Synopsis of Credit Structures of Commonly Issued California Municipal Bonds in Matrix

1. State of California Debt Matrix (Common State and Local Bond Structures) July 2009
State of California Debt
Revenue Anticipation Notes
Credit General Obligation State Appropriation Revenue Revenue Anticipation Warrants
(cash flow borrowings).
Department of Water Resources
Electric Bonds, California State
University Revenue Bonds,
California Public Works Board, issued on
Issuer State of California Regents of the University of State of California
behalf other State Agencies
California Revenue Bonds
Economic Recovery Bonds
(pledged sales tax)
Agency promises to pay lease payment
(debt service) from funds annually
Debt service is paid from pledged
appropriated by legislature. Typical lease Debt service is payable from
revenues of a state enterprise or
Debt Service Full Faith and Credit security (see Note 1) includes covenant to “unapplied moneys” in the General
established revenue stream.
payable from the General Fund budget lease payments, master reserve fund. These are moneys available
Security Typical security features include
(sole security). Highest debt priority fund, replacement value insurance (except after payments for schools, Higher
additional bonds test, debt service
of the State. seismic), rental interruption insurance, Education, GO Debt, and
reserve, and sometimes rate
ability of lessee to relet leased premises in repayment of internal loans.
covenant.
case of non-payment. Leases are subject
to abatement (see Note 2).
Payments can derive from various funds
Composition of and revenue streams. If General Fund, Revenues from water sales,
General Fund: Primarily State Same composition of pledged
Pledged then obligations have same composition of surcharges on retail electric sales,
Income and Sales Taxes revenues as GO debt
Revenues pledged revenues as GO”s if designated as Dedicated sales taxes
a general fund obligation.
Department of Water Resources
Water or Power Bonds, UC
Revenue Anticipation Notes
California General Obligation State Public Works Board Lease Regents General Revenue
Examples (RAN’s) & Revenue Anticipation
(GO) Bonds Revenue Bonds, Series 2008 D,E,F&G, Bonds, Series 2009 O & P, CA
Warrants. (RAW’s)
Economic Recovery Bonds
(sales tax & GO secured)
Chief Risk of Non-Appropriation, Rating Generally little risk for statewide, Lower priority General Fund debt
Rating downgrade.
Risk(s) downgrade. well established revenue streams. obligation.
The State Legislature has not failed to
make these appropriations in the past. California has issued and repaid
The State has never defaulted on
Default is not imminent unless chosen by RAN’s every fiscal year since
its GO Bonds. Default is not
the political leadership. Obligations are Economic Recovery Bonds also 2003. RAWS are typically issued
Notes imminent unless chosen by the
often lease obligations with the State as an have a GO pledge. in times of fiscal stress and can be
political leadership.
obligor. Documents should be read to used to pay obligations to state
.
determine if annual appropriation is workers and vendors.
pledged.
Prepared By: Gordon Murray 1
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2. State of California Debt Matrix (Common State and Local Bond Structures) July 2009
City & County Debt
Lease Appropriation Debt (Certificates Revenue Bonds &
Credit General Obligation Tax Increment Revenue Bonds
of Participation – "COP’s") Revenue COP’s
City or County or Local Conduit
Issuer: City or County Local Conduit Issuer (City or County) Local Redevelopment Agency
Issuer
Lease obligation (see note 1) debt service
payments are subject to annual general
Debt service is paid from pledged
fund appropriations (inclusion in the Debt service is paid from ad
revenues of a city enterprise or
budget) by the governmental body. Typical valorem tax revenues levied on
established revenue stream.
Full Faith and Credit payable from legal provisions: Covenant to budget and incremental taxable value over that
Typical security features include
the General Fund (sole security) appropriate annual lease payments, debt of a base year in a fixed
additional bonds test, debt service
Security: secured by unlimited ad valorem service reserve fund, P&C insurance for geographical (project area).
reserve, and rate covenant.
taxes. Highest debt priority of the replacement value (excluding seismic Bondholder’s lien is not necessarily
Revenue COP’s generally have
City/County. damage), rental interruption insurance, first lien. Security Provisions
similar security features but are
Lessor can relet leased premises in case of include additional bonds test and
issued by a conduit issuer and are
non-payment. Payments may be abated debt service reserve.
not abatable.
(interrupted) (see note 2) if leased asset is
not usable by lessee.
Composition of General Fund: Primarily Property Enterprise Funds: Water, Sewer, Taxes derived from a 1% tax on
Pledged Taxes (“ad valorem”), Sales Taxes, Same as General Fund Electric, Gas and other utility incremental assessed value (above
Revenues and Local Fees & Charges revenues. a base value) in a defined area.
City of Los Angeles Department
of Water and Power Revenue
County Of San Bernardino, California San Jose Redevelopment
City of Los Angeles General Bonds,
Examples Certificates Of Participation Agency Tax Increment Revenue
Obligation Bonds Anaheim Public Financing Auth.
(2008 Refunding Program) Series A Bonds
Revenue Bonds, Series 2007-A
(City Of Anaheim Elec, Sys,.)
Thin coverage of tax increment
Economic Risk, Commodity Risk,
Economic Risk, Risk of Non-Appropriation, bond debt service is vulnerable to
Economic Risk, Weather Risk, Customer/Market
Chief Risks Risk of Abatement, Political/Management declines in assessed values within
Political/Management Risk Concentration, Inability to raise
Risk the project area. Taxpayer
rates.
concentration is another key risk.
Tight limits on local General Obligation
debt issuance in California make, lease
Utility bonds are typically solid New money tax increment debt is
financing a ubiquitous form of financing in
Default is rare and generally credits in California unless there typically issued up to the maximum
Notes California. Failure of an issuer to make
recoverable over time. has been a failure to consistently allowed at issue lowering coverage
lease payments could damage market
increase rates to minimum levels.
access to all issuers, even in the case of
abatement.
Prepared By: Gordon Murray 2
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3. State of California Debt Matrix (Common State and Local Bond Structures) July 2009
School District (USD) and Community College District Debt
Tax Increment
Lease Appropriation Debt (Certificates of Participation – Revenue Bonds
Credit General Obligation
“COP’s)
Revenue Bonds
Revenue COPS
Schools do not issue Schools do not issue
Issuer: City or County Local or Statewide Conduit Issuer
this form of debt this form of debt
Lease obligation (debt service) payment is subject to annual
general fund appropriations (inclusion in the budget) by the
governmental body. Typical legal provisions: Covenant to
Full Faith and Credit payable from the
budget and appropriate annual lease payments, debt service
District General Fund (sole security)
Security: reserve fund, P&C insurance for replacement value (excluding
secured by unlimited ad valorem taxes.
seismic damage), rental interruption insurance, Lessor can
Highest debt priority of the District.
relet leased premises in case of non-payment. Payments may
be abated (interrupted) (see note 2) if leased asset is not
usable by lessee.
School Districts: Primarily State Aid
Composition of 65-75% and Local Property Taxes
Pledged 25-35%, Community College Districts: Same as General Fund
Revenues Various Proportions of Federal, State and
Local Funding.
Albany Unified School District Hawthorne School District Certificates of Participation 2007
(Alameda County, California) General Series A,
Obligation Bonds Election of 2008, Certificates Of Participation (2006 Financing Project)
Examples Series A, Foothill-De Anza Community Evidencing The Fractional Interests Of The Owners Thereof In
College District (Santa Clara County, Lease Payments To Be Made By The Foothill-De Anza
California) Election of 2006 General Community College District
Obligation Bonds, Series A
Economic Risk, State Budgetary Cutbacks & Delays,
Economic Risk, State Budgetary
Political/Management Risk Economic Risk,
Chief Risks Cutbacks & Manipulations,
Political/Management Risk. Risk of Non-Appropriation, Risk of
Political/Management Risk
Abatement
Tight limits on local General Obligation debt issuance in
California make, lease financing a ubiquitous form of financing
Default is rare and generally recoverable
Notes in California. Failure of an issuer to make lease payments
over time.
could damage market access to all issuers even in the case of
an abatement.
Prepared By: Gordon Murray 3
gordonmurray007@gmail.com

4. State of California Debt Matrix (Common State and Local Bond Structures) July 2009
Mello Roos Bonds Debt (Special Tax or Special Assessment Bonds)
Credit Special Tax or Special Assessment Bonds
Community Facility Districts or Community Service Districts are created by Cities, Counties, or School Districts to borrow money to build roads,
Issuer: utilities, drainage improvements, and schools to serve real estate development. Issuers are typically small areas within the City, County, or District.
“Mello-Roos” is the name of the State law that authorized this form of financing.
Annual assessments or taxes paid by property owners. Special taxes and assessments can be annual assessments (up to a maximum amount) for the
Security: life of the bonds or limited taxes levied sufficient to pay annual debt service. Security features typically include a debt service reserve. Additional new
money bonds, if allowed by bond documents, are often subject to an additional bonds test.
Composition of
Pledged 100% Special Assessments or Special Taxes, Bond Proceeds, or debt service reserve,
Revenues
Example Riverside County Community Facility District 89-1 (Mountain Cove) Series 2007 Special Tax Revenue Refunding Bonds
Chief Risk Economic risk, tax payer (developer or other) concentration, limited tax base, delinquencies due to developer failure, foreclosure, or illiquid real estate.
Mello Roos Bonds vary widely in credit quality based on economic area, seasoning, and local real estate trends. Due diligence is on these bonds highly
Notes
recommended and can be time consuming.
Notes:
(1) Lease financing is a structure devised primarily to circumvent debt limitations in certain states. In a California lease structure, the owner (typically a
State, City, County or other governmental entity) leases an asset (typically a public building) to a conduit bond issuer. The conduit issues bonds and
loans the funds the the owner via a leaseback of the asset. In the leaseback agreement, the owner (the lessee) agrees to pay installment lease
payments equal to debt service on the bonds to the lessor (the conduit).
(2) Abatement is a typical feature in California lease financings. It requires that installment payments under the lease be stopped if the lessee does not have
beneficial use of the leased asset. Mitigants to abatement risk include typical lease features that require 24 months of rental interruption insurance and
P&C coverage up to replacement value for all risks except seismic risk. Abatement due seismic risk should be rare due to the building code requirements
for most public structures.
Prepared By: Gordon Murray 4
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