2021-042 Utility Revenue Bond SaleDate: July 2, 2021 Report No. 2021-042
INFORMAL STAFF REPORT
TO MAYOR AND CITY COUNCIL
SUBJECT:
City’s anticipated sale of Series 2021 Utility System Revenue Refunding Bonds.
BACKGROUND:
Commercial paper is a short-term financing tool which allows the City to access cash quickly, as
needed. Commercial paper notes are issued with a maximum maturity of 270 days with the
option to refinance with another note issuance or with long-term bonds. On January 12, 2021,
City Council approved Ordinance 20-2276 establishing the Utility System Extendable
Commercial Paper Program (Utility ECP) which was amended on February 23, 2021 for a
maximum of $300 million (Ordinance 21-355). At the same meeting, City Council approved
Ordinance 21-070 authorizing the refunding of any outstanding commercial paper notes with
long term debt.
At the February 19, 2021 Emergency Special Called Meeting, Council directed staff to issue
$100 million of notes, with proceeds received the same day, to meet the Electric Fund’s
immediate cash flow needs associated with the Winter Storm Uri event. Winter Storm Uri had a
net impact of $140 million to the Electric Fund.
During the April 20, 2021 City Council meeting, Council directed staff to refinance the $100
million in outstanding notes with 30-year bonds and issue an additional $40 million in notes. The
additional $40 million in notes were issued, and proceeds received May 20, 2021. Staff will
move forward with the refunding of $140 million in outstanding commercial paper notes to 30
year bonds to mitigate the single year impact to the Electric Fund.
DISCUSSION:
With the $140 million in commercial paper notes now outstanding, the refinancing plan is to
issue long-term bonds in a negotiated bond sale in order to spread the repayment over a 30-year
period and minimize the impact to ratepayers. Bonds are typically issued through a negotiated
sale when there is a unique structure or in-depth background to communicate to investors. The
negotiated sale process allows for additional time and resources to market the bonds which is
beneficial to the issuer. The unique circumstances of Winter Storm Uri combined with the
taxable structure of the bonds, favor a longer marketing period to generate increased investor
interest. In consultation with the City’s bond advisors, staff has conducted an analysis of the
options and concluded a negotiated sale would be the most efficient and cost-effective method.
Staff will provide an update to the Public Utilities Board on July 12, 2021 regarding the
financing plan, with an update to City Council on July 20, 2021. Based on a preliminary
timeline, staff expects the bonds to be sold the last week of August with closing on September
21, 2021.
Date: July 2, 2021 Report No. 2021-042
Staff will evaluate and select qualified and experienced underwriting firms which have actively
participated in the City’s prior competitive sales. The criteria used to select an underwriter in a
negotiated sale may include the following:
● Overall experience;
● Participation in the City’s past competitive sales;
● Marketing philosophy;
● Capability;
● Previous experience as managing or co-managing underwriter;
● Financial statement and financing plans that are relevant and appropriate;
● Public finance team and resources; and
● Breakdown of underwriter’s discount, which includes management fee, underwriting fee,
average takedown and other administrative expenses.
Current market indications of the all-in true interest cost (AIC) for the revenue bonds is 3.15%,
which factors in the cost of issuance. City staff recommends moving forward with the refunding
of the Utility System Extendable Commercial Paper as outlined above to take advantage of
favorable market conditions.
If City Council has questions regarding the refinancing plan or negotiated sale strategy, staff is
happy to provide additional information.
STAFF CONTACT:
Cassey Ogden
Director of Finance
(940) 349-7195
Cassandra.Ogden@cityofdenton.com