Travis County Commissioners Court
October 19, 2004
Item 25
25 is to consider and take appropriate action on an order authorizing the
issuance of Travis County, Texas limited tax refunding bonds, series 2004,
providing for the award of the sale thereof, leveeing a tax in payment thereof,
authorizing execution and delivery of an escrow agreement, and a bond purchase
agreement, approving the form of the official statement, and enacting other
provisions relating there to.
>> good morning, judge, Commissioners. I’m your financial
advisor and I have with me today glen opal, counsel and david potter with
first albany capital, and we are here to report that it all worked out the
way the market's been going up and down, we caught it on a bottom last Thursday
and actually priced the bonds. And got a what we believe is as good a deal
as we can get in this market, so we went ahead and hit it. We're here today
to ask for your approval. We kept leroy nellis involved all the way along
watching the market and making our decisions, so that's why leroy is with
us here as well. And i'd like to turn it over to david potter and walk you
through the book he just handed you, the pricing summary.
>> thank you, ladd. We watched the market very closely last
week looking for the right opportunity to enter the market and achieve the
best rates we could for the county. We got lucky and luck and skill I think
played into it well. Thursday the market was -- had some wind in its back,
so we went ahead and entered the market. Actually, it was probably the best
day of the last couple of weeks that we could have picked, so I think that's
the luck that got into it. We're putting together a summary, kind of an overview
of the pricing. Behind tab 1 we have a page of statistics that show the --
some current information about the transaction. It ended up being 33,455,000,
which refunded the outstanding debt of 33,405,000 to achieve a present value
savings of $837,000 for the county. Which equated to about two and a half
percent of the refunded debt. And the true interest cost on the issue, which
is kind of an indication of your borrowing cost, was about 3.9%, so I think
it reflects well on the timing and also the transaction. Behind tab 2 we've
included a graph that kind of shows you where based on historical rates that
we've entered the market. And as you can see to the right-hand side of the
graph, it looks like a stock market chart with a volatility, but we kind of
entered on that last decrease in rates, so the timing, while it was not at
historic lows, was awfully close. Behind tab 3 we've included some comparable
transactions, all triple a rated Texas paper that was in the market close
in time to the county's traction. As you can see from a yield comparison basis,
the county's bonds traded considerably better than most of the other transactions
that were in the market. That's reflected I think, one, of the timing of the
transaction, and two, of the strong triple a rating of the county and the
credit and the financial management for the county. The rest of the information
is a little more technical, a little more detailed. We just wanted to include
it for your reference purposes. Behind tab 4 we show that the orders that
were placed on the transaction, we went out into the market with a very aggressive
interest rate scale, so we were kind of pushing the edge with the market on
the pricing. It was a little strong, but not overwhelming and I think it was
indicative of that pricing. But we did manage to get almost all the bonds
sold on the -- during the order period. Most of those to investment accounts
on the street. The rest of the information we just included the structure
of the transaction and also behind tab 6 we included the credit rating reports
to kind of give it an overview of the rating agency's view of the county based
on current financials and the statistic that they reviewed and put together.
If you have any questions, i'd be more than happy to answer them.
>> in that case i'd also like to report, it's behind tab
7, that we've got printout of both of the rating reports where they continue
to talk about y'all's solid financial management and the reserves that you
maintain and tight controls. So it looked very good to have them confirm our
triple a ratings.
>> and ladd, I know that this is probably very obvious, but
sometimes you have to continue stating the obvious. Obvious reserves or low
fund is a good thing for an entity to have.
>> exactly.
>> thank you.
>> reserves are very important.
>> and I think it's also talked about in terms of I think
that you recall that in terms of the county's precious, treasured triple a
rating, and this is why it is so. It does matter.
>> well, what matters, and we've had been over this before,
but i'll take the opportunity since Commissioner Gomez raised the issue. Having
a triple a rating instead of double a on a large county bond issue to single-family
a us a million, two million dollars over the life of the bond in interest
we could pay. So it could be a lot of money in a large issue like the 100
million in road bonds that we issued a couple of months ago. Having a lower
rating would have cost taxpayers of Travis County for the next 20 years.
>> so it's especially important.
>> yes.
>> so for those watching and wondering what's going on, what
we did was basically to refund outstanding county debt at a lower interest
rate.
>> yes, sir. Just like refinancing a house. We've gotten
new loans out, if you will, by issuing new bond and to pay off the old ones.
>> trying to take advantage of a lower. Interest rate at
this point.
>> yes, sir. And the savings there as we said on the front
page were around $834,000.
>> after netting out all costs?
>> this is after all costs. How did we arrive at the $455
million?
>> as I mentioned when we were talking about doing a bracket
or a parameter type of a deal so we could catch the market at the bottom,
I mentioned to you that with the very sensitive rates going up and down like
that chart shows, and the chart shows on a broader basis, but on a daily basis
it was just doing this. If the rates were to go down about 25 basis points
or .25 of one percent, we could have had a deal as big as 80 million. The
probability of that happening was very slim. If the rates had gone up the
other direction 25 basis points, the deal would have gone away. Because your
bond that we were refunding were so close in those interest rate parameters
that every time rates go up, it knocks more of those refunding candidates
off the chart. And so we were actually -- the two days before we did this
deal, we were looking at maybe 22 million. And then when the rates improved
last Thursday, it kicked it up to the level we got to. We didn't believe that
it was going to go higher, and sure enough as of yesterday, rates are back
higher again. And then Friday also. So they're showing some weakness. And
david, I think you ran some numbers, and how much would we have lost in our
savings had we priced this yesterday?
>> had we priced yesterday, the savings would have been decreased
by about $45,000.
>> so this amount represents the amount that on that day
at that time based on where the interest railt was, we could -- rate was,
we could achieve maximum savings for the county.
>> yes. Using the knowledge we had at the time, the best
guess is the fact that as you saw, it was the third lowest point in the last
40 something years of what rates were, and we were able to capture it on that
day.
>> okay.
>> we thought it was a good bet to do it.
>> yes, sir.
>> I want to ask you, I realize that there are a lot of factors
that play into reserves. Give me an opinion. If you had a public entity that
had $100 million o and m budget, what kind of -- per moody or whoever, what
kind of reserve do you think would be applicable to having a public entity
with $100 million of operating and maintenance in a year's time.
>> to still have a triple a rating? One of the things they
tell me, Commissioner, is that many entities have even higher percentages
than we do, but that counterbalances the fact that they don't have as strong
management controls as we do. So i've seen in the marketplace triple a's that
had like 20% reserves. 20 million. And some school districts and others that
enjoy high ratings may have -- not school districts, they're under such pressure,
but the t.e.a. Really suggests that school districts have 28% when I was the
president of the eanes district, we never had over 22%. It's just so hard
to do. But it's very important. And I know if one wants to be very fiscally
conservative on a current basis, that's difficult to see all that money sitting
there, but it really makes a difference when you go to the market and issue
your debt.
>> well, I think that everybody certainly understands that
reserves are a large part of everybody's determinate with regard to what their
bond rating will be, but --
>> it's kind of funny. You've been in business and i've --
the bank will loan you money if you appear not to need it.
>> you bet. [ laughter ]
>> and if you appear to need it, the rate goes way up.
>> now, where in the legal documents describing the item
-- this is what we need to approve today?
>> yes. The action item that you have before you is the adongs
of the order authorize tion the issuance of the -- authorizing the issuance
of the refunding bonds. The order then authorizes the execution and delivery
of the ancil rather larry documents in connection with the bond, being the
bond purchase agreement, which often sets the parameters for the sale of the
bond to the underwriters, an escrow agreement, which sets out the mechanisms
for putting the money into escrow for the refunding of the refunded bonds
as well as paying agent agreement. Also the order sets forth the provisions
of the bonds and the mechanics for the payment of the new bonds, and i'd be
glad to answer any questions on the order that you might have.
>> have we seen those?
>> we've seen the bond purchase agreement? You've got the
order in your -- in your packet, and i've got the other documents with me.
>> okay.
>> and judge, because of the way we caught this, we certainly
recommend your approval. And I want to thank all the members of the team,
including leroy, who was available to us to help on some of the consultation.
And first southwest company and the leader of the deal, first albany capital,
doing a good job.
>> that's why I move approval. And mr. Childs did participate.
He asked if we absolutely needed him, and I told him that we enjoy having
five making a presentation to us, but I thought four would be more than sufficient.
>> I think he told you just to give him publicity, he's becoming
chairman of the houston chamber of commerce and he had to be at a meeting
there this morning.
>> go astros.
>> I move approval. Discussion? All in favor? That passes
by unanimous vote. Thank y'all very much.
>> thank you. And we'll get the rest of the documents I guess
later today to execute for you?
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Last Modified: Wednesday, October 26, 2005 3:32 PM