Broken Arrow City Council
Meeting of: 10/16/2018
Title:
title
Consideration, discussion, and possible approval and authorization to execute Resolution No. 1150, a Resolution providing for the issuance of General Obligation Refunding Bonds in a principal amount not to exceed Eight Million dollars ($8,000,000) by the City of Broken Arrow, Oklahoma, for the purpose of refunding a portion of the city’s outstanding general obligation bonded indebtedness; Establishing a not to exceed true interest cost and maturity date; Prescribing form of refunding bonds and providing for registration thereof; Providing a levy of an annual tax for payment of principal and interest on said refunding bonds; Approving an official statement for the refunding bonds; Waiving competitive bidding and designating an underwriter for the bonds and authorizing execution of a bond purchase contract, escrow fund agreement, continuing disclosure agreement and paying agent/registrar agreement; Approving legal services agreements and a financial services agreement with respect to the issuance of the bonds and providing other details of the issue
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Background:
The City has two General Obligation Bonds outstanding (Series 2008 General Obligation Bonds and the Series 2009B General Obligation Bonds) that are now subject to optional redemption or will be subject to redemption shortly which provides the City an opportunity to refinance or refund the bonds to reduce future interest costs. Two issues appear to be good candidates for a refunding in which the City would issue new General Obligation Refunding Bonds and pay off the 2008 and 2009B bonds, resulting in a reduction in the ad valorem taxes necessary to repay the bonds. Low interest rates available in today’s bond market make the refunding an economical transaction, providing significant benefits to the City and its taxpayers. The two issues are as follows:
A. Series 2008 General Obligation Bonds
a. Date of Bonds: April 1, 2008
b. Original Amount: $10,685,000
c. Remaining Average Interest Rate: 4.61%
d. Current Principal Outstanding: $3,845,000
e. Optional Bond Call Date: April 1, 2018
f. Final Maturity Date: April 1, 2023
B. Series 2009B General Obligation Bonds
a. Date of Bonds: March 1, 2009
b. Original Amount: $11,400,000
c. Remaining Average Interest Rate: 4.06%
d. Current Principal Outstanding: $4,920,000
e. Optional Bond Call Date: March 1, 2019
f. Final Maturity Date: March 1, 2024
Refunding Analysis
The aggregate principal amount outstanding of both issues is $8,765,000. The City’s GO Bond Sinking Fund currently has approximately $1.13 million in the fund earmarked to repay the two issues, requiring the City to issue approximately $7,865,000 in GO Refunding Bonds to cover the additional funds required for payoff and to pay any costs associated with the new issue. The term of the 2018E GO Refunding Bonds would be structured to not extend the term of any of the issues to be refinanced. Based on current interest rates, we estimate the net interest cost on the new bonds would be around 2.50% with a final maturity of April 1, 2023. The estimated Debt Service Payment reduction is projected at $428,900 with a net present value ("NPV") savings calculated at approximately $282,000 (after taking into consideration any costs of issuance), representing 3.22% of the refunded bonds, well within the 3% to 5% industry standard for an economical refunding transaction.
Issuance Process
State Statutes provide a road map for issuing GO Refunding Bonds which includes several key steps. GO Refunding Bonds do not require an election and can be issued by the City Council without voter approval. A public hearing is required with a 10-day notice published in the paper to provide the public an opportunity to hear details of the transaction and ask questions. These bonds also may be sold through a negotiated sale rather than a competitive sale process required by traditional GO Bonds. This acknowledges the need to get the bonds to market to capture interest rates. The determination of underwriter should be determined by staff by October 1, 2018 in order to meet refunding timeline. The Bonds have to be authorized by the City Council and then awarded to the underwriter. Another important feature of GO Refunding Bonds is that even though the Oklahoma Attorney General must approve them, there is no 30-day contestability period before closing the issue. The Bonds will be rated by Moody’s and will most likely carry the City’s current bond rating of Aa3.
Benefits of the Refunding
Outside of interest saving, an additional benefit of the refunding and restructuring existing debt payments is the ability to minimize any tax impacts from any GO Bond Issue(s) to be sold in the future. If the refunding is carried out, the principal amount of bonds that could be issued later could be increased without increasing tax impact on property owners due to the reduction in mill levy (estimated annual average at approximately .10 mills). For example, with a .10 mill levy average annual reduction, the City could increase its next GO Bond issue size by approximately $1,000,000 assuming a 20 year bond term. Therefore, the present value savings of $282,000 could translate into approximately $1,000,000 in additional bond buying power for the levy years 2019 through 2022 (levy years remaining on 2008 Bonds and 2009B Bonds).
Estimated General Schedule
October 1, 2018 - Deadline for City Staff decision on selection of underwriter for proposed General Obligation Refunding Bonds, Series 2018E
October 4, 2018 - Publication of Notice of Hearing - GO Bond Refunding
October 16, 2018 at 5:00p.m. (Prior to Council Meeting) - Required Public Hearing at City Hall (2018E Bonds)
October 16, 2018 - Presentation to the City Council regarding refunding of existing GO Bonds (2008 and 2009B Series) with Resolution to be considered authorizing the issuance of the refunding bonds and designating underwriter for the proposed issue. The Resolution establishes parameters for the issuance of the bonds which would be sold and marketed by the underwriter on November 13 or 14, 2018.
October 17, 2018 - Submit GO Bond Rating Request Package to Moody's (2018E Bonds)
November 7, 2018 - Rating Provided by Moody's (2018E Bonds)
November 13 or 14, 2018 - Selected underwriting firm prices\sales refunding bond issue
November 20, 2018 - Submit Transcript to Attorney General
December 6, 2018 - Close the 2018E Refunding Bonds
Cost: $100,000 anticipated closing cost
Funding Source: N/A
Requested By: Cynthia S. Arnold, Finance Director
Approved By: Michael L. Spurgeon, City Manager
Attachments: Resolution authorizing the sale of the 2018E bond that will refund the 2008 and 2009 bonds. Kiser Law Firm agreement and Municipal Finance Service agreement in reference to the refunding of the bonds.
Recommendation:
recommend
Approve Resolution No. 1150 and authorize its execution
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