2020-081 Bond SaleDate: September 4, 2020 Report No. 2020-081
INFORMAL STAFF REPORT
TO MAYOR AND CITY COUNCIL
SUBJECT:
City’s most recent competitive bond sale of Series 2020 General Obligation Refunding and
Improvement Bonds, and Certificates of Obligation.
BACKGROUND:
The purpose of this report is to provide the City Council with details regarding the sale of Series
2020 General Obligation Refunding and Improvement Bonds, and Certificates of Obligation
authorized on August 4, 2020.
DISCUSSION:
On August 6, 2020, the City along with its financial advisor, Hilltop Securities, conducted a
competitive sale of $62,080,000 in General Obligation (GO) Refunding and Improvement Bonds
and $58,080,000 in Certificates of Obligation (CO). The delivery date of the funds to the City
will be on September 9, 2020.
The preliminary numbers presented to Council were based on June 26, 2020 market rates. From
this date to pricing date, August 6, 2020, market rates decreased about 35 basis points. The
preliminary estimates included a conservative cushion of 15-25 basis points. The change in the
market rates combined with the conservative estimate created a difference of 50-60 basis points
in the final rate.
Series 2020 Estimates Final Savings Notes
GO Total $79,428,897 $75,989,018 $3,439,879 Debt service over life of bonds
CO $83,593,645 $77,426,477 $6,167,168 Debt service over life of bonds
GO Refunding $ 5,406,872 $ 6,654,751 $1,247,879 Net present value savings*
*Final amount is higher, illustrating the increase in savings due to lower market rates at time of refunding.
The GO bonds were awarded to Citigroup Global Capital Markets Inc. and the COs were
awarded to JP Morgan Securities LLC the lowest true interest cost bidders on both bids. Below is
a list of all participating underwriting firms.
GO Participating Firms CO Participating Firms
Bank of America Merrill Lynch Bank of American Merrill Lynch
Citigroup Global Markets, Inc. Citigroup Global Markets, Inc.
JP Morgan Securities LLC JP Morgan Securities LLC
KeyBanc Capital Markets Mesirow Financial, Inc.
Mesirow Financial, Inc. Morgan Stanley & Co., LLC
Morgan Stanley & Co., LLC Robert W. Baird & Co., Inc
Piper Sandler & Co. Wells Fargo Bank National Association
Date: September 4, 2020 Report No. 2020-081
Robert W. Baird & CO., Inc.
The Baker Group
Wells Fargo Bank National Association
The GO bonds included the issuance of $27.7 million to fund the sixth year of voter approved
projects from the November 2014 bond election, the first year of voter approved projects from
the November 2019 bond election and refunded the remaining principal amount of the
Combination Tax and Revenue Refunding Bonds, Series 2010. As approved by the City Council
on August 4, 2020, the bond sale met all the following required parameters listed below:
1) The maximum principal amount of bonds shall not exceed $70,435,000;
2) Final stated maturity of February 15, 2040;
3) Refunding must produce savings of at least 3.00%;
4) The sale must occur prior to February 4, 2021.
The present value savings for the GO refunding was $6,654,750.52 or 15.59% of the refunded
bond amount, well in excess of the established criteria. The annual savings averages
approximately $665,400 over ten (10) years. The all-in true interest cost for the GO bonds, which
includes the cost of issuance, is 1.13%.
Concurrently, the City also completed the competitive CO sale for general government, electric,
and wastewater projects. As approved by the City Council on August 4, 2020, the CO sale met
all the following required parameters listed below:
1) The maximum principal amount of the certificates of obligation shall not exceed
$64,370,000;
2) The final stated maturity shall not exceed February 15, 2050;
3) The maximum net effective interest rate shall not exceed 3.25%;
4) The sale must occur prior to February 4, 2021.
The all-in true interest cost for the CO’s is 1.69%, which factors in the cost of issuance. City
staff was pleased with the results of both sales.
Due to the market’s low rate environment, the City investigated the potential for tax-exempt and
taxable refunding. Below is a summary of these findings.
➢ The City’s Series 2011 GO’s and CO’s will become current refundings in November
2020. A tax-exempt refunding of these this fall could generate approximately $3.224mm
or 19.50% in NPV savings. This saving is based upon August 6, 2020 rates plus 25 bps
for conservative planning.
➢ Out of all the outstanding non-taxable debt series available to convert to taxable debt
through an advanced refunding, the Series 2012 CO’s is the only one economically
beneficial to the City at this time. The taxable refunding would generate approximately
$2.337mm or 10.89% in NPV savings. Negative arbitrage would be about $537,000 or
23% of the projected savings. These calculations are based upon August 11, 2020 rates
plus 25 bps for conservative planning. Since Series 2012 CO’s will be callable in
Date: September 4, 2020 Report No. 2020-081
February 2022, staff’s recommendation is to wait until November 2021 in order to
currently refund this debt with tax exempt rates.
To take advantage of the favorable market conditions and potential cost saving, staff will move
forward with the refunding of the City’s Series 2011 GO’s and Series 2011 CO’s later this fall as
outlined above.
Please do not hesitate to contact me if you have any further questions on the results of the City’s
most recent debt issuance.
ATTACHMENTS:
Analysis of Potential Refunding Candidates
STAFF CONTACT:
Randee Klingele, Treasury Manager
940-349-8206
randee.klingele@cityofdenton.com