8.1 Issue W/S Refunding Bonds
City Of Salina
Request for Commission Action Date
01/14/02
Time
4:00 PM
AGENDA SECTION:
ORIGINATING DEPARTMENT:
APPROVED
FOR AGENDA
8
FINANCE
ITEM NO,:
1 & 1a
BY: Rodney Franz
Item:
A. Second reading on Ordinance No, 02-10069, authorizing the issuance and delivery of
$2,045,000 principal amount of general obligation water and sewer system refunding
bonds, series 2002-A
B. Consider Resolution No. 02-5800, prescribing the form and details of and authorizing
the delivery of $2,045,000 principal amount of general obligation water and sewage
system refunding bonds, series 2002-A, of the City of Salina, Kansas, previously
authorized by Ordinance No. 02-10069 of the city and making certain covenants with
respect thereto.
Backqround:
These actions will finalizes the refinancing of the 1993-A Revenue Bonds, with a current
outstanding principal balance of $2,295,000. The purpose of the refinancing is to take
advantage of the current economic climate and reduce future obligations of the Water and
Sewer utility.
As is typically the case with our refundings, this is a negotiated sale. The bond offering
occurred Thursday, January 10. Results of the sale resulted in yields ranging from 1.75%
for the 10/01/2002 maturity to 4.550% for the 10/01/2013 maturity. An analysis of the
rates offered compared to Kansas Bonds trading in the secondary market, as well as
comparison to the Delphos - Hanover Municipal Bond index, indicates that Salina bonds
sold at 15 to 20 basis points below market for comparably rated bonds. It is staff's
conclusion that the rates received are fair and competitive compared to market.
As you may recall, the initial analysis of this transaction was quite positive. In the interim,
the capital markets moved in a manner contrary to our interests, and a substantial portion
of our anticipated saving eroded away. In the last several days, however, the market
improved for us, with the result that the final sale results in a net future value cashflow
savings of $534,167, and a present value savings of 4.558% (expressed as a percentage
of refunding par). This is comparable to our original expectations. The general rule of
thumb is that proceeding with a refunding is justified when the present value savings
exceeds 2.5% to 3.0% of par. A savings in excess of 4.5% is very substantial.
The budgetary impact of the refinancing will be a reduction in debt service (compared to
the old issue) of $112,000 in 2002, with future years savings in the range of $35,000 to
$40,000 per year.
Recommendation:
A. Adopt Ordinance #02-10069 on second reading.
B. Pass Resolution # 02-5800.