Prescott
AZ

Council Memo
2693

Adoption of Ordinance No. 2019-1690 Approving the Sale and Execution and Delivery of a Pledge Revenue Refunding Obligation, Series 2019, and Declaring an Emergency.

Information

Department:FinanceSponsors:
Category:Ordinance Adoption

Attachments

  1. Printout
  2. Ordinance 2019-1690 (This file has not yet been converted to a viewable format)
  3. Other Bond Documents

Document Comments

ADOPT ORDINANCE NO. 2019-1690 OF THE MAYOR AND COUNCIL OF CITY OF PRESCOTT, YAVAPAI COUNTY, ARIZONA, APPROVING THE FORM AND AUTHORIZING THE EXECUTION AND DELIVERY BY THE CITY OF A FIRST PURCHASE AGREEMENT, A FIRST TRUST AGREEMENT, AN ESCROW TRUST AGREEMENT AND OTHER NECESSARY AGREEMENTS, INSTRUMENTS AND DOCUMENTS; APPROVING THE EXECUTION AND DELIVERY BY CITY OF PRESCOTT MUNICIPAL PROPERTY CORPORATION OF A SECOND AMENDMENT TO THIRD SUPPLEMENT TO TRUST INDENTURE; APPROVING THE SALE AND EXECUTION AND DELIVERY OF PLEDGED REVENUE REFUNDING OBLIGATIONS, SERIES 2019, EVIDENCING ALL THE INTERESTS OF THE OWNER THEREOF IN THE PURCHASE AGREEMENT; ADOPTING POST-ISSUANCE TAX COMPLIANCE PROCEDURES IN CONNECTION WITH ISSUANCE OF OBLIGATIONS OF THE CITY; DELEGATING AUTHORITY TO THE BUDGET AND FINANCE DIRECTOR OF THE CITY TO DETERMINE CERTAIN MATTERS AND TERMS WITH RESPECT TO THE FOREGOING; AUTHORIZING THE TAKING OF ALL OTHER ACTIONS NECESSARY TO THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS ORDINANCE AND DECLARING AN EMERGENCY.

Body

Item Summary

 

This Ordinance approves the issuance of a pledged revenue refunding obligation, series 2019, for the refunding of Municipal Property Corporation (MPC) Bonds 2010 and 2011.  The Ordinance delegates the authority to the Budget and Finance Director to determine certain matters and terms with respect to the debt issue. Timing matters with debt issuances.  This Ordinance includes the emergency clause, which is customary for debt issues, to allow the transaction to be completed immediately.

 

Background

 

The bonds that are being proposed to be refunded are MPC 2010 (current outstanding balance $10,920,000) and MPC 2011 (current outstanding balance $5,805,670), which were used for road construction projects.

 

The MPC 2010 was issued under the Build America Bond program, which provided for the issuance of taxable debt by governments with an interest subsidy from the Federal Government to offset the additional cost.  The Federal Budget Control Act of 2011 requires across-the-board sequestration reduction when the Federal Government cannot balance the budget.  The reduction to the subsidy that the City receives from the Federal Government has been reduced a total of $124,114 since Fiscal Year 2013 when they started.  The average coupon of the bond is 6.02%, with the full subsidy the equivalent rate is 3.91%, and with reduced sequestration subsidy the rate is 4.04%.  The original final maturity of the bond is 7/1/2030 and it is callable starting 7/1/2020.

 

The MPC 2011 is a standard tax exempt municipal bond held by BBVA with an interest rate of 4.18%. The original final maturity of the bond is 7/1/2031 and it is callable starting 7/1/2021.

 

Interest rates are currently very low with the ten year municipal bond rate estimated at 1.8%.  We have been able to negotiate with BBVA, the holder of the MPC 2011 bond, to refund this bond early, prior to the 7/1/2021, if the new 2019 refunding issue for both bonds is placed with BBVA. BBVA has estimated a rate of 2.4%, tied to the LIBOR 7 year rate, for the ten year refunding bond. This refunding will save the Streets fund an estimated $1,373,489 ($1,065,342 net present value) over the life of the bonds, which is a 6.871% net present value savings as a percentage.  The final rate of the new debt will be locked in the future.

 

In addition to enabling the City to take advantage of the current rate environment, issuing the refunding bond as a private placement with BBVA will save an estimated $130,000 or 45% of the issuance cost over a public offering.  If only the MPC 2010, which is currently eligible for refunding, was refunded through a public offering the savings to the Streets fund would be an estimated $1,062,042 ($986,171 net present value) over the life of the bond.  Any saving from the refunding of the MPC 2011 bond would be dependent on the market rates in 2021 when it is first eligible to be refunded. 

 

Since September 27, 1972, the City has been issuing pledged revenue bonds through the Municipal Property Corporation (MPC).  Over the last few years, activity in the bond markets have shown that the use of a MPC is no longer necessary.  This refunding bond would be issued as a direct obligation of the City and not the MPC.  The intent would be to phase out the MPC.  This direction was reviewed by the MPC Board at their October 3, 2019, meeting and they agree with the direction.  After refunding of these two MPC bonds, there would only be one bond remaining.  The remaining bond is the MPC 2014, which was used to refund the purchase bond for the Big Chino Water Ranch land.  The MPC 2014 has an original maturity of 7/1/2034 with an optional redemption starting 7/1/2024.

 

Financial Impact

 

Estimated savings to the Streets fund is $1,373,489 with a net present value estimated at $1,065,342 over the life of the bond.  This is an estimated 6.871% net present value savings as a percentage.

 

 

Meeting History

Oct 8, 2019 3:00 PM  City Council Voting Meeting
draft Draft

Finance Director Mark Woodfill provided a presentation to Council regarding the proposed Ordinance. He reviewed the city's debt positions which he assesses regularly to ensure that we are taking advantage of the market. There is a 10 year bond rate available and this is a good time to save money on outstanding debt issues. Current debt position of $125,104,118 (bonded debt only) that includes Hassayampa, a Special Assessment District, WIFA loans and the MPC Bonds (totaling $25,100,670)

MPC Outstanding Bonds Include:

* 2010 Build America Bond for Granite Dells Parkway - $10,920,000 (callable 7/1/20)

* 2011 Bond for Williamson Valley Rd - $5,805,670 (Callable 7/1/21)

* 2014 Refunding Bond for Big Chino Water Ranch - $8,375,000 (Callable 7/1/24)

Mr. Woodfill continued the presentation by discussing a BBVA option for bonds that can be addressed currently (2010 and 2011), this would be a private placement bond and would lock the rate at 2.3% to refund 2010 and 2011 debt issues with an approximate $1.5 million in savings over the life of the bond to go toward Streets Fund. In his opinion this is the best option. These bonds were issued through the Municipal Property Corporation (MPC) Board and this option was reviewed with them. The members of the Board have been serving for between five and twenty-seven years and all very informed in the financial markets and felt this was a good choice.

By refunding the 2010 and 2011 debt issues the MPC Board can be phased out and only one debt issue would remain.

Councilman Goode commented that he wants the public to understand that we are not extending the terms of these loans with this process.

RESULT:ADOPTED [UNANIMOUS]
MOVER:Steve Sischka, Councilman
SECONDER:Jim Lamerson, Councilman
AYES:Greg Mengarelli, Billie Orr, Steve Blair, Phil Goode, Jim Lamerson, Alexa Scholl, Steve Sischka