Home > Uncategorized > Trinidad USD has poison too, but just a bit

Trinidad USD has poison too, but just a bit

tdadI asked about Trinidad’s school bonds yesterday and here’s Trinidad USD’s response.  (It looks like Trinidad USD’s debt ratio is 2.5, as compared with 10.2 on the 2011 McK issue.  That’s much better, and well within reason, IMO.)

TRINIDAD UNION SCHOOL DISTRICT GENERAL OBLIGATION BOND 2012
Thank you for your interest in the financing of the Trinidad Union School District General Obligation Bonds of 2012.

Beginning immediately after the June 5, 2012 election, the Trinidad School
administration contacted the Humboldt County Auditor and Humboldt County Treasurer for assistance in structuring the bond financing so that the interests of the tax payers would be well served.

Between that time and the closing of the Bond on December 4, 2012, the District
met with or conferred on phone or by email with the Treasurer John Bartholomew on a
continual basis. All financial document drafts were copied to the Treasurer for his
comment, and he also communicated directly with our financial advisors and the
underwriter of the bond. In the end, the District was responsible for any decisions made
relative to securing the bond funds, but District staff did this in as informed a manner as
possible.
In reviewing the debt service impact of other public bonds on the tax payer, the
District discovered a wide ranging debt service which varied from approximately 1.8 : 1
all the way to 10 : 1 on the original amount of the bond. A high ratio means a high
payback; for instance a debt service ratio of 8:1 would mean that a $5,000,000 bond
measure would cost the public $40,000,000 over the life of the bond.
The goal of the Trinidad Union School District was to develop a financing plan
which would be at the lower end of that range, thereby saving taxpayers a lot of money.
Our final debt service ratio is 2.52 : 1, or near the very bottom of that range.
Capital Appreciation Bonds (CABs) were a regular part of the discussion of the
financing plan. CABs are, in general, considered the least favorable of the bond options
for the taxpayer, but often must be part of the financing plan in order to attract bond
purchasers. The final bond structure does have some CABs in the structure but at a
low percentage level, as follows:
• $271,235 in convertible CABs (12.3% of the bond issue), which will be converted
to Current Interest Bonds (“CIBs”) which is the least expensive type of bond
readily available to California school districts.
• $88,384 in CABs (4% of the bond issue).
• $1,825,000 in Current Interest Bonds (83.7% of the bond issue)
Because the inclusion of CABs was at such a low percentage level, the net debt
service was impacted only slightly – once again the debt service ratio for the Trinidad
Union School District GO Bond is a very low 2.52 : 1.
We hope you agree that the taxpayer has been well served by a very careful and
collaborative process which included extensive consultation with those experienced
in bond finance at the office of the County Treasurer. The District has made every
effort to be extremely diligent in protecting taxpayer interests, while at the same time
obtaining the funding to make significant deferred maintenance upgrades and/or new
construction. The result of the bond will be improved school quality for students and
higher property values for our constituents, together with taxpayer protection.

 

  1. Anonymous
    December 5, 2012 at 11:05 pm

    Despite several HH feature posts, and dozens of comments, little light has been shed on the world of school bonds and the distinctions between CIB’s and CAB’s. Are they not all classified as “Go Bonds”?

    It’s a very safe investment, with few examples of default or its outcome.

    School boards are taking advantage of the tens of millions of baby boomers who expected to augment their Soc.Sec. with modest interest income. Near-zero interest rates have led to extremely high demand for Go Bonds, many requiring a premium for the privilege to purchase them because they are almost as safe as FDIC and Credit Union insured accounts that pay 2.5% for 10 year CD’s.

    Go Bond defaults are extremely rare, they are often insured and legally required to be paid first in the event of bankruptcy.

    So, I don’t understand why any municipality feels pressured to issue less-favorable bonds in this climate, especially in CA..

    Beginning in 2008 Wall Street was forced to turn it’s harvest away from high-interest loans to young families suddenly facing unemployment, onto the plummeting interest rates on millions of new retiree’s IRA’s, a growing market of desperation by seniors facing the prospect of returning to hard-labor at 70! Easy targets for the tricks and traps of reverse mortgages and unsafe stock investments.

    Unless they are the “lucky ones” among the wave of seniors to have their impoverished children and grandchildren moving back in….or having children or grandchildren to move in with…. once U.S. senior’s savings are depleted, credit card and reverse mortgage debt reaching $20 trillion or so, where will the money come from to house a major portion of our population as wards of the state?

  2. December 6, 2012 at 7:25 am

    I make no claims to being any sort of expert here, but this is what I think I’ve discovered over the past few days…

    CIB is current interest bond. That’s where you pay as you go, as with a normal mortgage.

    CAB is capital appreciation bond. That’s where you get your money today and don’t even pay interest on the money for several years, potentially up to 40 years. Because that’s considered risky, the interest rates are high.

    The question of whether these are good for someone to buy is a very different question than whether these are good for any government entity to issue.

    If you read Trinidad USD’s polite and accurate statement, you’ll find this: “CABs are, in general, considered the least favorable of the bond options for the taxpayer, but often must be part of the financing plan in order to attract bond purchasers.”

    Translated, I think that means you have to give Wall Street a little bit of outrageously high paying candy in order for them to work with you at all on your main debt issue. I sincerely doubt the outrageously high paying candy goes to the portfolios of the middle class. Think of it as a fee that’s not called a fee.

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