12 - Refunding and Restucturing of GO Bond Series 2013Item No. 12
Memorandum
TO: Mayor, Mayor Pro Tem & City Council
FROM: Grayson Path, City Manager
Gene Anderson, Finance Director
SUBJECT: Refunding and Restructuring of GO Bonds Series 2013
DATE: June 12, 2023
BACKGROUND:
In July 2013, the City issued $33,925,000.00 in General Obligation (GO) Bonds to replace aging
water and wastewater lines throughout the City. The term of the loan was 20 years with an option
to call the loan on December 15, 2023. The term "call" means the City can pay off the bond anytime
on or after the call date. The most common reason to call a bond issue is when interest rates have
fallen since the original bonds were issued and the new Refunding Bonds, carrying lower interest
rates, can replace the old Bonds. The lower interest rates reduce the annual debt service payments
without changing the final maturity date.
Another common reason that bonds are called is to restructure the original debt. In this scenario,
the payoff period of the refunding bonds can be shortened or extended depending upon the
situation.
STATUS OF ISSUE:
The City's financial advisor, Mark McLiney from SAMCO Capital Markets, has a presentation on
some opportunities available on the GO Bonds, Series 2013.
In summary, the City will have two options to consider.
1. The City can issue Refunding Bonds while maintaining the original final maturity of
December 15, 2032. This option will reduce debt service by approximately $105,000/year
totaling $945,000 in total savings (present value savings of $804,000).
2. The City can issue Refunding Bonds to restructure the existing bonds by adding 10 years
to the final maturity. This will reduce the annual debt service by approximately
$1,000,000/year through fiscal year 2033, but will increase the total debt service by
approximately $4,250,000 (present value loss of $125,000) over the life of the bonds.
Staff recommends that the city council consider Option 2 because of the need to issue
additional debt to complete Phase II of the Wastewater Treatment Plant (WWTP) Project. We
believe by restructuring the Bonds there are significant advantages to rate payers, today, that
make this option worth pursuing. Under current market conditions we believe that the
approximate $1,000,000 reduction in existing debt service can then be applied towards the
Phase II WWTP Bonds. If we pursue this option, once the final numbers are known, we will
then revisit our upcoming scheduled wastewater rates and look to favorably adjust them. Since
we do not have final costs for Phase II, we are hesitant to state today what the exact impact
will be to our rate payers, but undoubtedly freeing up approximately $1,000,000 annually will
have a positive impact.
BUDGET:
Please see the above Status of Issue.
OPTIONS:
Please see the above Status of Issue.
RECOMMENDATION:
It is our recommendation that the City Council authorizes the issuance of refunding bonds to
restructure the existing bonds by adding 10 years to the final maturity.