HomeMy WebLinkAbout13 Workshop New Debt IssuanceAGENDA ITEM #13
TRUCKEE DONNER
Public Utility District
MEETING DATE: May 4, 2022
TO: Board of Directors
FROM: Michael R. Salmon, Chief Financial Officer
SUBJECT: Workshop — New Debt Issuances
APPROVED BY
Brian C. Wright, General Manager
RECOMMENDATION:
Receive this informational update and provide feedback.
BACKGROUND:
The approved budget for 2022 and 2023 included 10 year capital improvement plans for
electric and water, $72 million and $88 million respectively. Included in the 2022 Budget
is the issuance of new long-term debt Certificates of Participation (COP), $6.0 million
Electric and $14.755 million Water. Projects in 2022 Budget to be funded with new debt
are as follows:
Electric Project - $6.0 million, new building at corp yard
Water Projects:
$ 5,322,000 Water pipeline, new (Pioneer Trail)
4,448,000 Water pipeline, replacement
2,865,000 Water pump station, new (Pioneer Trail)
2,120,000 Water tank, new (6170) (+$1.0m FacFees funded, $3.2m total project)
$14,755,000 Water projects, new debt funded, Budget 2022
The planned new debt issuances are a component of the current approved budget and
financial master plan. The new debt is also integral and aligned with the District's strategic
plan.
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Long-term debt year-end balances compare, current to 11 year ago as follows:
$ 000's 12/31/2010 12/31/2021 Change Change
CAGR
Electric 9,658 552 (9,106) (94%) (23%)
Water 38,813 11,022 (27,791) (72%) (11 %)
Excluding new debt issuance, the long-term debt will go to zero for Electric in 2022 and
reduces to $10.392 million as of 12/31/2022 for Water. Long-term debt issuance is a
method of leveraging funds for long-term capital improvements, spreading the
investment's cash flow over a substantial portion of the capital projects useful life. Both
Electric and Water are not highly leveraged and debt service coverage's are well above
standard COP covenant of 1.25.
District Code — Title 3 — Chapter 3.7 Debt Issuance and Management Policy has been
reviewed and the planned new debt issuances comply with the code's guidance and
restrictions. The code chapter is included as Attachment 3 to this report.
Cash and cash equivalents balances, excluding Restricted, compare, current to 11 years
ago as follows:
Electric - $000's
12/31/2010
12/31/2021
Change
Operating & Designated Total
7,762
25,781
18,019
Operating
5,035
5,677
642
Designated
2,727
20,104
17,377
Designated - Capital Reserve
125
11,270
11,145
Electric's Operating Reserve is in alignment with goal of 50% of operating expense
budget as of 12/31/2021. Designated for 2021 includes $6.5m Rate Reserve and $2.1 m
Deferred Liability Reserve. The Capital Reserve is $11.27m and serves as a future
funding source for capital expenditure projects. The capital reserve balance was
bolstered $7.431 million in 2021 (transfer from Operating Reserve) due to a policy change
which lowered the Operating Reserve goal by excluding purchased power, which has a
Rate Reserve, from the operating expenses used in determining the 50% goal.
Water - $000's
12/31/2010
12/31/2021
Change
Operating & Designated Total
7,451
7,085
366
Operating
5,105
5,227
122
Designated
2,346
1,858
(488)
Designated - Capital Reserve
1,921
1,016
(905)
Water's Operating Reserve is in alignment with goal of 50% of operating expense budget
as of 12/31/2021. Designated for 2021 includes $0.48m Vehicle Reserve and $0.1m
Deferred Liability Reserve. The Capital Reserve is $1.016m and serves as a future
funding source for capital expenditure projects.
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The District will have 36 months from debt issuance closing (late June 2022) to expend
the debt proceeds on eligible long-term life (at or greater than 30yr debt life) capital
projects. The District is actively planning all projects related to the debt issuance and
forecast completion of the projects within the 36 months.
NEW INFORMATION:
Since the adoption of current budget in November 2021, inflation has continued to
escalate by Federal measures. The Federal Reserve's most of 2021 tune of `transitory
inflation' has shifted to an inflation rate that will require interest rate hikes to attempt to
dampen inflation; without increasing rates to a level that might cause a recession. This
is a delicate balance.
FED BLS CPI Information hftps://www.bls.gov/regions/west/factsheet/consumer-price-index-data-tables.htm
2019 1 2020 1 2021 1 2021 2022 2022 2022
October I October I October I December January February March
USA
CPI-U 1.8
1.2
6.2
7
7.5
7.9
8.5
CPI-W 1.6
1.3
6.9
7.8
8.2
8.6
9.4
CA.SFOH (bi-monthly)
CPI-U 3.0
1.1
3.8
4.2
na
5.2
na
CPI-W 3.0
0.9
5.2
5.5
na
6.5
na
Inflation has a direct impact on both operating costs and capital expenditures for the
District. Further, supply chain issues remain a headwind for business operations across
the globe and here at the District. Accordingly, debt issuance amounts being currently
planned are 5.0% greater than Budget 2022 amounts, $6.3 million Electric and $15.492
million Water.
Issuance of the new debt in 2022 achieves the following objectives:
a) Consistent with the budget and financial master plan
b) Bolsters the capital funds available execute on capital improvement plans
c) Preserves reserves cash currently on hand
d) Locks the interest rate for 30 years (10 years before a refinancing opportunity) at
current rates, as opposed to delay into 2023 exposes District to potentially a higher
rate of interest
Regarding item d) above, we have performed a Net Present Value (NPV) analysis of
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scenarios around debt issuance timing and interest costs versus interest rate risks.
The results of this NPV analysis are summarized as follows [the 2022 rates have
approximately() 50 basis points (bp) or'/2% to current market contingency buffer]:
- $15m Debt, 30-yr Term, 6/2022 @ 4.8% versus 6/2023 @ 5.3% (+50bp)
o Former -$0.2m NPV favorable to latter, -$1.8 million gross savings
- $15m Debt, 30-yr Term, 6/2022 @ 4.8% versus 6/2023 @ 5.8% (+100bp)
o Former -$1.0m NPV favorable to latter,- $3.6 million gross savings
Select key financial information for the District from a historical perspective has been
provided as attachment 1 for review and reference.
Debt Service Coverage, Historical and Proforma draft is provided as attachment 2 for
review and reference.
The District has assembled a new debt issuance team of specialist, with extensive
experience in utility and district financings; as well as, prior experience with District
issuances. The team has been planning, meeting, and drafting supporting documents
and analysis over the last few months. The team includes:
• Bond/Disclosure Counsel, Strandling Yocca Carslon & Rauth - Lead, David
Casnocha
• Municipal Advisor, Fiedlman, Rolapp & Associates - Lead, Anna Sarabian
• Underwriter, Brandis Tallman, a Division of Oppenheimer & Co. - Lead, Rick
Brandis
• District General Counsel, Porter Simon - Lead, Steve Gross
The planned schedule key dates are as follows:
• May 18 - Board Action: Resolutions to authorize debt issuances
• May 26 - Ratings Received
• June 8 & 9 - Debt Pricing/Sale to Investors
• June 30 - Closing/Funding
OBJECTIVES & GOALS:
1.05.020 Objectives:
1. Responsibly serve the public.
2. Provide a healthy and safe work environment for all District employees.
3. Provide reliable and high quality water supply and distribution system to meet
current and future needs.
4. Provide reliable and high quality electric supply and distribution system to meet
current and future needs.
6. Manage the District in an effective, efficient and fiscally responsible manner.
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1.05.30 Goals:
1. Manage for Financial Stability and Resiliency.
FISCAL IMPACT:
There is no direct fiscal impact related to this item today. This item is planned for Action
at the May 18th board meeting.
ATTACHMENTS:
1. Key Financial Information Metrics
2. Debt Service Coverage — Historical and Forecast
3. District Code — Title 3 — Chapter 3.07
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