AgdaPkt 2013-05-20 Closed Cancelled and Special

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7.A. - Page 2 Prior Council Actions This refunding was discussed with the Council Finance Committee (Council Members Jeff Ira, lan Bain, and John Seybert) at their February 25, 2013 meeting. The Committee approved the Finance Director's recommendation to explore refunding these bonds and to engage the public finance professionals to assist with the requisite analysis. The Committee also directed staff to present this to the Council Utilities Committee for review and consideration. The City Council subsequently authorized the retention of financing professionals at their March 25, 2013 Council meeting. The Council Utilities Committee (Council Members Rosanne Foust, Jeff Ira, and John Seybert) met on April 17, 2013 to review the plan of finance for the Bonds and recommended the bond documents be presented to the full Council for consideration. ANALYSIS The Plan of Finance The proposed refunding bonds will use the same legal structure used to sell the original bond issues, and like the original bonds, will be offered for sale to underwriters pursuant to a sealed bid electronic auction (a competitive sale). The PFA will sell the bonds to the underwriter that submits the bid with the lowest true interest cost, a measure of interest cost that takes into account the time value of money. Savings are driven by interest rate levels and the demand for the PFA's bonds on the day they are sold. The PFA's water enterprise bonds are rated AA2 by Moody's Investors Service and AA- by Standard and Poors Corporation, which are considered strong credit ratings, and bidding demand is expected to be robust for the bonds, although market conditions and competing bond sales on the day of the sale will influence the results of the sale. The Government Finance Officers Association best practices recommendation for refunding savings, which the City adheres to, suggests a net present value (NPV) savings floor equal to 3% of the amount of refunding bonds sold. NPV savings are total future savings that have been discounted into present (2013) dollars. Based on current interest rates, the 2005 bonds are expected to have NPV savings of approximately 6.75%. The following table shows present estimates of total savings, NPV savings, and average annual savings. These amounts are estimates and will depend primarily on interest rates at the time the bonds are sold. Average Total Savinqs NPV Savinqs NPV % Annual Savinqs 2005 Bonds $3,145,000 $1,760,000 6.75% $127,500 If, after bonds are priced, the best bid for the 2013 Bonds does not produce NPV savings of at least 3%, all bids will be rejected and the 2005 bonds will not be refunded. The following chart, which tracks interest rates from the beginning of the year, shows