HomeMy WebLinkAbout97.Power Point - Refinance2012CANsRevenue Refunding Certificate
Anticipation Notes, Series 2012C
July 2013
Revenue Refunding CANs Series 2012C
Background
Originally issued in 2006 as variable rate debt
Expected to provide hedge against investments
Financial crisis and bank instability caused
variable rates to spike
In 2008, refinanced with one-year fixed rate CANs
Since 2008, there have been four additional refinancings with one-year CANs
2012C CANs issued in October 2012
Historic CANs Refunding Cost
One-year CANs have provided a low cost of borrowing
Maturing 2012C CANs
Sanitation District must repay CANs
$131.7 million of 2012C CANs due on October 30,
2013
Three Basic Options
Fixed Rate Refunding
Variable Rate Refunding
CANs Refunding
Fixed Rate Refunding
Benefits
Removes all risk
Low long-term interest rates
Known cost
No future actions required
Disadvantages
Near-term higher debt service costs
No longer an investment hedge
Variable Rate Refunding
Benefits
Original structure of debt (2006)
Hedges investments
Disadvantages
Unknown future cost
Traditional bank structure has high fees, onerous
terms, and bank industry has been unstable
Non-bank products have high fees/costs, less
market liquidity, and require additional
administration
CANs Refunding
Benefits
Low cost fixed rate, strong investor demand
Variable-like structure, but no variable rate risk
until maturity
No bank or remarketing fees
Continues to hedge investments
Disadvantages
Unknown future cost
Requires frequent issuances
Refunding Cost Comparisons
Financing Options
Interest
Rate
Costs/
Fees
Total
Costs
First Year’s
Costs
Fixed Rate Refunding 4.10%0.06%4.16%$ 5,477,000
Variable Rate Refunding 0.14%0.52%0.66%869,000
CANs Refunding 0.18%0.23%0.41%540,000
(a)For one-year period only
(b)Not fixed, will vary over time, assumes one-year average SIFMA rate
(c)Not fixed, will vary after maturity, assumes current one-year rate
Three Basic Financing Options
(b)
(c)
(a)
CANs Refunding Market
Maturity Yield
Costs/
Fees
Total
Costs
First Year’s
Costs
One-Year 0.18%0.23%0.41%$ 540,000
Two-Year 0.65%0.15%0.80%1,054,000
Three-Year 1.05%0.12%1.17%1,540,890
Four-Year 1.40%0.09%1.49%1,962,000
Five-Year 1.75%0.08%1.83%2,410,000
Current Market for CANs
Legal and Disclosure Documents
Board and Corporation Approval September
Marketing and Sale
Closing October
Timeline
Recommendation
Refund with One-Year CANs
Because of the accelerated rate management
(ARM) program used in all of the prior CAN
refundings, the future break-even rate is now over
8.4%
Assuming current market conditions, a one-year
CANs refunding will increase the break-even rate
to over 9.0%
Discontinuance of the ARM program, hedges and
preserves cash to be invested at a rate that is
approximately twice the borrowing cost
Questions?