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HomeMy WebLinkAbout03-06-2018 Item 03 Refunding of the Nacimiento Water Project Revenue Bonds Meeting Date: 3/6/2018 FROM: Xenia Bradford, Finance Director Carrie Mattingly, Utilities Director Prepared By: Brigitte Elke, Utilities Business Manager SUBJECT: REFUNDING OF THE NACIMIENTO WATER PROJECT REVENUE BONDS RECOMMENDATION Adopt a resolution approving certain disclosures regarding the City and authorizing certain actions in connection with the refunding of a portion of the Nacimiento water project revenue bonds by the San Luis Obispo County Financing Authority. DISCUSSION Background The City of San Luis Obispo has been a member of the Nacimiento Water Project since August 2004. The physical features of the project include a pump station, two intermediate pump stations, three storage tanks, a control system, and approximately 45 miles of transmission pipeline ranging from 36- to 12-inches in diameter, with the ability to deliver 15,750 acre-feet of raw water each year to communities within the County. The Nacimiento Project became operational on January 7, 2011. In order to fund construction of the improvements needed to make the water project operational, the San Luis County Financing Authority issued $157,845,000 in Nacimiento Water Project Revenue Bonds, (2007 Series A) and $38,565,000 in Nacimiento Water Project Revenue Bonds (2007 Series B) on September 26, 2007 that were supported by the contributions of the project’s members: City of San Luis Obispo, Atascadero Mutual Water Company, City of Paso Robles, Templeton Community Services District, County Service District Service Area 10, Zone A, and the County Flood Control District. Once the bonds were issued, each participating agency was allocated a portion of the debt and assigned an annual contribution to service that debt. The City’s share of the total annual debt service payment of $12.7 million is $4.7 million or 37%. In 2015, the Financing Authority refinanced a portion of the existing debt (total outstanding is $147.5 million) in order to generate savings for the participants. At that time, only 95% (by maturity) of the callable 2007 Series A Bonds were refinanced. The County Flood Control District, which operates the pipeline and administers the contracts between the participating agencies, is now looking to refinance the remaining 2018-2038 maturities (5% by maturity) and the 2039 and 2040 maturities with 2018 refunding bonds. As with the 2015 refinancing, the action requested here will provide the City’s concurrence to move ahead with the debt financing when and if the required savings level is attainable. It is important to note that the City is not issuing this debt but will be obligated to continue making payments under the existing Take or Pay Water Service Agreement that was entered into at the Packet Pg 21 3 time the City joined the Nacimiento project. The resolution (Attachment A) provided along with this agenda item authorizes the release of a Preliminary Official Statement and approves the form of the Disclosure Agreement. (Attachment B) The first document contains information about the City and specifically about the Water Enterprise Fund and its operations. The second document establishes the content of future reports that the City will be required to provide for use by the bond market as a means of providing updates on the status of the Water Fund’s ability to continue making its payments to the Project. The resolution also identifies the City Manager and the Director of Finance as Authorized Representatives of the City to act on its behalf and execute documents related to the refinancing as needed. CONCURRENCES The Finance Department along with Utilities staff have reviewed the details of the proposed refinancing and concur that it should be allowed to move forward, contingent upon its ability to generate net present value savings of at least 3%. FISCAL IMPACT If the refinancing is completed, it will generate at least 3% net present value savings. The potential annual cash flow savings for the City are expected to be approximately $80,000. ALTERNATIVES The City Council could decline to approve the City’s participation in the refinancing, however this would prevent the entire transaction from moving forward, since the City has responsibility for the largest portion of the debt (60%). This is not recommended since the refinancing is intended to generate annual cash flow savings that benefit the Water Enterprise Fund and ultimately the City’s ratepayers. AVAILABLE FOR REVIEW IN THE COUNCIL OFFICE Draft Preliminary Official Statement- Form of Disclosure certificate is located at page D-23. Attachments: a - Naci Debt Refinance Resolution b - Council Reading File - Draft Preliminary Official Statement Packet Pg 22 3 R ______ RESOLUTION NO. _____ (2018 Series) RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO, CALIFORNIA, IN CONNECTION WITH THE REFUNDING OF THE NACIMIENTO WATER PROJECT REVENUE BONDS, APPROVING CERTAIN DISCLOSURE REGARDING THE CITY AND AUTHORIZING CERTAIN ACTIONS IN CONNECTION WITH SUCH REFUNDING WHEREAS, the City Council (the “Council”) of the City of San Luis Obispo (the “City”) has heretofore entered into a Nacimiento Project Water Delivery Entitlement Contract (the “Delivery Contract”) with the San Luis Obispo County Flood Control and Water Conservation District (the “District”), in connection with the Nacimiento Water Project (the “Project”) for the supply of additional water for the use and benefit of the lands and inhabitants served by the City; and WHEREAS, on September 26, 2007, the SLO County Financing Authority (the “Authority”) issued $157,845,000 Nacimiento Water Project Revenue Bonds, 2007 Series A (the “2007A Bonds”) and $38,565,000 Nacimiento Water Project Revenue Bonds, 2007 Series B (Taxable) (the “2007B Bonds,” and together with the 2007A Bonds, the “2007 Bonds”) in order to finance the Project; and WHEREAS, on August 19, 2015, the Authority issued $107,115,000 Nacimiento Water Project Revenue Refunding Bonds, 2015 Series A (the “2015A Bonds”) in order to refinance a portion of the 2007A Bonds; and WHEREAS, the District and the Authority have determined that it is necessary and desirable to proceed with the refunding of all or a portion of the remaining 2007A Bonds (the “Bond Issue”) through the issuance and sale of Municipal Obligations (as defined in the Delivery Contract); and WHEREAS, in connection with such refunding, the Council has been presented with a form of Preliminary Official Statement, together with an appendix containing statistical and other descriptive information regarding the City (the “Appendix”) and a form of Continuing Disclosure Agreement (the “Continuing Disclosure Agreement”); and NOW, THEREFORE, BE IT RESOLVED, by the Council of the City of San Luis Obispo as follows: SECTION 1. The foregoing recitals are true and correct. SECTION 2. The Underwriter is authorized to use a Preliminary Official Statement and Official Statement, each containing an Appendix A (or a revised form thereof) describing certain statistical and other information of the City in the marketing and sale of the Authority’s Refunding Revenue Bonds (the “Bonds”), based upon information provided and to be provided by the City, with such changes from the form of Preliminary Official Statement submitted to this City Council as the City Manager, Director of Finance, or a designee thereof (each, an “Authorized Representative”) may determine to be in the best interests of the City. The City shall be responsible for notifying the Authority and the Underwriter should any information regarding the City in said Appendix materially change from the time of submission to the closing date of the Bond Issue. Packet Pg 23 3 Resolution No. _____ (2018 Series) Page 2 R ______ SECTION 3. The form of Continuing Disclosure Agreement presented to and reviewed by this meeting of the City Council is hereby approved, and the Authorized Representative of the City is hereby authorized and directed to execute and deliver a Continuing Disclosure Agreement, substantially in the form presented to and approved at this meeting of the Council, with such changes therein as the Authorized Representative and the District may approve, such approval to be evidenced by the signature of said Authorized Representative. SECTION 4. In accordance with SB 450, good faith estimates of the following have been obtained from the Underwriter and are set forth on Exhibit A attached hereto: (a) the true interest cost of the Bonds, (b) the sum of all fees and charges paid to third parties with respect to the Bonds, (c) the amount of proceeds of the Bonds expected to be received net of the fees and charges paid to third parties and any reserves or capitalized interest paid or funded with proceeds of the Bonds, and (d) the sum total of all debt service payments on the Bonds calculated to the final maturity of the Bonds plus the fees and charges paid to third parties not paid with the proceeds of the Bonds. SECTION 5. The Authorized Representatives of the City are hereby authorized and directed, for and in the name and on behalf of the City, to do or cause to be done a ny and all things and take any and all other actions in support of the issuance of the Bonds, including, without limitation, the execution of certificates and ancillary documents and the delivery of opinions on behalf of the City as may be reasonably required by the District, which they, or any of them, deem necessary or advisable in order to consummate the purposes described herein. SECTION 6. This resolution shall take effect immediately upon its adoption. [Remainder of page intentionally left blank.] Packet Pg 24 3 Resolution No. _____ (2018 Series) Page 3 R ______ Upon motion of _______________________, seconded by _______________________, and on the following roll call vote: AYES: NOES: ABSENT: The foregoing resolution was adopted this _____ day of _____________________ 2018. Mayor Heidi Harmon ATTEST: ________________________________ Carrie Gallagher City Clerk Packet Pg 25 3 Resolution No. _____ (2018 Series) Page 4 R ______ APPROVED AS TO FORM: ________________________________ J. Christine Dietrick City Attorney IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, this ______ day of ______________, _________. ____________________________________ Carrie Gallagher City Clerk Packet Pg 26 3 A-1 EXHIBIT A GOOD FAITH ESTIMATES The following information was obtained from Raymond James & Associates, Inc., as the underwriter of the SLO County Financing Authority Nacimiento Water Project Revenue Refunding Bonds, 2018 Series A (the “Bonds”), and is provided in compliance with Senate Bill 450 (Chapter 625 of the 2017-2018 Session of the California Legislature) with respect to the Bonds: It should be noted that the following information constitutes good faith estimates only as of February 7, 2018. The actual interest cost, finance charges, amount of proceeds and total payment amount may vary from the estimates below due to the timing of Bond sale, the amount of Bonds sold, the amortization of the Bonds sold, and prevailing market interest rates at the time of each sale. The date of sale and the amount of Bonds sold will be determined by the Authority and the District based on need for project funds and other factors. The actual interest rates at which the Bonds will be sold will depend on the bond market on the date and at the time of the sale. The actual amortization of the Bonds will also depend, in part, on market interest rates on the date and at the time of the sale. Market interest rates are affected by economic, national, international, and other factors beyond the control of the Underwriter, the Authority, or the District. 1. True Interest Cost of the Bonds. Assuming the maximum aggregate principal amount of the Bonds authorized ($30,000,000) are sold and based on market interest rates prevailing at the time of preparation of this information, a good faith estimate of the true interest cost of the Bonds, which means the rate necessary to discount the amounts payable on the respective principal and interest payment dates to the purchase price received for the Bonds, is 3.73%. 2. Finance Charge of the Bonds. Assuming the maximum aggregate principal amount of the Bonds authorized ($30,000,000) are sold and based on market interest rates prevailing at the time of preparation of this information, a good faith estimate of the finance charge of the Bonds, which means the sum of all fees and charges paid to third parties (or costs associated with the Bonds), is $576,840.31, as follows: a) Underwriter’s Discount $134,975.00 b) Credit Enhancement 90,090.33* c) Bond Counsel and Disbursements 85,000.00 d) Underwriter’s Counsel and Disbursements (Disclosure) 75,000.00 e) Financial Advisor and Disbursements 45,000.00 f) Rating Agencies 59,500.00 g) Other Expenses/contingency (Trustee, Trustee’s Counsel, Printer, demographic information, etc.) 87,274.98 _________________ * A municipal bond insurance policy with respect to the Bonds will be obtained only if economically advantageous to the Authority as determined by an Authorized Officer of the Authority. Packet Pg 27 3 A-2 3. Amount of Proceeds to be received. Assuming the maximum aggregate principal amount of the Bonds authorized ($30,000,000) are sold and based on market interest rates prevailing at the time of preparation of this information, a good faith estimate of the amount of proceeds expected to be received by the Authority for sale of the Bonds less the finance charge of the Bonds described in 2 above and any reserves or capitalized interest paid or funded with proceeds of the Bonds, is $28,536,325.14. 4. Total Payment Amount. Assuming the maximum aggregate principal amount of the Bonds authorized ($30,000,000) are sold and based on market interest rates prevailing at the time of preparation of this information, a good faith estimate of the total payment amount, which means the sum total of all payments the Authority will make to pay debt service on the Bonds plus the finance charge of the Bonds described in paragraph 2 above not paid with the proceeds of the Bonds, calculated to the final maturity of the Bonds, is $45,045,163. Packet Pg 28 3