Grossmont Bond 'Refi' Expected to Save Taxpayers, District $1.3 Million

Homeowners take advantage of lower interest rates to refinance their properties—cutting their monthly payments. So do school districts.

In the case of the Grossmont Union High School District, a recent “refunding” of its Proposition H 2004 series bonds will save the district—and taxpayers—$1.3 million over the next six years, officials say.

The action to refund $20.92 million in bonds was approved by the school board Oct. 13, and the refunding took effect Thursday, the district announced.

“The district’s taxpayers placed their trust in us by voting to approve both Propositions H and U,” said Deputy Superintendent Scott Patterson. “The process of continually monitoring the financial markets to most efficiently implement the financing of these programs is part of our duty within that trust. We are gratified to be able to return these savings to our taxpayers.”

District spokeswoman Catherine Martin said GUHSD was aided by a refinancing team of the following companies:

• Loop Capital Markets LLC (financial adviser)
• Orrick Herrington & Sutcliffe  (bond counsel)
• De La Rosa & Co (senior managing underwriter)
• Stone & Youngberg (co-managing underwriter)

“The underwriting companies (De La Rosa and Stone & Youngberg) sell the bonds through their sales/marketing desks to both individual and institutional investors,” Martin said.

In a report dated Oct. 28, Moody’s Investor Services, a credit-rating company, rated Grossmont’s latest General Obligation Refunding Bonds (Election of 2004) as Aa2—slightly below Aa1.

“Moody's appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa,” says its informational brochure (attached). “The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the mo ifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.”

The best bonds are rated Aaa, Moody’s says.

“Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk. Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.”

In April 2011, Standard Ratings Services assigned its AA- rating to Grossmont Union High School District, Calif.'s series 2011 general obligation (GO) bonds (election of 2008, series C and series D).

“At the same time, Standard & Poor’s affirmed its AA- long-term rating and underlying rating (SPUR) on the district's GO debt outstanding,” said researchandmarkets.com.

“The outlook is stable. The ratings reflect our view of the district’s: Diverse local economy and access to the San Diego County MSA, Strong wealth and income indicators, Consistently strong reserves, and Very diverse tax base. Partially offsetting the preceding credit strengths is our view of the district's budgetary pressures due to recent declines in average daily attendance.”

Refunding bonds are used to refinance certain 2004 bonds (“prior bonds”) that have higher interest rates than the refunding bonds, the district says.

The proceeds of the sale of the refunding bonds are kept in an interest-bearing escrow account until the prior bond’s maturity or redemption date.

At that time, the monies in the escrow account are used to pay off the prior bonds along with related interest and redemption costs. The refunding bonds will then be serviced using the same property tax payments initially used to pay the prior bonds, but at a reduced overall cost.
 
Proposition H, a $274 million program, was approved by 62 percent of voters in March 2004 to fund repairs of aging schools in the district as well as the construction of a new school.

With state school facility program dollars, the Proposition H program is $327 million. To date, nearly $322 million has been spent, says the district.

Proposition U is a $417 million general obligation bond measure passed by voters in November 2008. When combined with projected state funding, the estimated program budget is $605.1 million.

“The program substantially completes the modernization of district schools, providing classrooms and equipment for Career Technical Education, multi-purpose facilities to support the superintendent’s vision for the arts in education, and the construction of a new high school in the Alpine/Blossom Valley area,” the district says.

Nearly $80 million in Prop. U funds have been spent so far, the district says.