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HomeMy WebLinkAboutCity of Rexburg WW Bond Presentation 4-15-2020MINNEAPOLIS | BOISE | CHICAGO | LONDON | LOS ANGELES | NEW YORK | PORTLAND | SAN FRANCISCO | SEATTLE | ZURICH April 15, 2020 Eric Heringer MANAGING DIRECTOR Tel: +1 208-344-8561 Email: eric.heringer@psc.com Michael Keith VICE PRESIDENT Tel: +1 208-344-8564 Email: michael.keith@psc.com City of Rexburg Bond Refinancing Overview •Staff Thoughts/Recommendations Noted in Green Text. •Matt Nielson-CFO City of Rexburg •Scott Miller-City Controller/Deputy Treasurer PIPER SANDLER | 2 Disclosure Piper Sandler is providing the information contained herein for discussion purposes only in anticipation of being engaged to serve as underwriter or placement agent on a future transaction and not as a financial advisor or municipal advisor. In providing the information contained herein, Piper Sandler is not recommending an action to you and the information provided herein is not intended to be and should not be construed as a “recommendation” or “advice” within the meaning of Section 15B of the Securities Exchange Act of 1934. Piper Sandler is not acting as an advisor to you and does not owe a fiduciary duty pursuant to Section 15B of the Exchange Act or under any state law to you with respect to the information and material contained in this communication. As an underwriter or placement agent, Piper Sandler’s primary role is to purchase or arrange for the placement of securities with a view to distribution in an arm’s-length commercial transaction, is acting for its own interests and has financial and other interests that differ from your interests. You should discuss any information and material contained in this communication with any and all internal or external advisors and experts that you deem appropriate before acting on this information or material. The information contained herein may include hypothetical interest rates or interest rate savings for a potential refunding. Interest rates used herein take into consideration conditions in today’s market and other factual information such as credit rating, geographic location and market sector. Interest rates described herein should not be viewed as rates that Piper Sandler expects to achieve for you should we be selected to act as your underwriter or placement agent. Information about interest rates and terms for SLGs is based on current publically available information and treasury or agency rates for open-market escrows are based on current market interest rates for these types of credits and should not be seen as costs or rates that Piper Sandler could achieve for you should we be selected to act as your underwriter or placement agent. More particularized information and analysis may be provided after you have engaged Piper Sandler as an underwriter or placement agent or under certain other exceptions as describe in the Section 15B of the Exchange Act. Piper Sandler Companies (NYSE: PIPR) is a leading investment bank and institutional securities firm driven to help clients Re alize the Power of Partnership®. Securities brokerage and investment banking services are offered in the U.S. through Piper Sandler & Co., membe r SIPC and FINRA; in Europe through Piper Sandler Ltd., authorized and regulated by the U.K. Financial Conduct Authority; and in Hong Kong through Piper Sandler Hong Kong Ltd., authorized and regulated by the Securities and Futures Commission. Asset management products and services are offered through separate investment advisory affiliates. © 2020 Piper Sandler Companies. 800 Nicollet Mall, Minneapolis, Minnesota 55402-7036 •Piper Sandler acts as a Placement Agent (PA), not a Financial Advisor (FA) •Will lower fees by not using an FA PIPER SANDLER | 3 Bond Refunding Candidate General Info Original Issue Date December 8, 2010 Purpose Wastewater Project Call Date of Bonds September 15, 2020 Bond Rating Aa1 (Issued through the Bond Bank) Bond Stats Par subject to Call $3,865,000 Callable Maturities 2021-2025 Average Coupon 3.880% •A placement within 90 days of the call date is deemed a “current refunding” and allows for a “Tax-Exempt” bond •Typically provides a lower rate of interest •$3,865,000 is principal amount due after making September 2020 Principal ($695,000) and interest ($84,900) payment •The average coupon rate is for remaining term. Complete term rate was 3.56%. PIPER SANDLER | 4 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% Apr-10 Apr-12 Apr-14 Apr-16 Apr-18 Apr-20 In t e r e s t R a t e s 20-Year AAA MMD Interest Rates on municipal bonds are at historical lows however have experienced volatility recently as a result of COVID-19 outbreak. Historical Interest Rates 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% Jan-20 Feb-20 Mar-20 Apr-20 •In last month we saw a spike in rates with a slow decline because of liquidity demands in the U.S. Many sold tax-exempt bonds and muni-bonds just after March 20th for liquidity purposes, momentarily driving the rates up. •Rates are settling and we hope will settle even more over next month. •Still low compared to our average rate of 3.88%. PIPER SANDLER | 5 Summary of Refunding Analysis (As of 4/9/2020) Placement Assumed Closing Date 6/22/2020 Callable Principal $3,865,000 Callable Maturities 2021-2025 True Interest Cost 1.60% Cash Flow Savings $259,682 Net Present Value Savings $$215,374 Net Present Value Savings %5.57% Estimated Fees $33,000 Note: Anticipated savings is net of assumed costs for refinancing. Considerations: •Piper Sandler Analysts believe we may attract rates between 1.25% and 2% •With the strong credit of the City we felt we would be in the middle of the range around 1.6% at current rates •We originally anticipated savings around $140,000 to $160,000 •We can consider applying with Bond Bank for a potential refunding in the Fall 2020 •Fees would be higher with this reissue (estimated at $30,000 or more higher) •Would likely add additional cost of an FA •Risk of rates increasing if we wait (projected at 1.84% now) •Can still consider this if bank placement rates come back too high (applications due end of May) PIPER SANDLER | 6 Cash Flow Savings Refunding Annual Savings (2010 Sewer Bond Refunding) Calendar Current Annual Contributed Refunding Annual Date Debt Service 9/15/2020 Interest Debt Service Savings 2020 $73,606 $73,606 $0 2021 $867,213 $816,098 $51,115 2022 $867,013 $815,000 $52,013 2023 $864,075 $812,760 $51,315 2024 $865,200 $810,360 $54,840 2025 $863,200 $812,800 $50,400 Totals $4,400,306 $4,067,018 $259,682 PIPER SANDLER | 7 Escrow Funding & 9/15 payment Escrow Requirement for 9/15 redemption Cash Contribution to pay 9/15 interest from existing resources Loan proceeds used to pay principal that will remain 9/15 payment •We would have to pay the $73,606.25 of interest into an escrow account in June plus all fees associated with the reissue •The rest of the interest ($11,293.75) plus the principal ($695,000) for 2020 will be paid to the bond bank by 9/15/20 by the city as normal PIPER SANDLER | 8 Considerations •The par amount of the refunding bonds cannot exceed the par amount of the refunded bonds. •The final maturity can not extend beyond the final maturity of the bonds you are refinancing. •The refinancing must show positive savings net of financing costs. •The City would need to cover financing costs out of existing resources. •The City should set a minimum savings threshold to guide the City’s decision on the refinancing. This can be set as a % of par (e.g. 3%) or a minimum dollar amount. •Staff Recommends using a minimum savings threshold. •Dollar savings is most important •Goal of % of par normally 3% or more, we expect 5% NPV savings or more PIPER SANDLER | 9 Bank Placement Process Placement Provide 60 day notice requirement Prepare Financing Package to send to banks (2-3 weeks) Approve Bond (Parameters) Resolution Receive bank bids (End of May) Review bank bids and award to best bid Finalize legal documents Close Mid to late June PIPER SANDLER | 10 Estimated Timeline and Recommended Motion from Council Recommended Motion from Council: •Issue 60 day written notice to IBBA of intention to pursue bank placement •Allow creation of a Parameters Resolution to be presented to council for adoption on 5/6/20 •Recommendation to allow staff to pursue above timeline and accept bank placement bid if minimum savings of $200,000 is achieved