Memorandum
City of Lawrence
Finance Department
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TO: |
Thomas M. Markus, City Manager |
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FROM: |
Bryan Kidney, Finance Director |
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DATE: |
May 25, 2016 |
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RE: |
Review bids received and approve sale of $15,140,000* general obligation refunding revenue bonds, series 2016-A bonds to the lowest responsible bidder. Consider declaring an emergency and adopt on first and second reading, Ordinance No. 9250 authorizing and providing for the issuance of general obligation refunding bonds, series 2016-A. Consider adopting Resolution No. 7165 prescribing the forms and details of and authorizing and directing the sale and delivery of general obligation refunding bonds, series 2016-A. |
Background
The City of Lawrence state revolving loan series 2000 has an outstanding balance of $18,301.688. The original loan was issued to finance a variety of water and wastewater projects in 2000 for a total loan size of $43,495.991 with a final maturity date of July 1, 2022.
The loan has a provision to call the outstanding balance. The average interest rate the City is paying for the loan is 3.19% plus an annual 0.25% fee.
Refunding Bonds
Refunding bonds are similar to refunding any type of loan in order to save future interest costs due to the ability to borrow money at a lower interest rate than when the original loan was issued. The City would issue a new bond issue at a lower rate and use those proceeds to pay off the current bondholders. The latest market rates show a potential of selling bonds on June 7, 2016 with a true interest cost of 1.36% versus the outstanding loan rate of 3.19%. If the interest rates hold at the current market the net present value benefit net of all issuance costs would be $700,500 spread over the remaining five years of the life of the bonds.
Bond Sale
The City will conduct a competitive bond sale at 11:00 a.m. on Tuesday, June 7, 2016. Staff will bring to the Commission at the June 7, 2016 City Commission meeting a completed bond ordinance and resolution to accept the best bid and authorize issuance of the bonds.
As part of the bond sale process, the City requested a bond rating from Moody’s Investors service. The bond rating and rationale for the rating will be reviewed at the June 7, 2016 Commission meeting.
The sale is not complete until an ordinance is adopted naming the purchaser of the bonds. An ordinance does not go into effect until a second reading. Staff is requesting the Commission declare an emergency and adopt the ordinance on first and second readings on the night of the sale.
Action Requested
The City Commission is requested to review bids received and approve the issuance and delivery of $15,140,000* general obligation refunding revenue bonds, series 2016-A bonds to the lowest responsible bidder. Consider declaring an emergency and adopt on first and second reading, Ordinance No. 9250, authorizing and providing for the issuance of general obligation refunding bonds, series 2016-A. Consider adopting Resolution No. 7165, prescribing the forms and details of and authorizing and directing the sale and delivery of general obligation refunding bonds, series 2016-A.
*Amounts subject to change based on bids received on day of sale.