03-24-14 Regular Meeting of La Porte City Council

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City of La Porte, Texas March 17, 2014 Page 2 which they can be repaid with no penalties) can be refunded at a currently projected gross dollar savings of approximately $578,000 or a net present value savings of approximately $514,000 or 5.61%. There is another Series of debt, the Public Property Finance COs Series 2006, which are callable at any time and bear interest at 3.74% that could be refunded for a savings as well. However, because that issue is set up on a term bond, we would have to refund the less economical pieces along with the most desirable and refunding all of it would cause the total issue size to exceed $10.0 million, therefore, we have not recommended they be included. The Citycurrent underlying bond ratings are AA by , AA2 by and AA by Fitch Investor Services. As these ratings are roughly equivalent to the ratings of the insurance companies, it is not felt that municipal bond insurance would provide any benefit to the City. TS: HE TRUCTURE Unlike the structure proposed in the previous refundings which were level debt service savings over the existing life of the debt (which has a final maturity of 2025); in this instance, we are suggesting a structure that brings forward a significant amount of debt to maintain the historical debt rate of 10.5 cents in 2015 and concentrates the savings to reduce debt service in the peak years of 2017-2020. Following 2020, the debt service is approximately the same as prior to the refunding. This is done to enhance debt capacity for new projects. DC: EBT APACITY Debt capacity, as driven by the Interest and Sinking Fund tax levy, is a function of three primary variables. The first is the level of the tax base or the net Taxable Assessed Valuation (TAV); the higher the tax base (and the growth assumptions), the higher the capacity. The second is rapidity of the payoff of existing debt; the faster you pay off debt, the higher the debt capacity. And finally, the level of the I & S or debt tax rate; the higher the tax rate, the higher the debt capacity. Since the initial debt capacity study, the TAV has grown faster than expected and gives us comfort to raise growth assumptions in the intermediate term. This refunding opportunity, structured to pay off debt sooner than originally expected and to reduce the peak in debt service also adds to debt capacity. The debt rate assumption is maintained at the historical level of 10.5 cents. The attached spreadsheet depicts currently projected level of debt capacity at $20.4 million between 2015 and 2020. Due primarily to the payoff of existing debt, the capacity will increase dramatically again in 2025. Debt capacity, as driven by the Utility System, is also a function of three primary (albeit different) variables. These include the number of customers in the system (and the growth assumptions related thereto), the rapidity SRD: ELLING THE EFUNDING EBT There are three generally prescribed methods for selling public debt. They include selling by competitive bid, selling on a negotiated sale basis and conducting a private placement. The first two methods involve sales to the general pubic and would require obtaining bond ratings, preparing public offering documents and engaging underwriters. The private placement method entails presenting the debt to a number of commercial banks (both locally and on a regional basis) and asking them to give us interest rate indications. We would then negotiate final terms and present the City with a bond purchase agreement between the winning bidder and the City reflecting those terms. 303 Pearl Parkway, Suite 220 (210) 805-1118 RBC Capital Markets San Antonio, TX 78215 Member NYSE/SIPC