Loading...
HomeMy WebLinkAbout11/19/2002, BUS 1 - REFUNDING OF THE 1993 WATER REVENUE BONDS councit MK°,°np 11.19.02 acEnba Repout I..N..6� A C I TY OF SAN L U IS O B I S P O FROM: Bill Statler, Director of Finance Prepared By: Linda Asprion, Revenue Manager SUBJECT: REFUNDING OF THE 1993 WATER REVENUE BONDS CAO RECOMMENDATIONS: Adopt a resolution approving the refunding of the 1993 Water Revenue Bonds. DISCUSSION Overview. Current market conditions present an excellent opportunity to achieve significant interest rate savings by refunding the 1993 Water Revenue Bonds. As discussed in greater detail below, these bonds were issued to finance improvements at the Stenner Canyon water treatment plant. This refunding is very similar to refinancing a home mortgage in order to reduce interest costs. In this case, based on our initial analysis, refunding the 1993 Water Revenue Bonds may reduce total payments made by the Water Fund by as much as $13 million over the remaining term (20 years) of the bonds, or about $60,000 annually on a cash flow basis. (As discussed below, actual savings will depend on market conditions at the time we sell the refunding bonds.) The refunding will not increase the remaining term of the bonds, which will continue to mature in.2023. Background. The 1993 Water Revenue Bonds were originally issued in the.amount of $10,890,000 to finance the improvements to the water treatment plant, which is located on Stenner Creek Road, northwest of the Cal Poly campus. The facility was originally built in 1964 to provide treatment of surface water from Salinas and Whale Rock Reservoirs. The plant was originally designed to treat up to 8 million gallons per day (mgd). In 1977, the plant was upgraded to provide 11.5 mgd of treatment capacity. The 1993 Water Revenue Bonds financed the last upgrade to provide a plant capable of treating 16.0 mgd, a level consistent with the City's Water and Wastewater Element of the General Plan. Additionally, the improvements to the plant increased operational efficiency and allowed the plant to meet new water quality regulations, primarily the 1986 amendments to the Safe Drinking Water Act (SDWA). The obligation of the City to make debt service payments on the bonds is a special obligation of the City payable solely from "net revenues" of the Water Fund, and does not constitute a debt of the City's General Fund. Refunding of the 1993 Water Revenue Bonds. Current market conditions have reduced interest rates to the point that significant savings can occur by proceeding with the refunding. The savings resulting from the reduced debt service costs can be used by the Water Fund for other purposes. 1 i Refunding of the 1993 Water Revenue Bonds Page 2 As noted above, the water revenue bonds were originally issued in the amount of$10,890,000. All principal and interest payments have been and will continue to be made from the Water Fund. The principal amount to be refunded will be $9,260,000. Based on an initial analysis considering market conditions at the time, refunding the 1993 Water Revenue Bonds may reduce total payments made by the Water Fund by as much as $1.3 million (representing a"net present value" of about ($840,600), or $60,000 annually on a cash flow basis for the remaining term (20 years) of the bonds. The refunding will not increase the term of the bonds, which will continue to mature in 2023. Benefits of the Refunding. Under commonly accepted criteria, a refunding should be seriously considered whenever the net present value savings is 3% or higher; and at 5%, they are a definite "go." Based on an initial analysis, the net present value savings for the 1993 Water Revenue Bonds may be as high as 8.6% ($840,600). As noted above, on a cash flow basis, this will reduce the annual debt service payments by$60,000 annually in the Water Fund. Actual savings depend on market conditions when we sell the refunding bonds. It is important to note that the amount of savings from the refunding depends upon the market conditions on the day the bonds are sold. If market conditions decline (from an issuer perspective), the savings could be less. If the refunding does not achieve a net present value savings of at least 5% on the day of sale, we will defer the sale until market conditions improve to this level. As noted, a 5% net present value savings is considered a significant one, and would still generate savings over the next 20 years of about $50,000 annually. Debt Management Policy Links. The proposed refunding for these bonds is consistent with the City's adopted capital financing and debt management policies as set forth in the 2001-03 Financial Plan. Most notably, the proposed refunding meets the following key criteria outlined in this policy: 1. The project's useful life is greater than the original term of the financing. It is important to note that the refunding will not extend the original time period of the bonds, which will continue to mature in 2023. 2. The proposed refunding will continue to support an investment grade rating and will be conducted on a competitive basis. 3. Current market conditions present favorable interest rates for the refunding. 4. The refunding will reduce the resources required to meet annual debt service requirements. Proposed Refunding Structure. The refunding of the 1993 Water Revenue Bonds will not change the original structure of the bond issue. The costs associated with refunding the bonds (such as bond counsel, financial advisor, trustee, rating agency and possible bond insurance) and the debt service reserve (which will continue to be set aside from the proceeds as a payment surety to bond holders in an amount equal to at least one year's debt service payment) will also be funded from the debt financing. Accordingly, the bond issue is sized at an amount not to exceed $10 million to cover all costs. � -a J Refunding of the 1993 Water Revenue Bonds Page Professional Assistance. In accordance with multi-year agreements previously approved by the Council in November 1997, bond counsel services will be provided by the law firm of Jones Hall and financial advisor services will be provided by Fieldman Rolapp. For trustee services, the City contracted with U.S. Bank in 1994 for multi-year services. Description of Financing Documents. The attached resolution approves a variety of financing documents that are required in order to proceed with the refunding. Prepared by the City's bond counsel (Jones Hall), the following is a brief description of these documents, which are on file in the Council offices: 1. Indenture of Trust This document contains all of the terms and provisions relating to the refunding bonds, including prepayment provisions, maturity schedules, rights and remedies of the bond owners and the trustee in the event of a default. 2. Official Statement. The Official Statement (OS) describes, the financing for prospective purchasers of the refunding bonds, and constitutes the primary marketing document for the financing. 3. Escrow Deposit and Trust Agreement. The trust agreement governs the mechanics of refunding the 1993 Water Revenue Bonds. As reflected in the attached resolution approving these financing documents, the Director of Finance is authorized to make minor amendments to these documents as recommended by bond counsel and the financial advisor, and to execute the final documents. Competitive Sale of Bonds. hi accordance with our Financial Plan policies; the refimding bonds will be sold through a competitive process, with the award made to the lowest bidder. The attached resolution authorizes the Director of Finance to make this award based on the recommendation of our financial advisor. Project Financing Schedule. The following outlines key dates in refunding the 1993 Water Revenue Bonds: Council approval of refunding program November 19 Bid opening December 11 Bond closing; Start of reduced debt service schedule December 23 FISCAL IMPACT The 2001-03 Financial Plan Supplement reflects the debt service costs for the original 1993 Water Revenue Bonds. As discussed above; refunding these bonds will decrease debt service costs in the Water Fund by about$60,000 annually. 1 - 3 Refunding of the 1993 Water Revenue Bonds Page 4 ALTERNATIVE Do Not Proceed with the Refunding. Current market conditions have reduced interest rates to the point that significant savings can occur by proceeding with the refunding. The savings that will result from the reduced debt service costs can be used by the Water Fund for other purposes. As such,we recommend proceeding with the refunding. ATTACHMENT Resolution approving refunding of the 1993 water revenue bonds AVAILABLE FOR REVIEW IN THE COUNCIL OFFICE 1. Indenture of Trust 2. Preliminary Official Statement 3. Escrow Deposit and Trust Agreement G:Finance/Refunding 1993 Water Revenue Bonds/Council Agenda Report—Approve Refunding 14 1 i RESOLUTION NO. ATTACHMENT 1 RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO AUTHORIZING THE ISSUANCE AND SALE OF WATER REVENUE REFUNDING BONDS IN THE PRINCIPAL AMOUNT OF NOT TO EXCEED $10,000,000 AND APPROVING RELATED DOCUMENTS AND ACTIONS WHEREAS, the City has previously issued its 1993 Water Revenue Bonds in the aggregate principal amount of $10,890,000 (the "1993 Bonds") for the purpose of financing improvements to the water treatment plant which is used in connection with the water treatment and distribution system of the City(the"Water System"); and WHEREAS, in order to provide interest rate savings the City wishes at this time to refinance the 1993 Bonds, and for that purpose the City Council wishes to authorize the issuance and sale of 2002 Water Revenue Refunding Bonds in the aggregate principal amount of not to exceed $10,000,000 (the "Refunding Bonds") under the provisions of Articles 10 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code, commencing With Section 53570 of said Code (the "Bond Law's; and WHEREAS, the Refunding Bonds will be secured by a pledge of and lien on the net revenues derived by the City from the operation of the Water System, on a parity with the pledge and lien which secures a portion of the obligations of the City under the Second Amended and Restated Lease Agreement dated as of November 1, 2001 (the"2001 Lease Obligations"); and WHEREAS, the City Council wishes at this time to authorize the issuance and sale of the Refunding Bonds for the purpose of refunding the 1993 Bonds, and to approve all related documents and actions; NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo as follows: SECTION 1. Issuance of Bonds. The City Council hereby authorizes the issuance of the Refunding Bonds under the Bond Law in the aggregate principal amount of not to exceed $10,000,000 for the purpose of providing funds to refund all of the outstanding 1993 Bonds. The Refunding Bonds shall be secured by a pledge of and lien on the net revenues derived by the City from the operation of the Water System, on a parity with the pledge and lien which secures the 2001 Lease Obligations. SECTION 2. Approval of Financing Documents. The Council hereby approves each of the following documents in substantially the respective forms on file with the City Clerk together with any changes therein or additions thereto deemed advisable by the Director of Finance, whose execution thereof shall be conclusive evidence of the approval of any such changes or additions: a. Indenture of Trust between the City and U.S. Bank, N.A., as trustee, setting forth the terms and provisions of the Refunding Bonds, including the maturities, interest rates and redemption provisions applicable the Refunding Bonds; and f 1 i Resolution No. Page 2 of 3 b. Escrow Deposit and Trust Agreement between the City and U.S. Bank, N.A., as escrow bank,providing for the investment and administration of funds to refund the 1993 Bonds. The Director of Finance is hereby authorized and directed to execute, and the City Clerk is hereby authorized and directed to attest and affix the seal of the City to, the final form of each of the foregoing agreements on behalf of the City. SECTION 3. Authorization of Competitive Sale of Refunding Bonds. The Council hereby authorizes and directs the competitive sale of the Refunding Bonds in accordance with the Notice of Sale in substantially the form on file with the City Clerk together with any changes therein or additions thereto deemed advisable by the Director of Finance. The Director of Finance is hereby authorized and directed to accept the best bid for the sale of the Refunding Bonds, as determined in accordance with the Notice of Sale. SECTION 4. 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 the Notice of Intention to Sell Bonds, in substantially the form on file with the City Clerk together with any changes therein or additions thereto deemed advisable by the Director of Finance, to be published once in The Bond Buyer, not later than 15 days prior to the date set for receipt of bids on the Refunding Bonds. Pursuant to Section 53583(c) of the Government Code, the City Clerk is hereby authorized and directed to cause the Notice of Intention to Sell Bonds to be published once in a newspaper of general circulation circulated within the boundaries of the City, not later than 10 days prior to the date set for receipt of bids on the Refunding Bonds. SECTION 5. Official Statement. The Council hereby approves and deems nearly final within the meaning of Rule 15c2-12 of the Securities Exchange Act of 1934, the preliminary Official Statement describing the Refunding Bonds in the form on file with the City Clerk. The City Administrative Officer or the Director of Finance (each, an "Authorized Officer") is individually authorized, at the request of the purchaser of the Refunding Bonds, to execute an appropriate certificate affirming the Council's determination that the 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 is hereby approved. An Authorized Officer is hereby authorized and directed to approve any changes in or additions to a final form of said Official Statement, and the execution thereof by an Authorized Officer shall be conclusive evidence of approval of any such changes and additions. The Council hereby authorizes the distribution of the final Official Statement by the purchaser of the Refunding Bonds. The final Official Statement shall be executed in the name and on behalf of the City by an Authorized Officer. SECTION 6. Authorization to Obtain Municipal Bond Insurance. The Council hereby authorizes the Director of Finance to determine whether the Refunding Bonds are eligible for municipal bond insurance and, if so, whether it is in the best interests of the City to obtain such insurance. If the Director of Finance determines that it is in the best interests of the City to obtain municipal bond insurance, the Director of Finance is authorized to determine which lP Resolution No. Page 3 of 3 municipal bond insurer offers the most favorable terms and conditions, to execute a commitment for such insurance and to take all actions required to implement the delivery of such policy. SECTION 7. Official Actions. The City Administrative Officer, the Director of Finance, the City Clerk, the City Attorney and all other officers of the City are each authorized and directed in the name and on behalf of the City to make any and all assignments, certificates, requisitions, agreements, notices, consents, instruments of conveyance, warrants and other documents, which they or any of them might deem necessary or appropriate in order to consummate any of the transactions contemplated by the documents approved pursuant to this Resolution. Whenever in this resolution any officer of the City is authorized to execute or countersign any document or take any action, such execution, countersigning or action may be taken on behalf of such officer by any person designated by such officer to act on his or her behalf in the case such officer shall be absent or unavailable. SECTION 8. Effective Date. This resolution shall take effect from and after the date of approval and adoption thereof. Upon motion of , seconded by and on the following roll call vote: AYES: NOES: ABSENT: the foregoing resolution was adopted on November 19, 2002. Mayor Allen Settle ATTEST: Lee Price, City Clerk APPROVED AS TO FORM: <W/0*474�� /N64sti. J ge n, Attorney � " I