HomeMy WebLinkAbout3 - WATER BONDSREQUEST FOR
COUNCIL /SANTA ANA
FINANCING AUTHORITY ACTION
CITY COUNCIL MEETING DATE:
AUGUST 5, 2014
TITLE:
UPDATE ON RESULTS OF THE 2004
WATER SYSTEM BONDS ISSUANCE
CITY MANAGER
RECOMMENDED ACTION
Receive and File.
DISCUSSION
CLERK OF COUNCIL USE ONLY:
APPROVED
❑ As Recommended
❑ As Amended
❑ Ordinance on I" Reading
❑ Ordinance on 2nd Reading
❑ Implementing Resolution
❑ Set Public Hearing For
CONTINUED TO
FILE NUMBER
On April 1, 2014, the financing team consisting of City staff, Urban Futures, Inc. (financial advisor),
Stifel /De La Rosa & Co. (underwriters) and Best, Best & Krieger LLP (bond counsel), began the
process of developing and preparing the documents necessary for the issuance of new Water
System Bonds. The bonds to be refinanced were used to finance capital projects relating to the
City's water system. More specifically, the funds were used for the Garthe Reservoir Project, the
South Reservoir Booster Station, as well as various water main replacement projects throughout
the City. The current bonds outstanding are in the amount of $12,785,000 with interest rates
ranging from 3.5% to 5.0 %. The final term for the 2004 Bonds was September 1, 2024.
On July 15, 2014 the City Council authorized the execution of financing documents related to the
refinancing of the 2004 Water Revenue Bonds. On July 9, 2014 a credit presentation was made to
Standard and Poor's that highlighted the City's strong financial position and strong water
enterprise. On July 15, Standard and Poor's issued a report that confirmed the City's strong AA
rating on the bonds. The report highlighted the City's financial operations as strong with a history
of strong debt service coverage. In addition, it referenced the water enterprise's stable operations,
adequate water supply and capacity to meet demand, and rated overall liquidity and financial
operations as strong.
Overall the timing for the issuance for the new bonds has improved tremendously over the past
year and more so over the past few months. 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 as shown below.
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Update Results of 2004 Water
System Bonds Issuance
August 5, 2014
Page 2
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
'AAA' MMD Yield Curve Changes
Date (2119114)
4 7 10 13 16 19 22 25 28
With world events creating investor concern, the resulting effect was increased attention in the
municipal bond market by investors. As a result, Stifel's underwriter, Ben Stern, developed a
marketing program that targeted these investors. Stifel's sales staff highlighted the strong rating for
the bonds, the "essential service" nature of the Water System and the City's strong financial
position. Investors were very responsive to the "City's position ". Based on strong early feedback
from the sales force on the morning of the bond pricing, Mr. Stern took an aggressive approach by
lowering interest rates by .05% (5 basis points) when we formally released the bonds to the sales
force on July 22. By lowering interest rates by the 5 basis points for the 2017 -2022 maturities it
saved the City hundreds of thousands of dollars.
The graph below demonstrates the extent to which the bonds were strongly received and how
orders outweighed what was available.
$ in Millions
$6 Total Par: $15,690,000
$5 - ■ Total Orders: $41,960,000
Oversubscribtion:2.7x's
$4
$3
$2
$1
� Orders Y= Par
20152016201720182019202020212022202320242025202620272028202920302031
Maturity Year
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Update of 2004 Water
System Bonds Issuance
August 5, 2014
Page 3
Stifle indicated that the AA rated issuance even competed with AAA rated bonds in the
oversubscribed years which is rarely achieved. It demonstrates an affirmation by the market of the
City's work on strengthening its financial position and its commitment to building a strong water
system.
The final result demonstrated a successful outcome. Overall it locked the City's overall borrowing
cost at 2.96 %. It will save the enterprise operations over $150,000 annually over the next ten
years and by extending the bonds seven additional years will provide $5.9 million in additional
money for capital projects.
STRATEGIC PLAN ALIGNMENT
Approval of this item allows the City 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).
FISCAL IMPACT
There is no fiscal impact associated with this action.
Francisco Gutierrez
Executive Director
Finance and Management Services Agency
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