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<br />straightforward redemption, amortization, and interest rate features. The proposed PFA <br />bonds will meet these tests. Such bonds are easily marketed and attract widespread <br />investor interest. Two weeks prior to the sale the City will advertise the bond issue and <br />distribute the preliminary official statement and official notice of sale to all of the major <br />bond underwriting firms in the country. A number of those firms will bid on the bonds, <br />either alone or in syndicates on the sale date. The winner will then redistribute the <br />bonds via its distribution system. <br /> <br />The City's prior bond issues have been negotiated. Bond issues that may require <br />special marketing efforts due to unusual or lower quality credit features (such as <br />variable interest rates, zero coupons, and unrated assessment and Mello-Roos bonds) <br />benefit from the extensive pre-marketing that a negotiated sale affords. Likewise, bond <br />issues that are sensitive to interest rates (such as refundings) and require precise <br />market timing are best negotiated. All of the City's prior bond issues since <br />approximately 1997 have had characteristics that met the test for a negotiated sale. <br />[The City's Seaport assessment district and Redwood Shores Mello-Roos bonds were <br />all unrated bonds best sold on a negotiated basis. The variable rate feature of the City <br />Hall COPs also required a negotiated sale. The capital appreciation (zero coupon) <br />interest rate structure used for the Redevelopment Agency's 2003 tax allocation bonds <br />also benefited from a negotiated sale format. And finally, the last two PF A bond sales <br />were bond refundings of prior bond sales and benefited from the more precise market <br />timing that a negotiated sale allowed.] <br /> <br />Bond Documents <br />A description of the bond documents can be found in Attachment III. The indenture of <br />trust, the installment purchase contract, the official notice of sale, and the continuing <br />disclosure certificate are available in the City Clerk's Department for your review. The <br />preliminary official statement is included in this package as Attachment IV for your <br /> <br />. <br /> <br />review. <br /> <br />Next Steps <br />Staff expects to sell bonds in February. The first debt service payment will be in August <br />2005, and no FY 2004/05 budget amendment will be necessary. <br /> <br />Fiscal Impact <br />This bond issue will raise approximately $32.7 million of net proceeds for recycled water <br />project expenditures to be incurred over the next 12 months, and will allow the water <br />capital project fund to repay $8.3 million to the water operating fund for prior capital <br />appropriations advanced for this project. Restoration of the water fund's operating <br />reserve is considered by staff and consultants to be critical to maintaining a fiscally <br />sound enterprise operating fund. Failure to restore the operating reserve to its <br />recommended level could have adverse consequences to the underlying rating on the <br />bonds that would increase the interest cost to the City on future bond issues that will be <br />necessary to complete the funding for this project. Staff expects this project to require <br />approximately $51.3 million more to complete construction, and if all financing were to <br /> <br />4 <br />