SR-05-13-2014-3HCity Council Meeting: May 13, 2014
To: Mayor and City Council
From: Gigi Decavalles- Hughes, Director of Finance
Subject: Redemption of Wastewater Enterprise Refunding Revenue Bonds Series
2005A
Recommended Actions
Staff recommends that the City Council authorize staff to redeem all outstanding
Wastewater Enterprise Refunding Revenue Bonds (2005 Series A).
Executive Summary
Staff is requesting authorization to redeem all outstanding Wastewater Enterprise
Refunding Revenue Bonds (2005 Series A) on June 1, 2014. The current outstanding
principal balance of the bonds is $7,810,000 with maturity dates ranging from 2015 to
2018. The bonds would be redeemed using Wastewater Fund balances, and this action
would save the Wastewater Fund approximately $600,000 net over the remaining term
of the bonds.
Background
In December 1993, the City issued Wastewater Enterprise Revenue Bonds, Series
1993 in the amount of $38,620,000 to refund certain prior bonds used to finance a
portion of the City's share of costs to upgrade the Hyperion Sewage Treatment Plant
operated by the City of Los Angeles. A portion of the Series 1993 Bonds was refunded
by the City in 2005 and the remaining portion was refunded in 2012 to take advantage
of savings generated by low interest rates. At present, $7,810,000 of the Series 2005
Bonds are outstanding with interest rates ranging from 3.5% to 4% and a final maturity
date of January 1, 2018.
Discussion
Section 13.02 (b) of the Second Supplemental Bond Indenture provides the City the
option to redeem the bonds at any time with thirty days notice. Redemption of the
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bonds would save the Wastewater Fund approximately $800,000 in future interest
payments over the remaining terms of the bonds. The Wastewater Fund has a large
fund balance (over $20 million). Foregone interest on the fund balance that would be
spent on the redemption, estimated between $100,000 and $200,000 depending on the
level of future interest rates, would be more than offset by the interest savings.
Redemption of the bonds is also fiscally preferable to refunding the 2005 bonds due to
the relatively small amount of bonds outstanding and the available fund balance.
Financial Impacts & Budget Actions
Redemption of the bonds will save the Wastewater Fund approximately $600,000 net
over the remaining life of the bonds consisting of approximately $800,000 in future
interest costs partially offset by an estimated $200,000 in foregone interest earnings on
Wastewater Fund cash balances. The Wastewater Fund will continue to maintain a
healthy fund balance.
There will be no FY 2013 -14 budget impact from this action. Per standard accounting
practices, the redemption is recorded as a reduction to balance sheet accounts. In
addition, there will be a close out of certain costs related to bond issuance that were
being amortized over the bond term. These are non -cash and non - budget items and do
not affect the amount of the cash remaining in the Wastewater Fund.
Required FY 2014 -15 budget actions will be included in the Proposed FY 2014 -15
exception -based budget.
Prepared By: David Carr, Assistant City Treasurer
Approved;
r r
Gigi Decavalles -H ghbs
Director of Finance
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Forwarded to Council:
Rod Gould
City Manager