HomeMy WebLinkAboutFS 2011-09-20 Item 2C - Discussion - Early Redemption of 1995 Revenue BondsCity of Tukwila
Jim Haggerton, Mayor
INFORMATIONAL MEMORANDUM
TO: Mayor Haggerton
Finance Safety Committee
FROM: Peggy McCarthy, Acting Finance Director
DATE: September 14, 2011
SUBJECT: Early Redemption of Revenue Bonds 1995
ISSUE
On September 13, 2011, the Utilities Committee approved the early redemption of Revenue
Bonds 1995 and unanimously agreed to move this item forward to the September 19, 2011
Committee of the Whole Council meeting. This memorandum is for your information only.
BACKGROUND
The City issued $4,500,000 of revenue bonds in 1995 to finance Water Fund -401 capital
improvements. The outstanding balance of these bonds is $1,370,000 (face value) with the next
mandatory bond redemption occurring February 1, 2012 and the last mandatory bond
redemption occurring February 1, 2015. An optional redemption clause allows the City to
redeem, or pay -off, these bonds at 100% of face value on February 1, 2007 and thereafter.
Interest payments that would be made over this three year period (February 1, 2012 to February
1, 2015) should the bonds not be redeemed before the next interest payment date total
$188,813 and represent a 4.6% per annum interest rate ($188,813 interest $1,370,000
balance 3 year period).
If the bonds were redeemed on November 1, 2011, the total pay -off would approximate
$1,392,690 comprised of the bond principal of $1,370,000 and the estimated accrued interest of
$22,690. Under this scenario, the interest cost savings to the City would be $166,123 (total
interest payments of $188,813 due February 1, 2012 to February 1, 2015 less accrued interest
from August 1, 2011 through November 1, 2011 of $22,690). The Water Fund -401 had $4
million in cash and investments as of July 31, 2011.
DISCUSSION
The City will benefit financially by early redemption of these bonds. If the $1,370,000 were
invested in a 3 -year Treasury note at today's interest rate of .35 $4,795 would be generated
in annual investment earnings or $14,385 for the 3 -year period. The net benefit to the City of
using these funds to pay -off the bonds would be over $150,000 represented by the bond
interest cost savings of $166,123 less the investment earnings opportunity cost of $14,385.
RECOMMENDATION
For information only
ATTACHMENTS
Revenue Bond 1995 amortization schedule.
Excerpts from the Revenue Bond 1995 Official Statement
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i995 Revenue Bonds
Date
Principal i
Interest
Total Principal
01S
2/1/18S6
EV1/188G
122,770
122,770
�/1/1Q97 14bUUU
T2 /ZU
8/1/1087
119,7i
_-'----_-f
-b7�67 119,711
8/1/1O98
116,418
116418
2/1/1999
00U
811/1988
1l28 8
3/�/2000
17O0OO 1
T1 2,938 1
282,938
3,870,000
0/1/2OO8
109,155
109,155
2/1/20O1
1750OO
1
2/1/2UO2
18�00O
1O5174
8/1/2002-
2/1/20D3
19b00U
8/1/2OD3
BO241
2/1/2O04 2OO,OOO 8
8/1/2004
B1 391
0
91,391 1
30f,391 1
2,905,000
811/2005
H0141
2/1/�U�O --'.UUD �O I 31171
2,680,000
8/1/2O0G
805��
OO51O
2/1/20O7
2��,0O0
�051�
31551O
2/
8/1/2087
74406
7440�
2/1/2D08
250
744O0
32�40�
2,_1 9
8/1/2OO8
O7�5�
�7050
2/1/20U
O
8/1/20UQ
0003�
GO63S
2/1/2O
.000
80G30
-_-.-30
�'08O.00O
8/1 /201
53%11 3 11
2/1/�O11
2QO.0OO
�3211
343,211
1��7O.DD0
8/1/2O11
4S381
45381
2/i/2O1- '2
OOO
31O�-
---'_----z
4S�81
35�5�.38�
8/112012
35113
351i
33O.O0O
35 3�O T
8/1/2013
24181
24181
2/1/2Oi4
3��5,0OO
24
379^18
375,000
81112014
1242
1242
4,500,000
3,192,245
DESCRIPTION OF THE BONDS
General
The Bonds will be issued as fully registered bonds in denominations of $5,000, or integral multiples
thereof within a single maturity, will be in the aggregate principal amount of $4,500,000", will be
dated June 1, 1995, and will mature on February 1 in the years and in the amounts set forth on the
cover page of this Official Statement.
The Bonds shall bear interest from their date at the respective rates set forth on the cover of this
Official Statement. Interest shall be calculated on the basis of a 360 -day year consisting of twelve
30 -day months, and shall be payable commencing February 1, 1996, and semiannually thereafter on
each August 1 and February 1 to the respective dates of maturity of the Bonds.
Method of Payment
The principal of and interest on the Bonds shall be payable in lawful money of the United States of
America to the Registered Owners thereof whose names and addresses appear on the Bond Register.
Payment of each installment of interest shall be made to the Registered Owner whose name appears
on the Bond Register at the close of business on the fifteenth day of the calendar month preceding
each semiannual interest payment date, and shall be paid by check or draft of the Bond Registrar
mailed to such Registered Owner on the due date, at the address appearing on the Bond Register, or
at such other .address as may be furnished in writing by such Registered Owner to the Bond
Registrar. Interest installments may be paid by wire transfer to a Registered Owner of $1,000,000
or more aggregate principal amount of Bonds if a written request of such Registered Owner is
submitted to the Bond Registrar at least 10 days prior to the interest payment date.
The principal of each Bond shall be paid to the Registered Owner thereof, upon presentation and
surrender of each Bond on or after the stated date of maturity, at either of the principal corporate
trust offices of the Bond Registrar.
The City and the Bond Registrar may deem and treat the Registered Owner of each Bond as the
absolute owner of such Bond for the purpose of receiving payments of principal and interest due on
such Bond and for all other purposes, and neither the City nor the Bond Registrar shall be affected
by any notice to the contrary.
Redemption Provisions
Optional Redemption. The Bonds maturing in the years 1997 through 2005, inclusive, are not
subject- to redemption prior to their stated dates of maturity. The City has reserved the right to
redeem and call the Bonds maturing on or after February 1, 2006, prior to their stated maturity, on
or after February 1, 2005, in whole or in part (maturities to be selected by the City and by lot
within a maturity in such manner as the Bond Registrar shall determine) at any time, at the
following prices (expressed as a percentage of the principal amount of the Bonds to be redeemed),
plus accrued interest, if any, to the date of redemption:
Preliminary, subject to change.
El
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Redemption Dates Redemption Prices
February 1, 2005, through January 31, 2006 102%
February 1, 2006, through January 31, 2007 101
February 1, 2007 and thereafter 100
Mandatory Sinking Fund Redemption. The Bonds maturing on February 1, 2015, are Term Bonds
and are subject to mandatory sinking fund redemption prior to :maturity, in part, by lot in such
manner as the Bond Registrar shall determine, at 100 percent of the principal arnount thereof plus
accrued interest to the date of redemption, from mandatory sinking fund deposits into the Principal
and Interest Account in the years and principal amounts set forth below:
Mandatory Sinking Fund
Redemption Dates
Mandatory Sinking Fund
Redemption Amounts
February 1, 2008
February 1, 2009
February 1, 2010
February 1, 2011
February 1, 2012
February 1, 2013
February 1, 2014
February 1, 2015 (Maturity)
$255,000
270,000
285,000
305,000
320,000
340,000.
365
385,000
Partial Redemptions. In accordance with the preceding two paragraphs, portions of the principal
amount of any Bond, in installments of $5,000 or any integral multiple of $5 may be
redeemed. If less than all of the principal amount of any Bond is redeemed, upon surrender of such
Bond at either of the principal corporate trust offices of the Bond Registrar there shall be issued to
the Registered Owner, without charge therefor, for the then unredeemed balance of the principal
amount thereof, a new Bond or Bonds, at the option of the Registered Owner, with like maturity
and interest rate, in any authorized denomination.
Notice of Redemption. Unless waived by the Registered Owner of any Bond to be redeemed, notice
of any such redemption shall be sent by the Bond Registrar by first -class mail, postage prepaid, not
less than 30 or more than 60 days prior to the date fixed for redemption to the Registered Owner of
each Bond to be redeemed at the address shown on the Bond Register, or at such other address as
may be furnished in writing by such Registered Owner to the Bond Registrar. Such notice
requirement shall be deemed to be complied with when notice is mailed as herein provided,
regardless of whether or not it is actually received by the Registered Owner of any Bond.
Effect of Redemption. When so called for redemption, the Bonds will cease to accrue interest on the
specified redemption date, provided funds for redemption are on deposit at the place of payment at
that time, and shall not be deemed to be Outstanding as of such redemption date.
Open Market Purchase and Cancellation. The City has reserved the right to purchase the Bonds on
the open market at any time and at any price. The Bonds so purchased or redeemed shall be
canceled. To the extent the City purchases Term Bonds or redeemed under the optional redemption
provisions described above, the City, at its discretion, may reduce the amount of any mandatory
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