Title
Financing for Construction, Refunding of Certain Outstanding Bonds and Restructuring of Certain Interest Rate Swaps (NB)
Explanation
We have a current need to fund for Costs of Acquisition and Construction for up to the next three years. Our recommendation, in consultation with Public Financial Management (PFM), our Financial Advisor, is to issue up to $135 million of tax-exempt bonds, taxable, or taxable Build America Bonds to fund a portion of these construction costs with fixed-rate debt. Since it is not clear whether the United States Congress will extend the authority to issue Build America Bonds beyond 2010, it may be advantageous to finance a portion of our future capital needs at this time as well.
In 2003, the City issued its Utilities System Revenue Bonds, 2003 Series A (the “2003 Bonds”) to finance certain of the Utility's capital projects. Since interest rates are lower now than in 2003 when the 2003 Bonds were issued, we can refinance (refund) these Bonds with new debt and save money for our customers over time.
Also, in 2005 and 2008, the City issued its Utilities System Revenue Bonds, 2005 Series B (Federally Taxable) (the “2005 Bonds”) and 2008 Series A (Federally Taxable) (the “2008 Bonds”), respectively, to finance the Deerhaven Environmental Controls (retrofit) project. Because the Deerhaven plant was subject to a Lease-In, Lease-Out (LILO) transaction, the 2005 Bonds and 2008 Bonds were required to be issued as taxable bonds. As such, the 2005 Bonds and 2008 Bonds have a shorter average life than would have been the case if those bonds had been issued as tax-exempt bonds, with larger principal and interest payments coming due through 2021. Subsequent to the issuance of the 2005 Bonds and the 2008 Bonds, the LILO transaction was terminated. As a result, we now have an opportunity to refinance a portion of those Bonds with tax-exempt bonds having a longer average life, similar to the life of the assets that were financed. ...
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