3 - JOINT - SAFA - WATER SYS BONDS

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Reso to Refinancing of 2004 Water System Bonds July 15, 2014 Page 2 various water main replacement projects throughout the City. The 2004 Bonds are currently outstanding in the amount of $12,785,000 with interest rates ranging from 3.5% to 5.0 %. The final term of the 2004 Bonds is September 1, 2024. With interest rates on US Treasury Bonds having decreased from 3.0% to 2.5% since the beginning of the year, the municipal bond market has followed suit and has correlated into increased attention in the municipal bond market by investors. In order to benefit from this opportunity, staff is recommending several actions. The item before the City Council relates specifically to refinancing the 2004 Water System Bonds and the financing of an additional $5.8 million for capital related improvements. By taking advantage of low interest rates currently available in the market, staff worked with Urban Futures Inc. (financial advisors) and Stifel /De La Rosa & Co. (underwriters) to develop a financing model whereby long term savings could still be achieved while obtaining additional capital financing for immediate water system needs. The recommended proposal balances those two objectives. As a result, the City will issue approximately $16 million of 2014 Water Revenue Refunding Bonds. Of the $16 million, approximately $12 million will be allocated to the refunding of the 2004 Bonds and approximately $5.8 million will be allocated to finance capital improvements related to the City's water system. The balance of funds will be gained through an estimated premium to be received as a result of the issuance as well as current payment reserves. The recommended action provides for a bond authorizing resolution of a not -to- exceed issuance amount of $17 million, which provides additional cushion in case of unforeseen market fluctuations as well as structuring flexibility to achieve the lowest interest rates possible. The City will save approximately $1.5 million over the life of the bonds which equates to 10% in present value savings of the refinanced bond amount. The recommended action does not increase the term of the current bonds. Like the 2004 Bonds, the 2014 Bonds will be secured by net system revenues of the City's water system less maintenance and operation costs. To date, City staff has been working with the project team and bond counsel to prepare and develop the Preliminary Official statement and all related documents for release. Upon approval, staff will direct the Stifel /De La Rosa & Co. to distribute the official statement and conduct the offering and sale of the 2014 Water System Bonds. STRATEGIC PLAN ALIGNMENT Approval of this item supports the City's effort to meet Goal #4 City Financial Stability, Objective #2 (provide a reliable five -year financial forecast that ensures financial stability in accordance with the strategic plan), Strategy D (conduct an assessment of the City's debt and refinancing options to achieve savings). 3 -2