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Item # 5.
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| Town Council Regular Session |
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| Information |
| SUBJECT: |
| RESOLUTION NO. (R)17-10, AUTHORIZING THE EXECUTION AND DELIVERY OF AN AGREEMENT, A TRUST AGREEMENT, A DEPOSITORY TRUST AGREEMENT, A PLACEMENT AGENT AGREEMENT AND AN OBLIGATION PURCHASE AGREEMENT; APPROVING THE SALE, EXECUTION AND DELIVERY OF EXCISE TAX REVENUE REFUNDING OBLIGATIONS, SERIES 2017, EVIDENCING A PROPORTIONATE INTEREST OF THE OWNERS THEREOF IN AN AGREEMENT BETWEEN THE TOWN OF ORO VALLEY, ARIZONA AND A TRUSTEE; AUTHORIZING AND RATIFYING THE TAKING OF ALL OTHER ACTIONS NECESSARY TO THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS RESOLUTION; AND DECLARING AN EMERGENCY |
| RECOMMENDATION: |
| Staff recommends approval. |
| EXECUTIVE SUMMARY: |
| As a result of prevailing low interest rates in the municipal bond and private placement markets, this agenda item requests Council approval for a refunding of the Town's Series 2007 Municipal Property Corporation Excise Tax Revenue Refunding Bonds. These bonds were issued in 2007 in the amount of $17,810,000 to refund multiple series of outstanding bonds that had been originally issued by the Town in 1996, 2000 and 2001 to finance water-related system improvements and acquisitions and town-wide building and facility construction. |
| BACKGROUND OR DETAILED INFORMATION: |
The current outstanding principal balance of the Series 2007 bonds is $14,710,000. The average interest rate on these bonds is approximately 4.40% compared to an estimated average rate for the new refunding issue of approximately 2.50%, which is subject to change based on market conditions and the bid results as outlined below.
Based on current assumptions, the proposed refunding would result in net present value savings to the Town of approximately $1,033,000, largely benefiting the Water Utility Fund where the majority of debt service is funded. Typically, when the net present value savings as a percent of the bonds to be refunded equals three percent (3%) or more, cities and towns will positively consider a refunding transaction based on this minimum threshold. The present value savings as a percent of the Series 2007 bonds to be refunded for this proposed refunding transaction is 7.02%, and therefore results in an efficient refunding opportunity for the Town. The proposed debt service schedule on the new bonds is structured to provide for level debt service during the 10-year maturity term of the refunding bonds.
The maturity date of the proposed new refunding bonds is 2026, which is the same as the existing bonds, so it does not extend the annual debt service payments.
The Town will follow a private placement method for issuing the new refunding bonds. This method involves the firm of Stifel, Nicolaus & Company serving as the placement agent on behalf of the Town. In this capacity, Stifel will solicit competitive bids from banks and financial institutions using the term sheet attached to this communication and will work with staff to award the purchase to the institution that bids the most advantageous interest rates. The Town and Stifel have been successful using the private placement method in the past, most recently in 2016 with the issuance of the Series 2016 Excise Tax Revenue Obligations in the amount of $2 million at a 2.2% rate. Prior to that, in 2015, the Town issued the Series 2015 Excise Tax Refunding Obligations in the amount of $3,775,000 at a 1.91% rate. This type of financing also results in lower costs of issuance to the Town since there is no need to prepare an official statement or solicit a bond rating.
Attached to this communication are the following draft standard documents supporting the issuance of the bonds:
- Trust Agreement
- Obligation Purchase Agreement
- Placement Agent Agreement
- Agreement with Trustee for Redemption of Series 2007 Excise Tax Refunding Bonds ("Agreement")
- Depository Trust Agreement
- Request for Private Financing Proposals Term Sheet
Approval of the attached resolution delegates the authority to Town staff to negotiate the terms and conditions with the successful bidding financial institution and execute all duties related to the issuance of the refunding bonds. The anticipated closing date for the refunding is tentatively scheduled for the week of April 3, 2017. |
| FISCAL IMPACT: |
| The proposed refunding will refinance existing Series 2007 Municipal Property Corporation Excise Tax Revenue Refunding Bonds carrying a current average interest rate of 4.40% with a new refunding issue at an average interest rate of 2.50%, which is subject to change based on market conditions and bids received. Based on current assumptions, the proposed refunding would result in net present value savings of approximately $1,033,000, mainly benefiting the Water Utility Fund, spread over the 10-year maturity of the proposed refunding bonds. |
| SUGGESTED MOTION: |
| I MOVE to approve Resolution No. (R)17-10. |
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