COUNCIL COMMUNICATION
TO: Honorable Mayor and Council
FROM: Jill Olsen, Administrative Services Director
SUBJECT:Title
Discussion and Action: Resolution No. 25-3817 Relating to Finance: Authorizing the Issuance and Sale of Senior Lien Wastewater System Revenue General Obligation Refunding Bonds, Series 2025, in a Principal Amount Not to Exceed $150,000,000 to be issued as Senior Lien GO Backed Obligations; Providing for the Sale, the Application of the Proceeds to the Refunding of the Obligations to be Refunded and the Payment of Principal and Interest; Providing Certain Terms, Covenants and Conditions Relating to the Series 2025 Refunding Bonds; Authorizing the Execution and Delivery of a Purchase Agreement and a Continuing Disclosure Undertaking with Regard to the Series 2025 Refunding Bonds; Appointing a Trustee, Bond Registrar and Paying Agent for the Series 2025 Refunding Bonds; and Authorizing the Preparation and Delivery of an Official Statement with Respect to the Series 2025 Refunding Bonds (Jill Olsen)
Body
FUNDING SOURCE:
Wastewater Fund
PURPOSE:
To consider the adoption of a resolution authorizing the issuance and sale of Lake Havasu City, Arizona, Senior Lien Wastewater System Revenue General Obligation Refunding Bonds, Series 2025, in a principal amount not to exceed $150,000,000.
BACKGROUND:
In 2001, the voters in Lake Havasu City approved up to $463 million in bonds to be issued for the purpose of building the Wastewater Enterprise System (sewer system). All projects of the system were completed between 2003 and 2011 for approximately $348 million, so the debt issued was $115 million under the voter-approved amount.
Since the initial $348 million bond issuance, the debt has been reduced to approximately $179 million (after the upcoming July 1, 2025 payment). A portion of this total balance is eligible for refinancing: the Senior Lien Wastewater System Revenue General Obligation Refunding Bonds, Series 2015A and the Senior Lien Wastewater Revenue Bonds, Series 2015B. The current interest rates on the outstanding balance for each series is in the 4% to 5% range. The bond coverage ratio required is currently 1.20 times coverage of net revenues to current year debt service payments. A refinancing of the balance of the 2015A and 2015B bonds would provide an opportunity to reduce the interest rate and maintain the coverage ratio required.
Currently, it is estimated that the interest rate on the refinancing would be in the 2.8% to 4% range. With the user fees implemented as a result of the recent utility rate study, it is projected that the coverage ratio would exceed the minimum 1.20 times required at an estimated 1.50 times coverage ratio.
Finally, a rate stabilization fund in the amount of $4.5 million was pledged for debt coverage on these bonds to ensure loan covenant requirements were met. These funds have grown to approximately $5.2 million with interest earnings. With the estimated 1.50 times coverage ratio on the new bonds projected, the rate stabilization fund will no longer be required. Therefore, the $5.2 million is available to reduce the amount of principal refinanced with the new bond issuance. The amount of interest saved by reducing the debt amount up front appears to be more financially beneficial than placing the funds in the Wastewater Utility fund. Therefore, staff recommends that the reserve balance be applied to reduce the bond issuance.
When taking these factors into consideration - the reduced interest rate, the improved coverage ratio, and the principal reduction from the rate stabilization fund - it is projected that there would be an approximate $1.1 million annual savings in debt service in the Wastewater Utility Fund. The total debt service savings over the term of the bonds would be approximately $22 million. The savings would then be used in the Wastewater Utility Fund for operating and capital costs.
It is important to note that this refinancing would not include increasing the debt with new money (strictly a refinancing) and the term of the bonds would not be extended. The 2015 bonds mature in 2045, and the new bonds would also mature in 2045.
COMMUNITY IMPACT:
The refinancing of this debt issuance will result in annual interest savings over the remaining life of the bonds. The savings will increase the funds available in the Wastewater Utility Fund for operating, capital outlay, and capital improvement plan purposes.
FISCAL IMPACT:
With the refinancing of the wastewater bonds and utilizing the Reserve Stabilization Fund of $5.2 million to reduce the amount of principal refinanced, there will be annual savings in debt service within the Wastewater Utility Fund of approximately $1.1 million. These savings will result in more funds available for wastewater operations and capital costs.
ATTACHMENTS:
Resolution No. 25-3817
2025 Refunding Exhibit B - Form of Bond FINAL
2025 Refunding Exhibit C - Continuing Disclosure Undertaking FINAL
SUGGESTED MOTION:Recommended Action
I move to approve Resolution No. 25-3817 relating to Finance: authorizing the issuance and sale of Lake Havasu City, Arizona, Senior Lien Wastewater System Revenue General Obligation Refunding Bonds, Series 2025, in a principal amount not to exceed $150,000,000.