To: Honorable Mayor and Members of Town Council
From: Michael J. Hyman, Town Attorney
Trish Muller, CPA, Finance Director
Title
Ordinance Authorizing the Issuance of the Town of Castle Rock, Colorado, Taxable Sales and Use Tax Revenue Refunding Bonds, Series 2020; Pledging a Portion of the Sales and Use Tax Revenues of the Town for the Payment of the Bonds; and Providing for the Refunding Certain of the Town's Outstanding Sales and Use Tax Revenue Bonds (Second Reading - Approved on First Reading on August 18, 2020 by a vote of 7-0)
Body
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The Ordinance was approved on first reading on August 18, 2020 by a vote of 7 to 0 with no changes.
Executive Summary
Efficient and effective management of this debt is an important aspect of the Town’s financial management planning and, for the Transportation Fund, a key piece in addressing the Town’s long-term needs for surface transportation. Based on a review of the Town’s current debt, an opportunity was identified to lower overall carrying costs on the Series 2013 Sales and Use Tax Revenue Bonds through a bond refunding, resulting in a potential positive impact on the Transportation Fund’s debt service requirements.
Taking advantage of this opportunity, staff has been working with the Town’s financial advisors, First Southwest, to review the 2013 Sales and Use Tax Revenue Bonds, 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 a present value of approximately $2.15 million or 13.1% of the refunded par amount over the life of the issuance.
Staff is presenting the refunding project and the related parameters for Town Council’s approval.
Discussion
Annually, the Town reviews all outstanding debt as part of its due diligence to ensure that the Town is engaging in the best debt management practices obtaining the lowest interest rates available in the market. In cooperation with the Public Works Department, Finance staff specifically reviewed the debt of the Transportation Funds. Outstanding principal debt is as follows, as of June 30, 2020:
2013 Sales and Use Tax Revenue Bonds:
• Principal Outstanding: $18,015,000
• Interest Rate: 1.5% - 5%
• Maturity Date: June 1, 2035
• Purpose: Finance a portion of the North Meadows Extension
2016 Sales and Use Tax Revenue Bonds
• Principal Outstanding: $6,075,000
• Interest Rate: 3.75% - 6%
• Maturity Date: June 1, 2028
• Purpose: Finance portions of the Southeast and Southwest Arterial Connection Roads.
The overall effect of this interest cost savings would be to generate a net future value savings in debt service of approximately $2.53 million (after all costs of issuing such refunding bonds). In present value dollars, the net savings is approximately $2.15 million, again, net of all issuance costs. Preliminary numbers on this refunding are attached to this memorandum. The timing of the savings, either recognizing the majority of the savings in the early years or recognizing the saving over the life of the bond, has not yet been determined.
The Town believes that this is an opportune time to advance refund the Series 2013 Bonds. Please note that, because this is an advance refunding, federal law requires that interest on the refunding bonds is taxable. Notwithstanding this fact, as a percentage of outstanding principal, the percentage savings is anticipated to be 13.1%, which exceeds the 5.0% threshold that the Government Finance Officers Association (“GFOA”) believes is a “good” refunding.
The process for this advance refunding involves working with the Town’s financial advisors and 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. Town Council will have to approve the issuance of the refunding bonds by adoption of a bond ordinance, which requires two readings.
The bond ordinance presented for Town Council’s consideration grants authority to the Mayor, Town Manager, and Finance Director to finalize the issuance and sale of the refunding bonds within the following parameters:
• The aggregate principal amount of the Series 2020 Bonds shall not exceed $21,000,000
• The maximum annual repayment cost of the Series 2020 Bonds shall not exceed $2,300,000
• The total repayment cost of the Series 2020 Bonds shall not exceed $26,000,000;
• The Series 2020 Bonds shall mature no later than June 1, 2035;
• The purchase price of the Series 2020 Bonds shall not be less than 99% of the principal amount of the Series 2020 Bonds;
• The first optional redemption date on the Series 2020 Bonds shall not be later than June 1, 2030; and
• The optional redemption price shall not exceed 100% of the principal amount of the Series 2020 Bonds so redeemed.
Although there is no specified interest rate cap presented in the ordinance, the TABOR Amendment requires that the refunding bonds have a lower interest rate than the bonds being refunded.
Should any change in the bond market or the national economy arise that would prevent the Town from completing the refunding within the parameters set by the bond ordinance or an interest rate lower than the existing bonds, staff will delay the issuance and sale until all such parameters are met and the anticipated savings realized. In the event that the parameters cannot be met and such savings are not realized, the Town would not be liable for any expense associated with the proposed transaction.
Budget Considerations
The re-issuance of the 2020 Sales and Use Tax Revenue Bonds will create savings over the life of the refunding bonds is approximately $2.53 million or $2.15 million at net present value.
Staff Recommendation
Staff recommends that Town Council approve the Ordinance as written.
Recommended Motion
I move to approve on second reading Ordinance 2020-013 Authorizing the Issuance of the Town of Castle Rock, Colorado, Taxable Sales and Use Tax Revenue Refunding Bonds, Series 2020; Pledging a Portion of the Sales and Use Tax Revenues of the Town for the Payment of the Bonds; And Providing for the Refunding Certain of the Town’s Outstanding Sales and Use Tax Revenue Bonds.
Attachments
Attachment A: Ordinance
Attachment B: Preliminary Official Statement
Attachment C: Registrar and Paying Agent Agreement
Attachment D: Escrow Agreement
Attachment E: Continuing Disclosure Certificate
Attachment F: Bond Purchase Agreement
Attachment G: Preliminary Refunding Calculations