Value Delivered:

KNN Public Finance assisted Santa Clara County in the sale of Tobacco Settlement Asset-Backed Revenue Bonds, Series 2007, in the par amount of $102.03 million.
   
Strategic Implementation:

Taking advantage of a recent market trend, Santa Clara County's financing was secured solely by a pledge of tobacco settlement revenues to be received by the County after 2026. This financing structure preserves the County's ability to use the more secure, pre-2026 tobacco settlement revenues for other purposes while shifting the long-term risk associated with the most uncertain revenues, those to be received from 2026-2056, to investors.

KNN Public Finance structured the tobacco bonds with four series of Capital Appreciation Bonds, rated BBB, BBB-, BB and single-B by Fitch. The bonds are accelerated amortization (turbo) bonds, with a final maturity of 2056 and a final planned amortization of 2046. The transaction also benefited from an extremely aggressive two-month financing schedule. KNN's financial advisors targeted an early January pricing date, ahead of several multi-billion dollar tobacco bond issues to be priced later in January and February. The County benefited from the strength of the general credit markets and the relative lack of supply of high yield paper at this time.
   
Results:

Santa Clara County's tobacco bonds generated approximately $100 million of net proceeds for a critically-needed, multi-year seismic upgrade of Valley Medical Center. KNN played an important role in securing the maximum amount of net proceeds for Santa Clara County. At an initial re-offering yield of only 5.625%, the triple-B rated CABs maturing in 2036 represent the most aggressively-priced tobacco CABs to date on an absolute yield basis. These bonds, representing more than 40% of the loan, benefited from senior lien status and a relatively short maturity. More than 15 institutional buyers participated in this series, including several first-time buyers of tobacco CABs.