Laserfiche WebLink
Page 3 of 6 <br />City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.org <br />ANALYSIS <br />The Plan of Finance: The 2013 Bonds were sold with 10 years of call protection during which time the <br />2013 Bonds could not be optionally redeemed. That protection has expired and the PFA and the City now <br />have an opportunity to sell refunding bonds at a lower debt service cost than the outstanding 2013 Bonds <br />and to use the proceeds of the refunding bonds to redeem the 2013 Bonds. The City’s debt policy is to <br />achieve a minimum net present value (NPV) savings of at least 3% of the par amount of bonds sold for <br />refunding bond sales. NPV savings are total future savings (after paying transaction costs) that have been <br />discounted into present (2024) dollars. <br />The bond resolution will authorize the City Manager to complete a negotiated bond sale so long as the <br />par amount of bonds does not exceed $16,260,000, the underwriting discount does not exceed 1.5% and <br />the net present value savings are at least 3%. <br />Anticipated Savings: Savings are driven by interest rate levels and the demand for the 2024 Bonds on the <br />day they are sold. The City’s water enterprise bonds are rated Aa2 by Moody’s Investors Service and AA <br />by S&P Global, which are considered strong credit ratings. Because good credit quality utility revenue <br />bonds are in high demand at present, demand for the 2024 bonds should be robust, although market <br />conditions and competing bond sales on the day of the sale will influence the results of the sale. <br />NPV savings are presently estimated at approximately $1,572,765, or 9.88% of the amount of refunding <br />bonds sold, just over three times the Government Finance Officers Association (GFOA) recommended <br />“best practices” 3% minimum NPV savings. The City’s debt policy also requires minimum NPV savings of <br />3%. The NPV savings calculation has taken into account the costs of issuance and underwriter’s discount, <br />together totaling approximately $245,000, and which would be paid at the closing from the bond <br />proceeds. If, after the 2024 Bonds are priced, the refunding does not produce NPV savings of at least 3%, <br />the 2013 Bonds will not be refunded at this time, and the City would be able to conduct the sale at a later <br />date. <br />The 2005, 2006, and 2007 Bonds were refunded with savings of 4.57%, 10.57%, and 9.65%, respectively. <br />The annual debt service savings on the 2013 bonds is estimated to average approximately $177,000 per <br />year for the 10-year life of the 2024 Bonds, which is equal to the remaining life of the 2013 Bonds. The <br />total savings over the 10-year period is estimated at more than $1.7 million. <br />Future Capital Needs: The water utility’s capital spending needs are sufficiently modest at present that <br />Public Works believes that no additional debt is necessary to fund these expenditures. Consequently, <br />there is no new-money component to the refunding plan. Should longer term capital requirements exceed <br />the enterprise’s ability to fund capital improvements on a “pay-go” (pay-as-you-go) basis, debt service <br />coverage after the proposed refunding of the 2013 Bonds is projected to be sufficiently high that the <br />enterprise should be strong enough to sell additional debt at that time. Depending on interest rates at the <br />time any such bonds are sold, every $1 million of required project funding will add approximately $75,000 <br />of annual debt service expense. <br />8.A. - Page 3 of 255 <br />631