AgdaPkt 2013-05-06 - Laserfiche WebLink

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6.2.C. - Page 1 RE PO RT To the Honorable Mayor and City Council From the Cit Mana er May 6, 2013 SUBJECT Refund the City of Redwood City Public Financing Authority Lease Revenue Bonds, Series 2003, to be implemented as a private placement transaction with BBVA Compass Bank RECOMMENDATION Adopt, by resolution, authorization for the City Manager to accept an offer from BBVA Compass Bank (Bank) to provide funding to refund the Public Financing Authority's 2003 Lease Revenue Bonds (2003 Bonds). BACKGROUND In 2003 the City sold $11,475,000 lease revenue bonds, of which $5,130,000 remains outstanding. The 2003 Bonds were sold to refinance bonds previously sold in 1998 to finance the acquisition and construction of certain general city infrastructure improvements. The 2003 Bonds mature on July 15, 2018 and may be redeemed with no penalty on or after July 15, 2013. Staff has determined that these bonds may be refinanced (refunded) at lower interest rates which has the potential to produce a net present value (NPV) debt service savings of approximately $300,000, or 9.05% of the par amount of refunding obligations issued assuming an interest rate of 1.52% while the interest rates on the 2003 bonds range from 3.75% to 4.5%. Net present value is a measure of savings that takes into consideration the time value of money. Savings are well above the Government Finance Officers Association's "best practices" recommendation of minimum NPV savings of 3%. The following table summarizes savings. Gross NPV Average Savin s Savinqs' Annual Savinqs Debt Service Savings $2,389,000 $296,000 $300,000 The City typically sells refunding bonds at public sale to refund its bonds. However, the short period of time to maturity on these bonds (five years), the high issuance costs associated with a public offering, and the small size of the transaction make the refunding a good candidate for a negotiated private placement with a bank. Private placements typically have much lower issuance costs, which can, in a circumstance such as this, give them an edge over a public sale. Further, they do not require the City to maintain a debt service reserve fund (DSRF), allowing the existing DSRF ($1.1 1 Net of debt service reserve fund contribution ($1.1 million) and July 15, 2013 debt service contribution ($880,000)to the refunding escrow. See Fiscal Impact section below.