001Hello, John. >> We are in a duly called meeting and the board we got six board members here. Um, at the moment we're we're missing noon, but um, the rest of I expect he'll probably be along here in just a second. The rest of us are here and welcome to the meeting. >> Thank you so much. I appreciate you guys having me today. Um, as you know, when we we talked uh at the time of the bond sale on the floor, um, you know, I had some stuff that was being put together that kind of just showed a little bit more about how our strategy played out and I wanted to include that in your postale presentation, which is what you Greg sent your way, you guys probably looking at. >> Yes. >> Just a
002standard post sale presentation. and it's got some information about the sale, but this one includes a couple of slides uh there towards the end that really kind of highlight um how that strategy played out for us. And so I I wanted to make sure those were in there before we reviewed this. So um if if there aren't any questions ahead of time, I'll go ahead and jump in. >> Anybody have questions for John right now? >> Tell him he's in. Go ahead. Okay, we are off to the races. So, I'll go through some of this at the beginning, maybe a little quicker because I think you guys are probably aware of some of this stuff from the last sale. You can see the first little slide there has to do with the district's rating. We
003went back to S&P Global for an underlying rating. That was an A underlying rating with a stable outlook, which is the same rating we had on the previous bond sale. So, they have earned our rating. Um, also of course because of the PSF, the permanent school fund through the state of Texas, we get an enhanced AAA rating. So an an overlying AAA rating by using the PSF fund. And so that's that's no different than last time. Uh, the next slide is showing you um the BVAL curve, the AAA municipal curve. So um what the curve is is it's it's the baseline. It's the benchmark for municipal interest rates. So underwriters and and banks and investors, they all look at this municipal curve, eval um and then they take these rates that are shown here and
004they add their spread on top of it just like a lender from a bank would. If you went to go get car loan or a home loan, they would figure out what the overnight rate is for banks and they would add their spread to it. And so that's what this represents. In essence, it's the baseline for all municipal rates. So the rates that you see here are not reflective of exactly what you get on the day of sale, but they are the baseline for how those rates are created. And so this just kind of shows where we were. You can see on uh in February of 23 and even May of 23 on election day, that's the the green and the red lines um kind of where rates were. Um what you can also see
005with those red and green lines is the inversion of the curve. And I know we talked a little bit about that last time when we talked about the strategy of what we were trying to do. Um, in essence, the blue line is showing pricing as of as of August 4th, uh, last week. And so, um, that is a more normally shaped yield curve. Obviously, it's a little higher up the chart there because rates have increased some since 2023, but when we see a normal yield curve for rates, we expect it to look a lot like the blue. Um, so in essence on the red and green line, right, where they start to make that U shape. Um, normally we expect them to keep just trending down in a normal shaped curve. And so those curves
006were inverted uh meaning that you were getting interest rates um in in the earlier years of your bond that were comparable to that of you know years years 13 through 20. Um and that's that's kind of a weird anomaly that happens in the bond market every so often. This last inverted curve um lasted longer than any inversion has in in the past. So part of our strategy was, you know, how can we take advantage of the low long-term rates that are around in 2023 and how can we avoid paying the higher short-term inverted rates in 2023. And so clearly you guys are aware our strategy was let's go ahead and cut about 13 years of inverted rates out of the middle and leave those on the table for our second sale. So, we sold an
007initial amount of bonds um that got you guys started on your project and those basically locked in the first year of principal and years 13 through the end and it left years kind of 2 through 13 uh out. It left them out in preparation for the second sale. The thinking was that inverted curve was going to normalize uh and look more like the blue instead of the red and green and that we were going to be able to secure lower short-term rates on our maturities than than we otherwise would have. So that's just so you can see now this strategy even you know factored in some increase in rates which obviously we can see there that blue line is higher up the chart. though rates have increased, but we'll show you exactly how that worked
008out towards the end. So, um the next page just kind of outlines your bond team. We didn't change much. Same team as last time. They did a good job and they're also part of the same strategy. So, same same team associated there with all of the councils, the underwriting folks. Um so, that slide, the next slide shows the order period. So this was on the 4th when bond sale took place. Um you can see the we were since we actually waited an extra year to sell past what we kind of originally maybe envisioned. There are 12 maturities here. You can see um all of those maturities there. Um the black lines at the top there represent um the amount of dollars available in each one of those maturities. So everywhere you see the blue come
009right up with the black line that means that there were exactly that that um that many orders for that particular maturity. So those first couple the 826 and the 827 you can see those are exactly one time subscribed. So there was exactly that many orders for that one. Uh the next one on the 28 you can see it was 1.3 time subscribed. That means there was.3 more orders than there were bonds available. And then in 2029, you can see there were no orders for that. Um, so this happens all the time. This is a part of the allocation process. Um, in all those areas where they were exactly one time subscribed, then we we filled all those orders. In the areas where they were more than one time subscribed, so the 2028s, you can see
010the 2031s were two times over. The 203 or the Yeah, the 2036s were 2.2 two over and the 2037s were 2.5 over. Um so in those maturities that were overs subscribed, we got the bump bump the rate down just a little bit after pricing to knock some of those potential orders out of there. And then in the areas where there's gray showing there, meaning there was not enough orders for that maturity, that's where our underwriter Oenheimer and their liability to us as an underwriter comes into play. So, Oppenheimer took down all of the areas that you see with gray and they um then go out and resell those bonds um on the secondary market after the fact. So, all in all, I think this was a good allocation. There are just some maturities in there
011that were less popular than others and didn't get filled and that happens all the time. But that's why you work with good underwriters that you can trust. um no questions asked. They took down those li those particular maturities and and resold them. So, it was a it was a good order period. Um the next slide shows some of the um some of the investors that purchased. And so those are just some of the um some of the logos of of some of the institutional investors that were purchasing your bonds. Um, okay. On the next page, it kind of goes to that chart we were looking about looking at on the order period. What happens is we usually receive a market scale or interest rates um ahead of the bond sale that they are planning to
012go into the market with. You can see that in the column that says 81 2025 pre-market yield. That's where they went out to investors to market these bonds. Um, you can see the next column shows after the sale was complete on August 4th, the adjustments that were made. So, you can see that from where we thought we were going to be on Friday to where we finished on Monday, we knocked out mainly seven and in some maturities, five basis points out of every maturity. So, that was good. The market was trending down a little bit. We clearly took advantage of that. We went out in such a way that we took what we thought we were going to have on Friday and turned it into something a little bit better. So between Friday and when
013the sale was complete on Monday, we dropped um overall rates by about seven basis points and in two maturities about five basis points. So we were able to knock some rate off of there which was great. >> The next slide just shows the sales statistics. Um so there was a par amount of bonds sold of just over 14 million. The way in which we structured those bonds um was able to produce um it was able to produce uh bond proceeds in the amount of just over 15 million. Right? So we had a $14 million chunk and we structured in such a way that when you bought it it produced just over 15 million in revenue. Uh just below that you can see your project fund deposit 14958750. So of that just over 15 million 14958
014goes to you guys as your project fund deposit. The remaining amount of proceeds is exactly enough to cover the cost of issuance of the sale. So, we produced enough proceeds to cover the project fund deposit and the cost of issuance associated with the sale and really not a penny more. If there was any overage um that was created, it was returned to you guys. It will be returned to you when funds are delivered. So, that's kind of how that works. Um the good thing there is that when it says par amount, just over 14 million, the lower the par amount of bond that you can sell, the less interest you pay back. So depending on how you structure things, you know, if if we were if we sold 14 a.5 million to create our our
015proceeds, then that would be 14.5 million of par that interest would be computed against as opposed to 14 million. So this was good. This is a big wide gap um in par amount versus total total proceeds. So that was good. And then your interest rate, your average interest rate there is 3.6858. So that's your your TIC, your true interest cost. Then that's kind of a blend of all the rates on all 12 maturities. We we average it out to say, okay, on the wholesale, what was our average interest rate on maturities? And that's that 368. So very good interest rate. Uh any questions so far before we go to the next two slides? >> Okay, >> they look good. Yep. Perfect, perfect, perfect. Okay, so uh the next two slides deal specifically with the strategy
016that we kind of employed uh in that first uh first slide there. Why why strategically structure principle? Um you can see that graph there that's showing the same thing that we kind of looked at in that second slide up towards the top. Um that shows the the MMD, the baseline rate, and that's showing it from August of 23 when the original sale was made. And you can see the pretty significant inversion um that's there. And so in that in that instance, that's where we decided, hey, we're going to not sell principle in these years yet. We're going to leave that for when the the curve normalizes. There are some bullet points over there at the left that talk about the inversion and the strategy of kind of working around it. Um I'll certainly, you know,
017you guys have those and can read those. I I won't, you know, I won't drone through those bullet points right now unless you just want me to. But in a very basic sense, it says, you know, we can we can avoid the inverted curve by leaving that principle out now and selling it later. So that's uh a little bit about the strategy of what we did. I think everybody's pretty well kind of up to speed on what we were doing. >> Um, sorry, any questions on that first one? >> Hey, John. real quick like and I these guys may not care but I I deal with this a little bit at the bank and this is Bryce. Um can you just tell these guys why companies would invest at this low rate and how how
018it affects banks like on a tax equivalent yield? You know, I mean you see these rates and you're going, "Oh my gosh, this is nothing." But there also some benefits to these investors. >> Yes, of course. Ju just real quick I it's just interesting and I don't know if these guys care or not but I think it's it's good for the community to hear maybe. >> Absolutely no problem. So that same slide we were just looking at why strategically structure principle right let's look at that chart. Um you can see that in in year one and two um interest rates back then and year one and two were approaching that 3.5% mark. Um, so what we're saying is, um, your your actual interest rate for year 1 and two would not be 3.5%. It would
019be 3.5% plus an underwriter spread, which could be as much as 35 or 45 basis points. So in reality, if you locked rates in right then on all those early maturities, you know, you could be looking at a 385. Now, a 385 is is a triple exempt rate on this side because it's municipal. So, we don't have a state income taxes. So, clearly it's exempt from that. Um, but you're not going to pay any federal taxes on these either because they're completely tax exempt. So, to Bryce's point, a 385 tax exempt would be more like a five or five and a quarter taxable. So the investor benefit that he mentioned is I could buy a bond from Pington ISD at a 385 tax exempt and not pay any any any federal taxes or any any
020taxes associated with that. And for a lot of institutional investors, namely the logos that we saw on the previous slide of people that were buying, they may be managing a big chunk of people's 401k money. they may not want to pay taxes on some of that or they they may want to have a nice diverse mix in their 401k investment. So, they'll come in and buy tax exempt rates knowing that they're not going to have any tax liability associated with those purchases. And there is a conversion. It's just a simple formula that converts from tax exempt to taxable. But roughly, if you were looking at a 385 tax exempt, you'd be probably in the 5% range, if not a little bit more if it was a taxable rate. Um, and so, you know, the the
021market accounts for the fact that they're tax exempt. Um, but a lot of times there is benefit to investors depending on what they're looking for for purchasing tax exempt. So, these these are exempt from all taxes and that's that's a good thing. Bryce, is that kind of >> Yes. Thank you. I don't know if that mattered to any of these guys. I just always like hearing that. Um I just think it clears up some questions. Thank you. >> It definitely makes it more attractive to investors when they know that they can put it in an investment pool and not have to pay taxes on it. >> Y >> and a lot of times um a lot of times tax exempt rates will move independently of taxable. Not very often and not very much. But if
022you think of it this way, if your tax exempt rates are creeping up and your taxable rates are staying steady, then you're gaining more and more benefit by buying those tax exempt bonds. So as they get closer to where taxable rates are and a lot of times investors will drop what they're doing on the taxable side and go secure tax exempt bonds because those rates are moving up at a faster rate than than what taxable rates are. So, you know, the difference between taxable and tax exempt is also important to investors. So, yeah, there's a lot out there that goes into that and it really comes down to what people are looking for on the market and um what their benefit is. So, okay, let's go down to the next slide. I think it it
023paints a pretty good picture of um of how this strategy played out. Then it also give look numbers to that. So um okay so we have two different lines there. The blue line you'll recognize probably looks a little bit familiar from 2023. That's the inverted yield curve. Um on that blue line you will see that there is a dark a part that's shaded dark blue and a part that's light blue. The part that is shaded dark is where we actually sold bonds in 2023 where we locked in maturities. So you can see there's a a part at the beginning we had to lock in a firstear payment, right? So we had to have year one because we needed to set a tax rate and make a payment. So we went ahead and locked that in
024and then a big long stretch of light blue and that's the portion that we left out. We left principal out of those years because we said look those rates are not normal. they're higher than what we expect. Um, and we want to let that normalize. On the back end of that blue line, you can see where we locked in principle in the later years. So, all of that dark blue uh on the back end of that line is where we actually locked in principle in 2023. So, that dark blue line is representing kind of what your initial bond sale looked like. Um on the green line you can see that that's the yield curve from from today from the time of sale. Um it has normalized. You can see there's no no more big curve
025in it. One of the huge advantages to that is over to the left in the 24 through say 20 32 or 33 area right there to the left. You can see that that green line is significantly lower than the blue line. That is due to the normalization or the flattening of the yield curve. And that difference between where the light blue is and the dark green is the difference of where we locked rates in to uh this bond sale versus where we would have locked them if we sold all the bonds last time or we put principal in those in those maturities last time. So you can see quite a bit quite a big difference there. Um, as we kind of move over to the right on that chart, you can see that the green
026line does move above the blue. So, rates are are a little bit higher today in the longer end than where they were back then. Luckily for us, we locked in a ton of principle where that dark blue line is. So, you can see the difference in the in the green line and the blue line over to the right of the chart. Well, we locked in a ton of principal in the back end in 2023 when rates were cheaper. So, all of that represents savings that we're experiencing by taking this strategy. The only part that we missed out on just a little bit is between about 2032 and 2038. So, right there in the middle, just after the lines cross to the right of that, you can see where there's some dark green versus light blue.
027And the dark green is a little bit higher than the light blue. And that's because over the last two years, interest rates have increased some. So, um, no strategy is ever a perfect strategy because you don't know exactly what rates are going to do. But if you think about it, we won over to the left where the dark green line is. We won over to the right where the dark blue line is. We lost just a little bit right there in the middle where that dark green is in the middle after the cross. So, um it's a little bit of give and take there. Um if we'd have been able to sell bonds say last year that that may have been a little bit more narrow, but maybe not. You really never know how rates
028were going to act when it would have been time to sell bonds. Um, so I think you can see there that most everything that we locked in was at a lower a lower place than where it otherwise would have been. And if it wasn't, it was just a shade higher than where it would have been in 2023. Does that make sense on that chart where everything's being counted as locked in the dark the dark shade portions versus the light portions and kind of how that works? >> I see nodding heads. >> Okay, perfect. So then let's talk a little bit about how that worked out in numbers. Over to the right you can see two comparisons. Um the gray box there says normal principal structure. Um so this is showing what would be representative of
029two sales, one in 2023 and one today. Um that column is showing what what our total payback and what our debt service would have looked like and our length of term if we would have sold principal in in all of that light blue area that's represented on the chart from the left. So if we would have put principal in all those years instead of taking it out um then this is kind of what our principal structure would have looked like. So you can see it runs from 2023 through 2015. Um, and down at the bottom it has a total payback of 66.94 million. 66.94. That's showing our strategic principal structure. That's how it actually played out. Um, and you can see that in those years it runs from 2023 through 2048. So by doing this
030principal structure at your tax rate setting um we were able to knock two years off the bond inherently as they were sold that doesn't include any additional principal reduction that you make in the future. So just automatically it was two years shorter and you can see that even on a two-year shorter term our interest rates we did better we did well enough on interest rates on the second sale that total payback is 65.3 65.3 so two years shorter and a less lesser total payback by just over 1.6 million. So, you were able to shorten your your overall term and you were able to save um just over $1.6 million in interest component total payback by employing the strategy that we kind of talked about in 2023 and decided to go with. And I know it
031was tough to probably envision how that strategy was going to work out back then. And you kind of probably moved on that strategy with a little bit of leap of faith. But even though rates increased, even though we wait we didn't sell bonds till an extra year later than what we kind of originally envisioned, um the strategy still worked to our advantage. Still played out well. Still allowed you to short your overall bond term by two years and save just over 1.6 million in total payback. So I think um you know even even though everything didn't go exactly how we would have planned it in a perfect world, the strategy was good. The strategy played out well and the district came out fairly well ahead of where you otherwise could have if we would have
032just taken a more normal approach with the bond sale in 2023 and kind of just ignored the fact that we had an inverted yield curve. So, um, I think everything worked out in a in a good in a good position. Any any questions about those charts or where we lock the maturities in or even the numbers over to the right and the overall payback? >> No, I think they're all good. >> I think they're all good numbers. It all makes makes makes good sense for a visual learner like me to be able to see see where we're at and and the advantages of doing doing it the way we did it instead of just throwing everything out >> everything out at 23. >> Yeah. I mean it's it's guys it's a very kind of into
033the weeds technical you know I mean this is not surface level bond stuff. This is deep down. So, um, and and like you said, for people that learn visually like me as well or do better just by seeing it, it's hard for me to paint that picture in 2023 of how it looks. But when you see how it actually turned out, I think it's it's pretty easy to see that, you know, we locked in we locked in rates in all the right places. Mhm. >> Um and even with 2 years of time between the two sales and increase in rates, you know, there were still only a few maturities that were a little bit higher there in the middle and they really, you know, they were there was, you know, there was there was not
034enough rate movement or time go by to really affect the overall objective, which was let's let's save as much interest as we can and and pay back on as short of a term as we can. So everything worked out well and you know I appreciate y'all's um trust and understanding in 2023 to try something that was a little different than what other people were doing. So >> well you guided us well on that John and I I realize it was a leap of faith and you know it could have gone it could have gone the other way but it didn't and you you guided us well. Well, I appreciate that. I had lots of good input from our underwriting group, Oenheimer. Um, very savvy guys and especially, you know, Dan Roosevel who's their their uh
035contact to all of the the districts and and Beth Walchock who is on their desk in New York that you guys don't get to hear from Beth much, but she's a a steely missile woman and she um she definitely um went out and did a great job for us. had lots of good input from them and you know Greg you especially as a new superintendent. I can see how that would have been seen as a little bit of boat rocking when you first got into chair. So I know that was maybe a bigger leap of faith for you than than others. But um you know I commend you for it and and it did work out well and you guys are in a good spot going forward. So thank you for that and and it's
036my pleasure to kind of help relay that and make sure we we got in a good spot. Anybody else have any other questions for for John? Well, John, I appreciate your your help on this, which is the whole reason why uh we enjoy and and continue to work with Live Oak rather than using Fred's bond service. [Laughter] We will we'll keep towing that line. We certainly will. So, um as we go forward, if there's anything you need from us, then let us know. um their bonds will be delivered um here towards the end of the month and you actually um will have a token payment. So if you're looking at that last slide, the same thing happened to us in 2023 with the increase to the homestead exemption. That $6,28 payment that you see in
037the gray, that was kind of the token payment at that time to get us locked in for homestead exemption and stuff. And so on this one, it'll be about 6,200. same thing. It'll be a token payment that happens before August 31st comes out of INS and you guys will send that over and that'll lock us in and make sure that we get all the the homestead exemption hold harmless funding from the state that we can get. So, um that'll all happen here prior to August 1st. You'll have in hand to keep building and you'll make that small payment be we'll be off to the races. So, if anything comes up between now and then, just have Greg reach out or you guys get in touch with me and and we'll get figured out. >> Okay.
038Well, thank you very much. >> Thank you guys. Y'all have a good day. >> Thanks, John. Have a great day. >> You too. >> Bye-bye. >> Byebye. >> Hey, I have one question. What is What is for this service? It was bunched in with the whole the difference in the what we got and it was on that the last uh in the last packet that we had last board meeting but uh this the cell statistics here >> if you look like this is this is the amount that we're getting and he said it was 15 and some change is the actual and it's it's part of that that 160,000 >> between the 15 whatever >> and not all that was theirs. There was, you know, some of it goes to underwriter and it's like kind
039of like a title insurance deal. You know, they keep some of it here and then some some of it goes to underwriters. So, >> yeah. >> Yep. And for those of you that haven't had a chance to to meet John or work with him, >> he's sharp character and we worked with through Live Oak for the junior high bond as well. That was my first introduction to him. And >> they they look behind every little weed, see what they can find that's going to >> going to work well for us. They do a good job. We got to give him the kudos for the strategy. I mean, it really he was having to look into the future and guess and it it played out. So, appreciate that. >> Did Did he do good, Bryce? >>
040Save a million six. Yeah. Yeah, I think so. Million6 that were on that committee. He >> Yeah, I talked to him a lot during all that. Yeah. Very short. >> Yeah. >> Okay. Board will now convene and close meeting discuss the following matters post on our agenda as allowed by Texas government code. 551.074 personnel matters and 551.071 attorney consultation. No voting will take place in the closed meeting. Any action the board wishes to take as a result of discussion in close session will take place after the board reconvenes in the open meeting. It is now 12:33. Thank you.