Travis County Commssioners Court
September 24, 2002
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Agenda Item Eleven
11 is to consider authorizing county staff and consultants to proceed with potential refunding of various county debt obligations, designating underwriters, authorizing preparation of offering documents relating thereto, and take any other appropriate action.>> good morning, judge, commissioners.
>> good morning.
>> your financial adviser. And we're here today to discuss with you an opportunity the county has to accomplish some of the things that I know are near and dear to your heart and that's saving money. We're -- we have posted to discuss about a bond refunding. You've done many of these in the past. We actually did one last fall. And at that time, when we did the one last fall, we were presented with this idea to do a refunding of the series 1992 a and b bonds. We were presented with that idea by first southwest and estrada hinojosa and since that time also joining us is another firm that's been working the idea as well. Let me go back and tell you, refundings are just like refinancing a house. What we accomplish by doing a refunding with municipal bonds is to lower your payments. And to lower your payments, you save money. In 1992, the county refunded seven series of bonds that stretched from '86 through '92 a. And in that refunding, we saved -- the county saved two and a half million dollars in debt service payments future from that time by doing that one. Since that was a refunding, those -- the federal tax law will keep you from refunding it again until it's callable, which means when you have the option to redeem the bonds without doing it in advance. That date for the 1992 bonds comes up on March 1st of 2003. Under federal tax law, you can do a current refunding 90 days in advance of the optional redemption date, that means December 1st. I asked judge to put this on the agenda now so we would have time to be prepared to take advantage of what is the best interest rate-wise market in almost 40 years. To issue these refunding bonds or to have the sale in late October, deliver the bonds on the 3rd of December in order to achieve savings. We've handed you a -- some of the numbers run there, and I did want to tell you that in the one we did before, it was roughly -- a little over -- about 3.5% value savings that we did in 1992. At 3% is the threshold. What we're presenting here today, which i'll let mr. Kimball speak to, is a refunding that produces 7.78 present value savings. I'll remind thaw last fall we saved 12.6% on this limited tax bonds we refunded. All of this continues to save you money. And this one, as gary walks you through it, you will see it's over half a million dollars a year over the next six, seven years. Gary, if you would like to run through the numbers. What I should do first is introduce everyone. Don gonzales is here from estrada-hinojosa. We have keith richard with seibert branford in houston and gary kimball with first southwest company.
>> judge, members of the court, for the record, i'm gary kimball with first southwest company. You've got a preliminary savings analysis in front of you. If I may, I would like to walk you through some of the highlights. It's approximately a $40 million transaction to refinance two series of outstanding county bonds from back in 1992. Which at the time were also issued as refunding bonds. We had structured the transaction in consultation with your financial adviser to generate level annual savings of just over $560,000 a year for a period of six years. That's outlined on page 2 of the handout, which, as you can see at the bottom of the page, generates just over $3 million worth of present value savings all told. And you would realize that in annual increments of just over $560,000. The third page is an indication of where rates are today. And if you go to the bottom of that page, we're just under a 2.9% all in interest rate for the newly issued bonds. Which compares to, if you will go to the last page, which is some detail associated with the outstanding debt, interest rates on those bonds between 5.7 and 5.8%. So we're bringing the interest rate down almost three full percentage points, and that is the basis for the savings that we would realize. And I would be happy to answer any questions that you might have. It's a fairly straight-frord transaction, but it's obviously a very opportune time to take advantage of it. It's the first opportunity you've had in the last 10 years to do so, but as your financial adviser has pointed out, we certainly agree the timing couldn't be better to take advantage of the opportunity.
>> if I made add, judge, to the history just a moment is when we were looking at this last fall, it was brought to us I think in our industry in the marketplace there were things called forward -- forward front refundings where underwriting firms would actually buy something from you and not take delivery for a year. That's different than advance refunding where you close the deal back then. The premium to have done that was fairly high because they are looking at risk. At the events in the marketplace in the last year started going up and down and things were happening in there, forwards kind of dried up, but we've kind, and i've supplied some of you and also christian with these analyses almost monthly as we've gone along to see how this is done. By waiting till now, we have not -- we've actually -- we're actually getting even lower rates based on what happened in the market the last three weeks. But we now have an opportunity to do this with no forward premium at all. It will be done on a strictly forward basis.
>> for the average resident watching this, this is us basically looking at outstanding debt that we are making annual payments to satisfy. But because of the market and our aaa bond rating, we're able to get a lower interest rate and save over a six-year period $3 million.
>> that's correct. And since you brought up the rate, you know, when we did the '92, we did not have an a aa rating. The bonds were sold as aaa because we bought an insurance policy to go along with it to ensure the principal and interest. Since we've achieved our aaa ratings from standard and poors and moody's, our bonds trade better than insured bonds and we don't have to pay that premium.
>> when we were aa and bought the insurance were we required or just a good thing to do?
>> just a good thing to do.
>> the other side of the coin of dropping interest rates. In spring time when we were establishing the budget, we said oh, my goodness, we have a drop of over a million dollars in revenue from our interest rate, our investments. Well, this is the other side, is it allows you to refinance and save money.
>> so the 3 million, our net benefit after costs and everything or --
>> yes. And the net present value, what that means is basically over time, it's actually more than that if you add up the savings each year.
>> right.
>> but it's discounted back to today at the bond rate to show if you had the money in hand today what is it worth. It's just worth over 3 million.
>> this is one of the many issuances we have out there. How is this refunding going to take any pressure off of our i.n.s. Rate? You were here this morning when we approved the rate and because we issued all those bonds because of last November's election, we increased our debt service by almost $10 million. How is this going to help us manage the i.n.s. Rate?
>> i'll speak of it conceptually and try to do the math in my head. The $10 million -- the $100 million road bond issue we did in spring for sh 130, it was what produced as you said earlier 1.7 cents of the tax rate increase, $10 million. I will remind everyone that we issued those bonds at 4.83% over a 20-year basis. One of the cheapest borrowingings i've seen for 20-year bonds. But you have to pay $10 million in debt service in '03 to pay for those bonds. What we're doing here is taking a maneuver and action to tallly save you next year a half a million dollars in debt service.
>> which is about a tenth of a penny.
>> it all adds up.
>> I can't think of any reason not to do it.
>> what I would like to say is as we've done in the past, we've already liked to -- if ideas are brought to us by people, we like to do business with them. And this idea was brought to us by first southwest company and estrada-hinojosa, and mr. Richards has also been on board the last few months helping us analysis it, and -- analyze it, and I would like to have the court not only authorize this but designate first southwest to be the manager and estrada-hinojosa to be the other underwriter and I project we would bring you a bond purchase agreement on Tuesday the 29th of October.
>> that's my motion.
>> second.
>> any more discussion?
>> I will have to abstain on first southwest for the reason because I have a relative that is employed by first southwest company. The other one would be fine as far as hinojosa is concerned. So we need to split that --
>> why don't we put first southwest --
>> we'll [inaudible] the senior -- designate the senior manager to be first southwest and then the co-managers.
>> voted on the senior manager first, first southwest.
>> second.
>> that motion is seconded by commissioner Sonleitner. Any discussion on that motion? All in favor? Show commissioners Sonleitner, Gomez, Moore and yours truly voting in favor. Abstaining commissioner Davis because he's got a relative employed by first southwest. The other part of the motion is to approve the deal with the recommended parties.
>> with estrada-hinojosa and [inaudible] as co-managers.
>> second.
>> any more discussion? All in favor? That passes by unanimous vote. Thank you all very much. Looking forward to working with you.
>> thank you.
>> thank you all very much.
Last Modified: Wednesday, April 2, 2003 10:25 AM