Interview for Underwriting Services

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Chimacum School District
Interview for Underwriting Services June 11, 2014
Jon Gores Managing Director (206)
389-4043 jgores_at_dadco.com
Maura Lentini Vice President, Analyst (206)
903-8687 mlentini_at_dadco.com
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Overview of D.A. Davidson

Develop Implement a Rating Strategy

Prepare for 2015 Bond Election
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D.A. Davidson by the Numbers
118 78 1,370 37 68 175 1 Not
everything that can be counted, counts. And not
everything that counts can be counted.
--Albert Einstein
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D.A. Davidson by the Numbers
118 78 1,370 37 68 175 1
Combined years of Washington State school finance
experience
D.A. Davidson celebrates its 78th anniversary in
2014
D.A. Davidson employees in 86 locations
Years of uninterrupted service to school districts
Institutional sales professionals
Firms capital base exceeds 175,000,000
D.A. Davidsons position as the leading
underwriter of
Washington school district bond issues
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Underwriting Rankings Washington State

• Number 1 underwriter of Washington school
  district bonds
• for the seventh straight year

Source Thomson Municipal Market Data.
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School District Experience Washington State
June 2013 - Present
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Why is D.A. Davidson Number 1?

• People Experience
• Bond Distribution
• Capital Employee ownership
• References
• Most importantly, we provide sleep insurance...

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Education Finance Team Assigned to Chimacum
School District
Backup BankerDavid TrageserManaging Director
28 Yrs Experience
Backup BankerJim NelsonSr. Vice President27
Yrs Experience
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Bond Distribution Marketing Advantage

• We operate 4 regional trading desks staffed with
  68 institutional sales people. In addition, we
  operate 86 branch offices with 582 registered
  sales professionals.
• D.A. Davidson is the only regional firm equipped
  to market bonds to both market segments
  institutional and retail.
• Our unique distribution system will ensure the
  broadest distribution of the Districts bonds,
  ensuring the lowest possible borrowing cost.

Source D.A. Davidson Fixed Income Capital
Markets
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Capital 2012 - Present
Davidson can demonstrate our willingness to put
our capital to work to ensure successful pricings
for our clients in volatile market conditions.
Date Issuer State Par Amount Inventory
01/17/12 Aberdeen SD WA 8,955,000 585,000 6.53
01/18/12 Hood Canal SD WA 5,305,000 3,265,000 61.55
02/21/12 Wahluke SD WA 6,130,000 1,620,000 26.43
02/27/12 Omak SD WA 7,155,000 145,000 2.03
03/06/12 Cashmere SD WA 6,875,000 140,000 2.04
03/15/12 Okanogan SD WA 5,695,000 305,000 5.36
03/15/12 Okanogan SD WA 5,695,000 305,000 5.36
03/22/12 Lake Stevens SD WA 10,000,000 200,000 2.00
03/27/12 Dieringer SD WA 4,515,000 130,000 2.88
03/28/12 Cheney SD WA 9,330,000 2,360,000 25.29
04/19/12 Bainbridge Island SD WA 9,995,000 300,000 3.00
04/23/12 Auburn SD WA 9,290,000 255,000 2.74
04/30/12 Mead SD WA 9,360,000 610,000 6.52
05/02/12 Zillah SD WA 4,155,000 185,000 4.45
05/07/12 Richland SD WA 14,050,000 775,000 5.52
05/16/12 Cosmopolis SD WA 1,385,000 305,000 22.02
06/12/12 College Place SD WA 36,010,000 1,290,000 3.58
06/26/12 Lake Washington SD WA 23,025,000 1,425,000 6.19
06/26/12 Lake Washington SD WA 31,195,000 2,090,000 6.70
06/27/12 Yakima SD WA 34,145,000 3,215,000 9.42
08/14/12 West Valley (Yakima) SD WA 9,330,000 585,000 6.27
08/15/12 Orting SD WA 9,740,000 545,000 5.60
09/12/12 Tumwater SD WA 5,840,000 765,000 13.10
Date Issuer State Par Amount Inventory
11/14/12 Clover Park SD WA 44,695,000 1,150,000 2.57
11/13/12 Lake Stevens SD WA 10,000,000 1,460,000 14.60
12/05/12 Eatonville SD WA 9,700,000 290,000 2.99
12/03/12 Sumner SD WA 10,000,000 225,000 2.25
12/06/12 West Valley (Yakima) SD WA 9,225,000 360,000 3.90
12/10/12 Deer Park SD WA 10,000,000 400,000 4.00
01/07/13 Bainbridge Island SD WA 9,010,000 1,645,000 18.26
01/14/13 Mead SD WA 3,615,000 480,000 13.28
05/06/13 Sumner SD WA 10,000,000 235,000 2.35
05/09/13 Pullman SD WA 49,930,000 1,275,000 2.55
05/23/13 Conway SD WA 9,030,000 410,000 4.54
06/12/13 Colton SD WA 5,565,000 315,000 5.66
06/25/13 Grapeview SD WA 10,000,000 340,000 3.40
09/09/13 Napavine SD WA 168,000 15,000 8.93
12/02/13 Bainbridge Island SD WA 675,000 150,000 22.22
01/27/14 Lake Stevens SD WA 999,000 250,000 25.03
03/17/14 Bainbridge Island SD WA 6,625,000 1,580,000 23.85
04/07/14 West Valley (Yakima) SD WA 93,000 2,820 3.03
05/26/14 Edmonds SD WA 150,000 35,000 23.33
06/02/14 Oak Harbor SD WA 3,265,000 1,640,000 50.23
06/09/14 Quincy SD WA 5,195,000 635,000 12.22
06/11/14 Freeman SD WA 9,995,000 975,000 9.75
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Bond Rating

• Moodys last reviewed the Districts credit in
  2007, assigned an A3
• The rating was adjusted to A1 in 2010 with
  Moodys change to its Global Scale
• A1 is the third most common rating (shared by 29
  districts) among the 121 Washington school
  districts that have a Moodys rating.

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Credit Strengths

• Moodys cited these strengths
• Absolute size and diversity of tax base
• New residential development due to influx of
  retirees
• Consistent maintenance of fund balances above the
  Board target of 5
• Low debt burden
• Above-average wealth indicators
• Strong voter support

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Credit Pressures

• Moodys cited these credit pressure sources
• Declining enrollment
• Limited local economy/dependence on timber and
  tourism
• We believe Moodys would note these credit
  pressure sources today
• Drop in AV over the past 5 years
• Low fund balances compared to the peer group in
  Washington and nationally

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Credit Comparisons
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Rating Considerations

• We believe the District would be rated A1 by
  Moodys or an equivalent A by Standard Poors
• If the District were planning to increase fund
  balances above 15, SP might be more inclined to
  upgrade in the future.
• Allow us to be your advocates

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What Districts are saying about Davidson

• Jon Gores and his team worked closely with us
  through the bond rating process. We successfully
  maintained our bond rating despite a declining
  fund balance. Jon Mauras work on developing a
  rating strategy, rating presentation, preparing
  us for the call and facilitating and moderating
  the call were invaluable.
• Our bond rating call went exceedingly well due to
  the preparation and planning of D.A. Davidson.
• We were able to maintain our rating and develop a
  strategy to improve our rating.
• I have worked with Jon Gores on a number of bond
  issues and have found him and his team to be a
  great asset in developing a strategy and
  navigating the challenges of the bond rating
  process.

--Ryan Stokes Dir. of Business, Snoqualmie Valley
SD
--Wayne Leonard Assistant Superintendent, Mead SD
--Mike Newman Deputy Superintendent, Auburn SD
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2015 Bond Election
Overall Tax Rate Planning

Future Borrowing Needs

Construction Cashflow

Communicating the Tax Impact
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Level Debt Results in level annual payments for
the life of the bonds.
Level Tax Rate Attempts to result in a level
annual tax rate over the life for the bonds
Stepped Level Tax Rate Allows for the issuance
of future bonds
Based on assessed value projections.
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Bond Tax Rate Planning
Assumptions Assumptions
Issue Size 30,000,000
Interest Rates Future bond sales current plus 150 basis points
Bond Rating Aa1/State Guarantee
District Rating A1 (Pending)
Assessed Value Growth Final 2014 0.45 growth
RP 2015-2036 .50 annual growth
TAV 2015-2036 0 annual growth
Bond Structure Combined Level Tax Rate
Summary
15 Year Term 1.25 increase over 2014 total rate
20 Year Term 0.96 increase over 2014 total rate
Goal
Produce an overall financing plan that meets the Districts short and long term goals
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Tax Impact Analysis
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Property Taxes 101
Increases in Home Values Will Not Increase School
District Tax Collections

• Changes in home values dont change the amount of
  taxes authorized.
• Local school taxes can only be increased by a
  vote of the people.
• Changing property values will change tax rates,
  but not tax collections.
• Tax collection impact

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Property Taxes 101
1,000 Levy
250 250
250
250
100,000
100,000
100,000
100,000
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Property Taxes 101
1,000 Levy
250 250
250
250
200,000
200,000
200,000
200,000
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Property Taxes 101
1,000 Levy
250 250
250
250
90,000
90,000
90,000
90,000
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Property Taxes 101
1,000 Levy
187.50 250
250
312.50
250,000
200,000
200,000
150,000
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Property Taxes 101
1,000 Levy
200 200
200 200
200
100,000
100,000
100,000
100,000
100,000
Spokane County Assessor
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Increases in Property Values Will Not Increase
School District Tax Collections

• Changes in property values dont change the
  amount of taxes authorized
• Local school taxes can only be increased by a
  vote of the people
• Changing property values will change tax rates,
  but not tax collections

Year Home Value Tax Rate Tax Bill XYZ School
District Home Value 2013 100,000 5.00/1,000 50
0 Assume a 20 increase in Assessed Value for
XYZ School District 1 20 increase 2014 120,00
0 4.17/1,000 500 2 10 increase 2014 110,00
0 4.17/1,000 459 3 30 increase 2014 130,00
0 4.17/1,000 542
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Decreases in Property Values Will Not Decrease
School District Tax Collections

• Changes in property values dont change the
  amount of taxes authorized
• Local school taxes can only be increased by a
  vote of the people
• Changing property values will change tax rates,
  but not tax collections

Year Home Value Tax Rate Tax Bill XYZ School
District Home Value 2013 100,000 5.00/1,000 50
0 Assume a 10 increase in Assessed Value for
XYZ School District 1 10 decrease 2014 90,000
5.55/1,000 500 2 5 decrease 2014 95,000
5.55/1,000 528 3 20 decrease 2014 80,000 5
.55/1,000 444
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Property Taxes 101

• Summary
• If your property value increases at a lower rate
  than the average increase for the school
  district, the amount of taxes you pay will
  decrease.
• If your property value increases at a higher rate
  than the average increase for the school
  district, the amount of taxes you pay will
  increase.

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What Districts Are saying about Davidson

• Mr. Gores continues to provide on-going support
  and bond information. He is exceedingly
  knowledgeable and has the ability to explain
  bond, tax and financing information in simple
  terms. He has distinguished himself by
  consistently providing exceptionally well
  researched and well documented information and
  guidance.
• Three areas that I appreciate most about working
  with Jon and his team are their incredible
  preparation, quick, yet thorough, responses to
  questions, as well as the short and long range
  planning they developed for new and updated
  schools through the capital levy and bond.

--Angela Watts Asst. Superintendent, West Valley
SD
--Mike Newman Deputy Superintendent, Auburn SD
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Fee Proposal

• Davidson is compensated entirely from the
  underwriting spread. The District would make no
  payments to Davidson, nor enter into any
  financial obligation prior to the completion of
  the bond sale.
• The underwriting spread has three main
  components
• 1) Management feesalaries, personnel costs
• 2) Expensesoverhead costs, i.e., travel,
  telephone, printing, etc.
• Takedownsales commission paid to sales people
  to market the bonds

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Why is Davidson the best fit for Chimacum School
District?

• Weve worked with 20 out of 33 of the school
  districts with 1,000-1,999 FTE
• Weve worked on 14 out of 15 school districts
  receiving initial bond ratings of A3/A- or better
  
• Weve worked with 4 out of 6 school districts
  that received bond rating upgrades
• Weve successfully closed 100 of our
  transactions on time

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D.A. Davidsons Vision Mission
Vision Continue to be the leader in school
finance in Washington StateMission To
allocate all available human, intellectual and
financial resources to each and every transaction
and client, thereby ensuring the lowest cost of
capital while providing exceptional service.
Going the extra mile and doing whatever it takes
to go above and beyond our clients expectations.
Thank You
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Services

• Pre-Election
• Provide bond/levy planning
• Develop long range financing plan
• Attend community meetings and facility meetings
• Election Finance Workshops
• Brief County Assessor and Treasurer
• Provide Voter Profile

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Services

• Post-Election - Issue
• Develop District Bond Sale Schedule and
  Distribution List
• Provide input for Delegation and State Guarantee
  Resolution
• Draft State Guarantee application
• Prepare Preliminary and Final Official Statements
• Review and comment on all necessary documents
• Prepare credit evaluation and rating presentation
• Organize local sales effort with local firms
• Price and market bonds and report to the Board
• Notify County Assessor, Treasurer and ESD of
  final pricing results and debt service
  requirements
• Disclosure compliance update

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Services

• Post Sale Ongoing
• Annual debt service fund cash flow
• Continuing disclosure assistance
• MO levy tax rate projections
• Arbitrage rebate assistance
• Refunding monitoring
• Evaluate alternative financings (LGO borrowing
  for energy grants, etc.)
• Budget revision assistance notes to financial
  statement
• Briefings on legislation that may potentially
  impact bonds and elections
• Annual Board updates
• Guest lecturer for High School

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References
Monroe School District No. 103 Dr. Ken Hoover, Superintendent Phone [phone] hooverk_at_monroe.wednet.edu Ms. Brenda Hunt, Ex. Director, Fiscal Services Phone [phone] HuntB_at_monroe.wednet.edu Marysville School District No. 25 Dr. Becky Berg, Superintendent Phone [phone] Becky_Berg_at_msvl.k12.wa.us. Mr. Jim Baker, Ex. Director of Finance Phone [phone] jim_baker_at_msvl.k12.wa.us Sequim School District No. 323 Mr. Kelly Shea, Superintendent Phone [phone] kshea_at_sequim.k12.wa.us Mr. Brian Lewis, Business Manager Phone [phone] blewis_at_sequim.k12.wa.us
Auburn School District No. 408 Dr. Kip Herren, Superintendent Phone [phone] kherren_at_auburn.wednet.edu Mr. Mike Newman, Associate Supt., Business/Operations Phone [phone] mnewman_at_auburn.wednet.edu Mead School District No. 354 Dr. Thomas Rockefeller, Superintendent Phone [phone] tom.rockefeller_at_mead354.org Mr. Wayne Leonard, Ex. Director, Business Services Phone [phone] wayne.leonard_at_mead354.org Quillayute Valley School District No. 402 Ms. Diana Reaume, Superintendent Phone [phone] diana.reaume_at_qvschools.org Ms. Jan Haugen, Director of Finance Phone [phone] ext. 102 jan.haugen_at_qvschools.org
Olympia School District No. 111 Mr. DIck Cvitanich, Superintendent Phone [phone] dcvitanich_at_osd.wednet.edu Ms. Jennifer Priddy, Assistant Superintendent Phone [phone] jpriddy_at_osd.wednet.edu Shelton School District No. 309 Mr. Wayne Massie, Superintendent Superintendent Phone [phone] ext. 10010 wmassie_at_sheltonschools.org Ms. Brenda Trogstad, Ex. Director of Finance Phone [phone] ext. 10020 BTrogstad_at_sheltonschools.org Port Angeles School District No. 121 Ms. Jane S. Pryne, Superintendent Phone [phone] jpryne_at_portangelesschools.org Ms. Kelly Pearson, Dir. of Finance and Operations Phone [phone] kpearson_at_portangelesschools.org
Olympic Educational Service District No. 114 Mr. Steve McIntire, Fiscal Officer Phone [phone] smcintire_at_oesd.wednet.edu Sumner School District No. 320 Ms. Debbie Campbell, Ex. Director, Business Services Phone [phone] debbie_campbell_at_sumnersd.org Nooksack Valley School District No. 506 Mr. Mark Johnson, Superintendent Phone [phone] mark.johnson_at_nv.k12.wa.us
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Neither this material nor any of its contents may
be disclosed, sold, or redistributed,
electronically or otherwise, without prior
written consent of Davidson Companies. The
information presented herein is based on public
information we believe to be reliable, prevailing
market conditions, as well as our views at this
point in time. We make no representation or
warranty with respect to the accuracy or
completeness of this material. Past performance
is not necessarily indicative of future results.
Davidson Companies does not assume any liability
for any loss which may result from the reliance
by any person upon such material. We make no
representations regarding the legal, tax,
regulatory, or accounting implications of
entering into a Transaction. Required
Disclosure Pursuant to MSRB Rule G-23 An
underwriters primary role will be to purchase as
principal, or arrange for the placement of the
securities in a commercial arms length
transaction with the issuer, and may have
financial and other interests that differ from
those of the issuer. In its capacity as
underwriter and not as financial advisor, an
underwriter may provide incidental financial
advisory services at the issuers request,
including advice regarding the structure, timing,
terms and other similar matters concerning the
issuance. However, an underwriter does not assume
any financial advisory or fiduciary
responsibilities with respect to the issuer.