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Memorandum TO:
Gerald Matranga
San José Unified School District FROM:
Bruce Kerns DATE:
July 30, 2002 SUBJECT:
SALE OF GENERAL OBLIGATION BONDS
San José Unified School District
2002 General Obligation Bonds (Election of 2002, Series A) The San José Unified School District sold $84,00000,000
of general obligation bonds on July 24. The Series A Bonds were the
first series of bonds from the $429,000,000 authorization approved by
voters in the District at an election held on March 5, 2002. The sale
of the Series A Bonds is summarized below. Bond
Credit Ratings
The Series A Bonds were rated by Fitch Ratings (“Fitch”),
Moody’s Investor’s Service (“Moody’s”),
and Standard & Poor’s Ratings Services (“S&P”),
the three nationally recognized rating companies for tax-exempt bonds.
The Series A Bonds received ratings of “AA” from Fitch,
“Aa3” from Moody’s, and “AA-” from S&P.
These are extremely high ratings for a California school district. Very
few California school districts receive ratings in the “AA”
category. The summary reports from the rating analysts addressed the
District’s “sound financial operations”, “manageable
capital needs”, “moderate debt levels”, “large
regional economy”, and “above-average wealth and income
indicators”. A copy the report from each rating agency is enclosed. Bond
Insurance
Bids were received from three municipal bond insurers to provide
bond insurance for the bonds. The lowest insurance bidder was Financial
Security Assurance Inc. (“FSA”). Bond insurance guarantees the payment on the bonds in the event
that revenues from taxes are insufficient to pay debt service. Bond
insurance gives the bonds the same “AAA” rating of the insurance
company, and reduces the interest rates on the bonds compared with the
“AA” ratings without insurance. The lower bond interest
rates with bond insurance reduced the total payments on the bonds and
lowered the tax paid by property owners to repay the bonds. Bond insurance
lowered the total debt service payments on the Series A Bonds by about
$1,614,000. A summary of the savings from bond insurance is enclosed. Sale
of the Bonds
The Series A Bonds were sold on July 24. The District and the
Bond and Investment Analyst of the Santa Clara Office of Finance participated
in the sale with the District’s bond underwriter, Stone &
Youngberg. The interest rates on the Series A Bonds are shown on the
enclosed table, compared with other bond issues sold that same day,
the following day, or during the previous week. The table shows the
coupon rate (the interest rate shown on the left for each bond maturity,
or the single rate if only one rate is shown) and the yield (the interest
rate shown on the right for each bond maturity). The yield is the appropriate
rate to compare among the various financings included in the table.
The interest rate yields on the District’s bonds compared very
favorably with other bonds sold at the time. Interest rates for tax-exempt
bonds have risen sharply since the sale of the Series A Bonds with the
rebound of the stock market, to levels higher than the interest rates
on the Series A Bonds. The actual interest rates on the Series A Bonds were much lower
than the interest rates used to estimate tax rates for the bond election
in March 2002. The overall borrowing cost of the Series A Bonds (as
measure by “true interest cost”) was 4.66%, compared with
6.02% used for the election estimates in March 2002. The savings in
total bond payments between the interest rates used for the election
estimates and the actual Series A Bonds was about $13,935,000. Additional
Bond Proceeds
The lower borrowing costs for the Series A Bonds compared with
the election estimates allowed the District to sell a larger amount
of bonds than had been estimated for the March 2002 election. The election
estimates assumed that the first series of bonds would have a principal
amount of $77,000,000, $7,000,000 lower than the actual $84,000,000
principal amount of the Series A Bonds. Notwithstanding the higher amount
of the Series A Bonds, the taxes to repay the Series A Bonds will be
slightly lower than the levels estimated for the smaller $77,000,000
principal amount. Even with the larger principal amount of the Series
A Bonds, the total debt service payments (and resulting property taxes)
will be lower than the election estimates by about $1,315,000 over the
life of the bonds. Delivery
of Proceeds to the District
The
proceeds from the sale of the Series A Bonds will be delivered on August
15 to the account of the District held by the Santa Clara County Office
of Finance. On that date, funds from the Series A Bonds will be available
for spending on the various renovation and modernization projects of
the District. enclosures cc: Rosemarie
Pottage, San José Unified School District Paul
Knofler, County of Santa Clara David
Sanchez, Sidley Austin Brown & Wood Mona
Patel, Sidley Austin Brown & Wood Janet
Mueller, Miller Brown & Dannis Michael
Hurtado, Stone & Youngberg document 28767 |