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Indian River County, Florida Board of County Commissioners Notes To Financial Statements Year Ended September 30, 2011 NOTE 11— LONG-TERM LIABILITIES - Continued B. Proprietary Funds Long Term Debt - Continued Water and Sewer Revenue Refunding Bonds, Series 2005 Purpose - The Series 2005 bonds were issued to defease $31,680,000 of the Board's outstanding Water and Sewer Revenue Bonds, Series 1996. These bonds were issued by the Board to provide funds, together with $5,000,000, to retire 95 percent of the 1996 Series and to pay for all bond issuance costs. The September 1, 2005 and 2006 principal installments were not subject to early call and consequently paid at their respective maturity dates. The 1996 bonds were issued to acquire an existing water and sewer facility, as well as for capital improvements to the existing system. The aggregate difference in debt service between the Series 1996 ($40,585,193) and Series 2005 ($39,619,193) is $966,000. The net economic gain was $2,944,661, which included shortening the term of the bonds by four years and lowering average annual debt service by $242,000. Pledge of Revenues — The revenue bonds are collateralized, for the remaining term of the bonds, by a pledge of all net revenues derived from the operation of the system, certain surcharges, and special assessments. Annual principal and interest payments of $2,405,800 represent approximately eighteen percent of net revenues of $13,158,703 of the utility system. The total principal and interest remaining to be paid on the bonds is $26,453,150. Rate Covenant — Net revenues shall be sufficient to pay 100% of reserve and 120% of current year principal and interest requirements. Bonds Issued - At September 30, 2011, the revenue bonds consisted of the following: Outstanding at Interest Rates September 30, Description and Date Maturity Issue 2011 Water and Sewer 3-5% Revenue Bonds, 3/1 and 9/1 2022 $ 27,675,000 20.490.000 Series 2005 Outstanding In -Substance Defeased Debt - The proceeds from the refunding was invested in Federal Securities and was placed in an escrow account with J.P. Morgan. All of the defeased bonds ($31,680,000) were called on September 1, 2006 at 102% of the outstanding principal amount. Optional Redemption - The Series 2005 bonds maturing after September 1, 2015, are subject to redemption by the Board on or after September 1, 2015, in whole or in part, at par, plus accrued interest to date of redemption. 271