Travis County Commissioners Court
February 17, 2009, 2009
Item 26
26.
consider and take appropriate action on request to authorize county staff and appropriate consultants to the county to take such actions as are necessary to proceed with the refunding of a portion of the county's outstanding limited tax debt.
today we have the firm of estrada and hinojosa.
what they want to know is basically whether we are interested enough to direct them to proceed to put together a project.
we had discussions with the auditor and maybe also me chatting with -- with diana this morning.
our problem is that we are waiting on the opinion from the outside auditor.
and we will not be able to proceed until after we have gotten that.
it's due March 31st or 30th.
>> yes, the 31st.
>> March 31st.
we could get it before then, but today we have to assume that the -- that the outside auditor may well take -- take the time allotted and so -- so we may have to wait that long.
>> thank you, judge.
>> lad patillo your financial advisor for the county.
judge and Commissioners, we -- I was alerted a few weeks ago by don gonzalez, with me today, a director at estradas and the ...
in 2005.
these -- these bonds were left behind because they didn't have any savings in these maturities at that time when we did that previous, those actual two refundings that year.
they are all callable on 3-0-09.
callable next month, which means we can do a current refunding.
advanced refundings right now are very difficult to do because what you do with that is issue new money, buy a portfolio of u.s.
treasury securities to put into an escrow and I don't know if you have seen u.s.
treasuries lately, but probably harvey and mary have told you, they are almost free.
so there's hardly any yield on them at all, so we can't really construct those types of escrow accounts.
but a current refunding is very easy to do and don sent this to me and actually as of the numbers run that we looked at Friday, it -- it surpasses our basic threshold.
we have always had of 3% present value savings by 4%.
it's over 7% in this latest run.
now, what -- what the market will be when we get into April, when we can actually do this once we have that audit, we'll see.
but just -- the market in my opinion has just kind of saw toothed back and forth and I believe it will hold for us, we're not going to see -- going to see a big change, in my opinion.
but anyway, I would like to introduce don to you just to tell you what he's identified and all we're asking you for today is just to acknowledge that they have brought us this idea and that we would like to work with them to move forward when we do enter the market after we have the audit.
right.
>> don?
>> good afternoon, judge, Commissioners, for the record my name is don gonzalez with estrada hinojosa.
i appreciate the opportunity to be here this afternoon.
we have discussed with your financial advisor the possibility of refunding some of the maturities of the series 1998 series certificates of obligation, some permanent improvement bonds, which are series 1998 and 1999 and limited tax refunding bonds, series 1999.
if you look on page 1, you can see the similarity at the 30 year treasury, the 25 revenue bond index and the 20 go bond index have had to one another going back to 1998.
if you look on the far right side, you see some disparity that's showing up.
what we are experienced right now is something that we haven't had any quite some time and that is we actually have 30 year treasury bonds that are taxable at a lower yield than tax exempt rates.
and so you can see the tax exempt rates are up higher than where we have the 30 year treasury bond.
typically, it would be much closer in relationship and we would actually see the tax exempt yields lower than the treasuries.
so it's -- so it's an unusual phenomenon that we are experiencing right now.
when you -- when you flip to the second page, you will see the -- the four different series of bonds that we referred to on the first page with the -- with the maturity specifically listed to their right and the current interest rate associated with those specific maturities and then the par amounts.
if you look for the certificates of obligation that are series 1998, there's $6,365,000 of par amount that's outstanding and you see the interest rates there at 4%.
we believe that those can be taken out and funded at roughly 2.48 and 2.89%.
i'm not going to go through those individually, but if you will look down that page, that's similar type of information is being presented for each one of those series that's shown there in the 1998 permanent improvement bonds in the 1999 and in the limited tax refunding bonds of serious 1999 as well.
series.
in total they translate into $25,450,000 and in savings difference in the far right column you can see ranges from about 1.1% on up to about 3.4%.
the following page what we have done now is cumulatively take all of those various maturities, take the cash flow associated with them, have those listed in the prior net cash flow in the refunding debt service.
the savings is the highlighted numbers and then what we do is take the present value of that because we want a present value those after expenses associated with the transaction to today's time and at today's interest rates, then you can see the save, of about $1,850,000 almost.
at the bottom of the page is a summary that's showing 7.268% as the net pv savings, after all costs of the transaction being completed.
on the following page, page 4, it's an overall summary.
one of the things that Travis County enjoys the benefit of is a great rating with a triple a.
that triple a rating is the -- is the interest rates that are used and assumed in this particular transaction.
we would anticipate in that box on the right side if you look at total savings of 2.1, present value that, at 1,849,000, we are taking out approximately 25,450,000 in bonds and at a true interest cost of just over 2.5%, about 2.586.
the coupons of the bonds that we are refunding are almost 4.3%.
so that savings is where the benefit is for Travis County.
and then the -- then the summary of the bond to be refunded are at the bottom of that page.
in conclusion, I believe your financial advisor mentioned a moment ago that we typically targeted about 3% as kind of a minimum threshold for savings after expenses and 3 to 5 is typically the range that most governmental entities will use when they are considering a refunding transaction.
so you can see from this one we are well above that.
we are hoping that the market stays pretty close to where it is now and will continue to be able to exceed that threshold and hopefully be able to achieve something in the 7% range, if not more.
and I guess a couple of things on the following page, page 6 and 7, that are more of advertisement for our firm.
but I think that the one thing that we want to say is thank you very much for the opportunities that we've had in the past to work with Travis County.
we've actually been in some of the syndicates were that were refunding, in 1999 we were some some of the syndicates that bid on the bonds and also served in an underwriting capacity for some negotiated transactions for savings that were similar to the one being presented this afternoon.
thank you very much for those opportunities in the past and paul I don't know if there's anything that you would like to add to that.
>> thank you very much, don.
i think as rodney rhoades and I were looking at this.
it's pretty clear it's an opportunity we should take advantage of, to save the debt service and my intent today to ask you, judge, to put it on the agenda is so we can just have the court's blessing for us to move forward and begin to work on the documents that we need to get ready and of course that last key document that we'll need is what we'll get as you mentioned the audit by the end of March.
>> so really what you have to do is sort of be ready to move and then when it looks like it's time, you have to check to market pretty much at that time, don't you.
>> that's correct.
>> yes, you do.
i was going to add as -- as he was talking about the tax exempt rates holding, you know, there are quite a few other entities now in Texas since the last time we discussed ratings that have ripple a ratings.
they are proud to talk about that.
it came -- it came simultaneous with a -- with a lowering of the standards for triple a ratings by the rating agencies by last January.
so some of our neighbors around here have one now.
ours we got under the old and higher standard and we have always been very well accepted in the market.
and also as the stock market continues to have its problems, which it's having again today, people will go to safety.
you hear people talking about gold.
they are going to -- going to treasuries or to triple a bonds.
that's us.
so I don't believe that we're going to suffer on these rates as we move forward in the next six weeks.
>> for the average resident, what we're talking about is -- is the county owing a certain interest rate on debt and paying that annually and all of a sudden having an opportunity to -- to substantially reduce the interest rate.
>> yes.
>> and thereby generate savings.
>> it's very much the same thing as anyone refinancing their home to have a lower payment.
>> okay.
>> all right.
>> well, in the past what we have done is when proposals have been brought to us and we bless them, we basically have kind of locked that firm into place and thinking there is that if you go off and do the work, you ought to have the deal if in fact we end up doing it.
i don't know that we have ever deviated from that, have we.
>> not since -- not over the past decade or more, that's been our case.
i know that -- that don is a good friend and back in '04 and '05 he got to me second and was quite disappointed.
i told him what the rule was and this time he got her first.
>> don learned an important lesson, didn't he?
>> I did, judge, I did.
>> [laughter]
>> the good part is we were able to be in that '04 transaction as a co-manager, we appreciate that opportunity and are very happy to be here today.
back then we did not have an Austin office.
we do now.
we are very happy about that.
paul is the head of the Austin office here and so I think it's going to be one of those things that for us it's going to be a hopefully a continuing opportunity to be able to serve Travis County and at the same time you're in very good hands with your financial advisor.
it's going to be -- we know what the tests are, we know that we have to not just meet those but we have to exceed those.
so that's what we're hoping to do.
>> okay.
>> questions, comments?
move that we authorize staff and the consultant to work with these consultants to put together an appropriate deal to bring back to us at the appropriate time.
>> second.
>> nothing more.
i just wanted to add that I'm sure Commissioner Gomez would like for us to point out that don is a graduate of st.
edward's university.
>> I noticed that he had a hey although effect going on -- halo effect going on.
>> I knew there was a reason to like him.
>> all in favor?
that passes by unanimous vote.
>> thank you.
>> thank you very much.
>> thank you.
>> thank y'all.
>> thanks.
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Last Modified:
Tuesday, February 17, 2009 2:10 PM