comptroller transfers the amount paid plus interest back to
the PSF.
Since inception of the Program, no
District has defaulted on
guaranteed debt.
8
Bond Guarantee Program Program Growth
0
500
1000
1500
2000
2500
3000
0
10
20
30
40
50
60
Num
ber
Bill
ions
Bond Guarantee Program Growth
Amount Outstanding Issues Outstanding
9
Bond Guarantee Program Program Limits
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
Billi
ons
Amount of Bonds Guaranteed Compared with State Limitation and IRS Limits 1996 - 2013
Balance
IRS Limitation
State Limitation
10
Bond Guarantee Program Program Growth Compared to TPSF Growth
$-
$10
$20
$30
$40
$50
$60
Bill
ions
Growth of TPSF Net Assets Compared to Growth of Bond Debt Guaranteed Since Inception of Bond Guaranteed Program
TPSF Net Assets
BGP Debt Guaranteed
11
Bond Guarantee Program Guaranteed Debt at 7/31/2013
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
2013
20
14
2015
20
16
2017
20
18
2019
20
20
2021
20
22
2023
20
24
2025
20
26
2027
20
28
2029
20
30
2031
20
32
2033
20
34
2035
20
36
2037
20
38
2039
20
40
2041
20
42
2043
20
44
2045
20
46
2047
20
48
2049
20
50
2051
Tot
al D
ebt G
uara
ntee
d
Mill
ions
Payment Profile, All Debt vs. CAB Debt Guaranteed by the Bond Guarantee Program at 7/31/2013
Total Principal Total Interest CAB Principal CAB Interest
Capital Appreciation Bond (CAB) – Bond that is issued at a discount, bears no stated rate of interest, and accretes in value from the date of issuance to the date of maturity. At maturity, the investor receives the original par amount plus all the accreted interest.
Premium Capital Appreciation Bond (PCAB) – A type of CAB that has a stated yield or accretion rate that is higher than its actual (market) current yield to investors. This difference results in a lower initial stated par amount which preserves debt capacity.
Compound Interest Bond – Bond that is issued at a stated interest rate, the interest is compounded over the life of the bond and not paid until maturity.
Premium Compound Interest Bond – A type of compound interest bond sold to investors for more than the face amount of the bond. Generally this occurs when the market interest rate at the time of sale falls below the stated interest rate.
Current Interest Bond (CIB) – a bond on which interest payments are made to bondholders on a periodic basis.
12
Bond Guarantee Program Types of Bonds Guaranteed by the Texas Permanent School Fund
13
Bond Guarantee Program Principal and Interest Payments, 7/31/2013 to Maturity
Principal
Interest $-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
Capital Appreciation
Bonds Compound Interest
Bonds Premium Capital Appreciation
Bonds Premium
Compound Interest Bonds
Current Interest Bonds
Mill
ions
Capital Appreciation Bonds Compound Interest Bonds Premium Capital Appreciation Bonds
Premium Compound Interest Bonds Current Interest Bonds
Principal 1,340,032,329.30 12,270,000.00 1,075,274,037.54 6,000,247.25 52,458,003,194.05 Interest 3,010,884,091.04 25,470,000.00 3,181,119,551.88 4,804,752.75 30,459,138,362.81
Used by districts where immediate development is needed due to rapidly expanding population. This effectively defers payment to a future tax base generally anticipated to be larger and more established.
In certain interest rate environments, PCABs are necessary on refunding issues in order to meet the par-to-par sizing constraint.
Used to cope with the 50 cent test, a limitation of schools districts maximum Interest & Sinking Fund tax rate.
A debt management tool for school districts to lower the tax impact of bond programs and manage bond payments by transferring the payment to a larger and more established future tax base.
14
Bond Guarantee Program Why are CABs/PCABs used?
Interest to principal ratio is total interest paid over life of debt divided by total principal paid.
A lower ratio indicates a debt portfolio mix more heavily weighted towards more traditional debt categories, such as current interest bonds.
A higher ratio indicates a debt portfolio mix more heavily weighted towards instruments with interest payments at or towards the end of the debt term, such as CABs, or other deferred principal structure.
15
Bond Guarantee Program Interest to Principal Ratio
Bond Guarantee Program CAB Characteristics
BGP CAB Participation 427 out of 806 participating Districts use CABs Principal Outstanding $2.415 Billion at 7/31/2013 Interest Outstanding $6.192 Billion at 7/31/2013 40 participating Districts have interest to principal ratios >1
16
17
Districts With Highest CAB Debt
0.00
200.00
400.00
600.00
800.00
1,000.00
1,200.00
1,400.00
Mill
ions
Leander ISD Wylie ISD Ennis ISD Denton ISD Irving ISD Frisco ISD Schertz-Cibolo-Universal City ISD
Galena Park ISD Rockwall ISD DeSoto ISD
Principal 378,673,177.20 133,453,355.95 97,926,786.90 59,342,910.61 62,722,376.53 20,408,493.40 49,695,201.55 31,675,211.50 24,268,254.70 38,617,323.65
Interest 1,317,556,822.80 203,586,644.05 199,478,213.10 134,597,089.39 129,582,623.47 156,796,506.60 116,644,798.45 130,049,788.50 133,541,745.30 111,682,686.34
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Bond Guarantee Program Analysis – Districts with High Interest to Principal Ratios (>1)
0
500
1000
1500
2000
2500
3000
3500
Capital Appreciation Bonds Premium Capital
Appreciation Bonds Premium Compound Interest Bonds Current Interest Bonds
Mill
ions
Capital Appreciation Bonds Premium Capital Appreciation Bonds
Premium Compound Interest Bonds Current Interest Bonds
Principal 708,721,105.15 427,235,125.07 5,130,247.25 3,291,520,000.00 Interest 1,862,237,705.92 1,577,143,681.01 2,914,752.75 2,491,792,528.10
19
Bond Guarantee Program Analysis – Districts with Interest to Principal Ratios >1
0
1
2
3
4
5
6
7
Gal
ena
Park
ISD
C
row
ley
ISD
R
obst
own
ISD
L
iber
ty H
ill IS
D
Mab
ank
ISD
B
rock
ISD
A
ledo
ISD
C
edar
Hill
ISD
H
ale
Cen
ter
ISD
R
ockw
all I
SD
Cad
do M
ills I
SD
Litt
le E
lm I
SD
Den
ison
ISD
M
exia
ISD
W
ylie
ISD
C
orpu
s Chr
isti
ISD
R
oyse
City
ISD
H
utto
ISD
A
ubre
y IS
D
Bas
trop
ISD
L
ake
Dal
las I
SD
Wax
ahac
hie
ISD
A
nna
ISD
B
land
ISD
W
hite
Set
tlem
ent …
Pr
ospe
r IS
D
Ter
rell
ISD
L
ipan
ISD
C
rand
all I
SD
Arg
yle
ISD
D
eSot
o IS
D
Enn
is IS
D
Sang
er IS
D
Cop
pell
ISD
W
eath
erfo
rd IS
D
Lea
nder
ISD
C
ity V
iew
ISD
W
est I
SD
Sanf
ord-
Fritc
h IS
D
Gat
esvi
lle IS
D
Participating School Districts with Bond Debt Interest to Principal Ratio > 1 at 7/31/2013
22
High District Interest to Principal Debt Ratio City View ISD Bond Debt Payment Profile
0.00
100,000.00
200,000.00
300,000.00
400,000.00
500,000.00
600,000.00
Capital Appreciation Bonds
Principal 3,761,350.20
Interest 7,538,649.80
23
High District Interest to Principal Debt Ratio Gatesville ISD Bond Debt Payment Profile
0.00
100,000.00
200,000.00
300,000.00
400,000.00
500,000.00
600,000.00
700,000.00
800,000.00
2/1/2014
2/1/2015
Capital Appreciation Bonds
Principal 243,887.00
Interest 1,591,113.00
24
High District Interest to Principal Debt Ratio Sanford-Fritch ISD Bond Debt Payment Profile
-
50,000.00
100,000.00
150,000.00
200,000.00
250,000.00
300,000.00
350,000.00
2/15/2014 2/15/2015
2/15/2016 2/15/2017
2/15/2018
Capital Appreciation Bonds Current Interest Bonds
Principal 120,863.00 290,000.00
Interest 1,544,137.00 36,081.25
25
High District Interest to Principal Debt Ratio Leander ISD Bond Debt Payment Profile
- 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00
Mill
ions
Capital Appreciation Bonds Current Interest Bonds Premium Capital Appreciation
Bonds Principal 302,886,146.90 425,100,000.00 75,787,030.30
Interest 1,025,933,853.10 269,169,781.88 291,622,969.70
26
High District Interest to Principal Debt Ratio West ISD Bond Debt Payment Profile
-
200,000.00
400,000.00
600,000.00
800,000.00
1,000,000.00
Capital Appreciation Bonds Current Interest Bonds Premium Capital Appreciation Bonds
Principal 1,380,621.80 2,000,000.00 317,994.60
Interest 10,124,378.20 781,883.10 1,527,005.40
27
High District Overall Outstanding Debt Cypress-Fairbanks ISD Bond Debt Payment Profile
-
20.00
40.00
60.00
80.00
100.00
120.00
Mill
ions
Capital Appreciation Bonds Current Interest Bonds
Principal 18,969,377.00 1,499,075,000.00
Interest 72,885,623.00 812,403,204.00
28
High District Overall Outstanding Debt Dallas ISD Bond Debt Payment Profile
-
50.00
100.00
150.00
200.00
250.00
300.00
Mill
ions
Current Interest Bonds
Principal 2,475,795,000.00
Interest 1,922,069,798.13
29
High District Overall Outstanding Debt Houston ISD Bond Debt Payment Profile
-
20.00
40.00
60.00
80.00
100.00
120.00
Mill
ions
Capital Appreciation Bonds Current Interest Bonds Premium Capital Appreciation Bonds
Principal 4,540,000.00 1,795,205,000.00 34,043,577.25
Interest 32,065,000.00 936,050,996.11 61,736,422.75
30
High District Overall Outstanding Debt North East ISD Bond Debt Payment Profile
-
10.00
20.00
30.00
40.00
50.00
60.00
Mill
ions
Capital Appreciation Bonds Current Interest Bonds Premium Capital Appreciation Bonds Principal 24,325,046.40 1,419,905,000.00 308,383.80 Interest 8,164,953.60 1,006,286,430.90 956,616.20
31
High District Overall Outstanding Debt Northside ISD – Bexar Co. Bond Debt Payment Profile
0.00 5.00
10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00 50.00
Mill
ions
Current Interest Bonds Premium Capital Appreciation Bonds
Principal 1,702,400,000.00 420,000.00
Interest 951,566,039.41 1,580,000.00