SFPUC Debt Management. Eric Sandler CFO / AGM Business Services November 30, 2016

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1 SFPUC Debt Management Eric Sandler CFO / AGM Business Services November 30, 2016

2 Agenda Debt management overview 2016 AB refunding bonds 2

3 SFPUC Enterprise Debt Overview Summary of Enterprise Debt Programs (as of November 1, 2016) Water Wastewater Power Outstanding Debt (Par) Revenue Bonds $4.01B $1.07B $39.55M SRF Loans - $7.40M - Tax Credit Bonds - - $16.04M Commercial Paper (Authorized/Issued) $500M/$237M $500M/$61M $90M/$0 Ratings Long-Term Aa3/AA- Aa3/AA AA-/A+ Short-Term P-1/A-1 P-1/A-1 F1/A-1 3

4 Debt Management & Administration Large outstanding debt portfolio and significant projected future debt issuance Activities guided by Commission Policy Debt Management Policies & Procedures Reviewed annually Updated by Commission biannually or as needed Revenue Bond Oversight Committee (RBOC) Annual Capital Financing Plan Provides the Commission visibility regarding upcoming financing activity 4

5 Debt Monitoring Activities Market Opportunities Active monitoring of credit markets Execute refundings that provide debt service savings for ratepayers Administration of Existing Debt Portfolio Renew or replace bank credit facilities for Commercial Paper (CP) Programs Increase CP authorization, when needed New Money Needs Issue debt to meet ongoing enterprise capital requirements Regular monitoring/analysis of how much and when funds are needed 5

6 Series 2016 AB Water Revenue Refunding Bonds Par amount: $893.8M Tax-exempt, fixed rate Average borrowing term: 13.3 years Sale date: October 6, 2016 Refunded $929 million in outstanding bonds Negotiated sale 6

7 Sizing/Structuring the Refunding Bonds Original plan was to current-refund two series of bonds approximately $100M Broadened to include advance refunding candidates in light of strong markets Key objective in candidate selection Establish clear guidelines and metrics for decision-making Wide universe of candidates could produce considerable savings Parameters set based on % PV savings and refunding efficiency Conduct maturity-by-maturity analysis Consider implications of refunding on Wholesale Customers Sale expanded to current/advance refund 6 series of bonds 7

8 Disclosure Considerations Lower sales due to drought-related conservation Downward pressure on Debt Service Coverage State issuance of Draft 2016 SED just prior to POS posting Last minute update to POS FY 2016 audited financial statements Released just after sale and before financial close Required issuance of supplemental disclosure 8

9 Water Credit Ratings Ratings Affirmed: S&P AA- Moody s Aa3 Reasons cited: Strong and competent operational & financial management Prudent rate-setting Effective long-range fiscal planning Low debt service coverage cited as credit weakness S&P Moody s AAA Aaa AA+ Aa1 AA Aa2 AA- Aa3 A+ A1 A A2 A- A3 9

10 Marketing the Bonds Local media campaign Digital SFGate, Bloomberg, Yahoo Finance Radio KCBS, Sing Tao Chinese Radio Institutional investor outreach Online investor presentation In-person meetings One-on-one calls 10

11 Historically Low Rates 6.00% 25-Yr AAA MMD ( ) 5.00% 4.00% 3.00% Oct. 6 Sale Date 2.00% 1.00% 0.00% 25-Year AAA MMD Average 25-Year MMD* rate on Oct 6 th was 2.40% Since 1990, 25-year MMD rate has been below 2.40% just 1.5% of the time *Municipal bond market index 11

12 Challenging Market Conditions Week of Oct 3 rd saw largest muni supply since 2010 U.S. Treasury yields continued to rise MMD rose in response to supply and higher Treasury yields Game-time decision on timing & sizing of refunding Retail order period (Oct 5 th ) $154M orders, 188 investors Institutional order period (Oct 6 th ) Over $1B orders, 30 investors True Interest Cost (TIC) 2.85% 12

13 Debt Service Savings Gross savings $136M Net PV savings $107M Percent savings 11.52% 13

14 Closing Thoughts Important to have a policy framework for managing debt portfolio Disclosure, disclosure, disclosure Volatile markets require good contingency planning need to be flexible Rear view mirror Good decisions do not necessarily lead to good outcomes 14

Ohlone Community College District

Ohlone Community College District General Obligation Bond Refinancing Overview June 8, 2016 Outstanding General Obligation Bonds Issue Date Issue Amount Description Call Date Maturity Outstanding 6/19/2002