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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?