Memorandum

City of Lawrence

Finance Department

 

TO:

Thomas M. Markus, City Manager

FROM:

Bryan Kidney, Finance Director

DATE:

May 25, 2016

RE:

Review bids received and approve sale of $67,505,000* water and sewage system improvement and 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. 9249 authorizing and providing for the issuance of water and sewage bonds, series 2016-A. Consider adopting Resolution No. 7164 prescribing the forms and details of and authorizing and directing the sale and delivery of water and sewage system improvement and refunding revenue bonds, series 2016-A.

 

Background 

The governing body authorized staff to pursue issuance of water and sewage revenue bonds to finance the following:

 

2016 Project Funding

Staff proposed funding the 2016 projects water and sewage projects through a revenue bond. The projects identified for 2016 funding is $42,000,000. These projects have been authorized by the City Commission for tax-exempt debt financing.

 

In addition to funding the project costs, we estimate that there will be the additional financing costs and reoffering premium for a total estimated bond issue size of $42,175,000 calculated as follows:

 

Use of Funds

Amount

2016 projects

42,000,000

Cost of Issuance

685,129

Less: estimated premium

(510,129)

     Total estimated bond size

$42,175,000

 

The bonds will be 20 years with level annual debt service starting with the first payment in 2017. The total cost of the projects and debt service for the bonds are under the amounts that were used in the latest rate model update.

 

The bonds will be offered at a competitive sale at 11:00 a.m. on June 7, 2016. Staff will bring a bond ordinance and resolution to accept the lowest net interest costs bid to the Commission at that evenings Commission meeting.

 

Refundings

Refunding of 2007 Revenue Bonds

The City of Lawrence revenue bond series 2007 has an outstanding balance of $18,820,000. The original bond was issued to finance a variety of water and wastewater projects in 2007 for a total issue size of $19,800,000 with a final maturity date of November 1, 2032.

 

The 2007 bonds included a provision to call outstanding maturities after 2016. The average interest rate the City is paying for the outstanding maturities for years 2016 through 2032 is 4.50%. The market rates for the same years of maturities are estimated to average 2.36%. If the City issues new revenue bonds and uses the proceeds from the new sale to pay-off the 2007 bonds, the latest estimated savings (net of issue costs) is a present value of $2,271,518.

 

Refunding of 2009 Revenue Bonds

The City of Lawrence revenue bond series 2009 has an outstanding balance of $8,735,000. The original bond was issued to finance a variety of water and wastewater projects in 2009 for a total issue size of $10,385,000 with a final maturity date of November 1, 2031.

 

The 2009 bonds included a provision to call outstanding maturities after 2017. The average interest rate the City is paying for the outstanding maturities for years 2016 through 2031 is 5.56%. The market rates for the same years of maturities are estimated to average 2.38%. If the City issues new revenue bonds and uses the proceeds from the new sale to pay-off the 2009 bonds, the latest estimated savings (net of issue costs) is a present value of $847,903.

 

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 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 $67,505,000* water and sewage system refunding revenue bonds, series 2016-A bonds to the best bidder. Consider declaring an emergency and adopt on first and second reading, Ordinance No. 9249, authorizing and providing for the issuance of water and sewage bonds, series 2016-A. Consider adopting Resolution No. 7164, prescribing the forms and details of and authorizing and directing the sale and delivery of water and sewage system refunding revenue bonds, series 2016-A.

 

*Amounts subject to change based on bids received on day of sale.