Stockton Public Financing Authority Variable Rate Demand Water Revenue Bonds, Series 2010A Delta Water Supply Project (DWSP) Stockton City Council October 5, 2010
Background: Financing Plan Council approved DWSP financing plan July 2009 Included three series of bonds to be issued Series 2009 fixed rate bonds Series 2010 variable rate bonds Series 2010 fixed rate bonds if no Proposition 84 grant funds received Rating upgrade to AA category To allow enterprise to secure Letter of Credit or otherwise qualify for issuance of variable rate bonds Upgrade possible but not likely 2
2009 Series Use of Proceeds Issued uninsured fixed rate bonds in 2009: Water Revenue Bonds, Series 2009A - $18.75M Water Revenue Bonds, Taxable Build America Bonds, Series 2009B - $154.55M After costs, $150 million was available to use for project costs Deposited $7.5M to Rate Stabilization Fund Mitigated need for additional rate increases should water revenues be insufficient to meet debt service coverage requirements 3
Proposed 2010 Plan of Finance Issue $55M of Variable Rate Bonds These are demand obligation bonds which allow investors to turn in (tender) them at any time $47.65 million of net proceeds anticipated Interest rate assumed 10-year average at 2.03% (currently 0.30%) Letter of Credit from Union Bank 3-year commitment Insures bond payments are made on time and acts as the liquidity agent for tendered bonds Other Elements Prop 84 commitment of $12.5M for project Remainder of project will be pay-as-you-go Won t require additional financing 4
2010 Sources and Uses of Funds Sources: Bond Proceeds: Par Amount 55,000,000.00 Total Sources $55,000,000 Uses: Project Fund Deposits: Delta Water Projects 47,650,869 Other Fund Deposits: Capitalized Interest Fund (through 6/30/2012) 2,925,087 Debt Service Reserve Fund 3,839,888 Delivery Date Expenses: Cost of Issuance 275,000 Underwriter's Discount 233,155 UB LOC Origination Fee 25,000 UB LOC Closing Fee 1,000 UB LOC Counsel Fee (Chapman & Cutler) 50,000 Total Uses: $55,000,000 5
2010 Plan of Finance Historical Variable Rates 9.00% 8.00% 7.00% 6.00% 5.00% RBI 10-Yr Avg. Reset = 5.16% 4.00% 3.00% 2.00% SIFMA 10-Yr Avg. Reset = 2.03% 1.00% 0.00% 6 8/3/2000 12/3/2000 4/3/2001 8/3/2001 12/3/2001 4/3/2002 8/3/2002 12/3/2002 4/3/2003 8/3/2003 12/3/2003 4/3/2004 8/3/2004 12/3/2004 4/3/2005 8/3/2005 12/3/2005 4/3/2006 8/3/2006 12/3/2006 4/3/2007 8/3/2007 12/3/2007 4/3/2008 8/3/2008 12/3/2008 4/3/2009 8/3/2009 12/3/2009 4/3/2010 8/3/2010 Revenue Bond Index (Weekly Reset) Revenue Bond Index (10-Yr Avg.) SIFMA (Weekly Reset) SIFMA (10-Yr Avg.)
Variable Rate Risk Mitigations No swap: Weekly market rate reset is what is paid Fund balances hedges interest rate risk Fund balances invested in short term securities or variable rates Payment offset: if variable rates rise; fund balances rise 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Short-term investment rate Stockton could have received (dark blue) Short-term interest rate Stockton would have paid (light blue) 8/1/2000 2/1/2001 8/1/2001 2/1/2002 8/1/2002 2/1/2003 8/1/2003 2/1/2004 8/1/2004 2/1/2005 8/1/2005 2/1/2006 8/1/2006 2/1/2007 8/1/2007 2/1/2008 8/1/2008 2/1/2009 8/1/2009 2/1/2010 8/1/2010 3-Month LIBOR (Ava ila ble Investment Rate) SIFMA (Interest Rate Paid) Historically variable rates remain lower than City s short-term investment rates 7
Variable Rates Could Offer Lower Cost of Borrowing Variable Rate Fixed Rate Benefit / Disadvantage of Scenario 2 Scenario 3 Variable Rate Total Par Amount 55,000,000 55,000,000 - Capitalized Interest Deposit 4 2,925,087 4,596,657 1,671,569 Debt Service Reserve Fund Deposit 5 3,839,888 4,908,194 1,068,306 Total Funds Available For Projects $47,650,869 $45,355,543 $2,295,326 True Interest Cost of Borrowing 3.189% 5.037% 1.848% Average Annual Payment (through 2020) 6 $1,443,657 $2,179,227 $735,570 Principal Paid 55,000,000 55,000,000 - Interest Paid 7 23,761,909 66,963,424 43,201,514 Total Paid 78,761,909 121,963,424 43,201,514 Letter of Credit Fees 14,887,451 - -14,887,451 Remarketing Fees 1,475,712 - -1,475,712 Total Interest Cost $40,125,072 $66,963,424 $26,838,352 8
Summary Sufficient revenues support current/proposed 2010 debt issue Minimal reliance on Rate Stabilization Fund Debt service coverage ratios meet bond requirements Increasing Water Utility Fund Balance Provide liquidity/additional coverage through rate stabilization fund Mitigated variable rate risk Water Advisory Group approved financing plan - 9/1; Council Water Committee - 9/13 9
Recommendations Stockton Public Financing Authority Adopt a resolution Authorize issuance/sale of Stockton PFA Variable Rate Demand Revenue Bonds, Series 2010 (DWSP) in amount not to exceed $55 million Approve form, execution, & delivery of one or more: Indentures Installment Purchase Contracts Bond Purchase Contracts Reimbursement Agreements Remarketing Agreements Official Statement relating to installment purchase financing 10
Recommendations City Council Adopt a resolution Approve form, execution, & delivery of one or more: Indentures Installment Purchase Contracts Bond Purchase Contracts Reimbursement Agreements Remarketing Agreements Official Statement relating to installment purchase financing Document #: MUD_Library 142078.1 11