LEGACY TRADITIONAL - SUMMARY REPORT.PDF

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LEY RLOCK One North Central Avenue, Suite 1200
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John J. Fries
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Direct Fax: 602-257-6919
E-mail: jfries@rcalaw.com
August 6, 2020
To: Board of Supervisors Board of Directors
Maricopa County, Arizona The Industrial Development Authority

of the County of Maricopa

Re: —Not-to-Exceed $48,000,000 — The Industrial Development Authority of
the County of Maricopa Education Revenue Bonds (Legacy Traditional
Schools Projects)

Ladies and Gentlemen:

At the Authority Board meeting on August 11, 2020, the Authority Board will be
asked to grant final approval to a not-to-exceed $48,000,000 in bond financing for the Legacy
Traditional Schools Projects and to adopt a resolution authorizing the issuance and sale of the
Authority’s bonds, in one or more series (the “2020 Bonds”). This letter provides a summary of
the proposed financing.

THE AUTHORITY

The Authority is an Arizona nonprofit corporation, formed with the permission of
Maricopa County and incorporated under and pursuant to the Arizona Industrial Development
Financing Act, Title 35, Chapter 5, Arizona Revised Statutes, as amended (the “Act’’), and the
Authority is designated by law to be a political subdivision of the State of Arizona.

LEGACY TRADITIONAL SCHOOLS

Legacy Traditional Schools (“LTS”) is a system of charter schools operating in
Arizona and Nevada, serving students in kindergarten through eighth grade. A listing of the
Legacy System Schools is attached as Table A-1 (which includes the schools involved in this
proposed financing located in the Supervisorial Districts 2 and 3). The Legacy Schools are
“back-to-basics” schools that focus on reading, writing and math and include a strong technology
component. Each of the charter schools is operated pursuant to an individual charter school
contract with the Arizona State Board for Charter Schools or the Nevada State Public Charter
School Authority. Each school is an nonprofit corporation and a tax-exempt organization
described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, except for a
few of the newer schools that are processing their applications with the IRS for recognition as an

4758666.1
08/06/20

Board of Supervisors RYLEY CA R LOCK
Maricopa County, Arizona Attorneys
Board of Directors

of The Industrial Development Authority

of the County of Maricopa
August 6, 2020

Page 2

organization described in Section 501(c)(3) of the Code. The charter schools are managed by
Vertex Education, LLC, a related party to the Borrower.

THE OBLIGATED GROUP

The Legacy Schools used bond financing under various bond issuances to finance
their growth and expansion. In 2014, The Industrial Development Authority of the City of
Phoenix, Arizona, issued its Education Facility Revenue Bonds under a Master Indenture of
Trust dated as of May 1, 2014 (the “Master Indenture”) that created an Obligated Group
consisting of certain Legacy Schools that lent their collective credit to the financing. The Master
Indenture allowed additional schools to be added to the Obligated Group under certain terms and
conditions as the Legacy Schools expanded and additional bonds were issued. In the years that
followed, certain Legacy Schools were added to the Obligated Group under various
supplemental indentures.

In December 2019, the Authority issued $141,945,000 in revenue bonds as
Obligation Number 5 under the Master Indenture to support the expansion of several schools in
Arizona and Nevada, which were added to the Obligated Group. The Applicant/Borrower, LTS
- Chandler, seeks approval of the 2020 Bonds on behalf of itself and as representative of the
Obligated Group, including LTS-Deer Valley, LTS-Mesa and LTS-East Tucson, which will be
added to the Obligated Group. The proposed Obligated Group is identified on Table A-1.

THE PROJECT

The Authority will loan the 2020 Bond proceeds to the Applicant under a Loan
Agreement and Applicant will use the proceeds of the Series 2020 Loan, along with other funds,
for various purposes detailed in the bond documents, including the following (collectively, the
“2020 Project”):

(i) finance the cost of acquiring the land comprising a portion of the Deer
Valley Campus, located at 2747 West Union Hills Drive, Phoenix,
Arizona, from an unrelated third-party and constructing, improving and
equipping charter-school facilities thereon for use in connection with the
operation of the Deer Valley School;

(ii) finance the cost of acquiring the land comprising a portion of the East
Tucson Campus, located at 9290 East Golf Links Road, Tucson, Arizona,
from an unrelated third-party and constructing, improving and equipping
charter-school facilities thereon for use in connection with the operation of
the East Tucson School;

Board of Supervisors

RYLEY CARLOCK

HITE

Maricopa County, Arizona Attorneys

Board of Directors

of The Industrial Development Authority

of the County of Maricopa
August 6, 2020
Page 3
(iii) finance the cost of acquiring the land comprising a portion of the Mesa

(iv)

(v)

(vi)
(vii)

(viii)

Campus, located at the southeast corner of McKellips Road and Val Vista
Drive in Mesa, Arizona, from an unrelated third-party and constructing,
improving and equipping charter-school facilities thereon for use in
connection with the operation of the Mesa School;

refinance certain other obligations and finance certain operating expenses
and additional equipment for the Obligated Group Members;

reimburse the Obligated Group for certain capital expenditures made by
the Obligated Group for the 2020 Project;

fund capitalized interest on all or a portion of the Series 2020 Bonds;
fund a debt service reserve fund for the Series 2020 Bonds; and

pay certain issuance expenses related to the Series 2020 Bonds.

NOTIFICATION TO ARIZONA ATTORNEY GENERAL

As required by the provisions of Arizona Revised Statutes, Section 35-721.F, the
Authority will notify the Arizona Attorney General of the Authority’s intention to issue the 2020

Bonds.

ALLOCATION FOR TAX EXEMPT FINANCING

No allocation of the Arizona “volume cap” is required for the issuance of the
2020 Bonds since the 2020 Bonds are being issued and treated as governmental bonds that are
exempt from the requirements of obtaining volume cap.

FINANCING PARTICIPANTS

The major participants in the financing are as follows:

Issuer:

Issuer Counsel:

The Industrial Development Authority of the County of
Maricopa

Ryley Carlock & Applewhite, a professional corporation

Applicant/Borrower and
Obligated Group Representative: Legacy Traditional School - Chandler

Board of Supervisors

Maricopa County, Arizona

Board of Directors
of The Industrial Development Authority
of the County of Maricopa

August 6, 2020

Page 4

Bond Trustee:

Master Trustee:

Bond Underwriter:

Bond Counsel:
Applicant/Borrower Counsel:

Bond Underwriter Counsel:

Ballard Spahr, LLP

RYLEY CARLOCK
&APPLEW aes

Wilmington Trust, National Association
Wilmington Trust, National Association
RBC Capital Markets, LLC

Engelman Berger, PC

Warren Charter Law, PLC

PRINCIPAL FINANCING DOCUMENTS

Document
Bond Indenture (the “2020 Indenture”)

Series 2020 Loan Agreement (the “2020 Loan
Agreement’)

Fifth Supplemental Master Indenture of Trust
Obligation No. 6 (the “2020 Obligation”)

Supplemental Master Indenture of Trust for Obligation
No.6

Deed of Trust, Security Agreement, Assignment of
Rents and Leases and Fixture Filing on various parcels
(the “2020 Deeds of Trust”)

Preliminary and Final Limited Offering Memorandum
Tax Certificate and Agreement

Bond Purchase Agreement

Parties
Issuer and Trustee

Borrower and Issuer

Borrower and Master Trustee
Borrower

Borrower and Master Trustee
Various Obligated Group
Members

Borrower and Bond Underwriter

Issuer and Borrower

Borrower, Issuer and Bond
Underwriter

Board of Supervisors RYLEY CA R LOCK
Maricopa County, Arizona Attorneys
Board of Directors

of The Industrial Development Authority

of the County of Maricopa
August 6, 2020
Page 5

PLAN OF FINANCING

The 2020 Bonds will be issued in one or more tax exempt and taxable series in an
aggregate principal amount of not to exceed $48,000,000. Subject to approval of a pending
application, the Series 2020A Bonds will be credit enhanced by the Arizona Credit Enhancement
Eligibility Board under the Arizona Public School Credit Enhancement Program that guarantees
payment of the bonds or a portion thereof under certain terms and conditions. The Series 2020B
Bonds will not be credit enhanced.

The 2020 Bonds will be issued under and pursuant to the 2020 Indenture as
permitted under the terms and provisions of the Master Indenture, which permits additional
bonds to be issued provided the Borrower meets certain terms and certifications. The Authority
will loan proceeds from the sale of the 2020 Bonds to the Borrower pursuant to the terms of the
2020 Loan Agreement and evidenced by the 2020 Obligations. The Borrower will be obligated
to make loan repayments in amounts and at such times as required to pay principal and interest
on the 2020 Bonds on their respective due dates.

The obligations of the Borrower to make periodic loan repayments as well as to
perform the other obligations of the Borrower will be secured under the Master Indenture equally
by revenues and collateral pledged by the Obligated Group for the benefit of all obligations
under the Master Indenture, including the 2020 Deeds of Trust. The Master Indenture will be
modified and supplemented to recognize the obligations created under the 2020 Loan Agreement
and 2020 Obligations.

The 2020 Bonds will be underwritten by the Bond Underwriter and offered by it
for sale pursuant to a Preliminary Limited Offering Memorandum and Final Limited Offering
Memorandum. It is anticipated that the credit enhanced bonds will be rated AA- and the
unenhanced bonds will be rated Ba2. The Tax Certificate and Agreement will be executed by
the Bond Issuer and Borrower to evidence various agreements aimed at establishing and
preserving the tax exempt status of the 2020 Bonds.

FINAL APPROVAL

At the Authority Board meeting on August 11, 2020, the Authority Board will be
asked by the Applicant/Borrower to grant final approval to the application for financing and to
adopt a resolution authorizing the issuance and sale of the 2020 Bonds.

BOARD OF SUPERVISORS APPROVAL

Under the provisions of the Act, specifically A.R.S. § 35-721.B., the proceedings
under which the 2020 Bonds of the Authority are to be issued require the approval of the

RYLEY CARLOCK

Board of Supervisors & A P WHITE
Maricopa County, Arizona Attorneys
Board of Directors

of The Industrial Development Authority

of the County of Maricopa
August 6, 2020
Page 6

Maricopa County Board of Supervisors for each issuance of bonds. If the Authority Board acts
to grant final approval for the financing and to adopt a resolution authorizing the issuance and
sale of the 2020 Bonds, the Maricopa County Board of Supervisors will be requested to act as
required by law to adopt a resolution approving the proceedings of the Authority for the issuance
of the 2020 Bonds.

Under the provisions of the Act, specifically A.R.S. § 35-742, Maricopa
County is not in any event liable for the payment of principal or interest on bonds issued by
the Authority or for the performance by the Authority of any pledge, mortgage, obligation
or agreement of any kind undertaken by the Authority and bonds of the Authority or any
of its agreements or obligations shall not be construed to constitute an indebtedness of
Maricopa County within the meaning of any constitution or statutory provision.

TRANSACTION CLOSING

If the required approvals of the Authority Board and the Maricopa County Board
of Supervisors are received, it is currently anticipated that the 2020 Bonds will be issued on or
about October 1, 2020. At the time the 2020 Bonds are issued, it is anticipated the designated
Bond Counsel will deliver its written opinion to the effect the 2020 Bonds have been validly
issued and that as to the portion of the 2020 Bonds designated as being tax-exempt, the interest
on the 2020 Bonds is exempt from federal and Arizona income taxation and that as to the portion
of the 2020 Bonds that are not designated as tax-exempt, the interest on such 2020 Bonds will be
exempt from Arizona income taxation.

LEGAL COUNSEL RECOMMENDATION

As counsel to the Authority, we have reviewed drafts of the principal financing
documents, we have been advised that these documents are now in substantially final form, and
based upon our review of such and our review of the proceedings to date relating to the proposed
issuance of the 2020 Bonds, we believe the financing documents and proceedings are in
substantial conformance with the policies and guidelines of the Authority and are in both form
and substance acceptable for the Authority Board and Maricopa County Board of Supervisors to
act upon and that the Resolution presented to the Authority Board relating to authorizing the
issuance and sale of the 2020 Bonds, and related matters, and the Resolution of the Maricopa
County Board of Supervisors will be asked to adopt are in form and substance acceptable for the
adoption.

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