Loading...
HomeMy WebLinkAbout12-13-2011, B4- REFINANCING 2002 WATER REVENUE REFUNDING BONDScounci lj acenba uepout Meeting Date 12-13-1 1 Item Number C I T Y O F S A N L U I S O B I S P O FROM : Charles Bourbeau, Director of Finance & Information Technolog y SUBJECT : REFINANCING 2002 WATER REVENUE REFUNDING BOND S RECOMMENDATIO N Adopt a resolution authorizing the issuance of 2012 Water Revenue Refunding Bonds t o refinance the 2002 Water Revenue Refunding Bonds . DISCUSSIO N Backgroun d The 2002 Water Revenue Refunding Bonds were issued in the aggregate amount of $9,485,00 0 to refinance the City's 1993 Water Revenue Bonds which were used to finance improvements t o the City's Water System including upgrades to the City's Water Treatment Plant . Based on the existing Indenture of Trust, the City has the right to redeem the 2002 Bonds in ful l on any business day at a redemption price equal to 100% of the principal amount outstanding , without premium . This makes it possible to pay off existing bondholders and reissu e replacement bonds at a lower interest rate . Purpose of Refinancing the 2002 Water Revenue Refunding Bond s Interest rates are currently at the point where significant savings can occur by proceeding wit h the refinancing . However, the changing market environment makes the refinancing tim e sensitive as rates could increase . Based on current market conditions the refinancing will resul t in approximately $50,000 in annual debt service savings to the Water Fund with a total "presen t value" savings of about $325,000 over the remaining term of the bonds . The resulting saving s can be used by the Water Fund for other purposes . Debt Management Polic y The proposed refunding for these bonds is consistent with the City's adopted capital financin g and debt management policies . Most notably, the proposed refinancing meets the following key criteria : 1.The projects useful lives are equal to or greater than the term of the financing or refinancing . It is important to note that the refinancing will not extend the original time period of the 200 2 bond issue . The final maturity date remains at 2023 . 2.The proposed refinancing will continue to support an investment grade rating and will b e conducted on a competitive basis . 3.Current market conditions present favorable interest rates for the refinancing . Refinancing 2002 Water Revenue Refunding Bonds Page 2 4.The estimated net present value savings of the refinancing meets the City's policy "trigger," which states that refinancings should be undertaken whenever net present value savings o f 5% can be achieved. The current net present value savings of this refinancing is 5 .03%, however, the actual net present value will fluctuate slightly based on the market condition s on the date the bonds are sold . 5.The refinancing will reduce the resources needed to meet annual debt service requirements . Proposed Refinancing Structur e The City of San Luis Obispo will issue the 2012 Water Revenue Refunding Bonds . To secur e the bonds, the City will covenant to establish and collect rates, fees and charges of the Wate r System sufficient to pay for all operation and maintenance costs of the Water System and to pa y debt service on the 2012 Water Revenue Refunding Bonds . As such, the bonds represent a special obligation of the City payable solely from net revenues of the Water Enterprise Fund an d do not constitute a debt of the City's General Fund . The amount of outstanding bonds to be refinanced is $6,300,000 . The costs associated wit h issuing the bonds (such as bond counsel, financial advisor, trustee and rating agencies), estimate d at approximately $150,000, will be funded from the refinancing . Due to the expected premiu m pricing of bonds, the par amount of the new bond issue will actually decrease and is estimated a t approximately $6 .1 million . Professional Assistanc e In accordance with service agreements previously approved by the Council, bond and disclosur e counsel services will be provided by the law firm of Jones Hall and financial advisor service s will be provided by Fieldman Rolapp . For trustee services, the City contracts with U .S . Bank . Description of Financing Document s The attached resolution approves a variety of documents that are required in order to procee d with the refinancing . The following is a brief description of these documents prepared by th e City's bond counsel (Jones Hall), which are on file in the Council office : 1.Indenture of Trust.This document contains all of the terms and provisions relating to th e refinancing bonds, including prepayment provisions, maturity schedules, rights and remedie s of the bond owners and the trustee in the event of a default . 2.Official Statement.The Official Statement (OS) describes the financing for prospectiv e purchasers of the refunding bonds and constitutes the primary marketing document for th e financing . 3.Escrow Deposit and Trust Agreement.This agreement establishes an Escrow Fund to b e held by U .S . Bank, which will hold the bond proceeds and other funds that are to be used fo r the refunding . Under the agreement, U .S . Bank agrees to send the required redemptio n notice for the 2002 Bonds and to apply the funds held by it thereunder to pay the redemptio n price of the 2002 Bonds . Refinancing 2002 Water Revenue Refunding Bonds Page 3 As reflected in the attached resolution approving these financing documents, the Director o f Finance & Information Technology will be authorized to make minor amendments to these documents as recommended by bond counsel and the financial advisor, and to execute the fina l documents . Competitive Sale of Bonds In accordance with the City's Financial Plan policies, the sale of these bonds will be a competitive process, with the award made to the lowest true interest cost bidder . The attache d resolution authorizes the Director of Finance & Information Technology to make this awar d based on the recommendation of the City's financial advisor . Project Financing Schedule The following outlines key dates in refinancing these bonds : Tas k Council approval of refinancing December 13, Dat e 201 1 Bid opening January 10,201 2 Bond closing and receipt of funds January 24,201 2 2002 Water Revenue Refunding Bonds called February 23,2012 FISCAL IMPAC T As discussed above the average annual debt service savings to the Water Fund as a result of th e refinancing are estimated at approximately $50,000 per year from 2012 to 2023 . ALTERNATIVE Do Not Proceed with the Refinancing .If the refinancing was not pursued, the saving s achievable by taking advantage of current low interest rates would not be obtained . The saving s that will result from the reduced debt service costs can be used by the Water Fund for othe r purposes . As such, we recommend proceeding with the refinancing . ATTACHMENT Resolution approving refinancing the 2002 water revenue refunding bond s AVAILABLE FOR REVIEW IN THE COUNCIL OFFICE 1.Indenture of Trus t 2.Preliminary Official Statemen t 3.Escrow Deposit and Trust Agreement T :\Council Agenda Reports\Finance & IT CAR\Finance\2011\Water Bonds Refinancing\Water Bonds Refinancing CAR .docx Attachment RESOLUTION NO . (2011 Series ) A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISP O AUTHORIZING THE ISSUANCE AND SALE OF WATER REVENUE REFUNDIN G BONDS IN THE PRINCIPAL AMOUNT OF NOT TO EXCEED $6,700,000 TO REFINANC E OUTSTANDING 2002 WATER REVENUE REFUNDING BONDS, AND APPROVIN G RELATED DOCUMENTS AND ACTION S WHEREAS,the City owns and operates a public enterprise for the supply, treatment an d distribution of water within the service area of the City (the "Water System"), and in order t o refinance bonds issued to finance improvements to the Water System, the City has previousl y issued its City of San Luis Obispo 2002 Water Revenue Refunding Bonds in the aggregat e original principal amount of $9,485,000 (the "2002 Bonds"); an d WHEREAS,the City has the right to redeem the 2002 Bonds in full on any business day at a redemption price equal to 100% of the principal amount thereof, without premium, and i n order to provide funds for that purpose and thereby realize debt service savings, the City Counci l wishes at this time to authorize the issuance and sale of City of San Luis Obispo 2012 Wate r Revenue Refunding Bonds in the aggregate principal amount of not to exceed $6,700,000 (th e "Refunding Bonds") under the provisions of Articles 10 and 11 of Chapter 3 of Part 1 o f Division 2 of Title 5 of the California Government Code, commencing with Section 53570 o f said Code (the "Refunding Bond Law"); and WHEREAS,the City Council of the City has duly considered such transactions an d wishes at this time to approve said transactions in the public interests of the City; NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Lui s Obispo as follows : SECTION 1 .Authorization of Refunding Bonds .The City Council hereby authorize s the issuance of the Refunding Bonds in the maximum principal amount of $6,700,000, for th e purpose of providing funds to redeem and discharge the 2002 Bonds in full . The Refunding Bonds shall be revenue bonds which are payable from and secured by a pledge of and lien on th e net revenues of the Water System . The Refunding Bonds shall be issued under and i n accordance with the provisions of the Refunding Bond Law . SECTION 2 .Approval of Indenture of Trust .The Refunding Bonds shall be issue d upon the terms and conditions set forth in the Indenture of Trust between the City and U .S . Bank National Association, as trustee, which is hereby approved in substantially the form on file wit h the City Clerk together with any changes therein or additions thereto deemed advisable by th e Director of Finance and Information Technology . The City Manager is hereby authorized an d directed to execute, and the City Clerk is hereby authorized and directed to attest to, the fina l form of the Indenture of Trust on behalf of the City . SECTION 3 .Approval of Escrow Deposit and Trust Agreement .The 2002 Bonds shal l be refunded under and in accordance with the provisions of the Escrow Deposit and Trust Attachment Resolution No . (2011 Series ) Page 2 Agreement between the City and U .S . Bank National Association, as escrow bank, which i s hereby approved in substantially the form on file with the City Clerk together with any change s therein or additions thereto deemed advisable by the Director of Finance and Informatio n Technology . The City Manager is hereby authorized and directed to execute, and the City Cler k is hereby authorized and directed to attest to, the final form of the Escrow Deposit and Trus t Agreement on behalf of the City . SECTION 4 .Competitive Sale of Bonds .The City Council hereby authorizes an d directs the competitive sale of the Refunding Bonds in accordance with the Notice of Sale i n substantially the form on file with the City Clerk together with any changes therein or addition s thereto deemed advisable by the Director of Finance and Information Technology . The Directo r of Finance and Information Technology is hereby authorized and directed to accept the best bi d for the sale of the Refunding Bonds, as determined in accordance with the Notice of Sale . SECTION 5 .Publication of Notice .Pursuant to Section 53692 of the Government Code , Jones Hall, as bond counsel to the City, is hereby authorized and directed to cause a Notice o f Intention to Sell Bonds, in form and substance acceptable to said firm, to be published once i n The Bond Buyer not later than 15 days prior to the date set for receipt of bids on the Refundin g Bonds . SECTION 6 .Official Statement .The City Council hereby approves and deems nearl y final within the meaning of Rule 15c2-12 of the Securities Exchange Act of 1934, th e preliminary Official Statement describing the Refunding Bonds in the form on file with the Cit y Clerk . The City Manager or the Director of Finance and Information Technology (each, a n "Authorized Officer") is individually authorized, at the request of the purchaser of the Refundin g Bonds, to execute an appropriate certificate affirming the City Council's determination that th e preliminary Official Statement has been deemed nearly final within the meaning of such Rule . Distribution of the preliminary Official Statement by the purchaser of the Refunding Bonds i s hereby approved . An Authorized Officer is hereby authorized and directed to approve an y changes in or additions to a final form of said Official Statement, and the execution thereof by a n Authorized Officer shall be conclusive evidence of approval of any such changes and additions . The City Council hereby authorizes the distribution of the final Official Statement by th e purchaser of the Refunding Bonds . The final Official Statement shall be executed in the nam e and on behalf of the City by an Authorized Officer . SECTION 7 .Engagement of Professional Services .The City Council hereby confirm s the designation of Jones Hall, A Professional Law Corporation, as bond counsel and disclosur e counsel, and the firm of Fieldman, Rolapp & Associates, as financial advisor, in connection wit h the issuance and sale of the Refunding Bonds, in accordance with the existing agreement s between the City and each of such firms . The term of each of such agreements shall remain in effect until terminated by the City in its sole discretion, but not prior to the issuance of th e Refunding Bonds . SECTION 8 .Official Actions .The City Manager, the Director of Finance an d Information Technology, the City Clerk and all other officers of the City are each authorized an d directed in the name and on behalf of the City to make any and all assignments, certificates, Resolution No . (2011 Series ) Page 3 c m e requisitions, agreements, notices, consents, instruments of conveyance, warrants and othe r documents, which they or any of them deem necessary or appropriate in order to consummat e any of the transactions contemplated by the agreements and documents approved under thi s Resolution . Whenever in this Resolution any officer of the City is authorized to execute o r countersign any document or take any action, such execution, countersigning or action may b e taken on behalf of such officer by any person designated by such officer to act on his or he r behalf in the case such officer shall be absent or unavailable . SECTION 9 .Effective Date .This Resolution shall take effect from and after the date o f approval and adoption thereof . Upon motion of , seconded by , and o n the following roll call vote : AYES : NOES : ABSENT : The foregoing Resolution was passed and adopted this 13 th day of December, 2011 . Jan Howell Marx, Mayo r ATTEST : Elaina Can o City Clerk APPROVED AS TO FORM : J . Christine Dietrick City Attorney