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HomeMy WebLinkAbout10 Long Term Debt _ ..... .... Agenda Item # j� Workshop To: Board of Directors From: Peter Holzmeister Date: February 24, 2006 Subject: Workshop on issuing long-term debt Why this matter is before the Board: This matter is a workshop to begin discussion of issuing long-term debt, possibly in the form of Certificates of Participation. Issuance of such debt requires Board action. History: We have been talking about two major water pipeline construction projects. One is construction of a new transmission line from wells in Martis Valley to our distribution system in the downtown area (Brockway Road Project). The other project involves replacing leaking pipelines in Tahoe Donner (2006 Pipeline Replacement Project). As we have discussed with the Board, our plan has been to utilize debt as the initial source of funds for these projects, and to pay the debt from two different revenues streams. The Brockway Road Project debt would be paid from facilities fees that we collect over the next twenty or twenty five years. The 2006 Pipeline Replacement Project debt would be paid from water rates. New information: Since we are evaluating the issuance of COPs, there may be an Opportunity to save money by refinancing already existing debt. The existing debt instruments that we are thinking about are (1) the 1996 COP , system debt, (3) the Bridge Street tank debt, and (4) the Donner Lake Iwaterrsystem Project overrun debt. Following is an estimate of the debt and funding source associated with each of the Projects: r New Projects2006 x Pipeline Replacement Brockway Road 9.3 million Rates and Facilities Fees Brockway 4.0 million Facilities Fees s' S Refinance of existing debt 1996 COP 8.5 million Rates and Facilities Fees Glenshire 1.5 million Glenshire surcharge Donner Lake 3.3 million Donner Lake surcharge Bridge Street tank 1.3 million Facilities Fees To move forward we need to put together a team of experts to help us. The first two members of the team would be, we think, bond counsel and finance advisor. Later we would need to add the trustee and underwriter to the team. We have used David Casnocha as bond counsel for many years. He knows the District and has represented us very well. The role of financial advisor with regard to this proposed COP would be to: (1) Evaluate the savings we could realize in refinancing existing debt, (2) Advise us on how to structure the new COP, taking into account the fact that it involves several different projects and different funding sources. (3) If our analysis concludes that refinancing existing debt is not economically justified, the remaining debt may be so small that a COP instrument is not appropriate. The financial advisor could advise us on other debt options. (4) Help us evaluate the Donner Lake financing puzzle. We have used McDonald Partners as financial advisors in the past, and we have a continuing relationship with Sandra McDonald because she assists Steve Hoilabaugh in evaluating power supply options. She has very strong financial modeling skills and tools. She has an excellent relationship with underwriters and bond insurance companies. She knows our organization and finances very well. Recommendation: I have no specific recommendation at this time. This workshop is our opportunity to discuss the various elements of the new debt. Agenda Item # /0 USE,= Workshop To: Board of Directors From: Peter Holzmeister Date: February 24, 2006 Subject: Workshop on issuing long-term debt Why this matter is before the Board: This matter is a workshop to begin discussion of issuing long-term debt, possibly in the form of Certificates of Participation. Issuance of such debt requires Board action. History: We have been talking about two major water pipeline construction projects. One is construction of a new transmission line from wells in Martis Valley to our distribution system in the downtown area (Brockway Road Project). The other project involves replacing leaking pipelines in Tahoe Donner (2006 Pipeline Replacement Project). As we have discussed with the Board, our plan has been to utilize debt as the initial source of funds for these projects, and to pay the debt from two different revenues streams. The Brockway Road Project debt would be paid from facilities fees that we collect over the next twenty or twenty five years. The 2006 Pipeline Replacement Project debt would be paid from water rates. New information: Since we are evaluating the issuance of COPs, there may be an opportunity to save money by refinancing already existing debt. The existing debt instruments that we are thinking about are (1) the 1996 COP , (2) the Glenshire water system debt, (3) the Bridge Street tank debt, and (4) the Donner Lake water system project overrun debt. Following is an estimate of the debt and funding source associated with each of the projects: New Projects 2006 Pipeline Replacement 9.3 million Rates and Facilities Fees Brockway Road 4.0 million Facilities Fees Refinance of existing debt 1996 COP 8.5 million Rates and Facilities Fees Glenshire 1 .5 million Glenshire surcharge Donner Lake 3.3 million Donner Lake surcharge Bridge Street tank 1.3 million Facilities Fees To move forward we need to put together a team of experts to help us. The first two members of the team would be, we think, bond counsel and finance advisor. Later we would need to add the trustee and underwriter to the team. We have used David Casnocha as bond counsel for many years. He knows the District and has represented us very well. The role of financial advisor with regard to this proposed COP would be to: (1) Evaluate the savings we could realize in refinancing existing debt, (2) Advise us on how to structure the new COP, taking into account the fact that it involves several different projects and different funding sources. (3) If our analysis concludes that refinancing existing debt is not economically justified, the remaining debt may be so small that a COP instrument is not appropriate. The financial advisor could advise us on other debt options. (4) Help us evaluate the Donner Lake financing puzzle. We have used McDonald Partners as financial advisors in the past, and we have a continuing relationship with Sandra McDonald because she assists Steve Hollabaugh in evaluating power supply options. She has very strong financial modeling skills and tools. She has an excellent relationship with underwriters and bond insurance companies. She knows our organization and finances very well. Recommendation: I have no specific recommendation at this time. This workshop is our opportunity to discuss the various elements of the new debt.