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Home My WebLink About10 Power Point New Debt Issuance May 18, 2022 New Debt Issuances AGENDA ITEM # 10 •BACKGROUND / HISTORYBACKGROUND / HISTORY New Debt IssuancesNew Debt IssuancesBoard Workshop was held May 4, 2022•newtank, 2,120,000 Water •pump station, new (Pioneer Trail)Water 2,865,000 •pipeline, replacement4,448,000 Water •pipeline, new (Pioneer Trail)Water 5,322,000 •Water -$14.755 million •Electric–$ 6.000 million •issuances2022 Budget included the following new debt •New Debt IssuancesNew Debt Issuances GrossLead, Steve –District General Counsel, Porter Simon •Rick BrandisLead, –Underwriter, Brandis Tallman, a Division of Oppenheimer & Co. •Lead, Anna Sarabian–& Associates Rolapp, FieldmanMunicipal Advisor, •CasnochaLead, David –& Rauth CarslonYocca StrandlingCounsel, Bond/Disclosure •as, prior experience with District issuances. with extensive experience in utility and district financings; as well The District has assembled a new debt issuance team of specialist, •New Debt IssuanceBACKGROUND | Workshop New Debt IssuanceBACKGROUND | Workshop Capital Improvement Plans (CIP)Capital Improvement Plans (CIP)$4.5m–Deprecation 2021 •cagr to 20212% at DEcreasing•$82m2010 was at •Net Capital Assets $71m2021 •Resiliency, Reliability•Strategic Plan integration•$8.8 million per year average•Water CIP•$3.4m–Deprecation 2021 •4% cagr to 2021at INcreasing•2010 was at $40m•2021 Net Capital Assets $61m•Resiliency, Reliability•Strategic Plan integration•$7.2 million per year average-Electric CIP Capital Metrics required, investment is -Capital re-depreciateland assets -Non-0.390.510.58Water •2.711.251.10Electric•2020 20192021 Ratio:compared to capital agingyear measure of capital investment -A one•Depreciation Expense RatioCapital Expenditures to Water 45%•Electric 35%•2021 Ratio:indicates elevated investment needs.% >45% generally cycle A life •needs.lower investment Lower life cycle generally equates to •life)Age of Plant / (age of plant + remaining useful Plant Life Cycle Ratio–BACKGROUND | Workshop –BACKGROUND | Workshop Capital Metrics •BACKGROUND / HISTORYBACKGROUND / HISTORY New Debt IssuancesNew Debt Issuances million$1.0 capital replacement fund balance 12/31/2021, Water •Debt balance: 2010 $39 million 2021 $11 millionLTD Water •Electric capital replacement fund balance 12/31/2021, $11.2 million•Electric has no LTD Debt, after final POB payment 6/30/2022•and rate approvalsplannew debt is also integral and aligned with the District’s strategic The •approved budget and financial master plan. The planned new debt issuances are a component of the current Issuance of the new debt in 2022 achieves the following objectives:NEW INFORMATIONNEW INFORMATION New Debt IssuancesNew Debt Issuances a higher rate of interestpotentially opportunityfor 30 years (10 years before a refinancing interest rate the Locks d) the capital projects useful life.of , spreading the investment’s cash flow over a substantial portion improvementsterm capital -funds for longleveragingdebt issuance is a method of term -Longc) handreserves cash currently on preserves improvement plans; execute on capital available to the capital fundsBolsters b) planwith the budget and financial master Consistent a) •NEW INFORMATIONNEW INFORMATION New Debt IssuancesNew Debt Issuances forecast completion of the projects within the 36 months.District is actively planning all projects related to the debt issuance and The •than 30yr debt life) capital projects. term life (at or greater debt proceeds on eligible longof the 85%+ expend The District will have 36 months from debt issuance closing (late June 2022) to •NEW INFORMATIONNEW INFORMATION New Debt IssuancesNew Debt Issuances past yearslevel of DS still well below With new DS proposed, •2035~$1.03 million ends in 2015 refunding DS of •POB DS ends in 2022•Prop55 DS ended in 20212016 refunding and FRED over 2021overall, 8.5% increase average –For 2022 2.8% –cagr5yr 1.3%–cagr10yr :2021-Bill Average Residential TDPUD Electric 11.1%–1yr 3.1%–5yr 2.2%–10yr 2.3%–30yr for Electricity -USA Hayward-Oak-SanFranElectricity-U-CPI FRED 8.9% average increase–For 2022 5.2% –cagr5yr 3.9%–cagr10yr :2021-Residential Bill TDPUD Water Average not availableSF/Oak/Hay USA-Sewer and Water and -U-CPI 12 @ CMUA Conference April 2022FitchRatingsSource: West Water/SewerWECC Public Power Source: Fitch Ratings*West RegionSource: Fitch Ratings*WECC RegionSource: Fitch RatingsSource: Fitch Ratings Rated California Water/Sewer Utilities-Fitch BBBA-AA+AA-AAAA+AAA35302520151050 California average rating = ‘AA’wide average rating = ‘AA+/AA’-SectorWater & Sewer Utilities’-Californ ia average rating = ‘AA’-wide average rating = ‘AA-SectorPublic Powerwide vs. California-Sector California Publicly Owned Utility Credit Ratings New Debt Issuances ~40%planned for by end of MayS&P ratings for District’s new issuances .-rating as AAMarch 21, 2022 and reaffirmed the S&P last reviewed the credit on 2015. most recent water rating in District retail utilitiesRatings Distribution of ~1,600 –Sector S&P U.S. Municipal Water and Sewer < NEW INFORMATIONNEW INFORMATION Ratings–New Debt Issuances Ratings– New Debt Issuances NEW INFORMATIONNEW INFORMATION Inflation-New Debt Issuances Inflation- New Debt Issuances (~$980k avg.DS, 30yr)Water -(+8%) million ~$15.9 •Electric (~$405k avg.DS, 30yr)–(+8%) million ~$ 6.5 •approximate level (+ to above)issuances current planned, debt Based on inflation trend, new •($960k avg.DS 25yr)Water -14.755 million $•Electric ($441k avg.DS 25yr)–$ 6.000 million •issuances: Budget included the following new debt 2022 •NEW INFORMATIONNEW INFORMATION Inflation-New Debt Issuances Inflation- New Debt Issuances ET28, 2022 1:00 am 10:08 am ET / Original April Updated April 28, 2022 | Barron’sCassellaFollowMegan Panic. By to Quarter. Why It’s Not Time Economy Shrank Last < The NEW INFORMATIONNEW INFORMATION US Economy–New Debt Issuances US Economy– New Debt Issuances ready to go beyond that, Fed Chairman Jerome Powell said at his press conference.t isn't t iThe Fed raised rates by half a percentage point Wednesday and will most likely do it again at the next couple of meetings, bu•FED lifts Rates by ½ point, biggest hike since 2000–UPDATE 5/4 rates. likely will keep the Federal Reserve on track to raise interest That•spending and business investment. And both were quite sturdy.real strength of the economy, however, lies in consumer The •.inventories and less government spendingof the decline was tied to a record U.S. trade deficit, shrinking Most •headline% drop in gross domestic product, the 1.4•; last week of April….BarronsSelect U.S. GDP/Economic quotes WSJ/NEW INFORMATIONNEW INFORMATION US Economy–New Debt Issuances US Economy– 0.00%Historical Bond Market Environment yer MMD has been higher than current levels 88% of the time.-Over the past 30 years, the 30•30-Year MMD 30 Year History–Municipal Bond Yields 8.00%7.00%6.00%5.00%4.00%3.00%2.00%1.00% New Debt Issuances ,~ $3.6 million gross savings~$1.0m NPV favorable to latterFormer -6/2023 @ 5.8% (+100bp)versus @ 4.8% 6/2022 -savings, ~$1.8 million gross ~$0.2m NPV favorable to latterFormer -@ 5.3% (+50bp)versus 6/2023 @ 4.8% 6/2022 -) or ½% to current market contingency bufferbp2022 rates have approximately(~) 50 basis points (Termyr -Debt, 3015m $analysis Net Present Value (NPV) risks interest rate and interest costs NEW INFORMATIONNEW INFORMATION–New Debt Issuances – •TIMELINETIMELINE New Debt IssuancesNew Debt Issuances Closing/Funding–June 30 Debt Pricing/Sale to Investors–June 8 & 9 Ratings Received–May 26 Board Action: Resolutions to authorize debt issuances–May 18 Board Workshop–May 4 The planned schedule key dates are as follows: •FISCAL IMPACTFISCAL IMPACT New Debt IssuancesNew Debt Issuances 1.25.service coverage’s are well above standard COP covenant of Electric and Water are not highly leveraged and debt Neither •useful lifecash flow over a substantial portion of the capital projects term capital improvements, spreading the investment’s longdebt issuance is a method of leveraging funds for term Long •FISCAL IMPACTFISCAL IMPACT New Debt IssuancesNew Debt Issuances with the financial master plan.approved in the FY22/FY23 Budget cycle and in accordance District to execute on the capital improvement plans as the recommended debt amounts enables the Incurring •the code’s guidance and restrictions. the planned new debt issuances comply with reviewed and Debt Goals have been 3.01 and Chapter Management Policy Chapter 3.7 Debt Issuance and Title 3 Code District Agenda Item 10 . participationrevenue certificates of waterdelivery of and 13 authorizing the execution -b) Adopt andrevenue certificates of electricand delivery of 12 authorizing the execution -Adopt a)RECOMMENDATIONRECOMMENDATION New Debt Issuances-Agenda Item 10 New Debt Issuances- Finance Corp revenue certificates of participation.waterand delivery of authorizing the preparation, sale, 02 -2022Adopt Resolution –8 Agenda Item participation.revenue certificates of electricand delivery of preparation, sale, authorizing the 01 -2022Resolution Adopt –Agenda Item 7 New Debt Issuances-Finance Corp New Debt Issuances- Backup SlidesBackup Slides New Debt Issuances 1.23% >$10m2.71% <$10m2.05% all issues2015 *Haas Institute, in enchmark, bne o 15.20Marc, “Doubly Bound: The Cost of Issuing Bonds,”, Berkley, CA: Haas Institute for a Fair and Inclusive Society, UC Berkley, Joeffe* Electric includes expected bond insurance (instead of reserve) and bond surety ~3.5% excludingincludes Underwriter Discount –Issuance Costs 4.9%3.9%3.1%%$320,000$352,804$185,000Issue costs-Electric$6,500,000$9,000,000$6,000,000debt par-Electric1.9%1.7%1.9%%$305,000$312,000$285,000CostsIssuance-Water$15,900,000$18,000,000 $14,755,000debt par-Water5%-Range +/Estimate of Current Good Faith not to exceedGovernment Code 5852.1SB 450 Summary / Budget 2022 NEW INFORMATIONNEW INFORMATION–New Debt Issuances – •Total Debt Service = $28,826,322Total Debt Service = $30,655,811 Summer 2023 IssuanceSummer 2022 Issuance Summer 2022 vs Summer 2023 IssuanceDebt Service Comparison: $1,200,000$1,000,000$800,000$600 ,000$400,000$200,000 Projected Debt Service Comparison: $15M Water COPs and net present value savings of ~$200kGiven the assumptions above, could result in gross savings of ~$1.8 million •than the 2023 Issuancea year earlier 2022 Issuance reflects first debt service payment on 11/15/2023 •Assumes June 2023 interest rates are 50 bps higher than the June 2022 rates.•Assumes June 2022 interest rates reflect current interest rates + 50 bps •Total Debt Service = $32,427,889 Summer 2023 IssuanceSummer 2022 Issuance Summer 2022 vs Summer 2023 IssuanceDebt Service Comparison: $1,200,000$1,000,000$800,000$600,000$400,000$200,000 Total Debt Service = $28,826,322 Projected Debt Service Comparison: $15M Water COPs and net present value savings of ~$1.0 millionGiven the assumptions above, could result in gross savings of ~$3.6 million •than the 2023 Issuancea year earlier 2022 Issuance reflects first debt service payment on 11/15/2023 •Assumes June 2023 interest rates are 100 bps higher than the June 2022 rates.•Assumes June 2022 interest rates reflect current interest rates + 50 bps Worksh January 2016–Methodology S&P Ratings Worksh S&P Rating Methodology January 2016–S&P Rating Methodology January 2016– March 16, 2022:rates will be on May 4, 2022.term interest -shortThe next FOMC meeting and decision on the United States Prime Rate is now 3.50%Therefore,0.50%.-0.25% 0.25% to-0% , fromtarget range for the fed funds ratetheto raise votedhasFOMCThe