HomeMy WebLinkAbout101-Refunding of 2001 GO Bonds.pdf
SARATOGA CITY COUNCIL
MEETING DATE: September 1, 2010 AGENDA ITEM:
DEPARTMENT: Finance & Administrative Services CITY MANAGER: Dave Anderson
PREPARED BY: Mary Furey DIRECTOR: Mary Furey
SUBJECT: Refunding the 2001 General Obligation Bonds
RECOMMENDED ACTION:
Review report and direct staff to issue Request for Qualifications or Request for Proposals (RFQ/RFP)
for refunding the 2001 General Obligation (GO) Bonds.
REPORT SUMMARY:
In 2001, the City of Saratoga issued $15,000,000 of voter-approved General Obligation (GO) Bonds to
improve, renovate, and expand the Saratoga Community Library Building. GO Bonds are tax-exempt
debt obligations secured by the City’s power and statutory authority to levy ad valorem taxes on real and
personal property located within city boundaries, for payment of the principal and interest due. The City
administers the payments on the bond debt, but does not receive revenue or expend any City funds for
this obligation.
The 30 year GO Bonds were issued at competitive interest rates at the time (ranging between 5 - 6%);
however, with current interest rates at historic lows, the outstanding bond debt could be reissued at far
lower rates today, potentially saving Saratoga taxpayers more than $2 million.
On August 1, 2010 the bonds became eligible for redemption. From August 1, 2010 through July 31,
2011, the redemption price is equal to the principal amount plus a 1% premium. As of August 1, 2011,
the bond redemption price is equal to the principal amount. The current debt balance is approximately
$13 million. (See Attachment A - Debt Schedule).
Although redemption prior to August 1, 2011 would include the additional payment of a 1% premium,
(approximately $130,000) staff recommends the City pursue a refunding of the debt issuance without
delay to lock in historically low interest rates. Staff will also look at options to delay the bond refunding
until August 1st
of 2011, however it is expected that the lower interest rates will offset the 1% premium.
As debt issuance is a specialized financial field requiring expertise and access to market information, the
City will need to hire a financial advisor, bond underwriter, and bond counsel to negotiate the bond
refunding. This is particularly important in light of the recent changes in the municipal bond market with
the collapse of the bond insurers and new regulations.
For an initial bond issuance, State law requires the bonds be sold through a “Competitive Sale”. For this,
cities hire a Financial Advisor to represent the City and assist staff. The Financial Advisor selects a sale
date, prepares a notice of sale and puts out the Invitations to Accept Bids for the bond sale, accepts bids
from various underwriters, determines the lowest net interest costs, and then works with the Bond
Counsel and Underwriter to complete the required documents and bond sale.
For bond refunding, cities may instead reissue a bond through a “Negotiated Sale”. With a negotiated
sale, the City hires a Bond Underwriter directly to determine the best structure and market date to offer
the bonds, thereby obtaining lower interest rates through the use of market timing. The City would also
use the services of a Bond Counsel and Financial Advisor - to ensure the Bond Underwriter offers a
competitive price; however the Bond Underwriter is the primary consultant in a negotiated sale.
Staff is researching both types of bond sale processes to determine the City’s best option, and requests
Council’s permission to issue RFQ/RFPs to pursue the necessary financial assistance for a bond
refunding upon determining the better option.
The Government Finance Officers Association (GFOA) recommends financial bond services be selected
through a competitive process on the basis of expertise, the firm most qualified based on the issuer’s
scope of services, and the evaluation criteria outlined in the RFQ/RFP. The RFQ/RFP will include a
clear and concise description of the scope of work for the engagement, as well as specific obligations,
constraints, performance requirements and results, timing, fee structure, and references.
The scopes of work will include requirements for the financial advisors to include:
• Identify and analyze debt restructuring alternatives.
• Assist in the development and evaluation of requests for proposals and other bidding documents
for various services for the transaction, including procurement of bond insurance.
• Assist in communicating with rating agencies and addressing their requirements for
improvements and maintenance of the City’s rating.
• Make recommendations regarding the conditions and form of bond sales.
• Assist in the preparation of official statements or other necessary financing documents.
• Assist in the negotiation of terms or the evaluation of bids with bond purchasers including
preparations for and participation in discussions and meetings with underwriters.
• Prepare bond amortization schedules at the level necessary to calculate future debt service
payments and satisfy accounting, budgetary, and borrowing requirements.
• Assist as requested in the post offering responsibilities for the sale, including ensuring City
compliance with continuing disclosure filing requirements and providing a post-transaction
summary report.
Additional requirements and criteria will be developed upon Council approval to proceed with the
issuance of RFQ/RFPs for the financial services.
FISCAL IMPACTS:
Typically, there are no upfront costs for debt issuance financial services. Instead, the Financial Advisors
and Bond Underwriters charge a transaction fee that is contingent upon the sale of the bonds and paid
from the bond proceeds. If the bonds are not sold, the advisors are not paid. However, an agreement
may require reimbursement for out-of-pocket expenses directly related to executing the financing, (with
an established dollar limit) if the bonds are not issued. These fees would be an expense of the Debt
Service Fund, not the City.
CONSEQUENCES OF NOT FOLLOWING RECOMMENDED ACTION:
The City would not obtain expert bond financial services to analyze the best options and timing for debt
refunding.
ALTERNATIVE ACTION:
Direct staff to delay obtaining financial services or refunding the bond.
FOLLOW UP ACTION:
Determine the City’s better option for either a competitive or negotiated sale, and subsequently prepare
and issue RFQ/RFPs for financial services for debt refunding. Staff will bring consultant proposals back
to the Council for approval.
ADVERTISING, NOTICING AND PUBLIC CONTACT:
Interested vendors would be provided with the RFQ/RFP, and the RFQ/RFP would be posted on the
City’s website (which is picked up by clearinghouses for additional distribution)
ATTACHMENTS:
Attachment A – Debt Schedule
Attachment A
August August February Fiscal Year Bond
Fiscal Interest Annual Interest Interest Annual Debt Principal
Year Rate Principal Payment Payment Interest Service Balance @ YE
Initial Bond Offering at May 9, 2001 - - 15,000,000
2001/02 5.000%- - 588,942 588,942 588,942 15,000,000
2002/03 5.000%60,000 392,628 391,128 783,756 843,756 14,940,000
2003/04 5.000%245,000 391,128 385,003 776,131 1,021,131 14,695,000
2004/05 5.000%255,000 385,003 378,628 763,631 1,018,631 14,440,000
2005/06 5.000%270,000 378,628 371,878 750,506 1,020,506 14,170,000
2006/07 5.000%280,000 371,878 364,878 736,756 1,016,756 13,890,000
2007/08 6.000%295,000 364,878 356,028 720,906 1,015,906 13,595,000
2008/09 6.000%310,000 356,028 346,728 702,756 1,012,756 13,285,000
2009/10 6.000%330,000 346,728 336,828 683,556 1,013,556 12,955,000
2010/11 6.000%350,000 336,828 326,328 663,156 1,013,156 12,605,000
2011/12 6.000%370,000 326,328 315,228 641,556 1,011,556 12,235,000
2012/13 5.000%395,000 315,228 305,353 620,581 1,015,581 11,840,000
2013/14 5.000%415,000 305,353 294,978 600,331 1,015,331 11,425,000
2014/15 5.000%435,000 294,978 284,103 579,081 1,014,081 10,990,000
2015/16 5.000%455,000 284,103 272,728 556,831 1,011,831 10,535,000
2016/17 5.000%440,000 272,728 261,728 534,456 974,456 10,095,000
2017/18 5.000%460,000 261,728 250,228 511,956 971,956 9,635,000
2018/19 5.000%485,000 250,228 238,103 488,331 973,331 9,150,000
2019/20 5.000%510,000 238,103 225,353 463,456 973,456 8,640,000
2020/21 5.125%535,000 225,353 211,644 436,997 971,997 8,105,000
2021/22 5.125%565,000 211,644 197,166 408,809 973,809 7,540,000
2022/23 5.125%590,000 197,166 182,047 379,213 969,213 6,950,000
2023/24 5.125%625,000 182,047 166,031 348,078 973,078 6,325,000
2024/25 5.250%655,000 166,031 148,838 314,869 969,869 5,670,000
2025/26 5.250%690,000 148,838 130,725 279,563 969,563 4,980,000
2026/27 5.250%730,000 130,725 111,563 242,288 972,288 4,250,000
2027/28 5.250%765,000 111,563 91,481 203,044 968,044 3,485,000
2028/29 5.250%805,000 91,481 70,350 161,831 966,831 2,680,000
2029/30 5.250%850,000 70,350 48,038 118,388 968,388 1,830,000
2030/31 5.250%890,000 48,038 24,675 72,713 962,713 940,000
2031/32 5.250%940,000 24,675 - 24,675 964,675 -
TOTALS 15,000,000 7,480,416 7,676,730 15,157,146 30,157,146
Total Bond Principal 15,000,000
Total Bond Interest 15,157,146
Total Cost of Bond 30,157,146
City of Saratoga
2001 Series General Obligation Bonds
Debt Schedule