BUSD hopes to refinance bonds

The Bonsall Unified School District board approved a consultant agreement with Dale Scott & Company for financial advisory services which will include potential refinancing of the district's general obligation bonds and issuance of certificates of participation to finance the two-story building planned for the Sullivan Middle School campus which also currently includes Bonsall High School.

A 3-0 BUSD board vote March 10, with Timothy Coen and Sylvia Tucker absent, approved the agreement. Dale Scott & Company will be compensated only if bonds are sold; a fee of $75,000 plus one-quarter of a percent of the par amount greater than $10 million shall be paid for each bond series and Dale Scott & Company will also be reimbursed for reasonable and necessary out-of-pocket expenses at a rate of five percent over the direct cost.

"We're really looking forward to being able to save the taxpayers money with a refinancing of the debt," said BUSD superintendent Justin Cunningham.

In November 2005 the voters of the Bonsall Union School District authorized the issuance of $17 million of general obligation bonds for the repair and rehabilitation of Bonsall's public schools and the construction and acquisition of classrooms and other facilities. The bonds were sold in 2006 and 2007, and the remaining principal and interest payments are being generated by a property tax assessment on Bonsall landowners. The bond debt obligation was transferred from the Bonsall Union School District to the Bonsall Unified School District when the district transitioned from a K-8 elementary school district to a K-12 unified district in 2014.

The Bonsall district will be constructing a high school in the future as well as expanding Sullivan Middle School to accommodate population growth in the area. Voter approval is needed for a general obligation bond whose principal and interest payment revenue is generated from a property tax increase, but no voter approval is needed for certificates of participation. The district plans to construct a two-story building on the Sullivan Middle School site, which is also the initial site of the high school. That two-story building would initially be used for the high school, and after the school district builds a high school on its Gird Road property the new building would be used to accommodate the expected middle school enrollment growth. The district intends to fund the two-story building through certificates of participation, which will require the services of a fiscal advisor for that process.

The preliminary maximum cost of the two-story building, and thus the amount of certificate of participation financing, is $6.2 million. The projected debt service for $6.2 million of certificates of participation is $356,000 annually based on an interest rate of 4.0 percent and a 30-year term.

The district also collects developer fees to fund school construction resulting from development; the California Education Code stipulates a maximum fee which is adjusted every two years to reflect inflation. In 2014 the maximum fee for a unified district was increased from $3.20 to $3.36 per square foot for residential construction and from $0.51 to $0.54 per square foot for commercial and industrial construction, and on July 10 the BUSD board voted 5-0 to increase the developer fee to the maximum allowed. Developer fees can be applied to past or future construction of new facilities added to accommodate the increased enrollment.

Scott gave a presentation at the January 13 BUSD board meeting which included information about funding the future expenditures and also about the possibility of refinancing the existing general obligation bond debt. Scott indicated that continuing low interest rates may allow some of the school district's outstanding general obligation bonds to be refinanced at a lower rate, which would create a tax savings for the district's property owners.

"We are looking for the most effective use of taxpayer dollars," Cunningham said. "We should, over 20 years, be able to save close to $500,000."

Dale Scott & Company estimates that the actual net interest savings from refinancing the general obligation bonds would be $487,000. The $682,000 in gross savings would be offset by a $195,000 issuance cost consisting of the $75,000 financial advisor fee, $55,000 for underwriting costs, $35,000 for bond and disclosure counsel, $10,000 to establish a credit rating for the school district (although the former K-8 Bonsall Union School District had a credit rating, the new unified district does not yet have a credit rating), and $5,000 for miscellaneous expenses.

The plan is to issue the certificates of participation through direct placement with investors rather than through a public sale. Under that method interest rate bids are solicited directly from investors and the estimated $60,000 costs for underwriting, rating, and disclosure counsel are avoided. The financial advisor, bond counsel, and miscellaneous costs for direct placement are estimated at $125,000. A direct placement issuance also does not require the establishment of a debt service reserve account, which eventually would be returned to the district as a credit against the final payment but would typically be 10 percent of the loan amount.

Because direct placement involves higher interest rates, a difference in interest rates between the two methods may make a public sale more feasible for the school district. The cost of the higher interest rate will be determined before a choice on the issuance method is made.

The work Dale Scott & Company will perform includes analyzing issues such as debt capacity, assessed valuation growth, alternative financing structures, and developments in the bond market, overseeing the selection process and assembly of finance team members, managing the overall financing process, preparing the schedule of financing and ensuring that all parties take the necessary actions for timely completion of the financing, sizing and structuring the bond financing to meet the school district's cash flow needs and tax rate goals, and providing the district's legal counsel with all information necessary to prepare the authorizing resolutions and other legal documentation. If the Bonsall district chooses to issue bonds through a competitive bid process Dale Scott & Company will review the competitive bid notice of sale and bid form, electronically distribute bid documents to qualified underwriters and post bid documents on Dale Scott & Company's Website, monitor and verify bids on the day of sale, coordinate the award of the winning bid, verify the final interest calculations, review tax opinions, review the arbitrage and continuing disclosure certificates, and assist with management and coordination of the pre-closing and closing as needed. If the district issues bonds through a negotiated bid process Dale Scott & Company will consult with the district about preferred members of the financing team (or if requested by the district will manage the selection process of the underwriting team through written and/or oral interviews while negotiating all fees), review the underwriter's proposed structure and make any appropriate recommendations, independently gather interest rate information based on recent tax-exempt sales activity, review the proposed underwriting and other fees and make appropriate recommendations, confer with the underwriter to discuss sales goals, specific marketing concerns, sale timing, and market conditions, review the pre-pricing and final interest rate scale and suggest modifications based on competitive market data, review the final pricing and provide the district with a final opinion regarding the competitiveness of the underwriter's proposed interest rate scale, verify the final interest calculations, review the tax opinion and the arbitrage and continuing disclosure certificates, and assist with management and coordination of the pre-closing and closing as needed.