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<br />The potential refunding was discussed with the Council Finance/Audit Committee at the <br />October 10, 2016 meeting. The committee approved staff’s recommendation to explore <br />the Water Revenue Bonds refunding and to engage the public finance professionals <br />recommended to assist with the requisite analysis. On October 24, 2016 the City <br />Council authorized the retention of the financing team. Staff has retained the financing <br />team of William Euphrat Municipal Finance, Inc. as municipal advisor, Jones Hall as <br />bond counsel, and Quint and Thimmig as disclosure counsel. <br /> <br />The resolutions before the Council will approve, in substantially final form, the following <br />bond documents in connection with the issuance of the 2017 bonds: <br />1. An Installment Purchase Contract (City and PFA); <br />2. An Indenture of Trust (PFA); <br />3. A Continuing Disclosure Agreement with the trustee for the 2017 Bonds (City); <br />4. A Preliminary Official Statement and its distribution (City and PFA); <br />5. An Official Notice of Sale (City and PFA); <br />6. A form of Bond Purchase Agreement (PFA). <br /> <br />ANALYSIS <br />The Plan of Finance <br />The bond market is volatile at present, and long-term interest rates have risen nearly <br />100 basis points (1%) since early November, 2016. W hile good credit water revenue <br />bonds are often sold competitively, refundings are frequently sold on a negotiated basis <br />in volatile markets with rising interest rates. This allows more precise timing of the sale <br />and can better ensure a successful outcome that produces meaningful savings. <br /> <br />The approving resolution will allow for either a competitive or a negotiated bond sale, <br />and designates authority to the City Manager to select the method of sale. If sold <br />competitively, the City will advertise for bids and sell the bonds to the underwriter that <br />submits the bid with the lowest true interest cost, a measure of interest cost that takes <br />into account the time value of money. If negotiated, the City Manager, with advice from <br />the City’s municipal advisor and municipal bond legal counsel, will select a qualified <br />municipal bond underwriter and negotiate interest rates, reoffering yields, and an <br />underwriting discount such that the refunding achieves net present value savings of at <br />least 3%; Government Finance Officers Association (GFOA) recommended “best <br />practices” is 3% minimum NPV savings. <br /> <br />The bond resolution will authorize the City Manager to accept the best bid in a <br />competitive sale so long as it produces net present value savings of at least 3%, or to <br />complete a negotiated bond sale so long as the par amount of bonds does not exceed <br />$12,200,000, the underwriting discount does not exceed 1.5%, and the net present <br />value savings are at least 3%. <br /> <br />Anticipated Savings <br />Savings are driven by interest rate levels and the demand for the City’s bonds on the <br />day they are sold. The City’s water enterprise bonds are rated Aa3 by Moody’s <br />8.C. - Page 2