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Departmental Matters Indian River County Inter-Office Memorandum Office of Management and Budget TO: Members of the Board of County Commissioners DATE: July 8, 2015 SUBJECT: Water&Sewer Revenue Refunding Bonds, Series 2005 Consideration of Partial EarlyP FROM: Jason E. Brown, CGFO Director, Management & Budget Vincent Burke, P.E. Director of Utility Services Backeround The Water & Sewer Revenue Refunding Bonds, Series 2005 were issued to refinance the Water & Sewer Revenue Bonds, Series 1996 which were then outstanding in the aggregate principal amount of $33,390,000. The Series 2005 Bonds were issued in the principal amount of$27,675,000, which along with a $5,000,000 cash contribution reduced the debt service payments for the Utility by about $240,000 per year and reduced the final maturity from 2026 to 2022. This provided a net present value savings at the time of $2.9 million. These bonds (Series 2005) are callable on September 1, 2015. Once the September 1, 2015 debt service payment is made, the remaining principal outstanding will be $14,205,000. Staff recommends paying off half of the outstanding balance, or$7,105,000 after the call date of September 1$'. Current annual debt service for the Series 2005 Bond is approximately $2.4 million. Staff recommends structuring the partial payoff in a manner that will result in a reduction in annual debt service of about 50% each year for the remaining life of the bonds (through 2022). This will reduce the annual debt service by about $1.2 million per year and reduce interest expenses by $1,311,825 in total. The reduction in debt service will provide flexibility for the Utility to fund increased renewal and replacement expenses to ensure that the current infrastructure remains well maintained. The remaining bonds carry interest rates ranging from 4.00% to 5.00%. Currently, the County's investments are earning only about 0.50% interest per year. Therefore, the Utility will realize savings of between 3.50% and 4.50% on the bonds to be called (based upon current investment returns). Estimated net savings over the remaining life of the bonds will be over$1.1 million as shown in the table on the following page. Staff has considered the potential to refund all of the Series 2005 Bonds, however, this option might limit the Utility's ability to fund upcoming projects. By paying down half of the balance, the Utility is provided with greater flexibility to fund future capital projects as well as ongoing renewal and replacement costs. Unrestricted cash at the end of last fiscal year was $36.5 million. The partial refunding will decrease this balance by $7.1 million, which will leave the Utility with a relatively strong reserve. Depending upon the cost and timing of upcoming projects, additional borrowing may become necessary in the future. 148