To: Honorable Mayor and Members of Town Council
From: Trish Muller, Director of Finance
Title
Ordinance: Authorizing the Issuance and Sale of Water and Sewer Enterprise Revenue Refunding Bonds, Series 2015, In An Aggregate Principal Amount Not To Exceed $6,200,000 Payable Solely Out Of The Net Pledged Revenues To Be Derived From The Operation Of The Town's Water and Sewer Enterprise; Providing Other Details Concerning The Bonds, Including, Without Limitation, Covenants And Agreements In Connection Therewith; Providing Other Matters Relating Thereto; And Providing For Its Emergency Adoption on Second and Final Reading (Second Reading)
Body
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Executive Summary
This Ordinance was approved as presented on first reading on May 5, 2015, by a vote of 6 to 0, with no changes
Annually the Town reviews all existing outstanding debt as part of our due diligence to ensure we are being as effective and efficient as possible; this means that the Town is obtaining the best prices and investment practices available in the market. In cooperation with the Utilities Department, Finance staff specifically reviewed the debt for each of the Utilities Enterprise Funds. Outstanding principal debt by enterprise is as follows, as of 4/30/15:
Water Fund Total $14,663,200 in outstanding principal:
· Water and Sewer Revenue Refunding Bonds - Series 2006 $6,725,000 in outstanding principal at 4% fixed interest rate
· Water and Wastewater Revenue Refunding Bonds - Series 2012 $7,938,200 in outstanding principal at 2.6% fixed interest rate
Water Resources Fund Total $66,115,000 in outstanding principal:
· Water Resources Certificates of Participation 2008 $66,115,000 with variable interest rate below 2% to date but can go to 12%
Wastewater Fund Total $2,506,800 in outstanding principal:
· Wastewater Revenue Refunding Bonds - Series 2012 $2,506,800 at fixed interest rate of 2.6%
· Plum Creek Water Reclamation Authority has $12,083,890 in outstanding principal attributable to Castle Rock' Wastewater Fund as well (not included in total above)
Efficient and effective management of this debt is an important aspect of Utilities financial management planning and for the Water Resources fund a key piece of the long term water plan puzzle. Based on current debt, an opportunity was identified to lower overall carrying costs for two of the enterprises through a refunding project for existing water and sewer revenue bonds, resulting in a potential positive impact to long term customer rates.
Taking advantage of this opportunity, Staff has been reviewing the 2006 Water and Sewer Bonds the past few months, under the premise that a significant amount of annual savings could be achieved. Based upon current market conditions, staff is estimating an overall savings at Present Value of approximately $237,700 and average annual savings at Present Value of $20,610. The bond refunding project and associated bond ordinance for Council's consideration will only move forward if the net effective rate of interest is equal to or less than 3.7%. The key aspects of this proposed bond ordinance were reviewed with Utilities Commission at the April 2015 meeting, and Utilities Commission unanimously recommended Council approve the ordinance.
Discussion
The Town has been discussing the possibility of advance refunding the callable portion of the Town's Water and Sewer Enterprise Revenue Bonds, Series 2006. The Bonds are callable on 12/1/2017 at par. The 2006 Bonds maturing 2017 - 2026 in the outstanding principal amount of $5,820,000 have current interest rates ranging from 3.75% - 4.02%, with an average interest rate of 3.903%. At the time of issuance of the Series 2006 Bonds, the Bonds had an underlying rating of "A3" by Moody's Investors Service and were insured by Financial Guaranty Insurance Company ("FGIC") and rated "Aaa". The 2006 Bonds were not rated by Standard & Poor's Corporation.
Given the current interest rate environment, interest rates are at historic lows, and although the Series 2006 have their first available call date of 2017, we are able to advance refund those callable bonds today and save a significant amount of interest cost savings. Currently we expect that we would be able to issue refunding bonds at an effective rate of between 0.4% - 2.77%, with an average net interest rate of 2.546%.
The overall effect of this interest cost savings would be to generate a net future value savings in debt service of approximately $271,200 (after all costs of issuing such refunding bonds), or about $23,583 reduction yearly. In present value dollars, the net savings is approximately $237,700 again, net of all issuance costs. Preliminary numbers on this refunding are attached to this memorandum. The Town believes that this is an opportune time to advance refund the Series 2006 Bonds. As a percentage of outstanding principal the percentage savings is 4.077%, which compared to the 3.0% threshold that the Government Finance Officers Association ("GFOA") believes is a "good" refunding.
The process for proceeding with this advance refunding involves working with bond counsel to develop the financing documents for the refunding bonds as well as the preparation of a preliminary and final official statement, which acts as the offering document for the sale of the bonds. We will also present the refunding bonds to both rating agencies and expect that we will receive the same rating as they recently assigned during our rating trip ("AA" and "A1"). Town Council will have to approve the issuance of the refunding bonds by adoption of a bond ordinance, which requires two readings. The staff plans to request an emergency adoption on Second reading, in order to re-issue the bonds with the interest rates currently available. Should interest rates increase during this time and we are unable to complete the refunding within the interest cost parameters the Town Council sets, we would wait until such savings could be reached. In the event such savings are not reached, the Town would not be liable for any expense associated with the proposed transaction.
Budget Considerations
The re-issuance of the 2006 Water and Sewer bonds will create an approximate annual savings at Present Value of $20,610.
Staff Recommendation
Staff recommends that Town Council approve Ordinance as written.
Recommended Motion
"I move to Approve An Ordinance Authorizing the Issuance and Sale of Water and Sewer Enterprise Revenue Refunding Bonds, Series 2015, In An Aggregate Principal Amount Not To Exceed $6,200,000 Payable Solely Out Of The Net Pledged Revenues To Be Derived From The Operation Of The Town's Water and Sewer Enterprise; Providing Other Details Concerning The Bonds, Including, Without Limitation, Covenants And Agreements In Connection Therewith; Providing Other Matters Relating Thereto; And Providing For Its Emergency Adoption on Second and Final Reading."
Attachments
Attachment A: Ordinance
Attachment B: Timeline