$251,795,000* School District of Philadelphia General Obligation - - PowerPoint PPT Presentation

$251,795,000* School District of Philadelphia

General Obligation Bonds, Series 2018A

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* Preliminary, Subject to Change

This investor presentation that you are about to view is provided as of March 16, 2018 for a proposed offering of The School District of Philadelphia General Obligation Bonds (the “2018 Bonds”). This presentation has been prepared for information purposes only and solely for use in connection with the proposed

• transactions. This document does not purport to be complete and investors must read the preliminary official statement for the 2018 Bonds in its entirety before

making an investment decision. The information contained herein and in the Preliminary Official Statement is subject to completion and amendment. Any offer or solicitation with respect to the 2018 Bonds will be made only by means of a final official statement relating to the applicable Series of 2018 Bonds. If you are viewing this investor presentation after the date stated above, events may have occurred that may have and/or could have a material adverse effect on information presented. This presentation does not constitute nor does it form part of an offer to sell or purchase, or the solicitation of an offer to sell or purchase, any securities or an offer

• r recommendation to enter into any transaction described herein nor does this presentation constitute an offer, commitment or obligation on the part of the

issuers, underwriters or any of their affiliates to provide, issue, arrange or underwrite any financing or enter into any transaction. You will be responsible for making your own independent investigation and appraisal of the risks, benefits, appropriateness and suitability of the proposed transactions described in this presentation and neither the School District of Philadelphia nor the underwriters are making any recommendation (personal or otherwise) or giving any investment advice and will have no liability with respect thereto. Neither The School District of Philadelphia nor the underwriters make any representation or warranty as to the (i) accuracy, adequacy or completeness of any information in this investor presentation, or (ii) legal, tax or accounting treatment of any purchase of 2018 Bonds by you or any other effects such purchase may have on you and your affiliates. This investor presentation contains “forward-looking” statements that involve risks, uncertainties and assumptions. If the risks or uncertainties materialize or the assumptions prove incorrect, the results may differ materially from those expressed or implied by such forward-looking statements. Accordingly, we caution you not to place undue reliance on these statements. All statements other than the statements of historical fact could be deemed forward-looking. All opinions, estimates, projections, forecasts and valuations are preliminary, indicative and are subject to change without notice. The projections, if any, as indicated herein, are forward-looking statements and any such statements inherently are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those that have been projected and such differences could be material. Such risks and uncertainties which could affect the revenues and obligations set forth in these projections include, among others, changes in economic conditions, mandates from other governments, competition, limits on the amounts of and increases to third party payments and reimbursement for services and various other events, conditions and circumstances, many of which are beyond the control of the School District. Such forward-looking statements speak only as of the date indicated on the

• projections. The School District disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statement contained herein to

reflect any changes in the School District’s expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based. THE PRINTING, DUPLICATING, DOWNLOADING, SCREEN CAPTURING, ELECTRONIC STORING, RECORDING, PUBLISHING OR DISTRIBUTING OF THIS INVESTOR PRESENTATION IN ANY MANNER IS STRICTLY PROHIBITED. By viewing this investor presentation you acknowledge that you understand and agree to the foregoing provisions.

Disclaimer

Notice to Recipient

Overview of the District & Recent Credit Developments

School District of Philadelphia

Overview of the School District of Philadelphia (“District”)

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Comprised of 215 public schools, 86 charter schools and 25 alternative educational schools and programs

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The largest school district in Pennsylvania

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The eighth largest enrollment in the nation

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Approximately 203,644 students (including charter school students and students attending alternative education) enrolled throughout the School District in Fiscal Year 2018

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The boundaries of the District are coterminous with the boundaries of the City of Philadelphia

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A separate and independent home rule district of the first class established by the Philadelphia Home Rule Charter

Overview of the District & Recent Credit Developments

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In 1998 and 2001, the Public School Code of 1949 (“School Code”) was amended by the State General Assembly to include criteria for a determination by the Secretary of Education that a school district of the first class is distressed

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Section 691 of the School Code outlines the circumstances when a school district is distressed

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On December 21, 2001 the Secretary of Education declared the District as a distressed school district because it:

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Failed to adopt a valid budget; and

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Failed or will fail to provide an educational program in compliance with State laws and regulations

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As a result of the declaration, the District’s Board of School Directors was replaced by a five-member School Reform Commission (“SRC”)

Governance & School Reform Commission – Background

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In November 2017, the SRC adopted a resolution recommending its dissolution

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In December 2017, the Commonwealth of Pennsylvania’s Secretary of Education issued a declaration to dissolve the SRC effective June 30, 2018

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On July 1, 2018, the District will be governed by a nine member Board of Education appointed by the mayor

School District of Philadelphia

Overview of the District & Recent Credit Developments

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Governance & School Reform Commission – Recent Developments

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After July 1, 2018, the following provisions will cease to be in effect and will not become powers of the Board of Education:

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Section 6-696(h), commonly referred to as the “maintenance of effort”

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Section 6-696(i) insofar as it confers the powers of a board of control pursuant to Section 6-693 of the School Code

• n the SRC will not become powers of the Board of Education, since they apply only to a distressed school district

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Section 6-696(i)(2)(i) exempting applications for charter schools from certain provisions of the School Code. Note that 53 PA C.S. §303 and certain court decisions have already removed most of these exemptions

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Subsections 6-696(i)(6) and (7), relating to suspension or dismissal of professional employees

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Subsections 6-696(i)(11) and (12) and Section 6-696(k) relating to collective bargaining agreements and provisions which cannot be included while the School District is distressed

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Section 6-696(l) prohibiting School District employees from engaging in any strike

School District of Philadelphia

Over the past few years initiatives have been undertaken to increase recurring revenue, improve the efficient and effective use of public dollars, and plan for sustainable investments

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Recurring revenue from the State

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Cigarette tax (originally slated to sunset in FY18) made permanent, and has an annual $58 million floor

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New rideshare fee revenues, budgeted at $2 million in 2017

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Introduced a multi-year strategic investment plan, including:

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New instructional materials for K-8 math and new reading anthologies

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Increased funding for AP courses, gifted education, and PSAT/SAT administration

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Counselors for every school and nurses in every school building

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Completed a bond refunding of over $1 billion of high interest debt which will save the District over $100 million in debt service interest over the next 20 years

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Ratified collective bargaining agreements with all of the District’s bargaining units.

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On September 8, 2017, the District received a rating upgrade by Moody’s Investors Service, the first upgrade since 2010

Overview of the District & Recent Credit Developments

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Recent Achievements - Financial

School District of Philadelphia

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Clearly defined long-term aspirational goals, and five year goals tied to the District’s spending plan

• Anchor Goal 1: 100% of students will graduate ready for college and career

Current: 67% graduation rate (FY17) 5 year milestone: 80% graduation rate

• Anchor Goal 2: 100% of eight year olds will read on grade level

Current: 36% on grade level at age 8 (FY17) 5 year milestone: 66% on grade level at age 8

• Anchor Goal 3: 100% of schools will have great principals and teachers

5 year milestone: Engaged and supported teachers and principals with strong instructional skills

• Anchor Goal 4: SDP will have 100% of the funding needed for great schools, and not operate at a deficit

5 year milestone: Five-Year balanced budget projections

Overview of the District & Recent Credit Developments

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District’s Strategic Plan Continues to Focus on Four Anchor Goals

School District of Philadelphia

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In connection with the consideration of the Lump Sum Statement on March 22, 2018, the School District will be revising its Five Year Financial Plan to cover FY19 - FY23

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The Five Year plan is a budget and spending estimate which:

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strives for structural balance, while providing for investments designed to achieve the mission of equity in educational opportunity for all children

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utilizes projections which the School District believes are reasonable for revenues and expenditures based on actual activity, current law, and historic trends

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The Financial Plan’s primary objectives are:

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Identify sufficient revenues to meet the anticipated obligations

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Enable dialogue among all School District funders (City, State, Federal and Private)

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The District projects to end FY18 with a positive fund balance, the 4th consecutive year of a year-end positive fund balance

Overview of the District & Recent Credit Developments

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District’s Planning has Facilitated Positive Credit Developments

General Obligation Credit

School District of Philadelphia

General Obligation Credit

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$1.9 billion, or 65%, of the District’s debt is General Obligation debt

■ The District’s General Obligation (“GO”) debt’s primary source of repayment is certain School Tax Revenues ■ The District’s Daily Sinking Fund Covenant creates a priority

• f payment of these revenues to the GO Bond sinking funds

■ In FY18, these revenues are expected to be 4.9x FY18 GO debt service ■ The obligation of the Department of Revenue to collect and remit the school taxes to the Fiscal Agent occurs daily prior to any payment to the School District ■ As a backstop, State aid intercept provisions would cover any deficiencies ■ In FY18, state aid is expected to be 5.7x combined GO and Lease Revenue bond debt service ■ Intercept has never been triggered

FY Principal Interest Debt Service 2019 122,887 92,933 215,820 2020 123,481 87,495 210,975 2021 128,376 81,994 210,370 2022 130,201 76,216 206,416 2023 121,441 70,471 191,911 2024 103,680 65,429 169,109 2025 99,500 60,776 160,276 2026 102,155 56,196 158,351 2027 94,815 52,105 146,920 2028 93,800 46,968 140,768 2029 93,770 42,725 136,495 2030 96,321 38,609 134,931 2031 73,801 30,897 104,698 2032 35,621 24,416 60,038 2033 36,851 22,955 59,806 2034 112,586 21,423 134,009 2035 39,456 16,282 55,738 2036 40,861 14,601 55,462 2037 38,551 12,934 51,485 2038 39,901 11,283 51,184 2039 38,686 9,619 48,305 2040 23,291 8,325 31,616 2041 10,366 7,451 17,817 2042 10,366 7,451 17,817 2043 10,366 3,725 14,091 Total 1,821,129 963,278 2,784,407 School District of Philadelphia Existing General Obligation Bond Debt Service

School District of Philadelphia

General Obligation Credit

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Daily Sinking Fund Covenant – Obligation and Mechanism

■ In 1982, the District covenanted to irrevocably direct the Revenue Commissioner of the City to pay all school taxes collected by the Revenue Commissioner (the School Tax Collector) directly to the GO Bonds’ Fiscal Agent for deposit in the School District’s GO Bonds sinking funds ■ The sinking funds’ daily deposit is equal to the pro-rata amount required to be deposited on each City business day such that amounts will accumulate by 15 days before each interest and principal payment date (“Accumulation Date” or “Sinking Fund Deposit Date”) the interest and principal due on that date. For each fiscal year, the daily deposit amounts are set forth on a schedule delivered to the Revenue Department by the School District ■ In order to ensure sufficient funds on each Accumulation Date, collections start six months prior to each sinking fund deposit date for interest and one year prior to each sinking fund deposit date for principal payment

■ For example, collections for the $102.1 million principal payment due on September 1, 2018 started on August 17, 2017 ■ With 262 business days between August 17, 2017 and August 17, 2018 the daily deposit requirement for this principal payment is $389,718

■ If a given day’s School Tax Revenues are insufficient to cover the daily deposit requirement, the covenant is not breached; the shortfall is added to the subsequent day’s requirement until the sinking fund is current

■ As a result, the sinking fund is brought current as School Tax Revenues are collected

■ Only when the sinking fund is current is the City Revenue Department transfers School Tax Revenues to the District’s Operating Account on a daily basis

School District of Philadelphia

General Obligation Credit

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School Tax Revenues constitute 85% of the District’s local revenues

■ Only the school taxes collected by the City’s Revenue Commissioner, as tax collector for the District, are School Tax Revenues

Summary of School Tax Revenues for Daily Deposit Covenant ($000’s) School Tax Revenue Source FY17 Amount FY18 Amount Collector Description School Real Estate Tax $715,212 $792,120 City as Collection Agent Tax on real estate in Philadelphia Business Use & Occupancy Tax $144,877 $148,400 City as Collection Agent Tax on the use of real estate within the School District for commercial or industrial activity Liquor Tax $74,640 $73,800 City as Collection Agent Tax on the sale of liquor by the drink Non-Business Income Tax $42,251 $41,450 City as Collection Agent Tax on the non-business income of Philadelphia residents Total School Tax Revenues $976,980 $1,055,770

■ In addition to the local taxes collected by the City as Collection Agent for the District, the District also receives Local Revenues which are collected by the Commonwealth (School Cigarette Tax, the first 120.0mm of proceeds of 1% City Sales Tax, Ridesharing Revenue and Public Utility Realty Tax)

School District of Philadelphia

General Obligation Credit

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School Tax Revenues are received by the Fiscal Agent throughout the fiscal year

■ School Real Estate Tax – annually assessed on all real estate located within City boundaries ■ Rate is authorized by the City and levy is imposed by the governing body of the School District by June 30th of each year ■ Assessments are certified on the first Monday of each October and taxes are levied for the calendar year commencing January 1 following the adoption of the June levy resolution ■ Taxes are due by March 31st, however if paid by the end of February taxpayers are given a discount of 1%; if paid after the end of March the amount due is subject to interest of 1.5% per month ■ Business Use & Occupancy Tax – imposed on the use or occupancy of real estate within the City for the purpose of conducting any business, trade, occupation, profession, vocation, or any other commercial or industrial activity ■ Tax is due monthly ■ Liquor Tax – imposed on the sale of liquor by the drink (rate is 10%) ■ Tax is due monthly on the 25th of the month ■ Non-Business Income Tax – applied to the non-business income of residents from the ownership, lease, sale or disposition of certain real or personal property, including net income for dividends and interest on securities ■ Tax is due April 15th

Local Tax Revenues by Month

■ Based upon information in the School District’s Consolidated FY17 Budget, School Tax Revenues by month for FY17 are as follows:

School District of Philadelphia - Fiscal 2017 Daily Deposit Tax Revenues by Month ($000s) Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Total Lock-Boxed School Tax Revenues $29,351 $31,104 $26,172 $13,176 $28,095 $32,616 $77,991 $308,792 $266,410 $75,754 $40,267 $39,633 $969,271

School District School District Taxpayers Fiscal Agent City Department of Revenue (School District Tax Collector) All Bondholders

Collections of School Tax Revenues School Tax Revenues (Amounts of Required Daily Deposits and Any Prior Shortfalls in order to accumulate funds sufficient to pay debt service on the sinking fund deposit date which is 15 days before the payment date) School Tax Revenues (Amounts not Required to make Daily Deposits for all Fixed Rate GO Bonds and Any Prior Shortfalls) School District pays to Fiscal Agent not less than 15 days prior to debt service payment date, if Fiscal Agent not in receipt of required monies from the daily deposits GO Debt Service

School District of Philadelphia

General Obligation Credit

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Note: the Fiscal Agent is required to trigger the intercept if Fiscal Agent does not have full amount due on the upcoming payment date 15 days before the payment date

School Tax Revenue Daily Sinking Fund Deposits for GO Debt

School District of Philadelphia

General Obligation Credit

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GO Debt also has the State Aid Intercept backstop

■ In the event that insufficient monies are on deposit in the Daily Sinking Funds 15 days prior to a debt service payment date, the Fiscal Agent is required to trigger the State Aid Intercept provisions in Section 633 of the PA School Code ■ In this circumstance, pursuant to the Fiscal Agent Agreement, the Fiscal Agent will make demand of the Secretary of Education (“Secretary”) to cause the implementation of the pre-default intercept provisions in Section 633 in advance of an actual debt service payment date ■ The Secretary will then “withhold out of any State appropriation due such school district” an amount needed to cure the deficiency and pay such amount over to the Fiscal Agent ■ The payment schedule of the District’s State Aid receipts provides significant coverage throughout the fiscal year from appropriations due to the District over the remainder of the fiscal year

(1)

Actual data is derived from the School District’s Comprehensive Annual Financial Reports. The estimated data is derived from the School District’s Adopted Budget, as approved by the SRC

• n May 25, 2017

(2)

Net Commonwealth subsidies reflect Gross receipts for General Fund, Area Vocational Technical Fund and Intermediate Unit as noted in Cash Flow, less certain cash deductions made by the State for payments to other educational entities

(3)

Includes both long term debt service and short term debt service principal and interest, does not include issuance costs.

(4)

Short term debt service represents interest and principal payments on the School District’s borrowings in each fiscal year, in anticipation of the receipt of taxes and other revenues

Coverage Ratios of Net Cash Received from Commonwealth Subsidies to Debt Service Payments (1) ($000s) ACTUAL ADOPTED FY2014 FY2015 FY2016 FY2017 FY2018

Net Commonwealth Subsidies (2) 1,313,498 1,337,985 1,382,298 1,464,185 1,544,489 Long Term Debt Service (including State Public School Building Authority) 271,150 264,516 259,203 267,859 271,891 Ratios 4.84 5.06 5.33 5.47 5.68 Long Term and Short Term Debt Service (3) 396,944 566,152 1,087,903 646,984 678,380 Ratios 3.31 2.36 1.27 2.26 2.28 Short Term Note Debt Service (4) 125,794 301,666 828,700 379,125 406,489

School District of Philadelphia

General Obligation Credit

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In 2016, PA enacted new intercept provision that strengthen the mechanism

■ The Fiscal Code amendment (“Article XVII – E.4”) enacted new intercept provisions that appropriate General Fund money to be used for intercept payments in the event the “annual appropriations for payment of Commonwealth money to school districts have not been enacted by July 1 and continue to be not enacted when a payment is due” ■ In order to fund the appropriation and make payments under an intercept statute or agreement during a budget impasse, the Department of Education must submit justification to each of the majority and minority chairs of the House and Senate Appropriations Committees ■ Upon receipt there is a 10 day review/comment period ■ The House and Senate committee chairs may comment, but have no power to deny or alter the funding of the appropriation ■ In order to be eligible to receive intercept payments, school districts must submit information to the Department of Education summarizing their intercept-eligible debt ■ Interceptable aid when no education appropriations have been enacted is limited to 50% of the prior fiscal year’s state aid appropriation for each school district ■ For the District such amount would be $732 million based on FY18’s appropriation ■ The combination of Article XVII-E.4 and the District’s Daily Sinking Fund means that, if a budget impasse had

• ccurred on July 1, 2017, bondholders could have been paid from nearly $1.79 billion in State appropriations

($732mm) and Local tax revenues ($1.05bn) without regard to the status of the Commonwealth’s fiscal year appropriations for education or the District’s operations

School District of Philadelphia

General Obligation Credit

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Article XVII – E.4 Process and Procedures

■ Before amounts necessary to comply with the intercept statutes are appropriated in the absence of Commonwealth appropriations for education for the applicable fiscal year, certain conditions must be met, including: 1. The Pennsylvania Department of Education (“PDE”) must submit justification to the majority and minority chairs of the appropriations committees of the Pennsylvania Senate and House of Representatives allowing ten (10) calendar days for their review and comment 2. Each school district subject to an intercept statute or intercept agreement must deliver to PDE, in such format as PDE may direct, a copy of the final Official Statement for the relevant bonds or notes or the loan documents relating to the obligations, within thirty (30) days of receipt of the proceeds of the obligations. ■ The District has not been advised as to whether PDE will submit a justification covering all school districts at the beginning

• f a budget impasse on July 1 of a fiscal year or on a case by case basis

■ To help ensure the required justification is submitted timely the District will: ■ Include in its (i) fiscal agent agreements for general obligation bonds; (ii) direct pay intercept agreements for Lease Revenue Bonds; and (iii) fiscal agent agreement for TRANs, provisions requiring notice to be given to PDE that the justification required by Act 85 must be submitted to the appropriation committee chairs immediately (if it has not already been submitted) so that the steps necessary for the intercept payment to be made by the applicable debt service payment date can be implemented in sufficient time ■ To comply with the PDE filing requirements the District will file, in the format requested by PDE, schedules of principal and interest payments and payment dates and sinking fund deposit dates for each series of outstanding obligations eligible for the benefit of the intercept provisions, including the Bonds, together with a hard copy of the Official Statement

Debt Overview & Transaction Summary

School District of Philadelphia

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Transaction Overview

General Obligation Bonds, Series 2018A Delivery Date(1) April 18, 2018 Par Amount(1) $251,795,000 Purpose New Money Tax Status Tax-Exempt Maturities(1)

• Sept. 1, 2018-2043

Ratings (M/F) Moody’s: Underlying Ba2 (positive), State-aid intercept: A2 (stable) Fitch: Underlying BB- (stable), State-aid intercept: A+ (negative) Primary Source of Payment

• Daily Deposit of School District Tax Revenues collected by School Tax Collector
• State-Aid Intercept backstop (Pre-Default)

Key Features

• First dollar priority of payment of $1,056mm(1) of School Tax Revenues
• Intercept backstop insulated from potential budget delays

____________________ 1) Preliminary, Subject to Change

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Transaction Summary

School District of Philadelphia

Event Date Post Preliminary Official Statement March 15 Investor Outreach March 15-20 Pricing March 22 Written Award March 22 Closing April 18

* Preliminary; subject to change

Prospective Financing Schedule*

February March April S M T W T F S S M T W T F S S M T W T F S 1 2 3 1 2 3 1 2 3 4 5 6 7 4 5 6 7 8 9 10 4 5 6 7 8 9 10 8 9 10 11 12 13 14 11 12 13 14 15 16 17 11 12 13 14 15 16 17 15 16 17 18 19 20 21 18 19 20 21 22 23 24 18 19 20 21 22 23 24 22 23 24 25 26 27 28 25 26 27 28 25 26 27 28 29 30 31 29 30

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Contact information

Contact Information

School District of Philadelphia

Contact Organization Email

Uri Monson CFO, School District of Philadelphia umonson@philasd.org Tony Griffith Bank of America Merrill Lynch, Senior Manager tony.griffith@baml.com Andre Allen Phoenix Capital Partners, Financial Advisor aallenpcp@aol.com