An Overview of the North Royalton City School District Bond Issue Sale
On May 2, 2017, our community overwhelmingly approved a bond issue to build and renovate our existing buildings. A new elementary school will be constructed on the southwest corner of State Road and Valley Parkway to house the district’s preschool through fourth-grade students. A new 100,000 sq. ft. section of the high school will be constructed to replace the 1950s and 1960s section, with renovations being done to the 1970s and 1980s sections. In addition, renovation of the middle school will also be completed.
North Royalton City School District officials met with Moody’s Investors Service on July 11 and discussed the bond issue including the overall financing plan, the facilities plan funded by the bonds, and other credit characteristics of the district such as tax base, district management, and operating philosophy, and finances. Moody’s Investors Service placed its third highest credit rating of “Aa2” on the district and the 2017 bonds.
Due to this strong rating, on July 25, the district sold $88.9 million worth of bonds for a total interest cost rate of 3.69%. This was better than the anticipating interest rate of 3.75% which will allow us to keep our commitment to our homeowners ($109 per year tax increase per $100,000 home value). The reduced interest rate will also save our taxpayers in interest rate expense as we begin to pay back the bonds. This strong “Aa2” credit rating was instrumental in achieving the pricing result the district was able to obtain on July 25. Funds were deposited into our account on August 15.
During the 1½ hour order period, the district’s bond issue received more than $350 million in orders from 53 different investors. This overwhelming demand for the district’s bonds allowed for a downward adjustment of interest rates after the order period ranging from
- 1 basis point (0.01%) in the 2047 maturity,
- 2 basis points (0.02%) in maturities 2033 – 2037,
- 5 basis points (0.05%) in maturities 2018 – 2024 and in the 2032 maturity,
- 8 basis points (0.08%) in the 2025 maturity,
- and 10 basis points (0.10%) in maturities 2026 – 2031.
A sampling of investors which purchased the district’s 2017 bonds were Vanguard, Eaton Vance, State Farm Insurance, Travelers Insurance, Wells Capital Management, American Family Insurance, Boston Company, Nuveen Advisory Corp., Northern Trust, JP Morgan, Credit Suisse Asset Management, Key Bank, Huntington Trust Company, US Bank, Blackrock, Goldman Sachs, in addition to many others.
In the two weeks leading up to the pricing on July 25, tax-exempt interest rates slowly declined by approximately 15 basis points (0.15%) which provided a strong “tone” to the market. In the week prior to pricing the bonds, two events occurred that caused interest rates to continue to decline and inject a more cautious “tone” among investors. On July 18, 2017, Republican leaders in the US Senate suspended their efforts to repeal Obamacare for the time being, causing bond investors to question the administration’s broader reform agenda. Also on July 18, the National Association of Home Builders (NAHB) housing market index posted disappointing results providing a more cautious tone to the economic recovery picture. Both of these events resulted in interest rates declining by approximately 3-5 basis points from July 18 to July 19, and a strong market tone for the rest of the week and continuing into Monday, July 24 (the day prior to pricing the bonds). Interest rates in the municipal market were also heavily influenced by the supply of municipal bond issuance and the week of July 24 was no different. In Ohio, the district’s bond issue was the largest issue in the state, and nationally for the week of July 24. New issuance tax-exempt bond volume of approximately $3.5 billion was approximately half of what has been typical so far in 2017. These factors provided a focus for investors to concentrate on the district’s bond issue.
At the end of the day, the district was able to successfully sell all $88.9 million of bonds at a weighted average true interest cost of 3.69%. By all metrics, this issue was a successful sale for the district and the district’s taxpayers.
The bond issue was structured to provide for level debt service over the 30-year period, and the bonds were sold with an optional call provision allowing the district to refund for economic savings at some point in the future bonds maturing on and after December 1, 2025.
We are excited that the district was able to get to market so quickly to take advantage of this great interest rate environment. Thanks again to our community for approving the May 2017 bond issue, allowing us to sell the Bonds and securing the facilities needs as it relates to instruction for future generations.
North Royalton City Schools Assigned an Aa2 Rating by Moody’s Investor Service
The North Royalton City School District recently completed a credit rating review in preparation for the sale of bonds to finance a new elementary building to replace three existing buildings, renovations to the existing high school and middle school, and to construct a new academic wing onto the high school. Moody’s Investors Service assigned an Aa2 rating to the $88.9 million bonds. The Aa2 rating is two notches below the highest possible rating of Aaa. The district is one of 62 school districts in Ohio sharing the Aa2 rating with 26 district rated higher and 223 districts rated lower.
In a credit opinion released on July 19, 2017, Moody’s Investors Service substantiated the rating by highlighting the following strengths: sizable residential tax base with above average socioeconomic characteristics and strong financial reserves and liquidity. The report also cited positive operating trend is largely a result of stable operating revenue, along with management’s effectiveness in restraining expenditure growth.
District administrators presented to Moody’s rating analysts on July 11. The presentation included the district’s financing plan, financing schedule, district profile, levy structure and tax rates, effective and efficient expenditures, financial status, and credit highlights.
The district will now proceed with the bond sale currently scheduled for July 25, 2017. Residents of the district interested in purchasing the bonds can contact Financial Advisor Associates Katie Carp, of Stifel, Nicolaus & Company, by phone at 440/250-1630 for more information.
Purchasing of Bonds
Anyone interested in purchasing the North Royalton SD Series 2017 Bonds should contact Katie Carp, Financial Advisor Associate, Stifel, Nicolaus & Company at [email protected]
or 440/250-1630. Local retail investors will have a priority position as far as orders put in for the bonds on the pricing date, which is estimated to be July 25, 2017. That means that local retail orders at the same yields as larger institutional orders will be filled on a priority basis. Regarding interest rate levels on the bonds, those will become available through Katie Carp on July 24. The Preliminary Official Statement is scheduled to be released on or about July 20, 2017.