smf notes: LAUSD uses TRANs for short term operational bridge funding
LAUSD NEWS RELEASE
For Immediate Release July 30, 2008
LAUSD SELLS $500 MILLION OF TAX AND REVENUE ANTICIPATION NOTES
District receives highest rating, low-interest rate for TRANs sale
Los Angeles – Los Angeles Unified School District (LAUSD) officials today announced the sale of $500 million of tax and revenue anticipation notes (TRANs) to fund seasonal cash flow deficits and again received the highest possible rating from the industry’s top ratings agencies—continuing a two-decade trend.
Moody’s Investors Service (Moody’s) and Standard and Poor’s Ratings Service (“S&P”) each assigned their highest possible short-term rating to LAUSD’s TRANs. The Moody’s rating is MIG 1 and the S&P rating is SP-1+. Since 1983-84, the District has received the highest possible rating for its TRANs from Moody’s and S&P. In recent years, the LAUSD has also received the lowest interest rates among government agencies in California.
“The industry’s historic confidence in the LAUSD’s cash management program has provided the District with revenues to level off dips in our cash flow and stave off impacts to our students and schools,” said LAUSD Superintendent David L. Brewer III.
“The high ratings mean low-interest rates for the District, which helps us to save as much money as possible during tough budgetary times, like those that we’re currently experiencing.”
The District sold the TRANs to a syndicate of four underwriting firms, which included Banc of America Securities LLC, Lehman Brothers, Morgan Stanley & Co. Incorporated and Ramirez & Co., Inc. at a true interest cost (TIC) of 1.52 percent. This is the lowest TIC among TRANs issuers in the market in Fiscal Year (FY) 2008-09.
Megan Reilly, LAUSD’s chief financial officer, said that both Moody’s and S&P indicated that the District’s cash management practices and cash projections for FY 2008-09 were conservative.
“Both rating agencies acknowledged that the District’s TRANs borrowing is designed to smooth out uneven monthly revenue streams and the periodic cash deficits they create, and is not reflective of any fundamental cash weakness or overspending,” Reilly said.
“The agencies also cited strong debt service coverage, early set-asides for TRANs repayment and significant non-General Fund resources as factors for awarding the District the highest possible rating,” she said.
Brewer, Reilly and other District officials met with Moody’s and S&P, July 10-11, and presented the TRANs opportunity to approximately 25 large investment groups. The LAUSD regularly issues TRANs to manage periodic short-term cash flow deficits attributable to the uneven receipt of property taxes during the fiscal year. The District has issued TRANs more than 20 times since the mid-1980s.
# # #