item #4&5- refunding bond

City of Alamo Heights

Refunding Analysis of Combination Tax and Revenue Certificates of Obligation, Series 2007

March 8, 2016

M A R K E T U P D AT E

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Member FINRA / SIPC© 2016 Hilltop Securities Inc.All Rights Reserved

Bond Buyer’s Index of 20 Municipal Bonds

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AAA MMD Yield Comparisons(1)

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(1) Source: Thomson Reuters Municipal Market Data.

R E F U N D I N G O P P O RT U N I T Y

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Proposed Refunding Opportunity

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The Series 2007 CO’s fundedboth General Fund and UtilitySystem The Projects were fundedin one bond issue in order toreduce the costs of issuance

The two structures wereformulated independently, butthen aggregated for purposes ofthe bond sale

The information to the right is theaggregate debt structure

Original Principal Amount $7,500,000Callable Principal $3,010,000Callable Maturities 2018 - 2027Coupons 3.990%Call Date 8/15/2017

Combination Tax and Revenue Certificates of Obligation, Series 2007

Maturity Interest Rate Principal Call Date8/15/2018 3.990% 630,000$ 8/15/20178/15/2019 3.990% 660,000 8/15/20178/15/2020 3.990% 685,000 8/15/20178/15/2021 3.990% 130,000 8/15/20178/15/2022 3.990% 135,000 8/15/20178/15/2023 3.990% 140,000 8/15/20178/15/2024 3.990% 150,000 8/15/20178/15/2025 3.990% 155,000 8/15/20178/15/2026 3.990% 160,000 8/15/20178/15/2027 3.990% 165,000 8/15/2017

3,010,000$

Combination Tax and Revenue Certificates of Obligation, Series 2007

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The schedules below show the specific information for the Tax Portion and Utility System Portion respectively


TAX PORTION ONLY Combination Tax and Revenue Certificates of

Obligation, Series 2007

Maturity Interest Rate Principal Call Date8/15/2018 3.990% 115,000$ 8/15/20178/15/2019 3.990% 120,000 8/15/20178/15/2020 3.990% 125,555 8/15/20178/15/2021 3.990% 130,000 8/15/20178/15/2022 3.990% 135,000 8/15/20178/15/2023 3.990% 140,000 8/15/20178/15/2024 3.990% 150,000 8/15/20178/15/2025 3.990% 155,000 8/15/20178/15/2026 3.990% 160,000 8/15/20178/15/2027 3.990% 165,000 8/15/2017

1,395,555$

UTILITY SYSTEM PORTION ONLY Combination Tax and Revenue Certificates of Obligation,

Series 2007Maturity Interest Rate Principal Call Date

8/15/2018 3.990% 515,000$ 8/15/20178/15/2019 3.990% 540,000 8/15/20178/15/2020 3.990% 560,000 8/15/2017

1,615,000$

TAX PORTION ONLY Combination Tax and Revenue Certificates of Obligation,

Series 2007


UTILITY SYSTEM PORTION ONLY Combination Tax and Revenue Certificates of


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Just as the General Fund and Utility System original debt service requirements were structuredto account for the useful life of the projects, the then outstanding debt service and the tax rateand system net available for debt at the time of issuance, the proposed refunding structureswould be viewed in the same manner to try to achieve the optimal savings and resulting debtservice requirements

To assist the City Council in analyzing this information, we have undertaken different analysisrelative to the proposed savings structure based on the original bond issue

Our first step in refunding analysis is to solve for level and proportional savings; with our nextstep being to allocate the proposed savings within the context of the respective funding sourcefor the debt service


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R E F U N D I N G A N A LY S I S - A G G R E G AT E

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Proposed Refunding Opportunity – Aggregate Savings (1)

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Refunding Par Amount $3,120,000Gross Savings $146,782Average Annual Debt Service $13,344Net Present Value Savings $131,760Present Value Benefit (%) 4.377%True Interest Cost 1.895%Negative Arbitrage $38,520

LEVEL SAVINGS Combination Tax and Revenue Certificates of


Prior Refunding ProjectedDate Debt Service Debt Service Savings

9/30/2016 658,491$ 658,491$ -$ 9/30/2017 744,039 729,196 14,843 9/30/2018 750,099 734,456 15,643 9/30/2019 754,962 741,056 13,906 9/30/2020 753,628 742,256 11,372 9/30/2021 171,297 158,156 13,140 9/30/2022 171,110 160,456 10,653 9/30/2023 170,723 157,656 13,067 9/30/2024 175,137 159,856 15,281 9/30/2025 174,152 161,775 12,377 9/30/2026 172,968 158,400 14,568 9/30/2027 171,584 159,650 11,934

4,868,188$ 4,721,406$ 146,782$

LEVEL SAVINGS Combination Tax and Revenue Certificates of


Refunding Par Amount $3,120,000Gross Savings $142,269Average Annual Debt Service $12,934Net Present Value Savings $130,325Present Value Benefit (%) 4.330%True Interest Cost 1.908%Negative Arbitrage $38,998

PROPORTIONAL SAVINGS Combination Tax and Revenue Certificates of


Prior Refunding ProjectedDate Debt Service Debt Service Savings

9/30/2016 658,491$ 658,491$ -$ 9/30/2017 744,039 739,296 4,743 9/30/2018 750,099 719,356 30,743 9/30/2019 754,962 726,256 28,706 9/30/2020 753,628 722,756 30,872 9/30/2021 171,297 164,056 7,240 9/30/2022 171,110 166,256 4,853 9/30/2023 170,723 163,356 7,367 9/30/2024 175,137 170,456 4,681 9/30/2025 174,152 167,163 6,990 9/30/2026 172,968 163,675 9,293 9/30/2027 171,584 164,800 6,784

4,868,188$ 4,725,918$ 142,269$

PROPORTIONAL SAVINGS Combination Tax and Revenue Certificates of


(1) Market rates as of March 8, 2016 + 25 bps.

R E F U N D I N G A N A LY S I S – L E V E L S AV I N G S

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Proposed Refunding Opportunity – Level Savings (1)

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FYE9/30/2016 572,743$ 572,743$ -$ 9/30/2017 573,990 562,539 11,450 9/30/2018 579,439 567,355 12,084 9/30/2019 583,890 573,135 10,755 9/30/2020 582,344 573,557 8,787 9/30/2021 - - - 9/30/2022 - - - 9/30/2023 - - - 9/30/2024 - - - 9/30/2025 - - - 9/30/2026 - - - 9/30/2027 - - -

2,892,405$ 2,849,328$ 43,076$

FYE9/30/2016 169,239$ 166,388$ -$ 9/30/2017 170,050 168,083 3,392 9/30/2018 170,661 168,630 3,559 9/30/2019 171,072 168,529 3,151 9/30/2020 171,284 168,984 2,585 9/30/2021 171,297 160,475 13,140 9/30/2022 171,110 156,100 10,653 9/30/2023 170,723 156,725 13,067 9/30/2024 175,137 162,175 15,281 9/30/2025 174,152 162,275 12,377 9/30/2026 172,968 162,200 14,568 9/30/2027 171,584 161,200 11,934

2,059,274$ 1,961,765$ 103,706$

Prior Debt Service

Refunding Debt Service

Gross Savings

PROJECTED TAX SUPPORTED SAVINGS

PROJECTED UTILITY SUPPORTED SAVINGS

Prior Debt Service


Gross Savings

$550,000

$555,000

$560,000

$565,000

$570,000

$575,000

$580,000

$585,000

$590,000

1/1/2016 1/1/2017 1/1/2018 1/1/2019 1/1/2020

Projected Debt Service Comparison (General Fund Portion)

Prior Debt Service Refunding Debt Service

$145,000

$150,000

$155,000

$160,000

$165,000

$170,000

$175,000

$180,000

Projected Debt Service Comparions (Utility System Fund)



R E F U N D I N G A N A LY S I S – P R O P O RT I O N A L S AV I N G S

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Proposed Refunding Opportunity – Proportional Savings (1)

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FYE9/30/2016 572,743$ 572,743$ -$ 9/30/2017 573,990 570,331 3,659 9/30/2018 579,439 555,690 23,748 9/30/2019 583,890 561,689 22,201 9/30/2020 582,344 558,489 23,855 9/30/2021 - - - 9/30/2022 - - - 9/30/2023 - - - 9/30/2024 - - - 9/30/2025 - - - 9/30/2026 - - - 9/30/2027 - - -

2,892,405$ 2,818,941$ 73,463$

FYE9/30/2016 169,239$ 166,388$ -$ 9/30/2017 170,050 168,083 1,084 9/30/2018 170,661 168,630 6,995 9/30/2019 171,072 168,529 6,505 9/30/2020 171,284 168,984 7,017 9/30/2021 171,297 160,475 7,240 9/30/2022 171,110 156,100 4,853 9/30/2023 170,723 156,725 7,367 9/30/2024 175,137 162,175 4,681 9/30/2025 174,152 162,275 6,990 9/30/2026 172,968 162,200 9,293 9/30/2027 171,584 161,200 6,784

2,059,274$ 1,961,765$ 68,806$

Prior Debt Service


Gross Savings

PROJECTED TAX SUPPORTED SAVINGS

PROJECTED UTILITY SUPPORTED SAVINGS

Prior Debt Service


Gross Savings

$540,000 $545,000 $550,000 $555,000 $560,000 $565,000 $570,000 $575,000 $580,000 $585,000 $590,000

1/1/2016 1/1/2017 1/1/2018 1/1/2019 1/1/2020

Projected Debt Service Comparison (General Fund Portion)


$145,000

$150,000

$155,000

$160,000

$165,000

$170,000

$175,000

$180,000

Projected Debt Service Comparions (Utility System Fund)


A D VA N C E D R E F U N D I N G A N D N E G AT I V E A R B I T R A G E

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“Advance” Refunding versus “Current” Refunding

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An advance refunding occurs when the refunding issue is sold more than 90 days in advance ofthe date on which the outstanding bonds can be called. If a refunding issue is sold with less than90 days in advance of the call date, the refunding bond issue is considered a current refunding.

Tax law allows a bond issue to be advance refunded only once:

– Example: if the proposed Series 2016 Refunding Bonds were to advance refund the Series2007, a subsequent refunding bond issue would be prohibited from advance refunding thehypothetical Series 2016 Refunding Bonds.

By waiting until there are less than 90 days until the August 15, 2017 call date, the City preservesthe option to advance refund the proposed Series 2016 Refunding Bonds in the future.

Another potential consideration related to an advanced refunding is Negative Arbitrage.

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Member FINRA / SIPC© 2016 Hilltop Securities Inc.All Rights Reserved17

Refunding Bonds in advance of the call date, an“advance refunding”, produces an “opportunity cost”otherwise known as “Negative Arbitrage”, particularlyin a low interest rate environment.

To the extent the escrow earns less than thearbitrage yield on the refunded bonds, the escrowmust be over-funded with refunding bond proceedsin order to provide for the scheduled principal andinterest payments on the refunded bonds.

As the call date approaches on the refunded bonds,the City’s opportunity cost is minimized, but therefunding is subject to interest rate risk as timepasses.

Negative Arbitrage

Series Refunded

Value of Neg. Arbitrage Call Date

Series 2007 $38,520 or $38,998 8/15/2017

Example: Refunds Series 2007, Level savings scenario shown for illustrative purposes.

When we analyze the cost effectiveness of advance refunding, we calculate Negative Arbitrage as apercent of Net Present Value Savings. We believe that the Negative Arbitrage as a percent of NetPresent Value Savings should be targeted to not exceed more than 25%.


PA R A M E T E R B O N D S A L E

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Parameter Bond Sale

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City Council delegates final pricing authority to Pricing Officer(s)

City Counsel establishes bond sale parameters:

Maximum Interest Rate

Minimum Savings Threshold for Refunding

Aggregate Principal Amount of Issue

Final Maturity Date

Expiration of Delegated Authority

• 6 Months

Pricing Officer(s) can only approve sale if City Council parameters are met

Section 1207 of the Government

Code allows refunding bonds via a Parameter

Sale

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Parameter Bond Sale

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Market Timing – Bond issue is in ‘Day-to-Day’ mode, meaning bonds can bepriced at any time and in an interest rate environment that is advantageousrather than being locked into pricing on the date of a Council meeting.

Reason for Parameter Bond Sale = FLEXIBILITY

Suggested parameters for City Council consideration:

Maximum Interest Rate – 3.50%

Minimum Savings Threshold for Refunding – 3.00% NPV of Refunded Bonds

Aggregate Principal Amount of Issue - $3,250,000

Final Maturity Date – August 15, 2027

Expiration of Delegated Authority – September 14, 2016

Delegation Authority - The Mayor, the City Manager, and/or the Director of Finance

item #4&5- refunding bond

Government & Nonprofit