Information Item

Subject: Working Cash Fund Bonds

Background:
The District has issued bonds to update facilities and to meet other capital needs. At this
time the District is completing the second phase of the 2008A Bond Refunding Finance
Plan. The savings for the second phase is estimated at $2.8M, for a total savings for
phase one and two of $5.1M.

Administration’s Analysis:
Attached is a presentation by Mesirow Financial, the District’s underwriter, which reviews
the District’s current borrowing capacity and determine potential savings.

Implementation or Assessment Plan:

A BINA (Bond Issue Notification Act) Hearing is scheduled for July 10, 2018. Also
attached is a schedule prepared by Ehlers and Associates, the District’s financial
advisor. This timetable of a bond issuance would close before the end of the calendar
year to lock-in up to $3M of additional interest cost savings. Two Resolutions will be
presented for adoption at the August 2018 Board of Education meeting.

07.10.18
Completing 2nd Phase of 2008A
Bond Refunding Finance Plan

Proviso Township High Schools

District Number 209

June 7, 2018

Todd Krzyskowski Daniel Barlow Melanie Castellanos

Managing Director Vice President Analyst
312.595.7842 312.595.6203 312.595.2270
tkrzyskowski@mesirowfinancial.com dbarlow@mesirowfinancial.com mcastellanos@mesirowfinancial.com
 Disclaimer

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 Timeline for Final Phase of Proviso’s 2008A Bond Refunding and New
Capital Improvement Bonds
Note: District Only Has to Hold Bond Issue Notification Act
(BINA) Hearing Since it already went through 30-day waiting
period for $50 Million of Bonds when it Applied for Qualified
District decided School Construction Bonds through ISBE in late 2016
not to issue Finance Committee Meeting
additional capital 11/9/2017
improvement *** District Has Flexibility to Issue $10 Million of Capital
bonds using Hold BINA Hearing Improvement Bonds using low cost Bank Qualified
lowest cost $10 11/27-28/2017 Approach any time in 2018
million “Bank
BOE and FOP Approve
Qualified (BQ)”
Bond Resolution
approach. Thus, 12/12/2017 – Sell Bonds
2017 BQ capacity Complete Refunding of
still available for Close $10MM Bond $14 Million Remaining
other financing. Issue Before 2008A Bonds
12/31/2017

Jan 1 2017 Oct 1 2017 Dec 31 2017 Summer 2018 Dec 1 2018
Redemption
We are here! Date for 2008A
District pays off $10 million of $24 million high interest Bonds
cost 2008A Bonds and issues $10 million of low cost
“Bank Qualified” (BQ) bonds for capital needs. Estimated 2018 Refunding Results:
• Savings of $2,800,000
2017 Actual Refunding Results: •Estimated Total Savings $5.1 Million
• Savings of $2,300,000

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 Proviso’s 2008A Bonds are Being Refunded in Two Phases to
Maximize Interest Cost Savings
 PHASE I COMPLETED IN DECEMBER 2017

– Use District funds on hand to pay off $10 million of the 2008A Bonds that could only be refunded ON A TAXABLE BASIS
– District Issued $10 million of tax-exempt (bank qualified) bonds in 2017 for capital improvements
– Net result of Phase I was $2.3 million of interest cost savings

 PHASE II TO BE COMPLETED IN 3rd Quarter 2018

– $14 Million additional high interest cost 2008A Bonds still outstanding that can be redeemed/refunded as of 12/1/2018
– District again uses funds on hand to pay off $4 million of the 2008A Bonds that can only be refunded ON A TAXABLE BASIS
– District issues approximately $4 million of tax-exempt bonds in 2018 for capital improvements
– District also issues approximately $10 million of 2018 tax-exempt refunding bonds
– Total size of second phase is $14 million and produces estimated additional $2.8 million of interest cost savings

 BENEFITS OF TWO PHASE FINANCE PLAN WHEN COMPLETED

– Substantial interest cost reduction of over $5 million

– Interest cost reduction also benefits District in the from of additional tax-backed borrowing capacity (up to $5 million)
– Total tax-backed non-referendum borrowing capacity of up to $30 Million after Phase II completion
– Continuing credit rating improvement from current “A” Stable level by Standard & Poor’s
– Momentum as District approaches final comprehensive Capital Improvement Plan (CIP) working with FOP

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 Refunding the 2008A Bonds Expected to Reduce Interest Costs by
$5 Million and Increase Non-Referendum Borrowing Capacity

 Approximately $10 million of the 2008A Bonds were replaced with lower interest rate tax-exempt bonds in December 2017. This
reduced the District’s debt service by approximately $2.3 million. Approximately $14 million of the 2008A Bonds remain
outstanding, which presents another significant cost saving opportunity.

 Refinance the remaining 2008A Bonds for an estimated $2.8 million of additional debt service reduction.

 Estimated debt service savings from 2017 and 2018 financings combined: $5.1 million of reduced debt service (or $3.9 million in
net present value savings, which is over 15% of 2008A accreted value).

 Sensitivity of savings to interest rate changes: Each 10 basis point increase in interest rates would reduce net present value
savings by approximately $75,000.

Interest Rate Comparison Debt Service Savings Analysis

(a) (b) (c)
New Debt Service = (a) - (b) Savings Detail
Original 2008A Estimated Interest (ACTUAL) (ESTIMATED) (ACTUAL) (ESTIMATED)
2008A Interest New Bond Rate Prior 2008A 2017 BQ 2018 Estimated 2017 BQ 2018
Date Principal Rate Yields Differential Debt Service Financing Financing Total Savings Financing Financing
12/1/2018 - - 409,627 720,000 1,129,627 (1,129,627) (409,627) (720,000)
12/1/2019 - - 399,200 130,652 529,852 (529,852) (399,200) (130,652)
12/1/2020 300,794 5.460% 2.250% NBQ 3.210% 580,000 399,200 686,625 1,085,825 (505,825) (399,200) (106,625)
12/1/2021 2,406,344 5.560% 2.380% NBQ 3.180% 4,960,000 399,200 3,516,625 3,915,825 1,044,175 245,800 798,375
12/1/2022 2,249,806 5.650% 2.490% NBQ 3.160% 4,960,000 399,200 3,515,125 3,914,325 1,045,675 285,800 759,875
12/1/2023 2,096,691 5.750% 2.620% NBQ 3.130% 4,960,000 1,154,200 2,761,625 3,915,825 1,044,175 1,490,800 (446,625)
12/1/2024 1,965,598 5.800% 2.780% NBQ 3.020% 4,960,000 1,169,000 2,743,375 3,912,375 1,047,625 1,476,000 (428,375)
12/1/2025 1,840,904 5.850% 2.920% NBQ 2.930% 4,960,000 2,637,000 1,275,125 3,912,125 1,047,875 8,000 1,039,875
12/1/2026 1,722,509 5.900% 3.010% NBQ 2.890% 4,960,000 2,645,000 1,269,125 3,914,125 1,045,875 - 1,045,875
12/1/2027 1,595,186 6.000% 3.320% NBQ 2.680% 4,960,000 2,625,000 1,290,625 3,915,625 1,044,375 20,000 1,024,375

Totals 14,177,832 Totals 35,300,000 12,236,627 17,908,902 30,145,529 5,154,471 2,318,373 2,836,098

Assumptions:
Tax-exempt interest rates are based on A/Stable bond rating with insurance, and market conditions as of May 29, 2018.
Savings are net of issuance costs assumed to not exceed 1.75% of par.
Discount factor of 2.85% used for present value calculation.
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 The Full Refunding of 2008A Bonds Increases Non-Referendum Bond
Capacity to Approximately $30 Million

 The District’s non-referendum borrowing is limited in size by the maximum amount of debt service that can be levied for in any
given year. This annual levy limitation is known as the Debt Service Extension Base (“DSEB”).

 The DSEB can grow each year at the rate of 5%, or the Consumer Price Index, whichever is lower.

 Assuming a 1% long-term growth rate in the DSEB, the District could borrow up to $30 million. Refinancing the 2008A Bonds will
increase non-referendum borrowing capacity by an estimated $5 million from $25 to $30 million as shown below.

 No tax bill impact from this funding source as long as tax base growth keeps up with inflation.

Estimated $5 million reduction

$9,000,000 in debt service from the 2017
Non-Referendum Debt Service BEFORE 2008A Refinancings and 2018 financings will
$8,000,000 Non-Referendum Debt Service AFTER 2008A Refinancings enhance District borrowing
District 209's Projected DSEB
$7,000,000
capacity under the DSEB

$6,000,000
Annual Levy ($)

Approximately
$30 million of
$5,000,000
available
$4,000,000 borrowing
capacity
$3,000,000

$2,000,000

$1,000,000

$0

Levy Year

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 The District Began a Sequential Multi-Year Finance Plan in 2015 That:
(1) Funded High Priority Capital Improvements, (2) Avoided Unnecessary
Draws on District Liquidity, (3) Reduced Interest Costs, and (4) Minimized
Rate Impact on Local Taxpayers
District completed 30-day public notice period in December 2015
for not-to-exceed $50 million issuance of working cash bonds.
 Determined District’s capital Approximately $30 million of this authority remains. Only need
project funding needs to hold Bond Issue Notification Act (BINA) hearing to use.
 Issued approximately $10
million of Bank Qualified  Review capital needs in light of District objectives and tax
(“BQ”) working cash bonds base growth
at favorable interest rates  Issue additional bonds as needed
 Completed in March 2015  Refund/restructure the Series 2008A Bonds to reduce
to access the 2014 Levy interest costs and manage District tax rate

2015 2016 2017 2018…

 2014 Qualified Zone
Academy Bond (QZAB)
financing
 $1.34 million
 Very low cost financing -
.57%
 Applied for and received a
special allocation from the
Illinois State Board of
Education (ISBE)
 Issued approximately $10
Million of BQ working cash
bonds to fund high-priority
capital needs
 Refunded the Series 2004
Bonds to reduce interest
costs by $1.1 million and
manage District tax rate
 Issued approximately $10  To do: Refund the remaining
million of BQ working cash $14 million of 2008A Bonds
bonds to fund high-priority to lock-in up to $3 million of
capital needs. additional interest cost
 District paid off (defeased) savings.
approximately $10 million of
the 2008A bonds.
 New money/defeasance
reduced District’s interest
costs by $2.3 million.

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 CREDIT RATINGS MATTER: Investors Are Particularly
Sensitive to Credit Ratings in the Current Market Environment
 Issuers with strong credit ratings enter the market from a position of strength. With all of the much discussed bond market
dislocation, investors have truly been rewarding those issuers that have “kept their house in order”
 A solid investment grade credit rating provides ongoing ready access to the capital markets for any refunding or new money
financings that may be considered. Double-A range usually results in increased investor demand for an issuer’s bonds even with the
very challenged Illinois credit picture.
 Credit ratings directly impact financing costs. An issuer’s borrowing rates (generally expressed as a “spread” off the AAA index) are
largely determined by the issuer’s credit rating although other factors can be involved. Investor demand is usually greater for “AA” rated
debt versus “A” or “BBB” rated debt.

Investors Standard
Moody’s Fitch Ratings
Change In Credit Spreads Over Time (Spread to 20-Yr AAA MMD) Service & Poor’s
Target
1.6% Rating Aaa AAA AAA
10 Yr Avg Range
1.4% Aa1 AA+ AA+
5/16/2016
Aa2 AA AA
1.2% 5/16/2017
Increased Aa3 AA- AA-
5/16/2018
1.0% investor
demand A1 A+ A+
0.8%
Current A2 A A
Rating A3 A- A-
0.6%

0.4% Baa1 BBB+ BBB+

Baa2 BBB BBB
0.2% Baa3 BBB- BBB-
Investment
0.0% BB BB
AA MMD A MMD BBB MMD grade rating Ba
breakpoint B B B
C C C

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 Develop A Financing Timeline

June 2018 July 2018 August 2018 September 2018

S M T W Th F S S M T W Th F S S M T W Th F S S M T W Th F S
1 2 1 2 3 4 5 6 7 1 2 3 4 1
3 4 5 6 7 8 9 8 9 10 11 12 13 14 5 6 7 8 9 10 11 2 3 4 5 6 7 8
10 11 12 13 14 15 16 15 16 17 18 19 20 21 12 13 14 15 16 17 18 9 10 11 12 13 14 15
17 18 19 20 21 22 23 22 23 24 25 26 27 28 19 20 21 22 23 24 25 16 17 18 19 20 21 22
24 25 26 27 28 29 30 29 30 31 26 27 28 29 30 31 23 24 25 26 27 28 29
30

 June __ Circulate draft of Preliminary Official Statement

 July __ Schedule call with rating agency (S&P)

 ________ __ Board of Ed to adopt refunding/repayment/new money resolutions

 ________ __ Hold Bond Issue Notification Act (BINA) Hearing

 ________ __ FOP to approve refunding/repayment/new money resolutions

 July __ Price the bonds and execute bond purchase agreement

 September __ Close bonds and post 30-day call notice

 December 1 2008A Bonds are redeemed

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 Municipal Bond Market Update

10
 Tax-Exempt Interest Rates Remain Historically Low with Some
Upward Pressure Materializing (AAA MMD Index)

 Although trending up, tax-exempt interest rates are still relatively low from a historical perspective

 The Federal Reserve began methodically increasing short-term rates in December 2015. This has been a key driver in the recent
“flattening” of the yield curve.

% 3.3 %
7.0
1-YR 5-Yr 2.8
6.0 10-Yr 30-Yr 2.3
1.8
5.0 1.3
0.8
Nov- Dec- Jan- Feb- Mar- Apr- May- Jun
4.0 17 17 18 18 18 18 18 18

3.0

2.0

1.0

0.0
Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18
Data Source: The Municipal Market Monitor (TM3)
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Underwriting and Advisory Services
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The information contained herein is intended for informational purposes only and is applicable to Qualified Purchasers only. This is not an offer or sale of securities. Securities are only
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expressed are subject to change without notice. It should not be assumed that any recommendations incorporated herein will be profitable or will equal past performance. Any listing
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The Mesirow Financial name and logo are registered service marks of Mesirow Financial Holdings, Inc., © 2018, Mesirow Financial Holdings, Inc. All rights reserved.

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