COPs proceeds to reimburse Lindbergh for purchase of Dressel

District issues lesser amount of COPs at better interest rate than anticipated

By ROBERT CHALUPNY

A resolution authorizing the issuance of $2.09 million worth of bond-like certificates recently was approved by the Lindbergh Board of Education.

The $2.09 million in certificates of participation, or COPs, will reimburse the school district for its purchase of Dressel School this summer and fund renovations to the building.

As first reported online by the Call, the district closed July 26 on the $1.94 million purchase of the Dressel School building, which sits on roughly 10 acres at 10255 Musick Road. The purchase of Dressel School will allow Lindbergh to address enrollment projections that show a districtwide increase of nearly 450 students by 2015.

In August, the school board approved a reimbursement resolution calling for the issuance of up to $2.4 million in COPs.

But Chief Financial Officer Pat Lanane told the school board Oct. 11 that the amount of COPs sold the previous day to Edward D. Jones & Co. totaled $2.09 million. The purchase price of the COPs was $2,053,750 with an underwriting discount of $36,250.

“… The estimates you saw originally on what we thought would happen — and we were all very comfortable with those estimates — we have actually done slightly better than those estimates …,” he said.

Regarding the net interest cost of the COPs, he said, “The schedule you saw that we thought would happen was at 4.06 percent and the actuals as they came in yesterday are 3.97 (percent). That’s a good thing. And so that makes all the debt payments, everything slightly less than what you saw.

“So in terms of the parameters that you originally looked at and felt comfortable with, we’re well within those. So that was a very good situation for us,” Lanane added.

The CFO also told the board that the district had maintained its Aa1 bond rating on all general-obligation debt from Moody’s Investors Service.

As is true with all lease financing, Lindbergh’s COPs automatically received a one-notch downgrade to Aa2 rating.

“… Since we’ve last met, we’ve had our rating with the rating agencies, which is always a bit of a nervous event these days, but they confirmed easily and quite affirmatively — and very affirmatively — our Aa1 rating,” Lanane said. “And so we’re very happy to retain that rating in the face of all the really terrible economic times and the many downgrades that are going on throughout the country.

“So that was I think a very sounding reply to our financial stability. So we felt very good about that in terms of someone outside looking at the financial practices of the district …,” he added.

The district’s independent financial adviser, Joy Howard of WM Financial Strategies, told the board that competitive proposals were sought for the COPs and the district received seven bids.

“… Now in the past when you’ve done general-obligation (bond) issues, we’ve done a bona fide competitive bid,” she said. “In this case, we’ve used a negotiated sale, partly because leases are more complicated and they require more handling by the underwriters, so to speak, to get the issue sold. But we also had some open-ended items that we wanted the underwriters to be able to respond to, the most important being whether or not we needed a reserve fund.

“And based on all of the proposals that we received, you know we selected Edward Jones, who basically had the best proposal with or without a reserve. That’s why we picked them, but then we also had to do quite a bit of analysis to see how the reserve versus not-a-reserve worked out. You paid a slightly higher interest rate for not having a reserve. But right now if you had a reserve, even if you invested it for 20 years in U.S. Treasury securities, you’d only be earning like 2.8 percent and you would have to borrow it at the rate on the issue, which is approximately 4 percent,” Howard said.

“So you would have a loss that way. So we did a lot of mathematical computations and at the end of the day, I mean it’s not a huge savings, but if you do all the math, at the end of the day the savings was about $48,000 to not have the reserve and it certainly reduced the amount you are borrowing by about $200,000 …,” she added.

Bob Ballsrud of Gilmore & Bell, the school district’s bond counsel, noted that this is the first time Lindbergh has used lease-financing to fund building acquisition and renovations.

“… Missouri law allows school districts to enter into lease financings with a nonprofit corporation and there were a couple of options that you had and Pat negotiated a very favorable deal with Cooperating School Districts of St. Louis, which is a nonprofit corporation, to act as the other party to the lease,” Ballsrud said. “And so the building that you have acquired this summer, Lindbergh School District is leasing that building to Cooperating School Districts and then leasing it back. And that lease back is a year-to-year lease.

“This financing is structured over a 20-year repayment, but for state-law purposes is viewed as 20 one-year leases and that lease is renewed each year by virtue of the Board of Education,” he continued. “When you approve the budget, there will be a line item in that budget that will include the debt-service payments that will be due in the next fiscal year.

“And by approving the budget that includes that line item, that lease is automatically extended for another year. And hopefully you would choose to do that over the course of the next 20 years and then these obligations will be paid off in full and the leases by their terms then all go away,” Ballsrud told the board.

“So it is a structure widely used in Missouri, particularly for school districts that do not need to impose a debt-service levy to retire the bonds but have sufficient funds in their capital projects levy to pay debt service on these types of obligations.

“Because you did acquire this building this summer using your own funds, the majority of the proceeds that will be made available to the district at closing next Wednesday (Oct. 19) will be to reimburse the district,” Ballsrud said. “So that approximately $2 million or so — a little bit less than that — will immediately reimburse the funds that the district already expended when you purchased this building and then there will be some money I understand that is available for certain renovations as well …”

Board member Mark Rudoff’s motion to approve the resolution and all accompanying documentation for the sale of the COPs was seconded by board Vice President Kathy Kienstra and unanimously approved.

Lanane previously told the Call that the sale of the COPs will allow the school district to recover the cost of purchasing Dressel and fund needed renovations there through a future no-tax-rate-increase bond issue.

At some point in the future — four to six years from now — a no-tax-rate-increase bond issue will be placed before voters that will incorporate the COPs debt into the ballot measure, according to Lanane.

The district spent $1,944,996 for the purchase of Dressel School from Bible Chapel by using “available funds on hand.”

Lindbergh’s enrollment for the current school year is just shy of 6,000 students.

The last time enrollment was 6,111 was in 1981-1982 and student population was declining. As a result, the school board voted to close Dressel, Fenton, Concord and Watson schools.

Selling Dressel has saved taxpayers more than $1 million since then in maintenance and operating costs, according to district officials, who have said that renovating Dressel will cost exponentially less than buying land at commercial rate and building a brand new facility.

Without additional space, the projected enrollment increase would cause Lindbergh’s class sizes to exceed Missouri maximum standards and threaten student achievement and test scores that are currently ranked No. 1 in the state, according to district officials.