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Home My WebLink AboutIR 10161 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 10161 To the Mayor and Members of the City Council June 26, 2018 h�T�i7 Page 1 of 5 �i �i7 Y *a SUBJECT: FINAL RESULTS OF BONDS ISSUED UNDER THE 2018 DEBT UFVA� f PLAN fQ � This informal report is intended to provide a summary of the results from the bond sales issued under the 2018 Debt Plan including: Series 2018 Water and Sewer Revenue Bonds, Series 2018 General Purpose Bonds, Series 2018 Tax Notes, and Series 2018 Special Assessment Revenue Bonds (Rock Creek Public Improvement District ("PID")). The informal report will also provide a summary of the final rates determined on the partial cash defeasance of the 2009 Certificates of Obligation that was authorized under this year's program. Background On April 10, 2018 the Mayor and Council approved items relating to four debt transactions as follows: 1. The 32nd supplemental bond ordinance authorizing the sale of Water and Sewer System Revenue Bonds, Series 2018 to provide funding for capital improvements in alignment with the water and sewer system capital improvement plan; 2. An ordinance authorizing the sale of General Purpose Bonds, Series 2018 to fund various capital projects authorized under the 2014 Bond Program; 3. An ordinance authorizing the sale of Tax notes, Series 2018 to fund construction of Brewer Road, Como Community Center, and the purchase or replacement fire apparatus; and 4. Authorization to complete the partial cash defeasance of City of Fort Worth, Texas Combination Tax and Limited Surplus Revenue Certificates of Obligation Series 2009. In addition, on June 5, 2018, the Mayor and Council approved an ordinance authorizing the issuance of City of Fort Worth, Special Assessment Revenue Bonds, Series 2018 (Fort Worth Public Improvement District No. 17 (Rock Creek PID) Road Improvement Project). The bonds were approved to be sold to Stifel, Nicolaus & Co., Inc. pursuant to a bond purchase agreement resulting from a negotiated sale process conducted as a public underwriting. With the exception of the Series 2018 Special Assessment Revenue bonds, which were offered under a negotiated sale, the City offered the remaining debt issues utilizing a competitive sale process with the assistance of our co-financial advisors, FirstSouthwest, a Division of Hilltop Securities Inc., and Estrada Hinojosa & Co. Results of the bond pricings are highlighted on the following pages. Overview of Pricing Series 2018 Water& Sewer Revenue Bonds— The City's Water and Sewer System issue (AA+/Aa1/AA) priced with an average life of 18.262 years and a true interest cost (TIC) of 3.55%. To summarize the transaction, the City sold a total of $47,475,000 in bonds to fund various improvements to the water and sewer system totaling $50,000,000. The Series 2018 bonds were sold with a premium such that the total proceeds generated was $50,602,156. ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 10161 To the Mayor and Members of the City Council June 26, 2018 h�T�i7 Page 2 of 5 �i �i7 Y *a SUBJECT: FINAL RESULTS OF BONDS ISSUED UNDER THE 2018 DEBT UFVA� f PLAN fQ � Bids were received from nine firms. The chart below depicts the firm and the associated true interest cost: Bidder TIC RBC Capital Markets 3.5463% Bank of America Merrill Lynch 3.5526% Morgan Stanley & Co, LLC 3.5550% Citigroup Global Markets Inc. 3.5597% Robert W. Baird & Co., Inc. 3.5689% Raymond James &Associates, Inc. 3.6080% SAMCO Capital Markets 3.6229% Hutchinson, Shockey, Erley & Co. 3.6452% Wells Fargo Bank, National Association 3.6900% A summary of the final results compared to the original estimates is provided below: Summary of Projection Parameters Final Results Financing Results New Money $47,780,000 Not to Exceed $47,475,000 Proceeds $50,000,000 True Interest Cost 4.01% 3.55% Average Life (years) 18.426 18.262 RBC Capital Markets was the winning bid. Series 2018 General Purpose Bonds— The City's General Purpose (GO) issue (AA+/AA+/Aa3/AA) priced with an average life of 7.506 years and a TIC of 3.18%. To summarize the transaction, the City sold a total of $62,220,000 in bonds to fund projects authorized under the 2014 Bond Program totaling $64,350,000. The Series 2018 bonds were sold with a premium such that the total proceeds generated was $65,332,313. Bids were received from four firms. The chart below depicts the firm and the associated true interest cost: Bidder TIC Robert W. Baird & Co., Inc 3.1833% Morgan Stanley & Co, LLC 3.2108% Bank of America Merrill Lynch 3.2239% Citigroup Global Markets Inc. 3.3077% ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 10161 To the Mayor and Members of the City Council June 26, 2018 h�T�i7 Page 3 of 5 �i �i7 Y *a SUBJECT: FINAL RESULTS OF BONDS ISSUED UNDER THE 2018 DEBT UFVA� f PLAN fQ � A summary of the final results compared to the original estimates is provided below: Summary of Projection Parameters Final Results Financing Results New Money $61,835,000 Not to Exceed $62,220,000 Proceeds $65,000,000 True Interest Cost 3.45% 3.18% Average Life (years) 7.510 7.506 Robert W. Baird & Co., Inc was the winning bid. While the bond sale was successful and exceeded expectations, several events leading up to the sale of the Series 2018 General Purpose Bonds may have had an adverse impact on the final pricing. The City experienced a recent downgrade to the City's General Obligation Bond Rating in May. In addition, Standard & Poor's took a downward rating action, revising the City's rating to AA/Stable from AA+/stable, citing increasing pension liability and lack of funding the actuarially determined contribution. The result of a downgrade yields a higher true interest cost, or the effective rate at which the city borrows. To put this impact into perspective, if the series 2018 General Purpose Bonds were rated `AAA', with a 7.5 year average life, the pricing would have produced a TIC of 3.09%, about .09% better. In nominal terms, the spread equates to approximately $556,130 in borrowing costs separately the rating downgrade from S&P cost the City approximately 1 to 2 bps, which is roughly $36,017 to $72,034, respectively. Even though the City's GO ratings covers the entire spectrum of the AA category (i.e. "AA+" from Fitch and Kroll, "AX from S&P and "Aa3" from Moody's) the City still trades and sells more like a "AA+" to "AX credit because of the City's history and name recognition. Another factor that played into pricing included market competition on the day of sale. Leading up to the sale, the city collected nine registered bidders. However, only four bids were actually received on the sale. While the number of bidders was less than the City has historically seen, the quality of the bids were favorable with the bids coming in extremely close to one another. The fall-out from the number of registered bidders compared to the number of actual bidders was attributable to the large number of other competitive deals in the market that day and the structure of the bid specifications. In a crowded competitive sale market, underwriters are somewhat selective on what they bid. Size, structure, credit and other intangible factors like opportunity for further negotiated business can influence which deals get their attention. Series 2018 Tax Notes— The City's Tax Note (GO) issue (AA+/AA+/Aa3/AA) priced with an average life of 3.813 years and a TIC of 2.24%. To summarize the transaction, the City sold a total of $12,590,000 in bonds to fund improvements related to the construction of Brewer Road, Como Community Center, and the purchase of replacement fire apparatus totaling $13,667,000. The Series 2018 tax notes were sold with a premium such that the total proceeds generated was $13,804,992. ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 10161 To the Mayor and Members of the City Council June 26, 2018 h�T�i7 Page 4 of 5 �i �i7 Y *a SUBJECT: FINAL RESULTS OF BONDS ISSUED UNDER THE 2018 DEBT U A f PLAN fQ�5 Bids were received from four firms. The chart below depicts the firm and the associated true interest cost: Bidder TIC J.P. Morgan Securities LLC 2.2376% Citigroup Global Markets Inc. 2.2526% Robert W. Baird & Co., Inc. 2.2556% Morgan Stanley & Co, LLC 2.2957% A summary of the final results compared to the original estimates is provided below: Summary of Projection Parameters Final Results Financing Results New Money $13,790,000 Not to Exceed $12,590,000 Proceeds $15,000,000 True Interest Cost 2.59% 2.24% Average Life (years) 3.813 3.85 J.P. Morgan Securities LLC was the winning bid. Cash Defeasance: Series 2009 Combination Tax and Limited Surplus Revenue Certificates of Obligation, Series 2009— Excess fund balance was available during fiscal year 2018 to defease callable debt. On June 12th, a decision was made to lock in rates related to the partial cash defeasance on the City's 2009 CO's as a result of rising, forecasted interest rates that would adversely impact savings. The partial cash defeasance is scheduled for July 11. To summarize the planned defeasance, $16,435,000 of bonds will be refunded, resulting in net present value savings of$2,036,619 or 12.39%. A summary of the final results compared to the original estimates is provided below: Summary of Projection Parameters Final Results Financing Results Refunded Bonds $16,420,000 Not to Exceed $16,435,000 $17,000,000 Percentage Savings 12.29% 12.39% Net Present Value $2,017,267 $2,036,619 Savings ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 10161 To the Mayor and Members of the City Council June 26, 2018 h�T�i7 Page 5 of 5 �i �i7 Y *a SUBJECT: FINAL RESULTS OF BONDS ISSUED UNDER THE 2018 DEBT UFVA� f PLAN fQ � Series 2018 Special Assessment Revenue Bonds (Rock Creek PID)— The City's Special Assessment Revenue Bonds, issued for Public Improvement District No. 17 (Rock Creek PID), priced with an average life of 12.393 years and a True Interest Cost (TIC) of 5.14%. To summarize the transaction, the City sold a total of$5,155,000 bonds for the construction of road improvements related to Brewer Road within Rock Creek PID and funding a required reserve and capitalized interest accounts totaling $4,775,002. The Series 2018 Special Assessment Revenue Bonds were sold with a premium such that the total proceeds generated was $5,243,228. The bonds were sold to Stifel, Nicolaus & Co., Inc. pursuant to a bond purchase agreement resulting from a negotiated sale process conducted as a public underwriting. The Bonds are non-rated 19-year bonds structured to match the timing of the assessments' annual installments. A summary of the final results compared to the original estimates is provided below: Summary of Financing Projection Final Results Results New Money Proceeds $5,350,000 5,155,000 True Interest Cost 5.70% 5.14% Average Life (years) 12.575 12.393 If you have any questions, please call Aaron Bovos, Chief Financial Officer, at 817-392-8517. David Cooke City Manager ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS