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Agenda Item: 12(c) |
Prepared By: Guillermo A. Polanco, CPA |
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Business: Bond Refinancing |
Department: Finance |
Subject:
Title
A Resolution to Issue the 2016 Series Bonds to Refund the 2010A Series Bonds and Legally Defease the 2010B Bonds
Body
BACKGROUND:
On September 6, 2016 staff advised City Council of the cost saving opportunity associated with refunding the 2010A Series Bonds and 2010B Series Bonds. City Council is requested to approve a resolution refinancing the Series 2010A and paying off 2010B Utility System Revenue Bonds due to current favorable market conditions. The offering of the bonds will be carried out through a negotiated sale, consistent with how the City has sold most bonds in the past. A negotiated sale requires that an underwriter be hired so that the firm can pre-market the bonds before the City enters the market.
Notwithstanding market conditions, it is expected that the Preliminary Official Statement will be posted and printed by October 26th and the Bonds priced during the week of October 31st. Tentatively the closing of the bond deal will be carried out during the week of November 21st.
The 2016 Series will be issued on parity with the City’s Utility System Revenue Bonds, Series 2010A, originally issued in the aggregate principal amount of $50,475,000 and currently outstanding in the aggregate amount of $44,270,000 and Series 2010B, originally issued in the aggregate principal amount of $7,365,000 and currently outstanding in the aggregate amount of $6,225,000.
FUNDING SOURCE / FISCAL IMPACT: Water and Sewer operating revenue derived from rates are pledged as debt service payments of principal and interest for 2010A and 2010B Series. The estimated savings in debt service will have a positive effect on future Utility budgets by reducing the annual amount of principal and interest by an annual average of $228,685 net of fees over 24 years for the 2010A Bonds and $664,413 net of fees over the remaining 17 years for the 2010B Bonds. The total cost of the issuance including bond counsel, bond disclosure counsel, and the underwriters amounts to approximately $295,149 or an annual cost $12,298 over the remaining 24 years of the bond. The defeasance of the 2010B bonds will be funded by water and wastewater impact fees in the amount of $5,300,000 and $626,898 from the released reserves with the remainder of $1,583,178 from operating reserves.
RECOMMENDATION: Authorize the refinancing of the 2010A and 2010B Bond Series in order to save approximately $5,488,439 related to the 2010A principal and interest debt service payments over the remaining 24 year term of the bonds and $10,630,601 related to the 2010B principal and interest debt service payments over the remaining 17 year term of the bonds. The refunding also releases approximately half of the restricted debt service reserves related to the 2010A in the amount of $3,261,938 with the remainder released in 2020. In addition, the full amount of the 2010B Series Bonds reserves of $626,898 will be released at closing for a grand total of released reserves in the amount of $3,888,836.
POTENTIAL MOTION: “I move to approve Resolution 16-XX authorizing the issuance of the 2016 Bond Series in order to refund the 2010A Bond Series with the 2016 Bonds Series and pay down the 2010B Bond Series.”