The professionals of AFG have been able to apply our quantitative expertise to strategic consulting engagements such as multi-year plans, management assessments, early retirement feasibility studies, energy conversation analysis, regionalization studies, acquisition studies, economic impact studies and capital/budget planning and development. Our professionals’ experience and ability to analyze operations and services, along with their associated fiscal impacts is clear, as demonstrated by the engagements described below. All of the following projects were delivered with fees and on a timetable consistent with those agreed upon with the client.
Multi-Year Financial Plan, City of East Orange, NJ
The Essex County Improvement Authority (ECIA) engaged the professionals at AFG to establish a multi-year plan for the City of East Orange. AFG developed a dynamic, quantitative model that allowed the City to project budget balances over a five-year period, applying a number of “what if” scenarios of particular concern to the City’s leadership. The Plan identified for the Administration the many causes of its structural imbalance on the revenue and expenditure sides of the budget. Labor contracts were thoroughly reviewed, and a workforce strategy articulated. Department operations and costs were weighed against current needs and comparable spending elsewhere, with outsourcing and reorganization proposed for many agencies. The Plan spelled out initiatives that, if implemented, could cut costs or increase non-tax revenue by $129 million over five years. The executive branch embraced the Multi-Year Plan, using it to frame the FY1999 Budget proposal to the City Council.
Since then, the Plan has served as a framework document to support the efforts of the State of New Jersey and East Orange to guide the City toward economic recovery. The Mayor cited the Plan’s implementation as an important reason for the City’s achievement of a $7 million budget surplus in FY2000. AFG’s professionals produced an updated plan for the period FY2003-FY2007; this work included an assessment of the management structure of the Police Department as related to City governance.
South Jersey Port Corporation (State of New Jersey)
The professionals at AFG were hired in 2001 by the State of New Jersey to conduct a review of the South Jersey Port Corporation’s (the “SJPC”) mission statement, perform a review of management practices and SJPC organizational structure. The objectives of the management assessment were to present findings, conclusions and recommendations regarding the SJPC’s mission, performance, and internal operations as well as a means to clarify or improve them.
The assessment included conducting meetings with SJPC executive and mid-level managers, SJPC auditors and officials involved in the Region’s development, a review of personal responsibilities, management documents, information technology, comparable ports’ financial practices and budgets. It also included telephone interviews with the Port’s largest clients. In addition, AFG collected 90 documents pertaining to financial, organizational, operational, and the industry for analysis. AFG also used benchmarking to assess how the SJPC compares to other ports. AFG’s professionals recommendations to the SJPC included: assessments through independent analysis, establishment of a process to define the SJPC’s mission and to prioritize and measure goals and powers, development of a Multi-Year Strategic plan, restructuring outstanding debt, and various recommendations on improving internal business operations and controls.
Camden County Improvement Authority – Pennsauken Twin Rinks Project
In our on-going capacity as Financial Advisor to the CCIA, AFG professionals worked with the CCIA in assisting the Township of Pennsauken (“Township”) to finance the purchase of an indoor ice skating facility. Known as the Twin Rinks of Pennsauken (“Facility”), the Facility features two National Hockey League regulation size ice skating surfaces, a pro shop, entertainment arcade, game room and snack bar. In addition to the purchase of the Facility, the project also included the creation of a Municipal Recreational Utility within the Township to operate and maintain the Facility as a self-liquidating public utility. The advice of the professionals of AFG to the CCIA and the Township with respect to this transaction included a comparative cost analysis designed to determine the most cost-effective method for the CCIA and Township to finance the proposed transaction. AFG professionals also reviewed a cash flow analysis, prepared by the Township’s auditor, intended to (1) examine the financial impact of the acquisition of the Facility on the local tax rate and (2) to provide the economic information required to demonstrate that the Project can operate as a self-liquidating utility. Following the CCIA’s and Township’s decision to finance the project via a public bond sale and our confirmation of the results of the feasibility study, AFG professionals prepared and submitted an application to the Local Finance Board seeking approval with respect to (1) the proposed financing, (2) a municipal guaranty of the timely repayment of principal of and interest on the bonds and (3) the creation of the Municipal Recreational Utility (i.e. self-liquidating utility). The LFB application received positive findings by the LFB and, in September 1998, AFG’s professionals advised on the issuance of $4,000,000 CCIA Township Guaranteed Lease Revenue Bonds (the “Bonds”). The Bonds are secured by a Lease Purchase Agreement between the CCIA and Township. The agreement calls for the Township to make lease payments to the CCIA in an amount sufficient to pay debt service on the Bonds. At the end of the lease term ownership of the Facility will revert to the Township.
Debt Issuance
AFG professionals have provided financial advisory services in connection with over $35.8 billion in taxable and tax-exempt securities for a variety of government entities including, State and State authorities and agencies, county and county authorities, municipalities and municipal authorities, school districts, fire districts and regional authorities. The transactions completed include competitive and negotiated transactions, private placements, general obligation and revenue backed bonds, fixed and variable rate securities and notes. Typical financial advisory services include:
• Develop comprehensive tax and rate impact analysis
• Advise as to the issuance of short vs long term notes and bonds
• Structure a maturity schedule to meet goals and objectives
• Advise as to the appropriate and advantageous method of selling debt securities (competitive, negotiated, private placement)
• Prepare necessary financial applications and documents and attend public hearings
• If competitive sale, prepare bid or electronic bid spec, prepare list of bidders, and evaluate and verify bids
• If negotiated sale, prepare RFP for selection of underwriter and if applicable, trustee, verification agent, printer and other services as necessary
• If a negotiated transaction, negotiate the terms and conditions of the agreement of sale, work with the underwriter and client to price the bonds, and provide supporting research and recommendation regarding final bond sale terms
• Develop a rating agency strategy and obtain bond rating
• Obtain bond insurance or other credit enhancement as required
• Develop and manage transaction schedule and monitor market for timely issuance
• Advise in connection with the investment of bond proceeds
• Attend meetings as requested
Refinancing/Refunding Services
As government entities face stringent budgetary conditions, identifying opportunities to realize savings from refinancing outstanding indebtedness becomes increasingly important. AFG’s professionals have aided numerous government entities in identifying, analyzing, monitoring and capturing refinancing opportunities. Our analytical expertise in structuring refinancing transactions, monitoring market conditions and ensuring competitive pricing has helped our clients saves millions of dollars in debt service payments.
In connection with a refunding bond issue, as Financial Advisor, AFG will perform the following duties:
• Assist in structuring a maturity schedule to meet the issuer’s goals.
• Prepare necessary financial applications and documents and attend public hearings.
• Prepare timetables and work schedules, monitor the status of issue-related activities and coordinate the activities of other professionals engaged to assist in the issuance process.
• Assist in the preparation of the preliminary and final official statements.
• Attend any meetings as requested.
• Develop a rating agency strategy and obtain bond rating
• Assist in obtaining municipal bond insurance if determined to be cost-efficient. Negotiate with credit enhancement providers as to terms, conditions and fees.
• Advise as to appropriate and advantageous methods of selling debt securities (i.e., competitive, negotiated, private placement), given legal constraints, market conditions and credit factors. Advice as to the type of competitive sale (traditional or electronic bid) as well as which bid service to use will also be provided.
• If negotiated sale, prepare RFP for selection of underwriter and if applicable, trustee, verification agent, printer and other services as necessary
• If completed as a competitive transaction, assist Bond Counsel with the preparation of the bid specifications and bid forms for distribution to potential underwriters.
• Provide analysis and support to enable entering the capital markets in an orderly, timely and cost-efficient manner.
• Provide information from comparable sales to ensure that the borrowing rates are consistent with other bond issues in the market.
• For a competitive sale, attend the public bid and have a professional at the bid opening to verify the accuracy of the lowest bid. Consult the issuer in awarding the winning bid or rejecting all bids.
• Advise in connection with debt issuances as to the application and investment of proceeds.
• Assist Bond Counsel with the closing process for the bonds.
Leases
AFG also assists school districts and other government entities with lease purchase financings for capital equipment. Services provided by AFG include the preparation of bid solicitation documents, solicitation of the proposed lease to potential providers, review and analysis to determine the lowest cost bid, and assistance to local counsel regarding the preparation of the lease agreement and closing the lease transaction.
The following are examples of AFG’s professionals providing advice on lease transactions.
Camden County Improvement Authority
AFG’s professionals have provided financial advisory services to the CCIA since 1994. A description of the wide array of financings and financing programs is included in the following case studies.
1995 - 2005 Capital Equipment Lease Program
AFG’S professionals provided financial advisory services to the CCIA in connection with $18.48 million Capital Equipment Lease Financing of 2005, which closed in December 2005. The CCIA annually finances equipment and infrastructure improvements for the County of Camden. The lease revenue financing is structured with a lease agreement between the Authority and the County and is secured by a County Guaranty. In 2005, this transition also included the participation of two municipalities within the county. As financial advisor, AFG’S professionals assisted the CCIA with structuring the financing, preparing the Local Finance Board application, preparing the Preliminary and Final Official Statements, the negotiation of the pricing and the closing the transaction.
Similar financings were completed in the years 1995 through 2004 in the aggregate principal amount of $172.08 million.
Capital Equipment Lease Refunding
In May 2005, AFG’S professionals assisted the CCIA in connection with the issuance of $21.35 million in refunding bonds. This series refunded a portion of the remaining callable 1995-2000 series, not refunded as part of the 2003 refunding transaction (described below) along with the callable series 2001, 2002A and 2003B bonds. This transaction resulted in present value savings of $668,000 or 3.3% of the par amount of refunded bonds.
In July 2003, AFG’S professionals assisted the CCIA with the issuance of $44.075 million County Guaranteed Lease Revenue Refunding Bonds. These bonds advance refunded a portion of the CCIA’s outstanding Series 1994, Series 1995. Series 1996, Series 1997A, Series 1998C, Series 1999, and Series 2000 bonds that were eligible for advance refunding. This refunding provided the CCIA with present value savings of approximately $1.3 million.
Investment Advice
AFG provides its clients with a number of ongoing services to assist with their financial operations and management. These services are designed to assist an issuer in matters directly and indirectly related to its securities and include the investment and reinvestment of bond and non-bond related funds. AFG provides investment advice to its clients for the maximization of earnings. Specifically, the firm confirms investment goals after conferring with staff; reviews legal requirements and permitted investments with relevant counsel; analyzes investment alternatives in terms of risk and rewards and assists in developing an overall investment strategy.
AFG will also review the issuer's investment policy with respect to general funds and bond proceeds and develops guidelines and strategies for the investment of funds. AFG has reviewed the use of a variety of derivative products and investment vehicles in formulating investment strategies for our clients. Such investment strategies are developed to maximize earnings while minimizing rebate liability. These investment vehicles include: direct treasury and government securities; rolling treasury securities; flexi escrows; certificates of deposit, guaranteed investment contracts; repurchase agreements; swaps and forward supply contracts.
AFG is cognizant that security is of the utmost importance when investing funds. In developing an investment strategy, issuers generally seek security of principal, some level of liquidity and adequate returns, therefore, it is important to match the appropriateness of the investment with the use of the funds and the cashflow needs of the specific bond financing. AFG’s professionals have developed comprehensive investment strategies for the New Jersey Educational Facilities Authority, Ohio Building Authority, Stafford Board of Education, Old Bridge Municipal Utilities Authority, Bayshore Regional Sewerage Authority, Branchburg Board of Education and Sussex County Municipal Utilities Authority.
The following are three examples of AFG’s professionals providing advice for the investment of bond proceeds.
New Jersey Higher Education Student Assistance Authority
When AFG’s professionals were retained to serve as financial advisor to the New Jersey Higher Education Student Assistance Authority (“NJHESAA”) the proceeds of its prior bond issues had not been invested for the long term. At the time of the offerings, interest rates were extraordinarily low. The bonds were issued as variable rate bonds and the majority of bonds were hedged with a swap to fixed rate. Because BMA was so low and the relationship between BMA and Libor was particularly tight, it would not have been beneficial for NJHESSA to bid out the investments as providers were not inclined to bid aggressively. Additionally, circumstances specific to the student loan industry (including the recycling of funds and frequency of draws) began to restrict the number of providers willing to provide investment agreements. In the face of the likelihood that interest rates would increase in the future, a decision was made to temporarily invest the money in a money market and enter into long-term investments at a later date. AFG’s professionals were charged with monitoring the relationship of short term interest rates. As short term interest rates increased, the relationship between BMA and LIBOR widened. In addition, a greater number of investment providers became experienced with loan consolidation risk. Therefore, AFG’s professionals recommended that NJHESAA proceed with bidding out the investments of its bond funds for its Series 2002, 2003, 2004 and 2005 issues.
During 2005 and 2006, in an effort to address NJHESAA’s unhedged liability, AFG’s professionals obtained guaranteed investment contracts for proceeds of the Series 2002, 2003, 2004 and 2005 bond issues. In addition, in conjunction with the closing of the Series 2006 bond issue in April 2006, AFG’s professionals also negotiated a GIC for those bond proceeds. The services provided in negotiating the GICs included drafting and disseminating a Request for GIC; contacting all bidders to guarantee interest; analyzing bids to determine the winning bidder and reviewing the legal documents required for closing.
Camden County Improvement Authority
In 2004 AFG’S professionals assisted the Camden County Improvement Authority (“CCIA”) with a restructuring of the refunding escrow relating to the 2003 Refunding Bonds in order to recoup “negative arbitrage” in the escrow and generate upfront cash savings for the County of Camden. In order to recoup these earnings, AFG’S professionals proposed that the CCIA undertake a SLGS to SLGS restructuring. AFG’S professionals structured and implemented a strategy wherein on a day when there was a sell off in the U.S. Treasury market, the Authority would redeem its SLGS for rates posted on the date of the sell off. SLGS rates are reset each morning based on the previous day’s open market yields, thus on a day after a sell off, SLGS rates would reset at higher interest rates and the Authority would subscribe for new SLGS the day after the sell off, and retain the differential.
Due to a significant rise in U.S. Treasury interest rates on May 9, 2004, AFG’s professionals submitted a notice of redemption for a portion of the SLGS held in the refunding escrow. AFG’s professionals continually monitored the Treasury/SLGS market and, in accordance with SLGS regulations, were able to cancel and re-subscribe for SLGS several times in order to secure the highest possible interest rate for the CCIA/County. Based on this cancellation and re-subscription strategy, the CCIA/County increased its net benefit by approximately $260,000 during this period. AFG’s professionals presented this innovative idea to the CCIA and were instrumental in coordinating the activities of other professionals on the transaction and in securing the appropriate authorizations to proceed.
Ohio Building Authority
AFG’s professionals reviewed the investment histories and investments of the OBA's debt service reserve and construction funds to verify whether the maximum allowable yield was being earned on all funds. In addition, we reviewed the escrow on outstanding refunding bonds and whether the use of swaps or forward purchase contracts could assist in bringing additional earning potential to the OBA within the scope of remaining within the maximum allowable yield.
Swedesboro-Woolwich Board of Education
In 2006, AFG’s professionals were retained to serve as financial advisor for the District’s proposed capital improvement project. The District opted to issue the full amount of the project in bonds and to offset debt service through annual state aid. AFG professionals assisted the District in developing an investment strategy for the bond proceeds that would earn maximum interest, within their particular investment parameters, to further offset the debt service on the bonds. In conjunction with the closing of the Series 2006 bond issue in June 2006, AFG’s professionals drafted an RFP for investment providers, reviewed the investment provider responses, analyzed the investment strategy, negotiating investment rates on the investment portfolio, and appointed an investment provider based on negotiation of the best overall yield and service provided to the District.
Development / Redevelopment
AFG’s professionals have provided financial advisory services on a broad range of redevelopment transactions, including commercial and recreational redevelopment projects as well as market and affordable housing transactions. In connection with these projects, AFG’s professionals have been at the forefront in assisting with the negotiation of redevelopment and tax abatement agreements and providing advice relating to the structuring and financing of redevelopment projects, including security agreements and financial assistance contracts.
The structural complexity of even the most basic redevelopment project requires a wide range of financial expertise and the experience of applying these skills. AFG develops in-house financial models that are tailored specifically to each transaction. Our experience on a wide range of redevelopment transactions gives us the ability to create models that have the built-in flexibility to evaluate various scenarios based on different project and financing assumptions. AFG’s professionals continuously prove to our clients that we have the experience and technical capabilities to successfully achieve our clients’ redevelopment goals.
Examples of redevelopment projects on which AFG’s professionals have worked include the following.
Pennsauken Township Waterfront Redevelopment Project
In September 2004, AFG’s professionals were hired by Pennsauken Township to provide financial advisory services in connection with the proposed Pennsauken Waterfront Redevelopment Project (the “Project”). The Project consists of (a) remediation of the Redevelopment Project Site and construction of certain macro-infrastructure improvements thereon, (b) construction of a maximum of three thousand one hundred (3,100) residential housing units of varying product types (including specifically and without limitation, single family, townhouse, mews, flats and duplex units) throughout the Redevelopment Project Site, (c) construction of an 18-hole golf course, and related golf course amenities, (d) construction of a conference center hotel/resort complex and (e) construction of a mixed-use commercial development, grouped in a shopping village setting. Cherokee Pennsauken, LLC (“Cherokee”) has been selected to act as master developer with respect to the Project.
The scope of services provided to Pennsauken included, among other things, assistance with the negotiation of the redevelopment agreement with Cherokee, review of other redevelopment and financial documents and the preparation of numerous financial/cash-flow analyses. Specifically, AFG’s professionals played an especially importation role in developing independent financial models to analyze the impact of various Payment in Lieu of Taxes (“PILOT”) structures. These models were designed to allow the Township to evaluate the financial impact of the Project under different financial scenarios. In addition, AFG professionals analyzed the financing assumptions and structure of Cherokee’s financial models to ensure that the information presented to the Township was mathematically accurate and reasonable.
Recently, on behalf of the Township, AFG professionals prepared an application to the Local Finance Board seeking approval of a bond ordinance authorizing not to exceed $51,000,000 aggregate principal amount of Acquisition Bond Anticipation Notes (the “Acquisition Notes”). The purpose of the Acquisition Notes is to obtain the funds necessary for the Township to acquire the Redevelopment Project Site. As ultimate security for the Acquisition Notes and to permit the Acquisition Notes to be deducted from the “gross debt” of the Township in accordance with the applicable provisions of the Redevelopment Law, the full, prompt and unconditional payment of the principal of and interest on the Acquisition Notes will be irrevocably guaranteed by Cherokee Investment Partners III, L.P., and Cherokee Investment Partners III Parallel Fund, L.P. (collectively, the “Guarantor”), all pursuant to the terms of a guaranty agreement to be entered into by and between the Township and the Guarantor. As set forth in the Guaranty Agreement, the Guarantor shall maintain available uncommitted capital in an amount equal to 115% of the principal amount of any of the Acquisition Notes outstanding at any time. Prior to the issuance of any Acquisition Notes, the Guarantor shall provide an affidavit to the Township stating that the amount of available uncommitted capital is at least equal to 115% of the principal amount of any Project Site Acquisition Notes outstanding plus the principal amount of the Project Site Acquisition Notes proposed to be issued. AFG professionals attended the LFB hearing on December 14, 2005 and assisted with the presentation of the Township’s application, which was unanimously approved by the LFB. The first phase of the note issuances in the amount of $15 million is scheduled to close on June 8, 2006.
New Jersey Economic Development Authority
Municipal Rehabilitation Bonds
In 2003, AFG professionals advised the NJEDA with the financing of $181 million Municipal Rehabilitation Bonds which were issued to fund the purposes articulated in the “Municipal Rehabilitation and Economic Recovery Act”. Briefly, these purposes include providing funds to qualified municipalities to encourage, among other things, economic growth and viability, market rate housing, improved security and quality of life for residents, and better health services. Under the Act, a State Economic Recovery Board is created for each qualified municipality and is responsible for overseeing the preparation of a strategic revitalization plan which promotes development and redevelopment in the municipality. A tax-exempt and a taxable series were issued with maturities ranging from four to twenty-five years. The professionals at AFG played a significant role in structuring the bond issue to achieve the Authority’s desired pattern of payments, analyzing the impact on the financing of various interest rate scenarios, and assisting with the procurement of credit ratings and bond insurance.
Township of West Deptford, Gloucester County
The Township of West Deptford (the "Township") is located in Gloucester County along the Delaware River. The Township is a residential and industrial community within the Delaware Valley economic region.
In 2000, AFG’s professionals assisted the Township with a financing for its RiverWinds Project (the “Project”). The Project, located on a 1,100 acre tract of land on the Township’s riverfront, consists of a community center, indoor pool and fitness center, 18-hole golf course, pier and marina, age restricted housing complex, athletic fields, scenic and equestrian trails and retail shops and restaurants. The total project cost was $58.9 million. The Township funded this cost through the issuance of long-term bonds. It is anticipated that portions of the total project cost will be offset by federal grants and corporate donations. Additionally, application of proceeds from the sale of certain land and agreements with companies for payments in lieu of taxes will be used to help minimize the impact to taxpayers. AFG professionals assisted the Township with the development of the financial plan including the preparation and evaluation of feasibility studies and preparation of detailed cash flow analyses, State of New Jersey approvals, rating agency presentations and the issuance of long and short term debt.
Higher Education / Healthcare
Higher Education
Higher education institutions have historically faced funding challenges and will continue to face these challenges. Stagnated state revenues have led to flat or many cases major cuts in state appropriations in higher education. On the expense side of the equation, increasing operating costs have further restricted the ability to produce balanced operations. The projected rising cost of Medicaid has made it difficult to projected future balanced budgets without significant increases in tuition and fees and/or decrease in courses.
Acacia Financial Group, Inc. provides expertise in assisting higher education institutions in managing it’s capital costs. Our services have included: devising strategies to improve credit ratings, the analysis, implementation of alternative financing techniques, development of debt management policies, uncovering refunding opportunities. Our professionals have been instrumental in obtaining credit rating upgrades or achieved new investment grade ratings for the Institution of Advanced Study, Montclair State University, Seton Hall University, Fairleigh Dickenson University, Ramapo College, William Paterson University and the Stevens Institute. We’ve assisted New Jersey City University, The College of New Jersey, and Seton Hall University in implementing their first swaps transactions which provided substantial savings when compared to standard fixed rate bonds. The professionals at Acacia Financial Group have worked with almost every four year higher education institution in New Jersey.
Examples of our higher education experience on which AFG’s professionals have worked include the following.
NEW JERSEY EDUCATIONAL FACILITIES AUTHORITY (PRINCETON UNIVERSITY ISSUE)
On May 22, 2006, the New Jersey Educational Facilities Authority offered by competitive sale $73.29 million in Revenue Bonds for Princeton University (the “University”). The University routinely issues between $75 million to $175 million bonds annually to finance new projects. Similar to the University of Connecticut, the University’s Bonds command market rates which are generally much lower than issuers of similar credit strength. Through the month preceding the bond sale, the University had been considering selling a new money issue on a competitive basis and simultaneously selling refunding bonds on a negotiated basis. Given rising interest rates and an increasingly crowded municipal bond calendar, AFG recommended that the University offer its new money bond issue within a small window of opportunity just prior to a crowded calendar highlighted by several multi-billion issues. A day-to-day approach was recommended for the market-sensitive refunding.
Although the bonds would be offered competitively on a Monday and there was a possibility that underwriters and bond investors might be distracted given the upcoming volume, AFG believed that the University’s high name recognition and clear credit strengths would overcome these possible impediments. AFG also pre-marketed the issue by calling underwriters in advance of the bid date to generate interest in the bond sale. On the day of the sale, the University received 12 bids with a difference between the winning and cover bid of 0.033%. On average, the bonds were priced with spread of 0.04% below the AAA Municipal Market Data Index which was better than prior University issues that have priced flat to the index.
MONTCLAIR STATE UNIVERSITY
AFG recently served as Financial Advisor to Montclair State University (“MSU”) on MSU’s issuance of $98.09 million new money and $9.97 million refunding bonds through the New Jersey Educational Facilities Authority. The bonds were priced simultaneously on June 22, 2006 in a volatile interest rate market, The new money bonds were issued as fixed rate bonds to fund campus-wide projects and the refunding bonds were issued as fixed rate bonds for the current refunding of MSU”s 1996 C and 1996 D Bonds.
In 2002, MSU completed a comprehensive Strategic Plan which would assist the State of New Jersey in meeting the need for significant increase in capacity in the State’s historically under-built system of higher education. New Jersey has historically been a net exporter of high school graduates seeking baccalaureate degrees which has resulted in a migration of knowledge outside the State. The key elements of MSU’s Strategic Plan include: 1) recognition as a center of excellence in teaching and learning, 2) provision of resources to accommodate the planned expansion, 3) adoption of a plan to measure its progress in meeting its key goals, and 4) promotion of a vibrant sense of community. The State of New Jersey is not a partner to the plan and does not have a long-term commitment to provide resources to fund identifiable capital resources.
As the financial advisor to the MSU since 1997, the professionals at AFG have assisted MSU in structuring seven bond offerings to fund the Strategic Plan and to refund outstanding bonds in order to achieve debt service savings. These issues include auction and fixed rate bonds and the conversion of auction bonds to fixed rate bonds. Our responsibility was to provide the lowest cost of capital and to structure each financing to ensure project feasibility. MSU bonds are a combination of general obligation and revenue bonds which are then secured by a general pledge of the University.
Bonds have been issued to fund key elements of the Capital Plan such as two parking decks, a residential village, theatre, state-of-the-art academic building, student recreation center, renovations to existing academic buildings and residence halls, and a gymnasium. The remaining elements of the Capital Plan include an environmental and life sciences building, a science facility renovation, and a school of business building. MSU head enrollment has increased from 12,000 to over 16,000 from school year 1997-1998 to 2005-2006 and is well on its way to achieving its goal of 18,000. Additionally, school preparedness has increased as evidenced by an increase in the average SAT scores for the incoming freshman class by 40 points. Despite steady and larger than anticipated tuition and fee increases, selectivity and matriculation remain at a steady 54% and 40%, respectively, indicating an ability to increase tuition and fees if necessary.
OHIO PUBLIC FACILITIES COMMISSION
AFG’s professionals have served as financial advisor to the Ohio Public Facilities Commission (OPFC) since 2000, assisting in the issuance of 29 transactions for over $3.2 billion of bonds since 2000. As the State of Ohio funds the majority of its higher education needs through OPFC, AFG has been instrumental in assisting the State in funding its higher education general and capital needs. AFG’s professionals have served as financial advisor for over $1.0 billion in financing for higher education needs in the State of Ohio. These financings were completed by negotiated and competitive sale, for new money and refunding projects. AFG has prepared informational materials on the use of variable rate debt and swaps, including analyses on historical trading levels of BMA and LIBOR swaps. The presentation provided OPFC members with sufficient information to authorize their first forward starting swap based on LIBOR.
AFG’s professionals have advised OPFC on four swaps, two of which are based on BMA and two of which are based on LIBOR. Specifically, AFG:
• Negotiated and structured OPFC’s first issuance of variable rate bonds, including a swap to fixed rate. The swap took advantage of an anomaly in the yield curve that permitted OPFC to realize a lower cost of funds for the first seven years than was possible with fixed rate bonds.
• Established threshold levels for BMA and LIBOR swaps based on OPFC’s historical cost of funds and historical trading levels for BMA, LIBOR and 10 year MMD. This provided OPFC members with a comfort level that the swap rates were in the bottom 25% of the average of municipal bond rates over the last 10 years.
• Negotiated and structured OPFC’s first forward swap for the $200 million 2005 Common School Bonds. This was a BMA swap that was executed in August 2004 and entered into in April 2005. AFG’s professionals provided OPFC with weekly valuations of the swap and calculations of termination values.
• Competitively bid OPFC’s first LIBOR based forward starting swap in June 2005. AFG’s professionals worked with OPFC and bond counsel to update OPFC’s swap documents and coordinated the dissemination of the swap documents to the 12 qualified swap counterparties. AFG’s professionals responded to inquiries on the documents and, as a result of improving market conditions, moved the bid date up to capture the market improvement. Most notable is the entire competitive process, including negotiations on the bid documents, was done in less than a week. OPFC received 11 bids and awarded the swap in two $100 million pieces.
Healthcare:
The healthcare industry has changed dramatically since Medicare’s prospective payment system reimbursement system put pressure on healthcare providers to view their services on a more specialized basis. Since certain services are more profitable than others, hospitals now face growing competition from not only other hospitals, but also from nontraditional health providers such as physician-owned facilities.
The recently proposed changes to the inpatient prospective payment system with its significant changes to diagnosis related group which focuses on hospital costs, will effect all hospitals an may have some long term implications on how the healthcare is structured in the future. Lastly, projected federal budget deficits may cause Congress to change the current and proposed regulations.
Acacia Financial Group, Inc. specializes in assisting our clients in addressing it’s capital needs in an constantly changing market. Our professionals are adept at developing and analyzing financing strategies which provide capital funds at the lowest possible cost while still retaining much needed flexibility to operate in a dynamic industry.
Examples of our healthcare experience on which AFG’s professionals have worked include the following.
The Cooper Health System (Camden County Improvement Authority)
The professionals of AFG served as financial advisor to the Camden County Improvement Authority (“CCIA”) in connection with the CCIA’s Health Care Redevelopment Project Fixed Rate Revenue Bonds, The Cooper Health System Obligated Group Issue, $75,000,000 Series 2005A and $60,655,000 Series 2005B. The Series 2005A Bonds were issued to fund a redevelopment project of the Health System. The redevelopment project included the construction of a new patient care pavilion including construction of four additional patient care floors, renovation and expansion of the Trauma Intensive Care Unit, demolition of a parking garage, construction of plaza improvements and construction of a covered connector from the new garage, as well as other capital improvements. The Series 2005B Bonds were issued to advance refund, for savings, the CCIA’s Health Care Redevelopment Project Fixed Rate Revenue Bonds, Series 1997.
AFG’s professionals were instrumental in every step of the financing. From the initial planning phase of the Series 2005A Bonds, AFG’s professionals were paramount in assisting the Health System with determining its ability to issue bonds for the redevelopment project and reviewing financing options such as fixed-rate bonds, variable rate bonds, interest rate swaps and other derivative products. After several presentations to the Health System Board by AFG professionals, the Health System decided to issue fixed-rate bonds. Through its participation in reviewing new money options, AFG’s professionals identified an opportunity to refund the Health System’s outstanding 1997 Bonds. This refunding opportunity resulted in net present value savings to the Hospital of $2.4 million or 4.2%. AFG’s professionals spearheaded the effort to transfer the existing Forward Purchase Agreement to the refunding bonds, resulting in the mitigation of breakage penalties. In addition, a new Forward Purchase Agreement was procured for the new money bonds with the assistance of AFG’s professionals. AFG professionals were also responsible for the structuring of the refunding escrow, utilizing a combination of Open Market Securities and State and Local Government Securities.
Transportation
The professionals with Acacia Financial Group have developed a particular expertise with transportation projects joining our debt analysis capabilities with our modeling innovations. Our professionals have worked on a wide variety of projects including toll roads and bridges, transit projects, privatizations, State-wide funding programs, port authorities, etc. We have assisted our clients not only with debt issuances and the implementation of derivative products, but also developing comprehensive financial forecasting models, presenting information before rating agencies and governmental boards, securing funding from local, State and Federal levels. Major clients that have been represented include the Delaware River Port Authority, the South Jersey Transportation Authority, the New Jersey Turnpike Authority, the New Jersey Highway Authority, New Jersey Transit, the New Jersey Transportation Trust Fund Authority, and the Port Authority of New York and New Jersey.
Delaware River Port Authority
The Delaware River Port Authority (“DRPA”) is vested with the ownership, control and operation and collection of tolls or other revenues of the bridges across the Delaware River known as the Benjamin Franklin Bridge, the Walt Whitman Bridge, the Commodore Barry Bridge and the Betsy Ross Bridge. The DRPA also operates, through a subsidiary, the Rapid Transit System more commonly known as PATCO providing commuter rail service between southern New Jersey and Philadelphia across the Ben Franklin Bridge.
In 2001, the DRPA executed four swaption transactions relating to the four bond issues with a combined notional amount of approximately $900 million. We advised the DRPA with the procurement of swap and municipal bond insurance, the evaluation of tax risks, option periods, and variable rate basis, and the competitive bidding process for the selection of counter-parties. Our professionals specifically negotiated the operative Schedules to the ISDA Master Agreements for each of these transactions. The DRPA garnered in excess of $42 million in up-front savings from the implementation of these transactions.
In 2001, the DRPA issued its 2001 PDP Bonds, Series A and B (a) to convert prior 1999 PDP A Bonds from taxable status to tax-exempt status and (b) to provide funding of certain economic development projects. Due to the clarification of certain projects to be funded by the 1999 PDP A Bonds, the DRPA was able to convert approximately $100 million of the prior bonds to tax-exempt status generating an excess of $4 million in present value savings. In addition to performing its traditional financial advisory services including rating agency presentations, financial analysis, document review, and pricing analysis, we developed and implemented a unique hedging product to protect to DRPA against movements in the redemption price of the 1999 PDP A Bonds. The 1999 PDP A Bonds contain a “market” call provision wherein the redemption price for bonds to be redeemed is a function of statistical Treasury information released on a weekly basis. The actual redemption price of 1999 PDP A Bonds to be redeemed could be calculated until within one week of actual redemption. Therefore, the DRPA was at risk for movements in Treasury rates between the period when the DRPA priced the refunding bond issue (the point in time when the DRPA determines the amount of funds to borrow for redemption) and the final determination of the redemption. If Treasury rates were to fall in this period, the DRPA could have had an over-issuance of bonds and if Treasury rates were to rise in this period, the DRPA could have had insufficient funds to effectuate the refunding. Our professionals developed a cost-effective hedge product wherein the DRPA purchased and subsequently sold certain Treasury securities at times and in amounts to offset the movement in the redemption price of the 1999 PDP A Bonds. This product proved highly effective and was effectuated at a cost of more than $1 million less than competing proposals provided by other counter-parties.
In 1999, the professionals of Acacia Financial advised the DRPA with the issuance of $422 million of Revenue Bonds, Series 1999 under the DRPA’s operative 1998 Senior Indenture and $272 million of Port District Project Bonds under a new 1999 Subordinate Indenture. The 1999 Revenue Bonds funded a portion of the DRPA’s capital program for the next five years and the 1999 Port District Bonds provided funds for various economic development projects in Philadelphia and Camden port district area improvements. The DRPA’s $272 million Port District Project Bonds were issued as two separate series consisting of a $164 million taxable issue and a $107 million tax-exempt issue.
In connection with the issuance of the Revenue Bonds and Port District Bonds, our staff assisted the DRPA with the development of a long-term budgetary analysis of the DRPA’s fiscal operations under numerous toll increase scenarios and bond issuance sizings. Beyond the traditional revenue and expense projections, these analyses have included sensitivities for inflationary movement, toll transactions and PATCO ridership adjustments, vehicular distributions changes, E-ZPass usage penetration, differential discount programs, debt structuring alternatives and future capital borrowings. This effort culminated with the approval for the 50% toll increase for the bridges and incremental PATCO fare increases, along with the implementation of the E-ZPass collection system and new discount fare program which became effective on December 18, 1999. With the rating agency presentation prepared by our professionals, the DRPA was successful in securing investment grade ratings for the subordinate (non-eligible for benefits of toll covenant) bond issue from Moody’s and S&P. This included a rating upgrade from S&P. Acacia Financial’s professionals negotiated attractive bond insurance quotations facilitating aggressive marketing and pricing of the DRPA’s Port District Project Bonds. We additionally structured creative delayed par put options within the guaranteed investment contracts for the DRPA’s newly funded debt service reserve fund thereby providing an effective hedge or efficient borrowing mechanism in the event of higher future interest rates.
In 1998, our staff advised the DRPA through the issuance of approximately $188 million of refunding bonds. These bonds consisted of both tax-exempt forward refunding bonds and taxable advance refunding bonds in order to provide a synthetic advance refunding to provide approximately $6.0 million in debt service savings and the accelerated access to an additional $7.0 million in operating reserve fund monies. Through the refunding, we assisted in the preparation of a new operative senior bond indenture to provide the DRPA with greater flexibility in the issuance of future bridge related and economic development debt issuances which proved beneficial with the issuance of the 1999 Revenue Bonds and Port District Project Bonds.
Toll Road Consolidation – New Jersey Highway Authority
As financial advisor to the New Jersey Highway Authority in the consolidation of New Jersey’s toll roads, the professionals at Acacia Financial reviewed the consolidation reports and merger legislation, developed bridge-financing mechanism to fund EZ-Pass liability, reviewed financial pro-forma and proposed consolidation bond financing structures.
In addition, our professionals assisted in the issuance of $123 million Senior Parkway Revenue and Refunding Bonds, 1999 Series and $243 million Senior Parkway Revenue and Refunding Bonds, 2000 Series. The 2000 Series used a forward refunding structure and the initial sizing of the 2000 Series bonds assumed 0% SLGs (State and Local Government Securities) for the escrow. This was done to minimize the effect of transferred proceeds. Prior to closing, the working group re-evaluated the market and investments available and decided not to take delivery on the SLGs as an escrow funded with open market securities would provide a greater benefit to the New Jersey Highway Authority.
New Jersey Transportation Trust Fund Authority
In connection with providing financial advisory services for the $953 million new money issuance of the New Jersey Transportation Trust Fund Authority (“TTFA”) in October of 2005, these individuals were called upon to develop a completely unique system to analyze TTFA cash flows. The TTFA faces (prior to, and to a lesser degree subsequent to, recent legislation) solvency issues. The TTFA receives certain statutory funds, including most substantially certain gas and diesel fuel taxes, as well as other legislatively approved funds. From these funds, the TTFA needs to provide for debt service (on existing debt and future debt of the TTFA as well as certain NJ Transit debt), certain operational costs of the Department of Transportation and the intent to provide (if able) for future Transportation projects on a pay-as-you-go basis. The prior limitation of statutorily available funds of only $805 million per year coupled with the existing debt service has essentially precluded the issuance of any additional debt for capital projects following the 2005 bond issuance (absent the near exclusive use of capital appreciation bonds due to existing debt service levels of nearly $805 million in the years 2008 – 2012). The limitation (prior to the recent legislation) of any final debt maturity to no more than 21 years from the date of issuance limited the ability to restructure the debt over a longer period of time to produce near-term debt service relief to yield more debt capacity.
In addition to providing all the traditional financial advisory services associated with the 2005 new money issuance (e.g. transaction coordination, debt structuring, documents review, rating agency and bond insurance direction and correspondence, etc), these individuals, at the request of the TTFA, the State Treasurer and the Legislature developed a comprehensive cash-flow analysis for the entire TTFA system. This analysis incorporated all the existing and potential sources of TTFA revenue (e.g. statutory and legislative appropriations, gas taxes, bond proceeds, etc.) and expenditures (e.g. existing and future debt service, capital projects paid from pay-as-you-go funding, on-going expenditures for the DOT, local aid, etc.) and allowed for the manipulation by the user of any assumption. This possible manipulation included, not only simple assumptions of gas tax rates, gas and diesel usage assumptions and other fixed revenues or expenditures, but also debt limitation constraints (such as maximum annual aggregate debt service, final term, future borrowing rates) and desired amounts of capital funding with targeted pay-as-you-go funding ratios.
The elegance of this model illustrates the capabilities of Acacia Financial, as it was, not only comprehensive, but also unique in the manner in which the targeted solution was determined. Rather than requiring the user to randomly select debt issuance amounts over time (i.e. annual amounts), the user simply input the constraints on the system (i.e. statutory debt limitations, gas tax rates, targeted future capital funding, etc.) and the model solved for the maximum amount of debt that could be issued, whether constrained by statutory limit, available revenue limit or sufficient funding achieved. In this way, the model solved solutions in the same manner that a user would test the problem. Rather than having to arbitrarily input multiple permutations of debt issuances over time and testing to see if the particular scenario produced a solvent system, the model allowed the user to easily input any proposed scenario and immediately determine if the scenario was (a) simply insolvent, (b) insolvent but solved by successive deficit borrowings (tax implications notwithstanding), (c) solvent and incorporating capital borrowings and pay-as-you-go funding, or (d) better than solvent (i.e. requiring no capital borrowings after some period of time and solving all capital requirements by pay-as-you-go funding).
The innovative use of multiple nested tests in the model allowed the user the ability to swiftly and accurately discern whether any combination of desired funding, revenue and expenditure constraints was feasible. It is this type of creativity and desire to produce analyses that solve client’s problems that distinguish the professionals of Acacia Financial.
Derivative Financing
With the recent significant increase in the use of derivative products among municipal bond issuers, the major auditing firms, government regulators, rating agencies, bond insurers and institutional investors have come to expect periodic valuations, reports and policy review from a qualified, independent derivative specialist. The professionals at AFG understand the importance to the client of receiving prompt, accessible and accurate information concerning its outstanding swap portfolio, enabling the client to address all policy, rating agency, regulatory, accounting and legislative concerns. We are equally aware of our clients need to receive professional consultation on market opportunities and risks on a continuing and periodic basis. Unlike bonded indebtedness, swaps are obligations that need to be actively managed in order to maximize their benefit. As a recognized leader in this field, our firm has the expertise and personnel talent to serve our clients needs and to exploit market anomalies for our clients’ benefit.
AFG works closely with its clients in evaluating alternative financings structures. The analysis for swap agreements and other derivative products will generally include the performance of financing structures over various projected interest rate scenarios. AFG’s professionals have served as advisors for a variety of derivative products such as forward purchase and sale agreements, re-purchase agreements, swaps, swaptions and forward/warrant agreements.
As swap advisors, AFG has the ability to price BMA and LIBOR based spot and forward starting swaps, basis swaps, total return swaps, CAPS and swaptions, including European, Bermudan and American options. AFG employs a broad range analysis fed by real-time market data from a number of industry sources including Bloomberg. Our system capabilities and in-house market expertise include the ability to model any derivative product used in the municipal markets. We employ proprietary software which calculates the derivative valuations. In addition, we have several other proprietary models and our own in-house models and notification tools which enable us to better value and monitor swap transactions.
Examples of our derivative experience on which AFG’s professionals have worked include the following.
New Jersey Economic Development Authority
In 2003, the professionals of AFG advised the NJEDA on the competitively bid $3.0 billion notional par amount of fixed to floating LIBOR based swaps in connection with the School Construction Financing Program. These swaps effectively hedged a portion of the future borrowing expense associated with the School Construction Financing Program. These swaps were separated into six (6) distinct tranches of $500 million, each scheduled to commence on projected future borrowing dates. The amortization of each of the six (6) tranches is structured to provide approximately level debt service. In each swap, the NJEDA is paying a fixed rate and receiving 75% of one (1) month LIBOR. Also in connection with the School Construction Financing Program, our professionals served as financial advisor on the issuance of $600 million School Facilities Construction Bonds issued pursuant to the Educational Facilities Act to finance the cost of various school facilities projects being undertaken, by or for the benefit of, school districts throughout the State of New Jersey.
The School District of Philadelphia
In early 2004, AFG professionals assisted the School District of Philadelphia in entering into five swaption transactions. The percent of LIBOR transactions included the procurement of bond insurance commitments for the potential issuance of variable rate bonds and competitively bid selection of counterparties. The “European” option transactions yielded $51 million for the District in immediately available funds. Later in 2004, our professionals assisted the District with a synthetic advance refunding of the bonds to which the previously mentioned swaptions related. This transaction included the issuance of both tax-exempt (integrated with the swaps) and taxable (in a “cinderella” structure or taxable with the expectation of being converted to tax-exempt upon the expiration of the taxable refunding escrow) auction rate bonds and the conversion of the existing swaptions to spot starting swaps.
Ohio Public Facilities Commission
AFG’s professionals competitively bid the first LIBOR based forward starting swap for Ohio Public Finance Commission (“OPFC”) in June of 2005. The professionals of AFG worked with OPFC and bond counsel to update the Commission’s swap documents and coordinated the dissemination of the swap documents to the 12 qualified swap counterparties. We responded to inquiries on the documents and, as a result of improving market conditions, moved the bid date up to capture the market improvement. Most notable is the entire competitive process, including negotiations on the bid documents, was done in less than a week. The OPFC received 11 bids and awarded the swap in two $100 million pieces. The synthetic fixed rate swap achieved a rate of 3.202% for OPFC’s 20 year Common School Bonds.
Rating Agency Strategies
AFG has developed considerable experience working with the major national rating agencies. As a result of our experience advising more than one hundred clients each year to issue tax-exempt securities for a wide range of purposes, AFG has developed a clear understanding of the analytical methods utilized by Moody’s Investors Service, Standard & Poor’s Inc. and Fitch Ratings. Our professional staff is trained to conduct in-depth credit analyses comparable to the rating agencies so that both credit strengths and weaknesses can be identified by the issuer prior to the presentation of materials to rating analysts. This experience has been utilized effectively recently to improve the credit ratings assigned to several communities across the nation.
As a normal course of any financial advisory engagement, AFG professionals are called upon to meet with officials of our client, other professionals participating on the financing team, outside interests which may require a briefing on the details of a financing mechanism or program, rating analysts, investors and representatives of Letter of Credit Banks or bond insurers. The experience gained in completing over $12 billion of transactions in the past two years alone enables AFG to provide essential information to interested individuals in a timely and complete manner.
Over the past two years, AFG has submitted over 200 financings to the rating agencies for ratings. Of this number, approximately 60 of the issues were insured and another 20 were backed by credit enhancements in the form of letters of credit from major international banks. As a result of this experience, we have developed a very effective working relationship with Standard & Poor’s Corporation, Moody’s Investors Service and Fitch Ratings.
We will work closely with the rating agencies to fully understand their concerns and methodology and to design the issuer’s presentations, as described below, to specifically address each agency’s questions in a meaningful way. In addition, we maintain close personal contact with staff members at the rating agencies regarding their views of debt covenants, innovative financing techniques and unusual debt structures.
The following is a list of typical services AFG will provide in connection with the preparation of rating agency presentations:
• Provide Training to Issuer’s Board and Staff
• Provide Outline for Presentation
• Assist with the Collection of Data
• Recommend Presentation Format
• Conduct Rehearsal of Rating Presentation
AFG has provided service to many government entities to improve or maintain their credit ratings. A sample of our more recent New Jersey experience is described below.
Essex County, NJ
AFG specifically assisted the County of Essex in 2003 in maintaining its existing underlying credit rating with Moody’s Investors Service and Fitch Rating in light of difficult circumstances faced by the new administration of the County. AFG helped the executive and finance offices in clearly articulating the changes in their policy and long-term financial plan that were instrumental in maintaining these credit ratings.
In connection with a debt restructuring undertaken by the County through the Essex County Improvement Authority, the County was able to balance its budget by undertaking a significant tax increase and employing other budgetary measures. This restructuring allowed the County to “phase-in” incremental tax increases over a number of years to avoid a detrimental tax “shock” to its citizens and businesses. AFG assisted the County with preparing the financial analysis, preparing the ratings presentations and securing the confidence of the rating agencies that the plan carried a high probability of success. This presentation resulted in the respective rating agencies maintaining their existing underlying ratings on the County.
Camden County, New Jersey
Over the past several years, professionals at AFG have assisted the County of Camden with obtaining credit ratings from Moody’s Investors Service and Standard & Poor’s Ratings Group. The professionals with AFG prepared rating agency presentations for the County of Camden in the years 1996, 1997 and 2000. In all of the previously mentioned years, AFG was successful in securing the “A1” rating of the County from Moody’s Investors Service. In 1997, the County received an upgrade from “A-“ to “A” from Standard & Poor’s Ratings Group. The County once again received an upgrade from Standard & Poor’s Ratings Group in 2000. When the rating of “A” was upgraded to an “A+” due to the County’s expanding economic and tax base as well as enhanced financial controls and reporting procedures, which contributed to the County’s improved financial condition.
AFG was integral in the County’s success with the rating agencies. AFG coordinated the entire rating agency presentation process starting with the initial review of financial, economic & demographic information to preliminary conversations with the rating agencies to the completion of the final presentation and successful upgrade. Throughout the process our professionals participated in numerous meetings with County officials and staff members to better understand the strengths and weaknesses of the County. We supplied the rating agencies with preliminary information prior to the meeting and presentation and engaged in preliminary conversations with them so we were able to tailor our presentation to address the issues they felt were important. A major part of our presentation to the rating agencies included a detailed discussion on the City of Camden and the many projects being undertaken to help stimulate the economy. The presentation addressed the roles of Cooper’s Ferry Development Association, the Delaware River Port Authority, the State of New Jersey and the County of Camden in implementing various initiatives to revitalize the City of Camden. The presentation to the rating agencies concluded with a tour of the County and included an in-depth tour of the City of Camden due to its important role in the continued success of the County’s economy.
Delaware River Port Authority
AFG assisted the Delaware River Port Authority (“DRPA”) with reaffirming their underlying ratings from Moody’s Investors Service, Inc. for their senior lien revenue bonds (“A3”), second lien revenue bonds (“Baa1”) and subordinate lien debt (“Baa3”). The underlying ratings carry a stable outlook and reflect the DRPA’s fundamental strengths, including its well-established customer base, competitive operating position, and historically sound financial results, supported by a recently implemented toll rate increase.
AFG coordinated presentations to Moody’s Investors Service and Standard and Poor’s Ratings Group in connection with the issuance of its 2001 Port District Project A Bonds and 2001 Port District Project B Bonds were issued to (a) refund a portion of the outstanding 1999 Port District Project A Bonds for savings and (b) fund $30.0 million of eligible “Port District” projects. The 2001 Port District Project A & B Bonds were issued under an Indenture of Trust to be adopted by the DRPA that are subordinate to bonds issued under the 1998 Senior Indenture and on parity with bonds issued under the 1999 Port District Project Indenture.
Casino Reinvestment Development Authority
AFG assisted the Casino Reinvestment Development Authority with the security structure and credit rating presentation for two recent transactions. The first was a $90 million hotel room fee tax secured tax-exempt bond issue that was sold in October 2004 and the second was a $290 million parking fee and “Investment Alternative Tax” secured transaction sold in March of 2005. The hotel room fee transaction will be secured by a $3 per room (whether paid or provided complimentary) tax to be assessed upon each casino room starting in July of 2006 pursuant to recent legislation. The parking fee transaction is secured by: (i) and existing and forthcoming increase in the statutorily required charge assessed to vehicles that park in casino parking lots; (ii) a contractual additional parking charge assessed by the casinos; and (iii) a portion of certain casino’s previously required statutory obligation for a portion of their gross revenues. The parking fee transactions also efficiently refunded three prior bond issues existing under two senior indentures to allow the new bonds to avoid being significantly subordinated and potentially not being marketable. The financings were structured to provide near level annual debt service coverage of approximately 1.90 times and included a parity additional bonds test requiring a 1.50 times historic coverages on all future maximum annual debt service. AFG was instrumental in structuring the transaction and preparing the analyses to illustrate sensitivities in the coverage analyses. AFG also directed the rating agency presentations which yielded investment grade ratings for both transactions.
Princeton Township, Mercer County, New Jersey
Recently, the Township of Princeton (“Princeton”) underwent a permanent financing of their outstanding Bond Anticipation Notes which were issued to fund the construction of Princeton’s new municipal building (the “Project”). The permanent financing totaled $10.7 million and closed in September 2001. AFG worked with Princeton in the development of the rating agency strategy and presentations for the Project financing. AFG was successful in securing Princeton’s “Aaa” credit rating from Moody’s Investors Service (“Moody’s”) and achieving an upgrade in Princeton's credit rating from “AA+” to “AAA” from Standard & Poor’s Rating Group (“S & P”). Several months before the final presentations to the rating agencies, AFG furnished Moody’s and S & P with all necessary documentation they required to perform their preliminary evaluations on Princeton. AFG kept in constant contact with Moody’s and S & P to evaluate the important issues the rating agencies wanted to see addressed within the presentation. Working closely with Princeton’s staff, AFG collected data and information used within the presentation and developed an outline of talking points that the presentation should follow. Several working group meetings were held with staff members who were participating with the verbal presentation to the rating agencies. AFG guided and instructed the participants as to what needed to be emphasized during the presentation. While Princeton had minimal weaknesses, AFG structured the presentation to demonstrate that Princeton’s overall position was that of “AAA” indications.
