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GARLAND
POLICY REPORT
Work Session Item 3.e.
City Council Work Session Agenda
Meeting Date:
03/06/2023
Item Title:
Water and Sewer System Revenue Refunding Bonds and Commercial Paper Notes
Submitted By:
Matt Watson
Strategic Focus Areas
:
Sound Governance and Finances
ISSUE
Consider refunding approximately $41 million of Water and Sewer System Commercial Paper Notes, Series 2015 and approximately $9.6 million Water and Sewer System Revenue Bonds, Series 2013 with Water and Sewer System Revenue Refunding Bonds, Series 2023. The purpose of this transaction is to refund a portion of variable rate commercial paper notes with fixed rate long-term debt and to generate debt service savings.
OPTIONS
Authorize staff to refund approximately $41 million of Water and Sewer System Commercial Paper Notes, Series 2015 and approximately $9.6 million Water and Sewer System Revenue Bonds, Series 2013 with Water and Sewer Revenue Refunding Bonds, Series 2023.
Do not approve the refunding transaction.
RECOMMENDATION
Unless otherwise directed by Council, this item will be scheduled for formal consideration at the May 2, 2023 Regular Meeting.
BACKGROUND
The Water and Sewer System Commercial Paper Program finances various capital improvement projects for the Water and Sewer System. Funding capacity of this program is $90 million. Due to current market conditions, the City of Garland has an opportunity to refund the $41 million of variable rate commercial paper notes with fixed rate long-term Water and Sewer System Revenue Refunding Bonds.
In addition, for all Water and Sewer Revenue Bonds issued in 2013 and prior, the City was required to have a debt service reserve fund to provide additional security to investors. All debt issuance after 2013 no longer requires a cash deposit into this reserve fund. The balance of this reserve fund is approximately $8.2 million and must be held in reserve until 2023 which is the call date of the 2013 series debt issue. In addition, the cash in this reserve fund must be used to refund outstanding debt. Therefore, the City now has the opportunity to refund the $9.6 million balance of Series 2013 and pay off $8.2 million of this outstanding balance by utilizing this debt service reserve fund. The remaining $1.4 million associated with Series 2013 will be refunded with the Water and Sewer Revenue Refunding Bonds, Series 2023. This refunding transaction is estimated to generate debt service savings of $8.7 million over the next ten years.
CONSIDERATION
The Refunding Bonds will be fixed rate debt with a 20-year amortization period. The Refunding Bonds will have a projected annual debt service payments of approximately $3.0 million between 2024 and 2043 and a projected interest rate of 3.56%. The exact amount of annual debt service and interest rate is subject to market conditions between now and the final pricing date of May 2, 2023.
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