Agenda - Council - 05/31/1983 - Laserfiche WebLink

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I I I I I I I I I Mr. Lloyd Schnelle, Page -2- 21 April 1983 City Administrator The 1983 debl payments on the old issue are also included in this calculation. It will be recovered very quickly because that levy is currently being collected~ so basically, lhis is a "wash." The new issue would be structured so that no principal would be paid in 198~. During 1983, present debt requires $150,985 and only $4~,219 will be needed on the new bonds~ consequently $104,7~;~; of the front money will be recaptured between May and December~ 1983 and the small remaining balance next year. We recover the fronl money less rapidly on Schedule B. Where do you get front money? It can be temporarily borrowed from any exisling City funds and repaid when recaptured. We can conceivably bond for part of the front money, but because the bond issue size is increased, savings are reduced. The $7~;5,000 together with $119,31~ front money is put into an escrow account to pay off lhe old debt and the City is responsible for only the new issue. Front money requirements vary if rates move up or down from 7.2596. As interest rates drop, front money needed will rise offsetting some of the gains achieved through lower rates. Conversely, if interest rotes rise, front money needs will drop. The key seems to be that of having the front money available for a short interim period of time. The attached "sensitivity" schedule indicates what happens to savings and front money as rates deviate from 7.25%. The variations between the rates shown can be inlerpolated. For example: if interes'l rates rise to 7.75% from our projected 7.25%, savings would decline '$13,000. The front money required would decline $I0,000. As indicated if rates fall a full half percent, savings would increase $13,000 but front money would also rise by $10,000. Issuance costs include fiscal, legal, CPA, escrow, paying agent, rating and printing costs. These costs total $29,$00 and discount on the new issue which represents interest cost adds $15,300 of issuance costs. As indicated, we estimate that 63-~%'of these issuance costs will be paid from arbitrage profits (difference in rates paid versus investment yields) and only 3~-37% is the City's responsibility. This is included in the front money and there are no additional costs. We will lry to have the call option on the new issue about the same as on the old if possible. This is a fairly good time to issue refunding bonds. Interest rates are favorable and we would recommend issuing debt by late May so bonds will be delivered prior to July ! when registration becomes mandatory. Registration will increase issuance costs on all bond issues afler July I. If delivered after July I, we will provide out-of-pocket cost estimates for registration - they will be paid from 'the escrow account. (64%) We would like very much to work with you and are available to provide the necessary details al one of your May Council meetings. We will also continue to monitor the market. If possible, please set up o reservation at the Jackson House for o noon luncheon so you and I con review this program. Please include any olber personnel that you wish; the week of May that you mentioned would be ideal. acerely' D vid L. Goblirsch Senior Vice President DLG:dma Enclosures