port debt review and refunding strategy · 2019. 3. 18. · 2014a rev $ 6,473,173 anytime refunding...

Port Debt Review and Refunding Strategy

March 21, 2019

1

Total Port Debt

$ Million as of 1/1/19 Variable

Swapped variable to fixed

Fixed Total

General Obligation Bonds

$150.458 $150.458

Senior Revenue Bonds

$173.688 $173.688

Subordinate Revenue Bonds

$41.902 $227.587 $269.490

Revenue Bond Total

$41.902 $227.587 $173.688 $443.178

Commercial Paper

$25.0 $25.00

All Total $66.902 $227.587 $324.146 $618.6362

Existing General Obligation Bond

• 2016 bonds are refundable at this time but not economical to refund

• 2016 bonds are held by Zion’s Bank

• 2016A and 2017 are held by the public

• Debt payments backed by the Port’s tax Levy

Port General Obligation debt rating of AA/Aa2

Series Outstanding Par Call Date Purpose Interest Rate

ModeFinal

MaturityCredit

EnhancementLOC/DP

Expiration DateSummary of Refunded

BondsAdditional

Refunding Notes

2016 LTGO 24,893,000$ Anytime Refunding Fixed RateDirect Purchase 12/1/2025 None N.A. - 2008A LTGO (2019-2025)

2016A LTGO 106,155,000$ 12/1/2026 Refunding Fixed Rate 12/1/2033 None N.A. -2006 LTGO (2017-2033)-2008A LTGO (2018, 2026-2038)

-2006 LTGO refunded 1997B & 2003 LTGOs

2017 LTGO (Taxable) 19,410,000$ 12/1/2027 Refunding Fixed Rate 12/1/2038 None N.A. -2008B LTGO (AMT) (2018-2038)

Total 150,458,000$

All-In True Interest Cost

1.9942%

2.7047%

3.1775%

Coupon

1.060% - 2.360%

GO

Bon

ds(R

ated

Aa2

/AA

)

2.500% - 3.400%

3.000% - 5.000%

3

Existing General Obligation Bond Annual debt service

4

Existing Senior Revenue Debt

• 2014A and 2014B bonds are refundable at this time but not economical

• 2014A & B bonds are held by Columbia Bank

• 2016 bonds are publicly traded

Port Senior Revenue debt rating of AA-/Aa3


ModeFinal

MaturityCredit

EnhancementLOC/DP


BondsAdditional

Refunding Notes

2014A REV 6,473,173$ Anytime Refunding Fixed RateDirect Purchase 12/1/2021 None N.A. -2004A Rev (Term 2021)

2014B REV 28,455,000$ Anytime Refunding Fixed RateDirect Purchase 12/1/2029 None N.A. -2004B Rev (2014-2016, 2017-

2029)

2016A REV 36,535,000$ 12/1/2026 Refunding Fixed Rate 12/1/2034 None N.A. -2006 Rev (2017-2034)-2006 Rev refunded 2004A Rev

2016B REV (AMT) 102,405,000$ 12/1/2026 New Money Fixed Rate 12/1/2043 None N.A. N.A.

Total 173,868,173$

2.5886%

2.5223%

3.6417%

All-In True Interest Cost

2.6430%

Coupon

2.550%

4.000% - 5.000%

SR. R

EV B

onds

(R

ated

Aa3

/AA

-)

2.500%

2.000% - 5.000%

5

Existing Subordinate Revenue Debt

• All subordinate lien bonds are variable rate

• All subordinate lien bonds are held by banks

• All subordinate lien bonds are matched to interest rate swaps

• The Commercial paper is publicly traded and backed by a bank Letter Of Credit (LOC)

Port Subordinate Revenue debt rating of A+/A1


ModeFinal

MaturityCredit

EnhancementLOC/DP


BondsAdditional

Refunding Notes

2008 REV (AMT) 65,190,000$ Anytime Refunding Variable Direct Purchase

Variable Rate + Bank Fee 4.5092% 12/1/2036 None July 2020 -1997 Rev (AMT) (2011-2017)

-2006 Rev (AMT) (2009-2036)

2008B REV (Non-AMT) 122,180,000$ Anytime New Money Variable Direct

PurchaseVariable Rate +

Bank Fee 4.4792% 12/1/2044 None Nov 1, 2019 N.A.

2014A REV (AMT) 82,120,000$ Anytime Refunding Variable Direct Purchase

Variable Rate + Bank Fee 4.4192% 12/1/2035 None Oct 1, 2019 -2004B Rev (AMT) (2029-2034)

-2005 Rev (AMT) (2014-2035)

Total 269,490,000$

SUB

. C

P Commercial Paper 25,000,000$ (1) Anytime(at maturity)

New Money & Refunding Variable Variable Rate +

Bank Fee N/A BofA LOC April 2019N/A

All-In True Interest CostCoupon

SUB

. REV

Bon

ds(R

ated

A1/

A+)

6

Existing Revenue Bond Annual debt service

7

• Due to changes in US corporate tax rates, the current agreement on the subordinate lien bonds does not provide the port with the lowest possible interest costs.

• Staff can change the “mode” of the 2008 and 2008B subordinate lien bonds to capture lower interest costs but there are costs associated with making the change

• The 2014A bond resolution will need to be revised to allow the “mode” change to capture savings – Commission approval required

Opportunity

8

• Interest rates were increasing but have leveled off or dropped but are above historical lows

• Current interest rate curve makes refunding and or changing the “mode” of the subordinate lien Revenue bonds attractive

Market Conditions

9

Floating Payments(Floating interest rate x

notional amount)

Counterparty

Bond Holders

Variable interest

rate

Fixed Payments(Fixed interest rate x

notional amount)

Port

Fundamentals of a Fixed for Floating Interest Rate Swap

10


notional amount)

Counterparty

BANK

Variable interest

rate


notional amount)

Port

Fundamentals of a Fixed for Floating Interest Rate Swap – Direct Purchase

Historical direct purchase agreements these payments matched

70% of LIBOR

70% of LIBOR

11


notional amount)

Counterparty

BANK

Variable interest

rate


notional amount)

Port


After tax reform, these cash flows do not match, causing increased interest expense to the Port

70% of LIBOR

80% of LIBOR

12


notional amount)

Counterparty

Bond Holders

Variable interest

rate


notional amount)

Port


Market rate payments to bond holders should result in lower interest cost

70% of LIBOR

Market Rate

13

Historical tax exempt rates (SIFMA)SIFMA vs. 70% of LIBOR

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

Jan-

16

May

-16

Sep

-16

Jan-

17

May

-17

Sep

-17

Jan-

18

May

-18

Sep

-18

Jan-

19

Spot

Rat

es

SIFMA 70% of LIBOR

14

Historical tax exempt rates (SIFMA)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

Jan-

16

Jan-

17

Jan-

18

Jan-

19

Spot

Rat

es

SIFMA 70% of LIBOR

Period Dates SIFMA LIBOR RatioSince 2007 2007-2019 0.82% 1.12% 70.8%Before Tax Reform 2007-2017 0.76% 1.01% 71.0%After Tax Reform 2018-2019 1.43% 2.09% 69.0%2019 2019 1.53% 2.50% 61.2%Current 3/5/2019 1.74% 2.48% 70.1%

Average Rates

15

BankGuarantees payment to

Bond Holder via a Letter of Credit (LOC)

Bond Holders

Variable interest

rate

Port

Fundamentals of a VariableDemand Obligation (VRDO)

Remarketing Agent “sells” bonds on a weekly basis to bond holders

16

• Change mode for 2008 & 2008B from bank direct purchase to Variable Rate Demand Obligation’s (VRDO’s) sold on the open market

• Delegated to staff per existing resolutions

• Refund 2014A by revising doc to VRDO’s sold on the open market

• Resolution update requires Commission approval

• Will return in June/May to request approval

Opportunity

17

• We extended 2008 and 2014A direct purchases by 1 year to let the market “settle” with respect to the % of Libor

• Despite market data, banks are keeping their rate at 79% to 82% of LIBOR

• We see no indication of any changes, so we need to make a change to save money

Why now

18

• Estimated $500,000 cash per year interest savings

• 10% of LIBOR rate with LIBOR at 2%

• Cost of issuance is estimated at $600k

• Rating agencies• Bank council• Bond and disclosure council• Financial advisor

Why now

19

• RFP for remarketing agents who will market the bonds to investors

• Could be 1, 2 or 3 remarketers• RFP for 3 Letter of Credits

• Could be 1, 2 or 3 banks• Develop necessary resolution and

marketing information

• Obtain Commission approval of revised resolution (June or May meeting)

• Execute on plan

Next Steps

20

• We have $40M of variable rate debt that is not matched to a swap.

• We considered “fixing” this debt long term when the interest rate curve was more flat.

• Since the beginning of 2019, rates have decreased and the curve became “ less flat”

• Fixing out the bonds long term would increase rates from ~1.5% to ~3%. Not economical

• May fix out short to save cost

Other consideration

21

port debt review and refunding strategy · 2019. 3. 18. · 2014a rev $ 6,473,173 anytime refunding...

Documents