Agenda - 10-06-2009 - 5a - Laserfiche WebLink

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2 million from the first round of 2009 QSCB financing, which is insufficient to complete project. The initial QSCB application for that project. was for $4.5 million. Since that time Orange County Schools has indicated the project could be built for approximately $3.0 million if necessary. The State's unused 2009 QSCB allocations will roll forward to 2010 and DPI will reallocate these amounts along with the 2010 QSCB awards. There is conflicting information as to whether school systems which had approved project allocations for 2009 that were not used will be reallocated those same amounts along with an additional 2010 allocation. If the 2009 QSCB amounts made available to the school systems are carried forward and a similar amount is allocated in 2010, most of the funding needed for the OCS auditorium project would be in place. QSCB is a new financing program in which the lender receives tax credits based on a percentage of the amount loaned in lieu of an interest payment. The intent of the program is that the borrower will pay a 0% interest rate on the QSCB financing. At the current time lenders for these bonds are extremely limited as stated in the September 15, 2009 BOCC meeting materials. Since that date BB&T has made a decision not to enter the QSCB market. Guggenheim Partners is currently the only active lender based on staff's information. Staff has briefly discussed the proposed financing with Guggenheim. Guggenheim requires the issuer to prepare an official statement and obtain bond ratings before it will consider the financing. The cost of obtaining ratings will add approximately $25-35,000 to the cost of the financing. There will also be Bond Counsel expenses and potentially Underwriters Counsel expense. Issuance costs would be approximately $40-80,000 which is a significant cost relative to the amount of the financing. The tax credit rates issued by the US Treasury have fallen from the 7.0-7.3% range during the first half of 2009 to a 6.1-6.3% range in the last two months. Guggenheim requires a 7.0% or higher tax credit in order to sustain a QSCB financing at 0% interest. In order for a QSCB financing to be acceptable to Guggenheim for an issuer with a credit rating similar to Orange County's, a supplemental interest coupon of 1.25-1.5% would be necessary. The size of the County's issue is small but Guggenheim Partners has indicated it would consider buying an issue of this size. The approximate annual payment fora $4.136 million/15 year financing loan with a supplemental coupon rate of 1.5% would be $310,000 per year with a net interest cost of approximately $513,500 over the life of the loan. Both school systems will receive additional awards from the State's 2010 allocation of QSCB funds. How the Department of Public Instruction will address any outstanding 2009 QSCB allocation as well as the amount of the 2010 allocations is uncertain at this time. There has been some indication that DPI will consider carrying over 2009 amounts for school districts with projects. LGC staff has suggested that Orange County seriously consider the option of letting the existing allocations roll-over to 2010 and combine the entire amount allocated to both school systems under the QSCB program into one issuance. The reasoning is that the issuance costs and time involved in dealing with one large issue would not be much different than would be involved with doing each of the smaller issues. The LGC along with some financial advisors believe that there will also be more lenders entering the market, bringing about a more competitive lending environment which could lower rates for the supplemental coupon. Therefore, there would be a savings in time and borrowing costs by waiting until 2010 and combining the issues.