Water Enterprise Restructuring Update Kansas City Water Services Department August 6, 2008.

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Presentation transcript:

Water Enterprise Restructuring Update Kansas City Water Services Department August 6, 2008

2 Key Considerations for Debt Restructuring  The City’s existing water debt was sold using individual ordinances for each series, some of which have differing provisions.  The proposed new Master Ordinance unifies the provisions for issuance of all debt.  Positively impacts debt service coverage through the subordination of administrative fees.  Provides flexibility to diversify debt portfolio with use of variable and synthetic debt.  Establishes renewal and replacement fund for cash-funded capital investment.

Subordination of Administrative Service Fees Tiered Annual Revenue Increases  Subordination of administrative fees improves debt service coverage, mitigating the need for higher rate increases.  Stronger financial performance increases future debt capacity.

4 Market Factors Drive Feasibility of Restructuring Source: Thompson Municipal Market Monitor  Restructuring was first recommended in late  Market conditions in February made the restructuring too costly.  Tax-exempt yields have since declined, presenting an opportunity to execute the restructuring at a reasonable cost (< 1% of refunded par).

5 Relationship of Tax-Exempt and Treasury Yields Impact Escrow Costs Source: Thompson Municipal Market Monitor Escrow Term In February, short-term taxable yields were lower than tax-exempt yields.  Yield relationships increased the cost of escrow, and cost of restructuring.  PV cost exceeded $6 million. Currently, short-term taxable yields are again higher than tax-exempt yields.  Escrow cost has declined, making the restructuring more cost effective.  PV cost less than $1 million.

6 Moody’s Investors Service Water Enterprise Credit Review  2005 Report Comments: “The downgrade reflects the system’s recent history of weakened debt service coverage levels despite sound cash reserve levels and projected coverage increases over the near term.” - Source: September, 2005 Moody’s Investors Service Credit Report  2008 Report Comments: “The new master ordinance and trust indenture, which cover all debt outstanding, improve both coverage levels and bondholder security through strengthened covenants… The new master ordinance makes administrative fees subordinate to both debt service and necessary replenishments of the debt service reserve accounts.” - Source: August, 2008 Moody’s Investors Service Credit Report

7 Standard & Poor’s Water Enterprise Credit Review  2005 Report Comments: “Financial performance has been adversely affected in recent years by the rate freeze, but remains strong enough to produce satisfactory debt service coverage and maintain strong liquidity levels…..” - Source: September, 2005 Standard & Poor's Credit Report  2008 Report Comments: “The rating on Kansas City, Mo.’s water revenue bonds has been raised to ‘AA+’ from ‘AA’, reflecting the system’s improved financial position, with maintenance of good liquidity levels while addressing the system’s large capital plan ($260 million)… Projections through fiscal 2012, which assume 10% annual rate increases and subordinates the administrative fees, show annual senior-lien debt coverage of 1.82x- 2.21x.” - Source: August, 2008 Standard & Poor's Credit Report