Susquehanna Group Advisors, Inc.

Transcription

1 Susquehanna Group Advisors, Inc. A Pennsylvania Municipal Advisory and Consulting Firm Presentation to Lower Paxton Township August 14, 2018

2 INTEREST RATE OUTLOOK 2

3 Interest Rate History Last 25 Years 8.00% 7.00% 6.00% 10 Year Treasury Yield the benchmark rate that guides almost all other interest rates. Indicator of investor confidence in economic growth. One Month LIBOR the benchmark floating interest rate banks charge each other for short term loans. 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 10 Year U.S. Treasury Yield One Month LIBOR 3

4 Interest Rate Outlook The Fed has three main goals: 1. Maximum sustainable employment 2. Stable prices 3. Moderate long term interest rates In December 2015, with unemployment down to 6% and inflation at 0.7%, the Fed increased its key interest rate, the Federal Funds Rate, for the first time since June The rate had remained at effectively zero since December 2008 until the 0.25% increase in December The Fed has subsequently raised the Fed Funds Rate six (6) additional times (once in 2016, three times in 2017, and twice in 2018) to its current level of 2.00%. The unemployment rate is currently 4.1% and core inflation has steadily increased to 2.3%. As a result, many economists believe the Fed will continue raising rates gradually. The Fed is expected to raise the Fed Funds Rate at least once more in The Fed expects three additional rate hikes in

5 OUTSTANDING DEBT 5

6 Summary of Debt Outstanding OUTSTANDING PRINCIPAL ALLOCATIONS Outstanding Lower Paxton Friendship Original Coupon Final Principal Township Community Series Principal Pupose Range Maturity Call Date Outstanding Township Authority Center Series D of ,465,000 Capital Projects (Sewer) % 4/1/ /1/ ,465,000-42,465,000 - (Taxable BABs) 2010 PENNVEST Loan 10,901,017 Capital Projects (Sewer) 2.445% 6/1/2032 Anytime 7,656,426-7,656,426 - Series A of ,355,000 Advance Refunding (2002A) 4.00% 4/1/2021 Non-callable 975, , ,000 Current Refunding (2004) Series of 2011 (Note) 750,000 Roadway Paving Program 1.625% 2/6/2022 Anytime 276, , Series A of ,855,000 Capital Projects % 11/15/ /15/2017 2,830,000 2,610, ,000 Scoop Refunding D/S Series of ,720,000 Current Refunding (2006) 2.00% 4/1/2022 4/1/2018 7,275,000 1,675,000 5,600,000 - Series A of ,060,000 Capital Projects % 4/1/2025 4/1/2018 3,085,000 2,085,000-1,000,000 Series of ,915,000 Capital Projects % 4/1/2044 4/1/ ,785,000 5,800,000 21,985,000 - Series of ,005,000 Current Refunding (2009C) % 4/1/2029 4/1/ ,600,000-13,600,000 - Series of ,785,000 Capital Projects % 4/1/2046 4/1/ ,520,000 3,650,000 22,870, ,467,838 16,266, ,176,426 2,025,000 6

7 Outstanding Debt General Fund Allocation EXISTING Series A Series Series A Series Series A Series Series Aggregate Year of 2010 of 2011 of 2012 of 2013 of 2013 of 2014 of 2016 Debt Service ,275 81,562 72,213 53, , , ,975 1,611, ,800 81,562 72, , , , ,925 1,616, ,400 81,562 72, , , , ,825 1,611, ,562 71, , , , ,075 1,612, , , ,550 42, , ,575 1,673, ,830 42, , ,775 1,629, ,080 42, , ,675 1,625, ,060 42, , ,275 1,622, , , ,403 1,614, , , ,956 1,618, , , , , , , , , , , , , , , , , , , , , , , , , , TOTAL 553, ,031 3,067,028 1,799,950 2,692,636 8,651,210 5,048,675 22,180,004 7

8 Outstanding Debt Friendship Center Allocation EXISTING Series A Series A Series A Aggregate Year of 2010 of 2012 of 2013 Debt Service ,850 5,670 42, , ,300 5,670 72, , ,200 5, , , ,000 5,670 87, , , , , , , , , , , , , , TOTAL 1,200, ,620 1,137,993 2,596,963 8

9 Outstanding Debt Authority Allocation Series D Estimated 2010 EXISTING of 2009 BABs PENNVEST Series Series Series Series Aggregate Year (BABs) Subsidy (1) Loan of 2013 of 2014 of 2015 of 2016 Debt Service ,675,034 (874,469) 679,495 1,051,300 1,489, ,925 1,387,031 7,257, ,675,034 (874,469) 679,495 1,394,050 1,487, ,375 1,387,131 7,258, ,675,034 (874,469) 679,495 1,437,450 1,486, ,725 1,387,031 7,246, ,675,034 (874,469) 679,495 1,484,400 1,486, ,525 1,386,431 7,297, ,675,034 (874,469) 679,495 1,515,000 1,489, ,775 1,385,031 7,476, ,675,034 (874,469) 679,495 1,490,435 2,146,475 1,387,731 7,504, ,675,034 (874,469) 679,495 1,488,035 2,184,875 1,384,531 7,537, ,675,034 (874,469) 679,495 1,488,080 2,209,075 1,385,431 7,562, ,675,034 (874,469) 679,495 1,485,450 2,205,113 1,386,384 7,557, ,675,034 (874,469) 679,495 1,486,688 2,204,150 1,386,919 7,557, ,675,034 (874,469) 679,495 1,485,750 2,206,375 1,385,472 7,557, ,203,017 (868,906) 679,495 1,487,375 1,674,750 1,386,469 7,562, ,997,804 (827,974) 679,495 1,487,250 1,385,619 8,722, ,921,888 (755,756) 679,495 1,490,250 1,384,169 8,720, ,841,759 (680,527) 339,745 1,486,375 1,386,575 8,373, ,757,107 (602,185) 1,485,625 1,387,263 8,027, ,667,620 (520,627) 1,487,750 1,386,669 8,021, ,575,705 (435,008) 1,487,625 1,385,263 8,013, ,480,649 (345,092) 1,490,125 1,387,428 8,013, ,379,014 (251,391) 1,490,125 1,388,066 8,005, ,275,323 (153,749) 1,487,625 1,387,691 7,996, ,168,942 (51,958) 1,487,500 1,388,375 7,992, ,489,500 1,384,500 2,874, ,488,500 1,388,125 2,876, ,489,375 1,384,125 2,873, ,487,000 1,387,375 2,874, ,486,250 1,387,625 2,873, ,384,875 1,384, ,388,875 1,388,875 TOTAL 88,694,206 (15,112,327) 9,852,678 6,882,200 40,171,838 17,713,138 40,208, ,409,941 (1) Assumes the Sequester Reduction of 6.6% effective for

10 REFUNDING ANALYSIS G.O. Bonds, Series D of

11 General Obligation Bonds, Series D or 2009 (Build America Bonds) Issued on October 27, 2009 in the aggregate principal amount of $42,465,000. Principal due annually from April 1, 2029 through April 1, Interest payable semiannually on April 1 and October 1. Allocated to the Authority proceeds were used to fund various capital improvements to the wastewater collection and conveyance system throughout the Township. Current principal outstanding = $42,465,000. Callable on or after October 1, 2019 at par. 11

12 General Obligation Bonds, Series D or 2009 (Build America Bonds) Designated as Build America Bonds (BAB s) under the American Recovery and Reinvestment Act of Issued on a taxable basis. Higher taxable interest rates offset by direct payments from the U.S. Treasury equal to 35% of each interest payment due on the bonds. Pursuant to the requirements for the Balanced Budget and Emergency Deficit Control Act of 1985, the Treasury s 35% subsidy payments have been subject to yearly sequestration rate reductions since

13 General Obligation Bonds, Series D or 2009 (Build America Bonds) YEARLY SEQUESTRATION RATE REDUCTIONS NET INTEREST RATES Anticipated Rate Actual Taxable Projected Net Rate Actual Net Rate Year Subsidy Reduction Subsidy Maturity Coupon (35% Subsidy) (32.8% Subsidy) % 35.0% % 4.059% 4.197% % 35.0% % 35.0% % 4.124% 4.264% % 8.7% 32.0% % 7.2% 32.5% % 7.3% 32.4% % 6.8% 32.6% % 6.9% 32.6% % 6.6% 32.7% % 6.2% 32.8% 13

14 Refunding Opportunity The Tax Cuts and Jobs Act of 2017 eliminated the ability for issuers to a refinance a tax exempt bondissuemorethan90dayspriortothecalldatewithproceedsfromatax exempt refunding bond issue. Since the 2009D Bonds are taxable, the Township is permitted to advance refund the 2009D Bonds on a tax exempt basis. Based on current tax exempt interest rates and the length of time to the call date of the 2009D Bonds (approx. one year), an advance refunding today would produce debt savings to the Township. Net present value savings from an advance refunding today = $939,603 Net present value savings as a percentage of principal refunded = 2.21% If there is no change in interest rates from today to the call date (10/1/19), and today s taxexempt interest rates are available on 10/1/19, then the Township could realize significantly higher debt service savings. Net present value savings from a current refunding on 10/1/19 assuming today s interest rates = +$2,682,928 If current market interest rates increase by +35 basis points (0.35%) between now and the call date, net present value savings on the call date would be approximately +$940,000 (the savings achievable today through an advance refunding). 14

15 Refunding Opportunity The Township has the ability to hedge against rising interest rates between now and the call date with an interest rate swap agreement. The swap would be executed today and would terminate on the call date such that no payments would be exchanged with the counterparty except for a termination payment. The swap would be structured such that: If rates are higher on the call date, the Township would receive a cash payment. If rates are lower or unchanged on the call date, the Township would owe a cash payment. If rates are higher on the call date, the Township would not refund the 2009D Bonds but still realize savings through the swap termination payment. The Township would still have the ability to refund the 2009D Bonds in the future if rates decline. If rates are lower on the call date, the Township would refund the 2009D Bonds for debt service savings, and would fund the termination payment that it owes with bond proceeds. 15

16 Refunding Opportunity Advance Refunding Today Rate Assumption: Current PV Savings: $939,603 Savings %: 2.21% Current Refunding on the Call Date (10/1/19) Rate Assumption: -50 bps Current +50 bps +100 bps +200 bps PV Savings: $5,388,355 $2,682,928 $187,838 -$2,136,232 -$6,321,014 Savings %: 12.69% 6.32% 0.44% -5.03% % Current Refunding on the Call Date (10/1/19) with Swap Rate Assumption: -50 bps Current +50 bps +100 bps +200 bps PV Savings: $5,388,355 $2,682,928 $187,838 -$2,136,232 -$6,321,014 Swap Payment: -$2,661,279 -$516,335 $1,472,146 $3,316,390 $892,660 Net Savings: $2,727,076 $2,166,593 $1,472,146 * $3,316,390 * $6,616,042 * Net Savings %: 6.42% 5.10% 3.47% 7.81% 15.58% * The Township retains the ability to refund the 2009D Bonds for additional savings if interest rates subsequently decline. 16