AgdaPkt 2012-12-03 - Laserfiche WebLink

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6.2.B. - Page 2 The savings are possible because interest rates have declined since the Prior Debt interest rate of 5.13% was established in July, 2009. BAWSCA's underwriter estimates that BAWSCA's net cost to repay the Prior Debt will be approximately 3.7%. By replacing the 5.13% Prior Debt with BAWSCA bonds yielding interest at 3.7%, members that participate in the BAWSCA bond issue realize debt service savings. Requested Action Each Member electing to have BAWSCA prepay its share of the Prior Debt is asked to adopt a resolution. Adoption of the resolution memorializes the Member's election to participate in the prepayment of the Prior Debt and directs the Member's staff to assist BAWSCA in completing the issuance of bonds by BAWSCA. The resolution requires certain certifications relating to Redwood City's outstanding water revenue bonds, which have been reviewed by Redwood City's bond counsel and its City Attorney. Each has determined that the City can make these certifications. FISCAL IMPACT Because BAWSCA does not have a water enterprise and has never issued bonds before, its bonds will have a unique credit structure that markets have not previously encountered. Exactly how the bonds will be rated and how investors will receive them is not known with the degree of precision that financing professionals can usually convey to their clients prior to the issuance of the rating and the pricing of the bonds. BAWSCA's financial advisor expects it to receive a rating of A or better. Redwood City's financial advisor concurs that this is a reasonable expectation. In order to repay the Prior Debt, BAWSCA will issue a combination of taxable and tax- exempt revenue bonds. Taxable bonds are necessary to fund that portion of the transaction that benefits Stanford University and California Water Service Company, neither of which can take advantage of tax-exempt bonds for this transaction. The blended cost on this debt will be shared by Members in proportion to their respective water purchases in the form of a water purchase surcharge that will be rolled into the wholesale water rate each Member pays San Francisco. The water purchase surcharges will be forwarded to a bond trustee that will use this revenue to pay debt service on the bonds. The bonds will be secured solely by the water purchase surcharges and a stabilization fund initially funded with bond proceeds, and not by the water enterprise revenues of the Members or of San Francisco. BAWSCA bonds will not be debt obligations of any Member, and BAWSCA's failure to pay its bonds will not constitute a default by any Member. Should any Member fail to pay its water purchase surcharge, BAWSCA will rely on a stabilization fund (which will be funded from bond proceeds at 50% of maximum annual debt service) that will serve as a debt service reserve fund and be used to make debt service payments in the year of the shortfall, and will collect the shortfall in the subsequent year from Members by adjusting the water purchase surcharge. BAWSCA and San Francisco will be required to pursue legal remedies against the defaulting Member to enforce their obligation to pay water purchase surcharges.