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Work Session Item 3.d.
City Council Work Session Agenda
Amendment to Water And Wastewater System Commercial Paper Program
Strategic Focus Areas
Sound Governance and Finances
The Water and Sewer System Tax-Exempt Commercial Paper (CP) Program was approved in 2015. The program has been a low cost financing tool for the Water and Wastewater Capital Improvement Program. Staff would like to extend the 2015 CP program beyond the current expiration date to lock in favorable pricing. Sumitomo Mitsui Bank, the liquidity provider for the Water and Sewer CP Program, has agreed to an extension of the liquidity facility.
Authorize staff to amend the Water and Sewer Commercial Paper Program, Series 2015.
Do not approve the amendment to the Water and Sewer Commercial Paper Program, Series 2015.
Unless otherwise directed by Council, this item will be scheduled for formal consideration at the June 20, 2023 Regular Meeting.
Commercial Paper (CP) is a short-term debt instrument that is issued incrementally as funds are needed to finance the Water and Wastewater Capital Improvement Program. By utilizing CP, the City is able to lower its overall debt payments due to the deferral of principal payments and by taking advantage of short-term interest rates which are typically lower than long-term rates. Furthermore, CP is only issued as funds are needed, not in advance at a given time each year as with other debt instruments.The existing Water and Sewer Utility System Commercial Paper Program has a capacity of $90 million and is set to terminate on September 30, 2023. Liquidity facility is provided by Sumitomo Mitsui Bank and the City pays a .44% liquidity facility fee to Sumitomo. Sumitomo has agreed to extend the existing agreement to September 30, 2028.
Staff and the City Financial Advisor, Hilltop Securities, are recommending that the City amend the existing Water and Sewer Commercial Paper Program and extend the agreement to September 30, 2028. Liquidity fees and short-term interest rates are anticipated to increase and this agreement provides the City an opportunity to lock in pricing for liquidity fees over the next five years. If market conditions change the City will have the ability to terminate this contract and issue an RFP for a more desirable rate.
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