As part of the ongoing effort to implement budgetary savings and reduce costs, staff has determined that the GGSD’s outstanding 2006 COPs could be refinanced for significant savings.

In 2006, the GGSD issued the 2006 COPs in the original amount of $21.845 million.  The 2006 COPs were issued to finance the rehabilitation, replacement, and improvement of the GGSD’s wastewater collection system.  The annual debt service payment is about $1.46 million.  The average annual interest rate is about 4.91 percent through 2036, the final maturity date.  The 2006 COPs can be prepaid at any time at no penalty.

The purpose of the proposed refunding is to refinance the outstanding balance of the 2006 COPs at much lower interest rates.  Hence, reduce annual debt service payments and enhance budget containment for the Sewer Enterprise Fund going forward.  Given the current low interest rate environment, it is worthwhile for the GGSD to expedite completion of the proposed debt refunding before interest rates rise further. Staff worked with the City's Financial Advisor (Urban Futures) to prepare and advertise a Request for Proposal to select an underwriter. The underwriter will work with the financing team and lead the effort to market and sell the refunding bonds.  A total of eight proposals were received and analyzed.  It was determined that Stern Brothers & Co. provided the best proposal in terms of quality and cost and was selected for the refunding. The required and assembled bond financing team includes:  the Financial Advisor (Urban Futures Incorporated “UFI”), Bond Counsel (Stradling, Yocca, Carlson & Rauth “SYCR”), Disclosure Counsel (Jones Hall), Underwriter (Stern Brothers & Co.), and Trustee (U.S. Bank National Association). Bond Counsel prepared the attached Resolution delineating authorization of the Revenue Refunding Bonds, Series 2017, to refund the 2006 COPs. The Resolution requires action by the GGSD to approve the issuance of the Revenue Refunding Bonds, Series 2017, to refund the 2006 COPs.  It authorizes the execution and delivery by the GGSD of the necessary documents and related actions, and the distribution of the official statement in connection with the offering and sale of the 2017 Bonds. All other necessary documents (indenture, continuing disclosure certificate, bond purchase agreement, and official statement), in connection with the issuance of the Revenue Refunding Bonds, Series 2017, are provided in substantially completed form.  

The refunding of the 2006 COPs is expected to reduce the average annual interest cost by approximately 2.0 percent, from 4.91 percent to 2.90 percent, and is projected to reduce debt service by approximately $250,000 annually through 2036.  The net present value savings is expected to be $3.2 million or 17.5 percent of outstanding 2006 COPs principal. 

*Estimated. Base on Interest rates as of February 10, 2017.

The estimated total costs of issuance are projected to be less than 2.0 percent of the total par amount of the 2017 Bonds.  The costs of issuance funds will be used to compensate the various financing team members including the Underwriter, Financial Advisor, Bond Counsel, Disclosure Counsel, Trustee, Printer, Verification Agent, and other miscellaneous fees.  The costs of issuance will be paid out of the proceeds of the bonds and have been incorporated in calculating all savings figures discussed above.

It is recommended that the Garden Grove Sanitary District Board:

• Adopt the attached Resolution authorizing the issuance of the Revenue Refunding Bonds, Series 2017; and

• Authorize the General Manager or his designee to enter into all necessary agreements and the related necessary documents for execution, delivery, and dissemination as applicable to finalize the issuance of the Revenue Refunding Bonds, Series 2017.

By:  Alex Trinidad, Senior Accountant