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Finance Department Presentation to the City of Houston Budget and Fiscal Affairs Committee Upcoming Financial Transactions March 1 st 2016 Presented By: Jennifer Olenick, CFA - Deputy Director 1
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Agenda Combined Utility System –Pricing Update - First Lien Revenue and Refunding Bonds, Series 2016B –Variable Rate Demand Bonds, Series 2004 B-2, B-4 & B-5 General Obligation –Commercial Paper Program Series E-2 –Public Improvement Refunding Bonds, Series 2016 2
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3 System:Combined Utility System Total Par Amount:$955.105 Million Refunding Par Amount:$739.625 Million Use:Capital Improvement Program Average Life (Years):16.969 Present Value Savings:$116,762,674 Percentage Savings:15.787% All-In True Interest Cost (%):3.252% Anticipated Closing Date:March 8, 2016 Pricing Update CUS Series 2016B Note: This presentation constitutes the written recommendation of the Finance Working Group. (1) Wells Fargo, serving as the lead underwriter, supported the transaction by purchasing an estimated $131 million in unsold bonds.
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4 Liquidity TypeSeries Size ($ millions) Bank / DealerExpiration Requires Bank Facility Commercial Paper B-1 100.00Bank of America1/8/2019Y B-2 75.00Morgan Stanley (3) 3/13/2022N B-3 75.00Bank of Tokyo-Mitsubishi1/16/2018Y B-4 100.00State Street7/15/2016Y B-5 250.00RBC (1) 10/30/2018N B-6 100.00US Bank7/15/2016Y Subtotal 700.00 Variable Rate Demand Bonds 2004B-2 100.00Bank of New York Mellon4/4/2016Y 2004B-3 75.00Sumitomo4/3/2018Y 2004B-4 75.00Bank of Tokyo4/4/2016Y 2004B-5 100.00Wells Fargo4/4/2016Y 2004B-6 78.33Sumitomo4/3/2018Y Subtotal 428.33 SIFMA Index Floater 2012A 125.00Bank of America5/1/2020N 2012B 100.00Wells Fargo Securities6/1/2017N 2012C 249.08RBC8/1/2016N Subtotal 474.08 Total Debt Outstanding (2) $6,156.49 Total Commercial Paper Outstanding (2) $120.00 Total Unhedged Variable Rate Debt (2) 1.95% (1) The RBC facility B-5 is a Forward Purchase Agreement. (2) As of December 31, 2015 Monthly Financial Report. (3) The Morgan Stanley B-2 is an Extendible Commercial Paper product. CUS Variable Rate Exposure Summary Note: This presentation constitutes the written recommendation of the Finance Working Group.
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CUS Variable Rate Demand Bonds, Series 2004 B-2, B-4 & B-5 The 2004B-2, B-4, B-5 bonds are three of five (5) tranches of tax-exempt variable rate demand bonds supported by bank letters of credit. The facilities are set to expire on April 4, 2016. In February, the City issued a request for proposals from qualified financial institutions to provide a credit facility. The Finance Working Group recommends we explore renewal or replacement of the existing letter of credit as they come due. An RCA can be expected to be presented to City Council March 23, 2016. 5 Note: This presentation constitutes the written recommendation of the Finance Working Group.
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6 GO Variable Rate Exposure Summary Liquidity TypeSeries Size ($ millions) BankExpiration Requires Bank Facility Commercial Paper E-1 100Citigroup7/13/18Y E-2 100Wells Fargo4/28/2016Y G-1 75Mizuho2/19/2018Y G-2 125Sumitomo11/28/2017Y H-2 100Mizuho10/13/2017Y J 125State Street5/20/2017Y K-1 150RBC2/2/2022N K-2 100Citibank12/27/2018Y Total 875 Total Debt Outstanding (1) $3,225,240 Total Commercial Paper Outstanding (1) $166,900Total Current Variable Rate Exposure 5.17% (1) As of December 31, 2015 Monthly Financial Report.
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7 Commercial paper (CP) has provided an expedient, cost–effective method of accessing cash and providing interim financing. The current liquidity facility for the General Obligation Commercial Paper Program, Series E-2 is set to expire on April 28, 2016. The Series E-2 supports the City’s capital improvement program. The Finance Working Group recommends renewing with the current provider, Wells Fargo GO Commercial Paper Program Series E-2 7 Note: This presentation constitutes the written recommendation of the Finance Working Group.
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8 DepartmentSeries Size ($ Millions) Actual or Anticipated Closing PV Savings ($ Millions) True Interest Cost (%) GOTRANS 2015210July 2, 2015N/A0.29 CUS 2015D & 2007A Exchange Bonds 119July 9, 201510.123.71 CUS2016A64January 20, 2016N/A1.40 CUS2016B955March 8, 2016116.763.26 Subtotal$329$126.882.75 GOPIB 2015800 (1) April 201663 (1) --- HAS2016TBDJune 2016--- Subtotal$800$63.00 FY2016Total$1,129$189.88 FY2015Total$1,353$44.13 FY2014Total$2,390 $209.23 Annual Financing Plan (1)Estimated. Preliminary, subject to change. Note: This presentation constitutes the written recommendation of the Finance Working Group.
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Commercial paper (CP) has provided an expedient, cost– effective method of accessing cash and providing interim financing. The CP notes are later refinanced into fixed rate bonds that match the useful life of the project or equipment being financed. This transaction represents the normal refunding of these commercial paper notes. Additionally we will be refinancing some currently outstanding bonds at lower current market interest rates which result in present value savings currently estimated at $60-65 Million. 9 Public Improvement Refunding Bond Series 2016 Note: This presentation constitutes the written recommendation of the Finance Working Group.
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10 Public Improvement Refunding Bond Series 2016 Below is a breakdown of proposed components: Additional bonds produce savings, but do not meet the City’s criteria as set out in the Financial Policies. As standard course of business, in conjunction with this transaction, the FWG will review possibilities to refinance existing debt if prudent opportunities to achieve present value savings exists. An RCA is expected to be brought before Council March 2, 2016. Component being RefundedUp ToUse Refund CP Series E$110,000,000Equipment Total$110,000,000 Advance Refundings$690,000,000 Total$690,000,000 Grand Total$800,000,000 Note: This presentation constitutes the written recommendation of the Finance Working Group.
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11 System:General Obligation New Money or Refunding?:Both Par Amount:$800 Million (maximum) Use of the Debt Proceeds:Capital Improvement Program Revenue Source Securing Debt:Ad Valorem Property Taxes Estimated Weighted Average Life of the Debt Being Refunded (other than Commercial Paper) :7.7 Years Estimated Change to the Weighted Average Life of Debt Being Refunded (other than Commercial Paper) :0.7 Years Estimated Net Present Value Savings:$63 Million Estimated Percentage Savings:10.7% Estimated True Interest Cost (%):2.2% Anticipated Council Agenda Date:March 2, 2016 Anticipated Date of Pricing:March 22, 2016 Anticipated Date Closing:April 13, 2016 Public Improvement Refunding Bond Series 2016 All figures are as of February 17, 2016 and are subject to market adjustments. Note: This presentation constitutes the written recommendation of the Finance Working Group.
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Finance Department Questions? 12
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