Title
Financing for Construction, Refunding of Tax-Exempt and Taxable Commercial Paper, Refunding of Utilities System Revenue Bonds, 1996 Series A (B)
Explanation
In July 2005, the City Commission authorized, among other things, (1) the refunding of the 1996 Series A Bonds through the issuance of either fixed-rate bonds or variable-rate bonds that are converted synthetically to a fixed rate through the use of a "floating-to-fixed" interest rate swap; (2) the financing of up to $175 million of new money for payment of Costs of Acquisition and Construction (capital projects) through the issuance of either fixed-rate bonds, variable-rate bonds or variable-rate bonds that are converted synthetically to a fixed rate through the use of a "floating-to-fixed" interest rate swap; (3) the conversion of the Series C and D CP Notes to fixed rates either through the issuance of fixed-rate bonds or through the use of a "floating-to-fixed' interest rate swap to convert this debt synthetically to a fixed rate; and (4) the negotiation of one or more "floating-to-fixed" interest rate swaps with Goldman, Sachs and /or Bear, Stearns if the financing team determined that it was most beneficial to the Utility to synthetically fix the interest rates on one or more of the above transactions.
When we received approval in July 2005, we did not know if interest rates were going to stay the same, decrease, or increase. As a result of the flexibility contained in the July 2005 approval, we have been able to lock-in significant savings in connection with the proposed refunding of the 1996 Series A Bonds. Upon the advice of the Utility's Financial Advisor and the Co-Senior Managers, Utilities staff entered into two interest rate swap transactions in late September. The first was a swap with Bear, Stearns (Bear Swap) that permitted us to achieve a favorable fixed rate of interest for a synthetic advance refunding of a portion of the 1996 Series A Bonds which, in conjunction with the i...
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