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HomeMy WebLinkAbout06-05-2018 Item 02 Water Revenue Bond refinancing 2009 Meeting Date: 6/5/2018 FROM: Derek Johnson, City Manager Prepared by: PFM Consulting Brigitte Elke, Interim Finance Director SUBJECT: BOND DOCUMENTS APPROVING THE SALE OF THE WATER REVENUE REFUNDING BONDS, SERIES 2018 RECOMMENDATION Approve a Resolution (Attachment A) aut horizing staff to proceed with a transaction to issue the City of San Luis Obispo Water Revenue Refunding Bonds, Series 2018 and to execute all necessary documents in connection with the transaction. DISCUSSION The proposed transaction (the “2018 Bonds”) will fully refund the City of San Luis Obispo 2006 Water Revenue Bonds (the “Prior Bonds”) for the purpose of achieving debt service savings. The Series 2006 Bonds are outstanding in the amount of $12,520,000. The 2018 Bonds will be water revenue bonds issued by the City. The debt service will be repaid from Net Revenues that are deposited in the Water Fund. The Resolution will authorize staff to proceed with the transaction provided certain parameters are met. The par amount of the refunding bonds will not exceed $13,000,000, net present value (NPV) savings will be at least 3% of the refunded principal (consistent with the standard industry benchmark), and underwriter’s discount will not exceed 0.5% of the par amount of the bonds. The Resolution also approves the following transaction documents in substantially final form: • Indenture (Attachment B): Between the City and the bond trustee, which sets forth the obligations of the City with respect to payment of the debt service on the bonds, the terms of the bonds, the rights of the bondholders, and the duties of the bond trustee ; • Continuing Disclosure Certificate (Attachment C): Designates the City’s ongoing obligations to disclose financial information to bond investors; • Preliminary Official Statement (Attachment D): Primary disclosure document used to market the 2018 Bonds to investors; • Bond Purchase Agreement (Attachment E): Details terms of the transaction between the City and the underwriter; and • Escrow Agreement (Attachment F): Between the City and the bond trustee, as escrow agent, under which the escrow agent holds the funds to redeem the Prior Bonds and redeems them on the date set for redemption. The financing team will be composed of PFM Financial Advisors LLC (“PFM”) serving as municipal advisor to the City, Raymond James & Associates, Inc. (“Raymond James”) as underwriter, and Orrick, Herrington & Sutcliffe LLP as bond and disclosure counsel to the City. Packet Pg. 39 Item 2 U.S. Bank is the trustee on the Prior Bonds and will continue to serve as trustee and as escro w agent for the 2018 Bonds. Standard & Poor’s (“S&P”) will provide a bond rating. The City may also engage a financial printer, escrow verification agent, escrow bidding agent, and other providers as needed. Upon Council’s approval, staff and the financing team will proceed to execute a bond transaction that meets the parameters defined in the Resolution. The 3% minimum savings parameter is set in order to allow for flexibility to accommodate interest changes prior to the bond pricing (currently anticipated in late June). All savings figures take into account underwriting fees and other transaction costs. The table below shows good faith estimates of key statistics related to the 2018 Bonds based on current market conditions, provided by Raymond James and r eviewed by PFM. It is important to note that conditions may change prior to bond pricing. Value Estimate Notes Par Amount $11,390,000 - True Interest Cost 3.49% Measure of overall interest rate NPV Savings $723,437 (5.78%) - Finance Charges (transaction costs) $290,000 Underwriter’s discount plus costs of issuance Total Proceeds $11,779,000 Price paid for bonds less underwriter’s discount Total Payments $15,747,000 Total debt service The financing is expected to close in early July. FISCAL IMPACT The 2018 Bonds will result in annual debt service savings for the Water Fund. Cash flow savings are estimated to be approximately $975,000 over the term of the 2018 Bonds based on current market conditions. The table below shows annual cash flow saving s. NPV savings are estimated at $723,437, which is 5.78% of the refunded principal. Because the refunding will be structured without a debt service reserve fund, the final maturity of the refunding bonds will be reduced by one year. Packet Pg. 40 Item 2 Fiscal Year 2006 Bonds Debt Service Reserve Release and Interest Earnings* Prior Net Debt Service Refunding Debt Service Savings 6/30/2019 $1,035,348 $40,594 $994,754 $936,856 $57,898 6/30/2020 1,030,873 46,100 984,772 924,213 60,560 6/30/2021 1,035,293 46,100 989,192 929,213 59,980 6/30/2022 1,033,405 46,100 987,305 928,413 58,892 6/30/2023 1,030,400 46,100 984,300 921,813 62,487 6/30/2024 1,031,119 46,100 985,019 924,613 60,406 6/30/2025 1,030,744 46,100 984,644 926,413 58,231 6/30/2026 1,034,275 46,100 988,175 927,213 60,962 6/30/2027 1,031,494 46,100 985,394 922,013 63,381 6/30/2028 1,031,794 46,100 985,694 926,013 59,681 6/30/2029 1,030,744 46,100 984,644 923,813 60,831 6/30/2030 1,033,344 46,100 987,244 925,613 61,631 6/30/2031 1,034,369 46,100 988,269 926,213 62,056 6/30/2032 1,033,819 46,100 987,719 925,613 62,106 6/30/2033 1,030,663 46,100 984,562 923,813 60,750 6/30/2034 1,030,888 46,100 984,787 925,813 58,975 6/30/2035 1,034,263 46,100 988,162 928,563 59,600 6/30/2036 1,030,556 1,081,448 -50,891 0 -50,891 Total $18,583,386 $1,859,643 $16,723,744 $15,746,206 $977,538 * Existing debt service reserve is expected to earn interest annually through 2036 and would then be released in 2036 if no refunding takes place. ALTERNATIVES Staff recommends the Council adopt the Resolution approving the issuance of the 2018 Bonds and all necessary documents in connection with the transaction. It is not possible to predict whether market conditions will be more or less favorable in the future. However, it is impor tant to note that available savings will diminish over time unless interest rates decline because all of the Prior Bonds are currently callable. Packet Pg. 41 Item 2 Attachments: a - Draft Resolution - San Luis Obispo 2018 Water Revenue Refunding Bonds 4154-3230- 4145 4 b - Council Reading File - Indenture San Luis Obispo Water Revenue Refunding 2018 4165-3907-6113 2 c - Council Reading File - Continuing Disclosure Certificate_San Luis Obispo 2018 Water Revenue Bonds 4153-0337-9730 2 d - Council Reading File - Preliminary Official Statement_San Luis Obispo Water Revenue Bonds 2018 4166-0740-7890 7 e - Council Reading File - BPA-2 CLEAN f - Council Reading File - Escrow Agreement (2006 Water Bonds) - City of San Luis Obispo 2018 4128-0083-2019 1 Packet Pg. 42 Item 2 RESOLUTION NO. ___ (2018 SERIES) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO, CALIFORNIA AUTHORIZING THE ISSUANCE, SALE AND DELIVERY OF CITY OF SAN LUIS OBISPO, CALIFORNIA WATER REVENUE REFUNDING BONDS; THE EXECUTION AND DELIVERY OF AN INDENTURE, A BOND PURCHASE AGREEMENT, A CONTINUING DISCLOSURE CERTIFICATE; THE PREPARATION AND DISTRIBUTION OF A PRELIMINARY AND A FINAL OFFICIAL STATEMENT RELATING TO THE AFORESAID BONDS; AND CERTAIN OTHER ACTIONS IN CONNECTION WITH SUCH TRANSACTIONS WHEREAS, City of San Luis Obispo, California (the “City”) has previously issued its City of San Luis Obispo 2006 Water Revenue Bonds in the original aggregate principal amount of $16,905,000 (the “Prior Bonds”) for the purpose of paying for the design, engineering, permitting and construction of certain additions, betterments, extensions and improvements to the City’s water system; WHEREAS, the City is authorized by law to issue refund ing revenue bonds to refinance any obligations theretofore incurred by it; WHEREAS, the City has determined that it is in the best interest of the City and it is necessary and proper for the City to issue its Water Revenue Refunding Bonds, Series 2018 (the “Bonds”) to refund the Prior Bonds, pay costs of issuance of the bonds, and to fund a reserve fund, if deemed necessary; WHEREAS, the City proposes to enter into an Indenture (the “Indenture”) with a U.S. Bank National Association, as trustee (the “Trustee”), pursuant to which the City will issue the Bonds; WHEREAS, the City and Raymond James & Associates, Inc. (the “Underwriter”), as purchaser of the Bonds, will enter into a Bond Purchase Agreement (the “Bond Purchase Agreement”) whereby the Bonds will be sold to the Underwriter; WHEREAS, the City has prepared an official statement relating to the Bonds (the “Official Statement”) in preliminary form for use in connection with the marketing of the Bonds to potential purchasers and for use in final form for distribution to the actual purchasers thereof; WHEREAS, the Council now wishes to further authorize the execution and delivery of an escrow agreement (the “Escrow Agreement”), by and between the City and U.S Bank National Association, as escrow agent, pursuant to which the City will deposit a portion of the proceeds of the Bonds in trust for the payment of the Prior Bonds; Packet Pg. 43 Item 2 WHEREAS, the City Council now wishes to further authorize the execution and delivery of a continuing disclosure certificat e (the “Continuing Disclosure Certificate”) by the City to assist the Underwriter in satisfying their obligations under Rule 15c2 -12 of the Securities Exchange Act of 1934; WHEREAS, there have been made available to the City Council the following document s and agreements: (1) A proposed form of the Indenture; (2) A proposed form of the Bond Purchase Agreement; (3) A proposed form of preliminary Official Statement; (4) A proposed form of the Escrow Agreement; and (5) A proposed form of Co ntinuing Disclosure Certificate; WHEREAS, in compliance with Government Code Section 5852.1, the City Council has obtained from PFM Financial Advisors LLC, as municipal advisor, the certain required good faith estimates and such estimates have been disclosed at this meeting; NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of San Luis Obispo as follows: SECTION 1. The foregoing recitals are true and correct and the City Council hereby so finds and determines. SECTION 2. The City Council hereby approves the issuance of the Bonds by the Authority in an aggregate principal amount not to exceed $13,000,000 to refund the Prior Bonds, including funding a debt service reserve account if deemed necessary and paying costs of issuance and related fees and expenses. The Bonds shall be issued and secured in accordance with the terms of, and shall be in the form set forth in, the Indenture. The Finance Director of the City is hereby directed to perform the duties imposed upon her by the provisions of the financing documents, including the Indenture. SECTION 3. The Indenture, in substantially the form submitted to this meeting, is hereby approved. The City Manager or Finance Director of the City, or the designee of such officer (each, an “Authorized Officer”), each acting alone, is hereby authorized and directed, for and on behalf of the City to execute and deliver the Continuing Disclosure Certificate in substantially the form presented at this meeting, with such changes therein as the officer executing the same may, with the advice of the City Attorney and the City’s bond counsel, require or approve, such approval to be conclusively evidenced by the execution and delivery thereof. The Trustee, dated date, maturity date or dates, interest rate or rates, interest payment dates, denominations, forms, registration privileges, manner of execution, place or places of payment, terms of redemption and other terms of the Bonds shall be as provided in the Indenture, as finally executed ; provided, however that such Bonds shall mature no later than June 1, 2036. Packet Pg. 44 Item 2 SECTION 4. The Continuing Disclosure Certificate, in substantially the form submitted to this meeting, is hereby approved. Any Authorized Officer, each acting alone, is hereby authorized and directed, for and on behalf of the City to execute and deliver the Continuing Disclosure Certificate in substantially the form presented at this meeting, with such changes therein as the officer executing the same may, with the advice of the City Attorney and the City’s bond counsel, require or approve, such approval to be conclusively evidenced by the execution and delivery thereof. SECTION 5. The Bond Purchase Agreement, in substantially the form submitted to this meeting, is hereby approved. Any Authorized Officer, each acting alone, is hereby authorized and directed, for and on behalf of the City, to execute and deliver the Bond Purchase Agreement in substantially said form, with such changes therein as any Authorized Officer, with the advice of the City Attorney a nd the City’s bond counsel, may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof; provided, that the net present value of the debt service savings with respect to the Bonds shall be at least 3.00% of the aggregate principal amount of the Prior Bonds being redeemed and the Underwriter’s discount shall not exceed 0.5% of the aggregate principal amount of the Bonds (exclusive of original issue discount). SECTION 6. The preliminary form of the Official Statement to be used in connection with the offer and sale of the Bonds is hereby adopted and approved, and any Authorized Officer, each acting alone, is hereby authorized to execute and deliver a certificate deeming the preliminary form of the Official Stateme nt (including, if applicable, as modified by any amendment or supplement thereto) “final” within the meaning of Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 and to execute and deliver the same in final form, for and on behalf of the Authority, with such changes therein as the officer executing the same, with the advice of the City Attorney, may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof. SECTION 7. The Escrow Agreement, in substantially the form submitted to this meeting, is hereby approved. Any Authorized Officer, each acting alone, is hereby authorized and directed, for and on behalf of the City to execute and deliver the Escrow Agreement in substantially the form presented at this meeting, with such changes therein as the officer executing the same may, with the advice of the City Attorney and the City’s bond counsel, require or approve, such approval to be conclusively evidenced by the execution and delivery thereof. SECTION 8. The City hereby designates the firm of Orrick, Herrington & Sutcliffe LLP to serve as bond counsel and disclosure counsel, and the firm of PFM Financial Advisors LLC to serve as municipal advisor, each in connection with the issuance, sale and deliv ery of the Bonds. Packet Pg. 45 Item 2 SECTION 9. The officers of the City are hereby authorized and directed, jointly and severally, to do any and all things and to execute and deliver any and all documents, written requests, certificates, and representations, including, without limitation, redemption or defeasance notices, escrow agreements, credit documents, signature certificates, no -litigation certificates, tax certificates, letters of representation relating to book-entry registration and certificates concerning the contents of the Official Statement distributed in connection with the sale of the Bonds , which they may deem necessary or advisable in order to consummate the issuance, sale and delivery of the Bonds or related documents and otherwise to effectuate the pur poses of this resolution. SECTION 10. This resolution shall take effect immediately. 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: ____________________________________ Teresa Purrington City Clerk 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 ______________, _________. ____________________________________ Teresa Purrington City Clerk Packet Pg. 46 Item 2 6/5/2018 1 1 Water Revenue Refunding Bonds Series 2018 Introduction •City Council gave approval to refinance three General Fund bonds on February 20, 2018. •Based on the favorable bond climate; take advantage for one additional bond. •Water Enterprise Fund – 2006 Water Revenue Bond issued for upgrades at the City’s Water Treatment Plant 2 Staff Presentation - Item 2 6/5/2018 2 © PFM 3 Current Municipal Market Conditions On average, tax-exempt rates have been lower than current levels less than 20% of the time since 1993 47.4%41.0%35.0%29.4%22.4%15.3%12.4%9.3%8.9%0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 123456789101112131415161718192021222324252627282930 Current MMD Yields% of Time MMD was Below CurrentMaturity AAA MMD Yield Curve % of Time AAA MMD was Below Current MMD Yield Curve as of 5/31/18 © PFM 4 Proposed Refunding Transaction Refunding of $12.52 million of outstanding Series 2006 water revenue bonds to achieve debt service savings The proposed refunding is expected to generate approximately $998,000 of cash flow savings over the life of the transaction •Estimated savings take into account all costs associated with the transaction Structure assumes uniform annual savings with a shortened final maturity (2035 vs. 2036) Preliminary Numbers Par: $11,390,000 True Interest Cost:3.49% Cash Flow Savings: $997,538 NPV Savings: $723,437 (5.78%) Staff Presentation - Item 2 6/5/2018 3 © PFM 5 Schedule and Finance Team The 2018 Bonds are expected to price in mid-June and close in early July Finance team •Municipal Advisor: PFM Financial Advisors LLC •Bond and Disclosure Counsel: Orrick, Herrington & Sutcliffe LLP •Underwriter: Raymond James & Associates, Inc. Action Item Date Receive rating Week of June 4 Pricing Week of June 11 Closing July 3 Redemption of 2006 Bonds August 3 © PFM 6 Actions of the City Council Resolution of City Council authorizes staff and third-party professionals to execute a transaction that meets the following parameters: •Maximum par amount: $13,000,000 •Aggregate net present value savings: 3.0% of refunded principal •Underwriter’s discount: Not to exceed 0.5% The Resolution also approves the following documents in substantially final form: •Indenture •Continuing Disclosure Certificate •Preliminary Official Statement •Bond Purchase Agreement •Escrow Agreement Staff Presentation - Item 2 6/5/2018 4 © PFM 7 Questions? 8Recommendation Adopt a Resolution entitled “A resolution of the City Council of the City of San Luis Obispo, California authorizing the issuance, sale, and delivery of City of San Luis Obispo, California water revenue refunding bonds; the execution and delivery of an indenture, a bond purchase agreement, a continuing disclosure certificate; the preparation and distribution of a preliminary and a final official statement relating to the aforesaid bonds; and certain other actions in connection with such transactions.” Staff Presentation - Item 2