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Finance Committee

Meeting Date:	08/11/2020
FROM:	Bill Gallardo

Subject:

Authorization for the Issuance of 2020 Water Revenue Refunding Bonds to Refinance Outstanding Water Revenue Bonds, Requesting Certain Actions and Findings by the City Council, and Approving Related Matters

RECOMMENDATION

The City Council adopt a resolution authorizing the refunding of the 2014 Water Revenue Bonds.

BACKGROUND/DISCUSSION

In 2014, the City of Brea through the Brea Community Benefit Financing Authority, issued the following Bonds to finance the acquisition of water rights for the benefit of the City’s Water System:

$18,555,000 (original principal amount) 2014 Water Revenue Bonds, (the “2014 Bonds”), of which $16,595,000 remain outstanding and will be refunded;

Staff is recommending refunding the 2014 Bonds (the “Refunded Bonds”) by issuing 2020 Water Revenue Refunding Bonds (the “2020 Bonds”) under the provisions of Articles 10 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code, commencing with Section 53570 of said Code (the “Refunding Bond Law”). The 2020 Bonds will be secured by a pledge of and payable from “Net Revenues”, which consist of certain revenues of the Water System less operations and maintenance costs. The 2020 Bonds will be on parity with the outstanding 2019 Water Revenue Refunding Bonds.

It is projected that the refinancing of the outstanding bonds will produce an average annual reduction in bond payments of $70,725 based on current market conditions, subject to change. The term of the 2020 Bonds would remain the same as the 2014 Bonds and the calculation of the net present value savings factors in the costs to issue the 2020 Bonds. The City’s local Debt Policy requires a threshold of at least 3% net present value savings to be met in order to refund bonds. The proposed refunding results in a net present value savings of 7.79% of the outstanding bond amount.

The first step in moving forward with issuing the 2020 Bonds is today’s meeting. Assuming the Finance Committee recommends to the City Council to move forward with the refunding, staff would then prepare a resolution for City Council consideration on August 18, 2020, directing the City to undertake the necessary actions for the proposed refunding of the 2014 Bonds; approve professional services related to the refunding; and directing City Official to execute related document as needed. The next step will be to prepare required legal and financing documents and secure an underlying credit rating from Standard & Poor’s. The final step will be for the City Council to adopt a resolution approving the required documents. Based on the current schedule, staff anticipates this City Council action would be scheduled for September/October 2020.

Below is a table summarizing the detail of the 2014 Bonds to be refunded and the anticipated savings:

Refunding Statistics	2014 Water Revenue Bonds
Amount of Refunded Bonds	$16,595,000
Call Date	07/01/2024 @100
Rating	"AA"
Refunding Type	Taxable Advance
Final Maturity	07/01/2044
Amount of Refunding Bonds	$19,935,000
True Interest Cost	2.58%
Average Annual Savings	$70,725
Total Gross Savings	$1,697,395
Net Present Value Savings	$1,292,625
% NPV Savings of Refunded Bonds	7.79%

SUMMARY/FISCAL IMPACT

The City has a total of $16,595,000 in outstanding 2014 Water Bonds. Staff is recommending that the City refinance the outstanding 2014 Water Bonds as taxable bonds to do an advance refunding and reduce the average annual bond payments by $70,725. These are estimated savings based on current market conditions and are subject to change.

The estimated average annual savings will be realized by the City’s Water Enterprise Fund over the 24 years remaining on these bonds. There is no impact to the General Fund.

RESPECTFULLY SUBMITTED

William Gallardo, City Manager
Prepared by: Cindy Russell, Administrative Services Director