Cerritos Community College District
Presentation to Board of Trustees
Measure G Bond Sale Process
September 17, 2014
Confidential – For Discussion & General Information Purposes Only
Measure G Summary
Authorization
 Measure G authorizes the issuance of $350 million of General Obligation (“GO”) bonds

Measure G was approved by over 70% of the College District’s voters in November 2012

The inaugural $100 million sale of Measure G bonds (“Series 2014A”) is anticipated for late October

For this inaugural Measure G sale, a staff recommendation to approve the bond documents will be presented to the
Board of Trustees on October 1
Timing
 The timing and structure of subsequent bond issues may be impacted by a confluence of factors

Cerritos College Facilities Master Plan for Measure G

Timing of Cerritos College projects

Municipal market interest rates

Projected and actual Assessed Valuation (“AV”) growth

Projected and actual tax rates
Cerritos Community College District
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Measure G Summary
Bond Capacity
Historical Assessed Valuation (“AV”)
 The total amount of outstanding and new GO bond debt to be
FYE
issued may not exceed 2.5% of the assessed value of taxable
property within the College District


$979,878,180 based on College District’s 2014-15 AV of
$39,195,127,209
College District currently has $185,745,023 of Measure CC
bonds outstanding
Cerritos Community College District
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Assessed Value
Growth Rate
2005
26,611,919,028
N/A
2006
29,182,338,755
9.66%
2007
32,073,140,006
9.91%
2008
34,688,269,878
8.15%
2009
36,500,371,852
5.22%
2010
35,808,078,082
-1.90%
2011
34,927,390,175
-2.46%
2012
35,569,946,817
1.84%
2013
36,327,916,796
2.13%
2014
37,516,686,805
3.27%
2015
39,195,127,209
4.47%
Projected Timeline for Series 2014A Bonds
Series 2014A Bonds - Key Dates
Date
Event
September 17
Board of Trustees Meeting – Presentation of GO Program Financial Plan
October 1
Series 2014A Bond Documents to be presented for approval to the Board of Trustees
October 6
Conference Call with rating agencies (Moody’s and S&P)
October 16
Receive credit ratings from Moody’s and S&P (Current Ratings – Aa2/AA)
October 21
County Board of Supervisors Approves Resolution authorizing 2014A Bonds
Distribute Preliminary Official Statement to prospective investors
October 28
Retail Order Period – special order period targeting retail investors
October 29
Formal pricing and execution of Bond Purchase Contract for the Series 2014A Bonds
Week of November 5
Distribute final Official Statement to investors
November 12
Pre-Closing
November 13
Underwriter wires bond proceeds
Closing of Series 2014A Bonds
Cerritos Community College District
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Overview of Bond Documents for October 1st Board Approval
Bond Resolution
 Authorizes the issuance of the Series 2014A Bonds, specifies the basic terms, parameters and form of the Bonds

Approves the issuance of the Bonds as current interest bonds

Capital appreciation bonds are not authorized
 Specifies maximum:

Aggregate principal amount to be issued – $100,000,000

Underwriting discount – 0.4%

Maximum legal interest rate – 12%
 Current estimate of overall interest rate for Series 2014A is 3.86%
 Authorizes sale of bonds to the Underwriters under contract with Cerritos College

Wells Fargo Bank, N.A., J.P. Morgan Securities Inc. and RBC Capital Markets
 Approves the form of:

Purchase Contract

Preliminary Official Statement

Continuing Disclosure Certificate
Cerritos Community College District
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Overview of Bond Documents for October 1st Board Approval
Bond Purchase Contract
 Pursuant to the Purchase Contract, the Underwriters will agree to buy the Bonds from Cerritos College
 All the conditions of closing the transaction are set forth in the Purchase Contract
 Includes the documentation to be provided at the closing by various parties
 Upon the pricing of the Bonds, the final execution copy of the Purchase Contract will be prepared following this form
 County of LA staff review all terms, conditions and provisions of the bond sale prior to execution of the Purchase Contract
Cerritos Community College District
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Overview of Bond Documents for October 1st Board Approval
Preliminary Official Statement (“POS”)
 Offering document describing the Series 2014A Bonds
 Distributed to prospective investors/purchasers of the Series 2014A Bonds
 Discloses information with respect to among other things

Proposed uses of proceeds of the Series 2014A Bonds

Terms of the Bonds (interest rate, redemption terms, etc.)

Security for repayment of the Series 2014A Bonds

Information with respect to the District’s tax base

Cerritos College financial and operating data

Continuing disclosure with respect to the Series 2014A Bonds and Cerritos College

Absence of litigation and other miscellaneous matters expected to be of interest to prospective purchasers of the Series
2014A Bonds
 Following the pricing of the Series 2014A Bonds, an Official Statement will be prepared

Substantially in the form of the POS
Cerritos Community College District
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Overview of Bond Documents for October 1st Board Approval
Continuing Disclosure Certificate
 Effective July 3, 1995, all underwriters of municipal bonds are obligated to procure from a bond issuer a covenant that such
public agency will annually file:

“Material financial information and operating data with respect to the District” through the web-based Electronic
Municipal Market Access (“EMMA”) system maintained by the Municipal Securities Rulemaking Board (“MSRB”)
 The MSRB is the federal agency that regulates “broker-dealers,” including investment bank firms that underwrite
municipal obligation issuances
 The purpose of the law is to provide investors in the Bonds with current information regarding Cerritos College
 This requirement is expected to be satisfied by the filing of Cerritos College audited financial statements and other operating
information about the District, in the same manner the District has filed in connection with prior bond issuances
 The Continuing Disclosure Certificate can be found in Appendix C to the Preliminary Official Statement
Cerritos Community College District
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Bond Structure: Considerations
 The Series 2014A Bonds will be structured as tax-exempt fixed rate bonds
 Tax-Exempt Bonds: Interest received by the holder of tax-exempt bonds is not subject to state or federal taxes

As such, tax-exempt interest rates have historically been lower than taxable interest rates
 Fixed Rate Bonds: interest rates are fixed and known at the time of sale for the life of the bond

Allows for easier planning for subsequent bond issues

Reduces tax rate volatility for tax payers
 Capital appreciation bonds (“CABs”) are not considered for the Series 2014A bond sale

Typically, CABs are more expensive than Current Interest Bonds (“CIBs”)

Although more expensive, CABs can provide issuers with additional flexibility – given repayment constraints (assessed
value or tax rates)

Issuance of CABs is now governed by AB 182
 Limits maturity to 25 years
 Implements a maximum payback ratio of 4:1
 Cerritos College’s outstanding CABs meet the requirements of AB 182
Cerritos Community College District
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Bond Structure: Institutional and Retail Investors
Retail Investors (Individuals purchasing for their own account)
 Generally prefer to purchase bond maturities within the first 12 years
 Seek highly rated bonds such as the Cerritos College Measure G bonds (rated Aa2/AA)
 Low interest rate environment may limit retail investor participation
 Ability to sell “retail friendly” structure” is driven by the appetite of retail investors at the time of the sale
Institutional Investors (Bond Funds, Banks and Large National Insurance Companies)
 Currently the dominant participants in the municipal market
 Willing to purchase bonds in all maturities along the yield curve

The most active investors for longer term (30-year) maturities
 Investor inflows have provided many bond funds with assets they want to “put to work” (invest)
 Are active participants in our current low interest rate environment
Cerritos Community College District
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Measure G Bonds: Financing Assumptions
Issuance
 Interest Rates as of September 15, 2014
 AV growth rate of 4%
 Ratings of Aa2/AA
 Costs of issuance: $250,000
 Underwriter’s discount: $2.50/bond
Bond Structure
 10-year par call on maturities greater than 10 years
 30-year maximum CIB maturity
 Goal is to optimize the bond solution to produce the lowest debt service cost and to plan for future Measure G bond sales
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Measure G Financing Summary: Current Interest Rates
Financing Statistics
Series
2014A
Dated Date
2023D
Total
8/1/2017
8/1/2020
8/1/2023
30
30
27
24
$100,000,000
$100,000,000
$75,000,000
$75,000,000
$350,000,000
$0
$0
$0
$0
$0
$500,000
$500,000
$437,500
$437,500
$1,875,000
3.86%
3.71%
3.62%
3.28%
3.68%
$187,197,994
$177,760,138
$123,626,700
$113,455,075
$602,039,906
1.87x
1.78x
1.65x
1.51x
1.72x
Capital Appreciation Bond
Issuance Costs
All-in Total Interest Cost
Total Debt Service
2020C
11/13/2014
Term
Par Amount
2017B
Repayment Ratio
Tax Rate per $100,000 of AV
Average Tax Rate
$23.86
30
Annual Tax Rate
25
20
15
10
5
0
2015
2018
2021
2024
2027
2014A
Cerritos Community College District
2030
2017B
11
2033
2020C
2036
2023D
2039
2042
2045
2048
Measure G Financing Summary: +25 Basis Points Between Each Series
Financing Statistics
Series
2014A
Dated Date
2023D
Total
8/1/2017
8/1/2020
8/1/2023
30
30
24
17
$100,000,000
$100,000,000
$75,000,000
$75,000,000
$350,000,000
$0
$0
$0
$0
$0
$500,000
$500,000
$437,500
$437,500
$1,875,000
3.86%
4.07%
4.13%
3.88%
3.98%
$187,197,994
$191,699,088
$126,755,075
$114,269,900
$619,922,056
1.87x
1.92x
1.69x
1.52x
1.77x
Capital Appreciation Bond
Issuance Costs
All-in Total Interest Cost
Total Debt Service
2020C
11/13/2014
Term
Par Amount
2017B
Repayment Ratio
Tax Rate per $100,000 of AV
Average Tax Rate
$24.32
30
Annual Tax Rate
25
20
15
10
5
0
2015
2018
2021
2024
2027
2014A
Cerritos Community College District
2030
2017B
12
2033
2020C
2036
2023D
2039
2042
2045
2048
Market Update: Healthy Investor Demand for 2014
 Bond fund flows have been positive for the majority of 2014
 After inflows of $436 million for the week ended September 10, the total net flows year-to-date stands at $15 billion1
Weekly Municipal Bond Fund Flows1
1.5
1.0
($ Billions)
0.5
0.0
(0.5)
(1.0)
(1.5)
(2.0)
Jan-14
Mar-14
Jun-14
(1) Source: Lipper, A Thomson Reuters Company, as of September 10, 2014. Chart represents only funds that report weekly
Cerritos Community College District
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Sep-14
Market Update: Demand Increases, but Supply Remains Low
 Supply remains below historical averages with an average weekly supply of $6.0 billion YTD as of September 4, 2014
 The demand-supply imbalance is a positive for bond issuers
Annual Municipal Bond Volume
450
$382B
400
350
($ Billions)
300
$254B
250
200
150
100
50
0
2003
2004
Annual Total
2005
2006
2007
2008
Annual Average
2009
2010
2011
14
2013
Average through August
Source: Bond Buyer: “A Decade of Municipal Bond Finance,” as of September 4, 2014. Represents long-term issuance; excludes short-term notes and remarketings
Cerritos Community College District
2012
2014 YTD
Market Update: Demand/Supply Imbalance Leads to Lower Interest Rates
 Municipal Market Data Index (“MMD”)
 Index of municipal tax-exempt interest rates
 The 30-year “AAA” MMD Index stands at 3.20%
 1.53% below its 20-year average
 Since January 1, 2014, the 10-year, 20-year, and 30-year maturities of “AAA” MMD have declined 0.52%, 0.89%, and
0.99%, respectively
 For 2014, the yield curve has also flattened as the decline in long-term rates has been greater than shorter term rates
“AAA” MMD Yield Curve Movement since January 2014
5.0
4.5
4.0
99 bps
3.5
89 bps
3.0
52 bps
2.5
2.0
1.5
20-Year Average MMD
1.0
MMD (1/1/2014)
0.5
0.0
Current MMD (9/16/2014)
1y
5y
10y
15y
Source: TM3; MMD range from January 1, 2014 through September 16, 2014
Cerritos Community College District
15
20y
25y
30y
Wells Fargo Securities Contacts
Public Finance
Scott Gorzeman
Director
Public Finance - West Region
Andrew Belinfanti-Knight
Vice President
Public Finance - West Region
Wells Fargo Securities
333 S. Grand Ave., 5th Floor
MAC E2064-058
Los Angeles, CA 90071
Tel 213-253-7232
Fax 213-253-7240
[email protected]
Wells Fargo Securities
333 S. Grand Ave., 5th Floor
MAC E2064-058
Los Angeles, CA 90071
Tel 213-253-7210
Fax 213-253-7240
[email protected]
Cerritos Community College District
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Cerritos Community College District