LAC CAL Audit Report

LOS ANGELES COUNTY CAPITAL ASSET LEASING CORPORATION (A Not-for-Profit Public Benefit Corporation) Basic Financial Statements For the Fiscal Year Ended June 30, 2015 LOS ANGELES COUNTY CAPITAL ASSET LEASING CORPORATION For the Fiscal Year Ended June 30, 2015 TABLE OF CONTENTS Page Independent Auditor's Report ......................................................................................................1 Management’s Discussion and Analysis (Required Supplementary Information - Unaudited) ............................................................................................................3 Basic Financial Statements: Statement of Net Position .............................................................................................................6 Statement of Activities ..................................................................................................................7 Statement of Cash Flows ..............................................................................................................8 Notes to Basic Financial Statements ...........................................................................................10 Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ...............................................................................................20 i LOS ANGELES COUNTY CAPITAL ASSET LEASING CORPORATION Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2015 This management’s discussion and analysis of the Los Angeles County Capital Asset Leasing Corporation (LACCAL) provides an overview of LACCAL’s financial activities for the fiscal year ended June 30, 2015. We recommend that this information be used in conjunction with LACCAL’s audited financial statements. LACCAL is a blended component of a larger governmental unit, the County of Los Angeles. Assets, Liabilities, and Net Position Total assets of LACCAL increased by $19.7 million (27%) from the prior fiscal year. Cash and investments increased by $16.9 million and net investment in direct financing leases increased by $3.0 million, increasing the total assets to $92.6 million. Total liabilities of LACCAL increased by $16.9 million (27%) due in part to net increase of $20.2 million in lease revenue bonds and bond anticipation notes offset by a decrease in payables and other charges of $3.3 million. The net position of LACCAL increased by $2.8 million (30%) due to a greater increase in assets over liabilities. Table 1 Summary of Net Position As of June 30, 2015 and 2014 (In thousands) June 30, 2015 June 30, 2014 Assets Total assets $ 92,649 $ 72,905 Liabilities Current liabilities 25,394 23,799 Long-term debt and bonds payable 54,884 39,564 Total liabilities 80,278 63,363 Net Position Total net position $ 12,371 $ 9,542 3 LOS ANGELES COUNTY CAPITAL ASSET LEASING CORPORATION Management's Discussion and Analysis, continued For the Fiscal Year Ended June 30, 2015 Revenues, Expenses, and Change in Net Position Revenues of LACCAL increased by $0.2 million (7%) from the prior year due to an increase in interest income received from investing activities. Expenses of LACCAL decreased by $0.9 million (60%) from the prior year due to a decrease in interest expense from financing activities and the recognition of total bond issuance costs due to the implementation of Governmental Accounting Standards Board (GASB) Statement No. 65 in the prior year. Transfer of surplus funds of LACCAL decreased by $4.1 million (100%) from the prior year due to a bond that expired in the prior year and distribution of surplus funds in that same year. Table 2 Summary of Changes in Net Position For the Fiscal Years Ending June 30, 2015 and 2014 (In thousands) June 30, 2015 June 30, 2014 Revenues Interest $ 3,433 $ 3,209 Total revenues 3,433 3,209 Expenses Interest 591 1,255 Other expenses 14 244 Total expenses 605 1,499 Change in net position Net income 2,828 1,710 Transfer of surplus funds (4,101) Increase (Decrease) in net position $ 2,828 $ (2,391) 4 LOS ANGELES COUNTY CAPITAL ASSET LEASING CORPORATION Management's Discussion and Analysis, continued For the Fiscal Year Ended June 30, 2015 Debt Management During the year, Bond Anticipation Notes (BAN) payable of LACCAL increased by $40.0 million. The balance at year-end was $47.0 million. Also, LACCAL redeemed Lease Revenue Bonds of $18.6 million, resulting in an outstanding Lease Revenue Bonds balance of $31.4 million. LACCAL uses the notes to purchase equipment, machinery, vehicles, and other tangible personal property for lease to the County of Los Angeles. The equipment is used as collateral to issue bonds. The proceeds from the bonds are used to retire the BANs. The lease payments received are used to service the debt payments on the bonds. For a more complete discussion, please refer to the accompanying “Notes to Basic Financial Statements.” Table 3 Debt Management As of June 30, 2015 and 2014 (In thousands) June 30, 2015 June 30, 2014 Bond anticipation notes $ 47,000 $ 7,000 Lease revenue bonds 31,430 50,050 Subtotal 78,430 57,050 Unamortized Premium 1,134 2,303 Total $ 79,564 $ 59,353 Bond Ratings The LACCAL’s debt is rated by Moody’s, Standard and Poor’s and Fitch. The following is a schedule of ratings: Moody’s Standard and Poor’s Fitch Lease Revenue Bond 2011A A2 A+ A+ Lease Revenue Bond 2014A A2 AA A+ Contacting LACCAL's Financial Management This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of LACCAL's finances and to demonstrate LACCAL's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the County of Los Angeles, Department of Auditor- Controller, 500 West Temple Street, Room 525, Los Angeles, CA 90012. 5 LOS ANGELES COUNTY CAPITAL ASSET LEASING CORPORATION Statement of Net Position June 30, 2015 ASSETS Current Assets Pooled Cash and Investments (Note 2) $ 20,625,926 Interest Receivable 39,811 Total Current Assets 20,665,737 Non-Current Assets Cash and Investments Held by Fiscal Agents (Note 2) 3,052,960 Net Investment in Direct Financing Leases (Note 3) 68,930,746 Total Non-Current Assets 71,983,706 TOTAL ASSETS 92,649,443 LIABILITIES Current Liabilities Accounts Payable and Other Liabilities 472,937 Interest Payable 241,691 Bond Anticipation Notes - Current (Note 4) 7,000,000 Revenue Bonds Payable - Current (Note 4) 17,679,959 Total Current Liabilities 25,394,587 Non-Current Liabilities Bond Anticipation Notes - Due in More Than One Year (Note 4) 40,000,000 Revenue Bonds Payable - Due in More Than One Year (Note 4) 14,884,158 Total Non-Current Liabilities 54,884,158 TOTAL LIABILITIES 80,278,745 NET POSITION Unrestricted 12,370,698 TOTAL NET POSITION $ 12,370,698 See Accompanying Notes to Basic Financial Statements. 6 LOS ANGELES COUNTY CAPITAL ASSET LEASING CORPORATION Statement of Activities For the Fiscal Year Ended June 30, 2015 OPERATING REVENUE Interest Income $ 3,432,907 Total Operating Revenue 3,432,907 OPERATING EXPENSES Interest Expense 590,834 Bond Issuance Costs 3,500 Administrative 10,120 Total Operating Expenses 604,454 Operating Income 2,828,453 Total Net Position, Beginning 9,542,245 Total Net Position, Ending $ 12,370,698 See Accompanying Notes to Basic Financial Statements. 7 LOS ANGELES COUNTY CAPITAL ASSET LEASING CORPORATION Statement of Cash Flows For the Fiscal Year Ended June 30, 2015 Cash Flows from Operating Activities: Principal Collections on Direct Financing Lease $ 25,108,967 Cash Paid for Services and Supplies (10,120) Cash Provided by Operating Activities 25,098,847 Cash Flows from Capital and Related Financing Activities: Proceeds from Sale of Certificates and Notes 40,000,000 Principal Paid on Bonds, Certificates and Notes (18,620,000) Interest Paid on Bonds, Certificates and Notes (1,612,504) Payment of Bond Issuance Costs (148,764) Acquisition of Capital Assets (31,361,987) Cash Used in Capital and Related Financing Activities (11,743,255) Cash Flows from Investing Activities - Interest Income Received 3,445,160 Cash Provided by Investing Activities 3,445,160 Net Increase in Cash and Cash Equivalents 16,800,752 Cash and Cash Equivalents, Beginning 6,878,134 Cash and Cash Equivalents, Ending $ 23,678,886 See Accompanying Notes to Basic Financial Statements. 8 LOS ANGELES COUNTY CAPITAL ASSET LEASING CORPORATION Statement of Cash Flows, continued For the Fiscal Year Ended June 30, 2015 Reconciliation of Operating Income to Net Cash Provided by Operating Activities: Operating Income $ 2,828,453 Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Interest Revenue Classified as Investing Activities (3,432,907) Interest Expense Classified as Capital and Related 590,834 Financing Activities Bond Issuance Cost 3,500 Changes in Assets and Liabilities Increase in Net Investment in Direct Financing Leases Attributable to Operating Activities 25,108,967 Total Adjustments 22,270,394 Net Cash Provided by Operating Activities $ 25,098,847 Reconciliation of Cash and Cash Equivalents: Pooled Cash and Investments $ 20,625,926 Cash and Investments Held by Fiscal Agents 3,052,960 Total Cash and Cash Equivalents $ 23,678,886 Supplemental Disclosure: There were no non-cash investing and financing activities for the fiscal year ended June 30, 2015. See Accompanying Notes to Basic Financial Statements. 9 LOS ANGELES COUNTY CAPITAL ASSET LEASING CORPORATION Notes to Basic Financial Statements For the Fiscal Year Ended June 30, 2015 1. Summary of Significant Accounting Policies General Los Angeles County Capital Asset Leasing Corporation (LACCAL) was organized as a not-for- profit public benefit corporation in February 1983. The purpose was to purchase equipment, machinery, vehicles and other tangible personal properties for lease to the County of Los Angeles (County). LACCAL is governed by a five-member Board of Directors (Board) designated by the Board of Supervisors of the County. LACCAL is included in the County's financial reporting entity and is included as a blended component unit in the County's Comprehensive Annual Financial Report for the year ended June 30, 2015. LACCAL is exempt from the payment of Federal income and California franchise taxes. However, the Fund is subject to the arbitrage restrictions under the U.S. Treasury Regulations Section 1.103, which may result in rebates of excess earnings to the U.S. Treasury Department. Basis of Presentation and Accounting The basic financial statements of LACCAL are prepared in accordance with generally accepted accounting principles (GAAP). LACCAL is accounted for as an enterprise fund (proprietary fund type) using the accrual basis of accounting. A fund is an accounting entity with a self- balancing set of accounts established to record the financial position and results of operations of a specific governmental activity. Revenues are recognized when they are earned and become measurable, and expenses are recorded when they are incurred. Leases are classified as direct financing leases for accounting purposes. Bond premiums and discounts are amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are recognized in the period issued. LACCAL’s financial statements are presented in accordance with the provisions of Governmental Accounting Standards Board Statement (GASB) No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments, GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position and GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. Statement No. 34 established standards for external financial reporting for all state and local governmental entities and Statement No. 63 establishes standards for reporting deferred outflows of resources, deferred inflow of resources, and net position in a statement of financial position. The net position is required to classify into three components – net investment in capital assets, restricted, and unrestricted. These classifications are defined as follows: 10 LOS ANGELES COUNTY CAPITAL ASSET LEASING CORPORATION Notes to Basic Financial Statements, continued For the Fiscal Year Ended June 30, 2015 1. Summary of Significant Accounting Policies, continued Basis of Presentation and Accounting, continued Net investment in capital assets – This component of net position consists of capital assets, including restricted capital assets, net of accumulated depreciation and is reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. If there are significant unspent related debt proceeds at year-end, the portion of the debt attributable to the unspent proceeds is not included in the calculation of invested in capital assets, net of related debt. Rather, that portion of the debt is included in the same net position component as the unspent proceeds. As of June 30, 2015, LACCAL had no capital assets or debt obligations. Restricted net position – This component of net position represents restricted assets net of liabilities that relate to those specific restricted assets. A restricted asset is an asset for which constraints have been placed on the asset’s use by creditors, contributors, laws, or regulations of other governments, or as a consequence of a restriction established by the reporting government’s own governing body at the time a particular fee, charge, levy, or assessment was approved. These restrictions must be narrower than the general purposes for which the reporting government can use its resources. As of June 30, 2015, LACCAL had no restricted net position. Unrestricted net position – This component of net position consists of net position that does not meet the definition of “restricted” or “net investment in capital assets.” As of June 30, 2015, LACCAL had a balance of $12,370,698 of unrestricted net position. Statement No. 65 provides additional accounting and financial reporting guidance for deferred outflows of resources and/or deferred inflows of resources. If applicable, the financial statements will report a separate section for deferred outflows of resources. Deferred outflows of resources represent a consumption of net position that applies to future periods and will not be recognized as an outflow of resources (expense/expenditures) until then. If applicable, the financial statements will report a separate section for deferred inflows of resources. Deferred inflows of resources represent an acquisition of net position that applies to future periods and will not be recognized as an inflow of resources (revenue) until that time. Cash and Investments Investments are reported at fair value. Changes in fair value that occur during a fiscal year are recognized as investment income reported for that year. Investment income includes interest earnings, changes in fair value and any gains or losses realized upon the liquidation or sale of investments. 11 LOS ANGELES COUNTY CAPITAL ASSET LEASING CORPORATION Notes to Basic Financial Statements, continued For the Fiscal Year Ended June 30, 2015 1. Summary of Significant Accounting Policies, continued Cash and Investments, continued For the purpose of the Statement of Cash Flows, cash and cash equivalents include all highly liquid investments (including restricted assets) with maturity of three months or less when purchased. Revenues and Expenses Operating revenues consist of interest received from direct financing leases. This interest revenue is an integral part of the programs of LACCAL and is the primary source for paying the expenses of LACCAL. Operating expenses consist of interest expense on lease revenue bonds and bond anticipation notes as well as administrative expenses to operate LACCAL. All LACCAL expenses are related to operating the programs. New Accounting Pronouncement The following Governmental Accounting Standards Board (GASB) Statements have been implemented in the current financial statements and had no financial reporting impact. GASB 68 Accounting and Financial Improves accounting and financial reporting Reporting For Pensions-An by state and local governments for pensions Amendment of GASB and improves information provided by state Statement No. 27 and local governmental employers about financial support for pensions that is provided by other entities. GASB 69 Government Combinations and Establishes accounting and financial Disposals of Government reporting standards related to government Operations combinations and disposals of government operations. GASB 71 Pension Transition for Addresses the issue related to amounts Contributions Made Subsequent associated with contributions made by state to the Measurement Date—an or local government employer or non- amendment of GASB Statement employer contributing entity to a defined No. 68 benefit pension plan after the measurement date of the government’s beginning net pension liability. 12 LOS ANGELES COUNTY CAPITAL ASSET LEASING CORPORATION Notes to Basic Financial Statements, continued For the Fiscal Year Ended June 30, 2015 2. Cash and Investments Statutes authorize LACCAL to invest in obligations of the United States Treasury, federal agencies, municipalities, and commercial paper rated A-1 by Standard & Poor’s Corporation or P-1 by Moody’s Commercial Paper Record, bankers’ acceptances, repurchase agreements and reverse repurchase agreements, including the County Treasurer’s Investment Pool. As provided by the State of California Government Code, substantially all cash balances of LACCAL are pooled and invested by the County Treasurer and are subjected to withdrawal from the pool upon demand. LACCAL's share of the total pooled cash and investments of the County Treasurer is included in the accompanying balance sheet under “Pooled Cash and Investments.” The difference between LACCAL’s carrying value in the investment pool and their proportional share of the fair value of the underlining securities is not material to the financial statements of LACCAL. Included in Pooled Surplus Investments portfolio are United States government and agency obligations, bankers’ acceptance, commercial paper, municipal obligations, corporate and deposit notes, repurchase agreements, and negotiable certificates of deposit. Investments are valued at cost, which approximates market value. Interest earned on pooled investments is allocated monthly to LACCAL based upon LACCAL's average daily deposit balance during the allocation period. Any investment losses are proportionately shared by all entities participating in the pool as a reduction in interest earnings. Pooled Cash Money Market and Investments Funds Total Current Asset - Pooled Cash and Investments $ 20,625,926 $ $ 20,625,926 Cash Investments held by Fiscal Agents 3,039,690 13,270 3,052,960 Total $ 23,665,616 $ 13,270 $ 23,678,886 Custodial Credit Risk The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, LACCAL will not be able to recover the value of its investment or collateral securities that are in the possession of another party. As of June 30, 2015, LACCAL’s investments consisted of money market fund shares and other qualified investments in the amount of $13,270 and investments pooled with the County Treasurer in the amount of $23,665,616 which represents 0.10% of the total County pooled investments. The investments held by the trustees are not exposed to custodial credit risk since they are in LACCAL’s name. Likewise, the deposits pooled with the County are not exposed to custodial credit risk since all of its deposits are either covered by the federal depository insurance or collateralized with securities held by the County or its agent in the County’s name, in accordance with California Government Code Section 53652. 13 LOS ANGELES COUNTY CAPITAL ASSET LEASING CORPORATION Notes to Basic Financial Statements, continued For the Fiscal Year Ended June 30, 2015 2. Cash and Investments, continued Concentration of Credit Risk Concentration of credit risk is the risk associated with the amount of investments the LACCAL has with any one issuer that exceeds five (5%) percent or more of its total investments. Investments in money market mutual funds are excluded from this requirement. Furthermore, investments with the County Treasurer are subject to a policy that establishes minimum acceptable credit ratings for investments from any two nationally recognized statistical rating organizations. Also, the County Treasurer mitigated the risks by holding a diversified portfolio of high quality investments. As of June 30, 2015, LACCAL was not exposed to concentration of credit risk. Credit Risk Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by the trust agreement, and the actual rating as of year-end. Investment Type Held by Rating as of Bond Trustee Amount Minimum Rating June 30, 2015 Money Market Funds $ 13,270 Am/Aaa Aaa County Pooled Funds 3,039,690 Total $ 3,052,960 At June 30, 2015, the County Treasurer did not exceed its investment policy limitations since no more than 5% of total market value of the pooled funds was invested in securities of any one issuer, except for obligations of the United States government, U.S. government agencies or government-sponsored enterprises. No more than 10% was invested in one money market mutual fund. Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. In general, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. LACCAL does not have a formal policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates, except for bills of exchange or time drafts with maturity dates not to exceed 270 days and commercial paper with maturity dates not to exceed 180 days. Information about the sensitivity of the fair values of the LACCAL’s investment held by trustees to market rate fluctuations is provided by the following table that shows the distribution of their investments by maturity: 14 LOS ANGELES COUNTY CAPITAL ASSET LEASING CORPORATION Notes to Basic Financial Statements, continued For the Fiscal Year Ended June 30, 2015 2. Cash and Investments, continued Interest Rate Risk, continued Remaining Maturity (in Months) Investment Type 12 Months 13 to 24 25 to 60 More than Held by Trustee or Less Months Months 60 Total Months Qualified Investments $ $2,045,138 $1,007,822 $ $3,052,960 The County Treasurer mitigates exposure to declines in fair value by investing in short-term investments with maturities of six months or less and by holding asset investments to maturity. The investment guidelines limit the weighted average maturity of its portfolios to less than 18 months. At June 30, 2015, 52.42% have a maturity of six months or less, 2.51% have a maturity of between six and twelve months, and 45.07% have a maturity of more than one year. 3. Net Investment in Direct Financing Leases The main purpose of LACCAL is to lease equipment, vehicles and other tangible personal properties to the County of Los Angeles. Lease terms generally range from three to five years and are close to the useful life of leased assets. A special lease term of seven years was allowed in 2011 for acquisitions of helicopters which have longer useful life than other equipment. The net investment at June 30, 2015 is as follows: Total Minimum Lease Payments Receivable $ 73,876,308 Less: Unearned Interest Income (4,945,562) Net Investment in Direct Financing Leases $ 68,930,746 Minimum lease payments to be received under the lease provisions are as follows: Year Ending June 30 Amount 2016 $ 27,469,428 2017 23,996,285 2018 14,567,688 2019 6,308,683 2020 1,376,117 2021 158,107 Total $ 73,876,308 15 LOS ANGELES COUNTY CAPITAL ASSET LEASING CORPORATION Notes to Basic Financial Statements, continued For the Fiscal Year Ended June 30, 2015 4. Long-Term Debt Bond premiums and discounts are amortized over the life of the bonds using the effective interest rate method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are recognized in the period issued. Long-term liabilities for the year ended June 30, 2015 are as follows: Additions Deletions Balance Amortized Balance Amounts Due at Principal Principal Premiums at Within June 30, 2014 Additions Repayments (Discount) June 30, 2015 One Year Lease Revenue Bonds 2011 Series A (#28) $ 4,253,317 2,835,000 148,618 $ 1,269,699 $ 1,269,699 2011 Series A (#29) 17,031,769 6,445,000 496,878 10,089,891 7,102,027 2014 Series A (#30) 31,068,119 9,340,000 523,592 21,204,527 9,308,233 Subtotal 52,353,205 18,620,000 1,169,088 32,564,117 17,679,959 Bond Anticipation Notes Notes Payable #31 7 ,000,000 40,000,000 47,000,000 7,000,000 Subtotal 7,000,000 40,000,000 47,000,000 7,000,000 Total $ 59,353,205 40,000,000 18,620,000 1,169,088 $ 79,564,117 $ 24,679,959 Revenue Bonds Lease Revenue Bonds, 2011 Series A On December 6, 2011, LACCAL issued $55,475,000 of Lease Revenue Bonds, with interest rates of 1.5% to 5%, to partially retire $80,500,000 of bond anticipation notes. These mature serially December 1 and June 1 each year and interest is payable on December 1 and June 1. The following is a summary of interest and principal payable for the 2011 Series A Lease Revenue Bonds: Principal Payable Interest Payable Year June 1 December 1 Total June 1 December 1 Total 2015 $ $ 4,195,000 $ 4,195,000 $ $ 274,250 $ 274,250 2016 3,830,000 2,945,000 6,775,000 169,375 73,625 243,000 Plus Unamortized Premium 389,590 Total $11,359,590 $ 517,250 16 LOS ANGELES COUNTY CAPITAL ASSET LEASING CORPORATION Notes to Basic Financial Statements, continued For the Fiscal Year Ended June 30, 2015 4. Long-Term Debt, continued Revenue Bonds, continued Lease Revenue Bonds, 2014 Series A On June 17, 2014, LACCAL issued $29,800,000 of Lease Revenue Bonds, with interest rates of 2% to 3% to partially retire $49,000,000 of bond anticipation notes. These mature serially December 1 and June 1 each year and interest is payable on December 1 and June 1. The following is a summary of interest and principal payable for the 2014 Series A Lease Revenue Bonds: Principal Payable Interest Payable Year June 1 December 1 Total June 1 December 1 Total 2015 $ $ 4,495,000 $ 4,495,000 $ $ 306,900 $ 306,900 2016 4,370,000 4,180,000 8,550,000 239,475 173,925 413,400 2017 3,140,000 2,900,000 6,040,000 111,225 64,125 175,350 2018 1,375,000 1,375,000 20,625 20,625 Plus Unamortized Premium 744,527 Total $21,204,527 $ 916,275 Bond Anticipation Notes (BANs) LACCAL bond anticipation notes are purchased as an investment by the County Treasury Pool in accordance with the terms of the "Resolution of the Board of Directors of the LACCAL Corporation” adopted on June 24, 1986. Later, the resolution was revised to the “Resolution of the LACCAL Reauthorization A Program for the Issuance of Bond Anticipation Notes to Finance Equipment, Increasing the Amount Thereof and Providing Additional Security for the Repayment Thereof” which was adopted by the County on February 10, 1995. Proceeds from these notes are used to purchase equipment, machineries and vehicles and other tangible personal properties. The interest rate is based upon the pricing of the six-month U.S. Treasury Bill plus one-half of one percent (0.50%) at the time of the draw, and then adjusted to changes in that rate on a reset date. A reset date is January 2 and July 1 of each year. Adjustments will be made to the Treasury Rate on two reset dates following the initial draw. The interest rate for draws which remain unpaid on the third reset date will convert on that date to the Bank of America prime rate and will be reset quarterly thereafter. Interest on these notes is payable to the Treasury Pool on January 2 and July 1. The principal and remaining interest on the notes are payable upon issuance of leasehold revenue bonds prior to maturity of the notes. Authorized BANs remaining in a fiscal year may be carried over to a subsequent fiscal year to fund equipment acquisitions received in the fiscal year following the one in which they were initiated. The maximum aggregate principal amount of these notes authorized by the Board during the fiscal years ended June 30, 2015 and 2014 was $23,500,000 and $50,500,000, respectively. 17 LOS ANGELES COUNTY CAPITAL ASSET LEASING CORPORATION Notes to Basic Financial Statements, continued For the Fiscal Year Ended June 30, 2015 4. Long-Term Debt, continued Bond Anticipation Notes (BANs), continued Bond anticipation notes outstanding at June 30, 2015 mature on the following dates: Maturity Date Amount June 30, 2016 $ 7,000,000 June 30, 2017 40,000,000 Total $ 47,000,000 Bond anticipation notes are secured by annual base rental payments from various County departments for use of the equipment or facilities constructed or purchased from the note proceeds. 5. Conduit Debt Obligations The County of Los Angeles utilizes the LACCAL to periodically issue lease revenue obligation notes (LRON) to finance construction costs for the County. LRON provides the County with a flexible and cost-effective source of financing to provide interim funding during the initial construction phase of a capital project, which may be refinanced with the issuance of long-term bonds. Repayment of LRON are secured by three irrevocable direct-pay letters of credit (LOC) from separate banks supporting the issuance of LRON and a revolving credit facility with an additional bank supporting the issuance of direct placement revolving notes. This program is secured with twenty-four County-owned properties pledged as collateral in a lease revenue financing structure with the LACCAL. The LOCs were issued for a three-year period and have a termination date of April 18, 2016. The County has the option to extend the LOCs for an additional one-year period, or to some other term mutually agreed to with the participating banks. The aggregate maximum principal amount of the three LOCs is $450,000,000, which consists of $150,000,000 of callable Series A (JP Morgan), $100,000,000 of Series B (U.S. Bank), $200,000,000 of Series C (Wells Fargo), and $150,000,000 direct placement revolving credit facility of Series D (Bank of America). As of June 30, 2015, $341,860,000 of LRON issued under the program were outstanding, including $80,000,000 of Series A, $100,000,000 of Series B, $161,860,000 of Series C. LRON does not constitute an indebtedness of LACCAL and is payable solely by the County of Los Angeles. LRON is not payable from any revenues or assets of LACCAL, and LACCAL is not obligated to the payment of the principal or interest on LRON. Accordingly, no liability has been recorded in the accompanying basic financial statements. 18 LOS ANGELES COUNTY CAPITAL ASSET LEASING CORPORATION Notes to Basic Financial Statements, continued For the Fiscal Year Ended June 30, 2015 6. Related Party Transactions The County of Los Angeles maintains the books and records of LACCAL, including the investment with the County Treasurer. Transactions with the County The County is responsible for performing all administrative and operational functions for LACCAL. Costs related to these functions are absorbed by the County’s General Fund. Accordingly, LACCAL has no salaries and employee benefit expenditures or supplies inventory. Any surplus gained from lease revenues collected from County departments are transferred back to the County after bond maturation. 7. Subsequent Event LACCAL has evaluated subsequent events through December 31, 2015, which is the date the financial statements were available to be issued. LACCAL concluded that no subsequent events have occurred that would require recognition or disclosure in the financial statements. 19