In 2009 the city of Ceres, through its Ceres Financing Authority, issued $4.75 million in bonds for water system improvements and $8.22 million for sewer system improvements. With a sizable principal balance outstanding, the city is now seeking to refund those bonds and reissue at a lower interest rate to save about $1.75 million.
As of June 1 there will be an outstanding principal balance of $3.83 million for the water bonds and $6.65 million for the 2009 wastewater bonds. The interest rates on the outstanding bonds range from 4.0 percent to 5.0 percent for the longest maturity (June 1, 2039). The bonds are not callable for the first time until June 1, 2020 but a Forward Rate Lock agreement can be negotiated with a lender, which will allow the city to lock the refunding interest rate (estimated at 3.65 percent), and close the transaction in April 2020.
The 2018 Tax Cuts and Jobs Act eliminated the ability of bond issuers to “advance” refund prior bond debt before the first call date. A “current” refunding may be closed no later than 90 days before the first call date.
Use of the Forward Rate Lock structure will eliminate the risk of interest rates rising between now and April of 2020 to do a refunding.
Savings on the lower interest rate of 3.65 percent means the city will save approximately $1.75 million – an average of $94,500 each year through 2035 – without extending the existing term.
One combined refunding issue would be used to refund both outstanding bonds.
Stradling Yocca Carlson & Rauth will serve as the Bond Counsel, Urban Futures, Inc. as Municipal Advisor, and as Placement Agent. Bids from lenders will be solicited on behalf of the city by the Brandis Tallman LLC, the placement agent. A lender will be selected based on the best combination of interest rate and closing costs.
All costs of issuance for the refunding issue will be paid from bond proceeds, and the estimated savings amount is net of all such costs.
The final documents are expected to be before the council on June 10.
Doug Anderson of Urban Futures said there is no reason why the council wouldn’t want to do the refund “unless you thought rates were going to go down over the year.”
Finance Director Suzanne Dean said the move will also benefit the city when the city seeks funding for the Surface Water Treatment Plant.