TOMORROW - Tuesday's (10/24/2017) San Bruno Council Agenda - $40 Million In Water & Sewer Bonds

Article Source: City of San Bruno CA

Single Council Agenda Item

CITY OF SAN BRUNO

DATE: October 24, 2017

TO: Honorable Mayor and Members of the City Council

Chairman and Board of Directors of the Public Financing Authority

FROM: Connie Jackson, City Manager

Jimmy Tan, Public Works Director Jim O'Leary, Interim Finance Director

SUBJECT: Adopt Resolutions of the City of San Bruno City Council and the San Bruno Public Financing Authority Board of Directors:

• Approving the Issuance and Sale of Water Revenue Bonds by the San Bruno Public Financing Authority in the Maximum Principal Amount of $13,500,000 to Provide Financing for Improvements to the Water System, and Approving Related Documents and Actions; and
• Approving the Issuance and Sale of Wastewater Revenue Bonds by the San Bruno Public Financing Authority in the Maximum Principal Amount of $27,500,000 to Provide Financing for Improvements to the Wastewater System, and Approving Related Documents and Actions

BACKGROUND:

In approving the 2017-22 multi-year Water and Wastewater rate program and the 2017­18 Capital Improvement Program (CIP) Budget, the City Council identified its interest to use bond proceeds for financing mandated and other vital utility projects. The City's multi-year utility rate programs and the CIP funding program both recognized the need for significant and costly capital improvements to upgrade and replace aging utility system infrastructure and the need for sufficient funding in the early years of the rate program, to ensure adequate cash flow to complete planned projects on schedule. The planned issuance of debt does not affect the existing utility rates.

DISCUSSION:

City staff, working with consultants Fieldman Rolapp & Associates (financial advisor) and Bartle Wells Associates (rate analysts) recommends, based on prevailing financial market conditions, it is in the best interests of the City to proceed with issuance of Water Revenue Bonds and Wastewater Revenue Bonds at this time. The proposed $13,500,000, 2017 Water Revenue Bonds will be used to fund the San Antonio Avenue Water Main Improvement, San Mateo Avenue Water Main Improvement, Avenues 1-1 Water Main Improvement, Tank I (Cunningham) Rehabilitation, and the Commercial Water Meter Replacement Project. The proposed water bonds issue will be payable solely from the pledges of net revenues from the Water Enterprise Fund. The bonds were mature in 2047, and will be structured to produce level annual debt service.

The proposed $27,500,000, 2017 Wastewater Revenue Bonds will be used to fund the 1St Avenue Sanitary Sewer Line Project, Crestwood Drive Sewer Main Improvement, San Antonio Avenue Sewer Main Improvement, San Mateo Avenue Sewer Main Improvement, Crystal Springs Avenue Sewer Main Improvement, Avenues 1-1 and 1-2 Sewer Main Improvements, Crestwood, Crestmoor and Lomita Sewer Pump Station Replacements, and Water Quality Control Plant Upgrades. The proposed wastewater bonds issue will be payable solely from the pledge of net revenues from the Wastewater Enterprise Fund. The bonds will mature in 2047, and the debt service will be wrapped around the debt service of the Wastewater Fund's outstanding bonds (issued in 2003) to produce level annual debt service.

As part of the process to issue debt, the City will be obtaining an underlying credit rating for each series of Bonds from Standard & Poor's. The City last obtained a credit rating of AA-'- from Standard & Poor's in 2013 in conjunction with the City's refinancing of its 2002 Wastewater Bonds. This is the second highest credit rating issued and it demonstrates the rating agency's confidence in the City's very strong financial management structure and its financial capability. It is expected the credit rating from Standards & Poor's will be favorable. With a favorable credit rating the City can expect to obtain the best (lowest) possible interest rate on the bonds.

City staff and the financing team consisting of Fieldman Rolapp & Associates, Jones Hall, A Professional Law Corporation (bond counsel and disclosure counsel), and Prager & Co. (underwriter), have prepared documents for the 2017 Water Revenue Bonds and the 2017 Wastewater Revenue Bonds that must be approved by the City Council to initiate the debt issuance. Final dates and pricing information will be added to these documents following the successful pricing of the bonds (anticipated to occur in November). These documents are included as attachments to this report and are described in further detail below:

1) Resolutions. The attached resolutions enables the City Council and the Public Financing Authority to take official actions necessary to issue the 2017 Water Revenue Bonds and the 2017 Wastewater Revenue Bonds. The resolutions, if adopted by the City Council and the Public Financing Authority, provide:

• Authorization for the sale of the water and wastewater bonds,
• Approval of the Indenture of Trust between the Authority and MUFG Union Bank, N.A., as trustee, for each series of bonds,
• Approval of the Installment Sale Agreement between the Authority and the City for each series of bonds,
• Approval of the sales of bonds by negotiation with Prager & Co., as underwriter,
• Approval of the Preliminary Official Statements for each for series of bonds,
• Approval of the appointment of Fieldman, Rolapp & Associates to serve as the City's Financial Advisor and Jones Hall, A Professional Law Corporation to serve as Bond/Disclosure Counsel;
• Authorization and direction of officials to do any and all things and take any and all actions, including execution and delivery of any and all assignments, certificates, requisitions, agreements, notices, consents, instruments of conveyance and other documents, which they, or any of them, may deem necessary or advisable in order to consummate the lawful issuance, sale and delivery of the water and wastewater bonds and the consummation of the transaction approved herein.
• Preliminary Official Statements. The Preliminary Official Statements (POS) are the documents that will be printed and circulated to potential investors interested in purchasing the 2017 Water Revenue Bonds and the 2017 Wastewater Revenue Bonds. The POSs have been prepared by the City's Disclosure Counsel, Jones Hall, in coordination with City staff. The POSs present all information an investor should consider in making an informed investment decision with respect to the water and wastewater bonds. These include descriptions of the terms of each series of bonds (principal maturity amounts and dates, interest payment dates and call features), and the security for the bonds (available moneys in the City's Water Fund and the Wastewater Fund, respectively). The POSs present descriptions of the City's Water System and Wastewater System and historical data regarding the City's revenues and debt service coverage, and include the City's most recent audit as an exhibit, as well as include a section describing to investors certain risk factors to be considered in connection with investments in the 2017 Water Revenue Bonds and the 2017 Wastewater Revenue Bonds.
• Indentures of Trust. The bond indentures are agreements between the Authority and MUFG Union Bank, N.A., as trustee, that represents the bondholder's interest by highlighting the rules and responsibilities that each party must adhere to. These documents describe the funds to be established and held by the Trustee. It also

In connection with the sale of securities pursuant to a POS, Federal securities laws make it unlawful to make any untrue statement of a material fact or to omit to state a material fact necessary in order in order to make the statements made, in light of the circumstances under which they are made, not misleading. In authorizing the issuance of securities and related disclosure documents, a public official may not authorize disclosure that the official knows to be false; nor may a public official authorize disclosure while recklessly disregarding facts that indicate that there is a risk that the disclosure may be misleading.

If a City Council member is aware of anything that should be considered and disclosed in the POSs relating to the City's ability to pay the 2017 Water Revenue Bonds and the 2017 Wastewater Revenue Bonds from its water or sewer fund revenues, as applicable, that member should advise the financing team so it can be considered and possibly disclosed to investors in the applicable POS.

The Resolutions delegate authority to City staff to make changes to the POSs following approval but before the POSs are printed and distributed to investors & establishes the City's obligation for annual bond payments, describes the form of the bonds, and sets forth certain other covenants of the Authority related to the bonds.

• Installment Sale Agreements. The Installment Sale Agreements, are agreements between the Authority and the City, under which the City purchases from the Authority the water and wastewater projects to be financed by the sales of the bonds in consideration of the payments by the City of semiannual installment payments which are sufficient to provide revenues with which to pay principal and interest on the applicable series of bonds when due.
• Purchase Contracts. The purchase contracts are agreements between the City, the Authority, and the underwriter, Prager & Co., pursuant to which the underwriter purchases the bonds from the Authority. The terms of the bond purchase contract include sale conditions, sale price, bond interest rate, bond maturity, bond redemption provisions, sinking fund provisions and conditions under which the contracts. After the City delivers the bonds to the underwriter and the underwriter pays the City for them, the underwriter will put the bonds on the market at the price and yield established in the bond purchase contract and investors will purchase the bonds from the underwriter. The underwriter has agreed to a not to exceed compensation of 1.0% of the par amount of the bonds, for each series of bonds.

Assuming City Council/Board of Directors approval of the above-described items, there are three key steps in the process to follow:

• Secure the highest possible underlying credit rating for the bonds from Standard & Poor's. The rating presentation is scheduled for October 27, 2017.
• Conduct an order period to secure investors and execute the bond purchase contracts with the underwriter. Staff anticipates pricing on November 9, 2017 based on the advice of the City's Financial Advisor and Underwriter.
• Close the bonds sales on December 6, 2017. On that date, the funds will be available for the contemplated water and wastewater system projects.

This schedule anticipates the City would begin making payments to repay the bonds semi-annually beginning in January 2017 for a 30 -year period.

FISCAL IMPACT:

All costs associated with the issuance of the 2017 Water Revenue Bonds and the 2017 Wastewater Revenue Bonds are factored into the cost of issuance. Most of the costs are due upon the successful closing of the bonds, except for the costs to obtain the credit rating from Standard & Poor's ($15,000), which are non-contingent.

The estimated semi-annual payments due by the City in connection with the repayment of the water bonds is $709,000 per year. The estimated semi-annual payments due by the City in connection with the repayment of the wastewater bonds is $1,491,000 per year. Sufficient capacity in the Water and Wastewater rate revenues has been included in the existing multi-year rate program previously approved by the City Council.

FULL Council Agenda Packet WITH Staff Reports can be viewed and downloaded from:

https://sanbruno.ca.gov/gov/elected_officials/city_council_minutes_n_agendas.htm

This document should be available late Friday before the Tuesday Council Meeting

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Robert Riechel

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Photo Credit: San Bruno CA Patch Archives

Source Credit: San Bruno CA City Council

Web Site: https://sanbruno.ca.gov

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