HomeMy WebLinkAbout10 Refunding Pension Obligation Bondsenda 1
To: Board of Directors
From. Jeremy Popov
Date: September 07, 2016
Subject: Consideration of Refunding the District's Pension Obligation Bonds
I WHY THIS MATTER IS BEFORE THE BOARD
This action concerns authorizing the General Manager to select the most favorable
lender proposal and to authorize staff to prepare final financing documents for Board
approval of the refunding of the Taxable Pension Obligation Bonds, Series 2011 (the
'Side Fund").
2. HISTORY
In 2004, the District joined the California Public Employees' Retirement System
("CalPERS") pooled pension plan.
In 2010, the District and its employees elected to increase the CaIPERS benefit
effective January 2011.
As a participating CaIPERS agency with fewer that 100 employees, the District was
moved into an enhanced benefit risk pool known as the Side Fund. The Side Fund
created a pension obligation of the District to pay an amount to catch up to the rest of
the existing participants' contributions in the pension pool. In 2011, the District was
paying an interest cost of 7.75% on the CalPERS Side Fund.
In 2011 the District exercised our ability to refund the Side Fund by issuing pension
obligation bonds (POBs) at a taxable interest rate of 5%. The 5% rate is fixed through
June 30, 2021 at which time it resets based on the prime rate. Final maturity of the
side fund is achieved in 2022. This refunding saved $100,000 per year, or over $1
million in total.
Although the POBs are callable on any date after June 29, 2016, the District would be
required to pay a call premium. The call premium depends on when the bonds are
called, and from now to June 2018 the call premium is 3%.
During a workshop on this matter held August 3, 2016, the Board directed staff to
issue a request for proposals to qualified lenders to evaluate potential savings.
3. NEW INFORMATION
Brandis Tallman, the District's full service investment banking firm and broker/dealer,
who assisted the District to refund in 2011, issued an RFP to 11 lenders.
Six responses were received. Staff reviewed responses for compliance with the RFP,
lender terms and conditions, and for overall cost savings.
Interest rates varied from 2.47% to 4.75%. BB&T
proposal with a 2.47% interest rate and a rate
closing of October 20, 2016. The duration of 1
maturity in 2022,
provided
the most favorable overall
lock available through anticipated
arm remains unchanged with final
BB&T prepayment provisions provide the District two options:
• At any interest date the District can prepay at 102%
® At any interest date on or after June 30, 2016 the District can prepay at par
The existing POBs are held by Umpqua bank. Umpqua responded with a 25 basis
point reduction and waiver of the prepayment provisions of the currrent POBs.
Although the District would save on cost of issuance and prepayment penalty, the
interest rate of 4.75% results in an overall reduced savings resulting in a unfavorable
proposal.
4. FISCAL IMPACT
The District will be able to achieve 2.72% NPV savings, which equates to annual
savings of approximately $27,013, or $154,865 in total.
The potential savings are not yet included in the 10 year Financial Master Plan.
5. REC®MMENDATION
Authorize the General Manager to select the most favorable lender and direct staff to
prepare final financing documents for the refunding of the Taxable Pension Obligation
Bonds, Series 2011 (the "Side Fund").
Jeremy Popov
Administrative Services Manager
Michael D. Holley
General Manager