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Home My WebLink AboutPre Sale Report_Oshkosh Series 2021G (Water)_2021-8-19 Pre-Sale Report for City of Oshkosh, Wisconsin $3,015,000 Water System Revenue Refunding Bonds, Series 2021G Prepared by: Ehlers N21W23350 Ridgeview Parkway West, Suite 100 Waukesha, WI 53188 Advisors: Todd Taves, Senior Municipal Advisor Jon Cameron, Senior Municipal Advisor BUILDING COMMUNITIES. IT’S WHAT WE DO. Presale Report City of Oshkosh, Wisconsin Page 1 Proposed Issue: $3,015,000 Water System Revenue Refunding Bonds, Series 2021G (“Bonds”) Purpose: The proposed issue will refund (refinance) the City’s Series 2012F Water System Revenue Bonds for debt service savings. Interest rates on the 2012F Bonds range from 2.25% to 3.125%. The refunding is expected to reduce debt service expense by approximately $292,000 over the next ten years. The Net Present Value benefit of the refunding is estimated to be $227,000, equal to 7.0% of the refunded principal. This refunding is considered “current” under IRS rules as the obligations being refunded will be callable within 90 days of the date of issue of the new Bonds. Authority: The Bonds are being issued pursuant to Wisconsin Statute 66.0621. The Bonds are not general obligations of the City but are payable only from and secured by a pledge of income and revenue to be derived from the operation of the Water System. Term/Call Feature: The Bonds are being issued for a term of 10 years. Principal on the Bonds will be due on January 1 in the years 2023 through 2032. Interest is payable every six months beginning July 1, 2022. The Bonds will be subject to prepayment at the discretion of the City on January 1, 2029 or any date thereafter. Bank Qualification: Because the City has issued more than $10,000,000 in tax-exempt obligations during the calendar year, the City will be not able to designate the Bonds as “bank qualified” obligations. Rating: The City’s most recent bond issues were rated by Moody’s Investors Service. The current ratings on those bonds are “Aa3”. The City will request a new rating for the Bonds. If the winning bidder on the Bonds elects to purchase bond insurance, the rating for the issue may be higher than the City's bond rating if the bond rating of the insurer is higher than that of the City. EXECUTIVE SUMMARY OF PROPOSED DEBT Presale Report City of Oshkosh, Wisconsin Page 2 Basis for Recommendation: Based on our knowledge of your situation, your objectives communicated to us, our advisory relationship as well as characteristics of various municipal financing options, we are recommending the issuance of Water System Revenue Refunding Bonds as a suitable option based on:  Net system revenues available for debt service that provide sufficient coverage for the estimated principal and interest payments of the proposed Bonds and existing parity debt.  The City’s past practice of using revenue bonds to finance enterprise system improvements.  The City’s goal of reducing its percentage utilization of its General Obligation debt capacity.  The existing revenue pledge securing the obligations to be refunded. Method of Sale/Placement: We will solicit competitive bids for the purchase of the Bonds from underwriters and banks and will include an allowance for discount bidding in the terms of the issue. The discount is treated as an interest item and provides the underwriter with all or a portion of their compensation in the transaction. If the Bonds are purchased at a price greater than the minimum bid amount (maximum discount), the unused allowance will be used to reduce your borrowing amount. Premium Pricing: In some cases, investors in municipal bonds prefer “premium” pricing structures. A premium is achieved when the coupon for any maturity (the interest rate paid by the issuer) exceeds the yield to the investor, resulting in a price paid that is greater than the face value of the bonds. The sum of the amounts paid above face value is considered “reoffering premium.” The underwriter of the bonds will retain a portion of this reoffering premium as their compensation (or “discount”) but will pay the remainder of the premium to the City. For this issue of Bonds, any premium amount received will be used to reduce the issue size. These adjustments may slightly change the true interest cost of the original bid, either up or down. We anticipate using any premium amounts received to reduce the issue size. The amount of premium allowed can be restricted in the bid specifications. Restrictions on premium may result in fewer bids but may also eliminate large adjustments on the day of sale and unintended results with respect to debt service payment impacts. Ehlers will identify appropriate premium restrictions for the Bonds intended to achieve the City’s objectives for this financing. Presale Report City of Oshkosh, Wisconsin Page 3 Parameters: The City Council will be asked to adopt a “Parameters Resolution” on September 28th which delegates authority to the City Manager or Finance Director to accept bids and sign an Approving Certificate for sale of the Bonds provided certain parameters are met. These parameters are:  The par amount of Bonds issued may not exceed $3,015,000.  Principal on the Bonds to be due on January 1 in the years 2023 through 2032 with interest payable every six months beginning July 1, 2022.  That no maturity be increased or decreased by an amount more than $100,000 from the maturity schedule included in the Parameters Resolution.  The maximum annual debt service payment may not exceed $335,000  The True Interest Cost (TIC) may not exceed 1.95%. (The savings estimate included within this Presale Report assumes a TIC of 1.16%).  Minimum purchase price may be no less than 98.75% of the par amount of Bonds issued. Other Considerations: The Bonds will be offered with the option of the successful bidder utilizing a term bond structure. By offering underwriters the option to “term up” some of the maturities at the time of the sale, it gives them more flexibility in finding a market for your Bonds. This makes your issue more marketable, which can result in lower borrowing costs. If the successful bidder utilizes a term bond structure, we recommend the City retain a paying agent to handle responsibility for processing mandatory redemption/call notices associated with term bonds. Review of Existing Debt: We have reviewed all outstanding indebtedness for the City and find that other than the obligations proposed to be refunded by the Bonds, there are no other refunding opportunities at this time. We will continue to monitor the market and the call dates for the City’s outstanding debt and will alert you to any future refunding opportunities. Continuing Disclosure: Because the City has more than $10,000,000 in outstanding debt (including this issue) and this issue is over $1,000,000, the City will be agreeing to provide certain updated Annual Financial Information and its Audited Financial Statement annually, as well as providing notices of the occurrence of certain reportable events to the Municipal Securities Rulemaking Board (the “MSRB”), as required by rules of the Securities and Exchange Commission (SEC). The City is already obligated to provide such reports for its existing bonds and has contracted with Ehlers to prepare and file the reports. Presale Report City of Oshkosh, Wisconsin Page 4 Arbitrage Monitoring: The City must ensure compliance with certain sections of the Internal Revenue Code and Treasury Regulations (“Arbitrage Rules”) throughout the life of the issue to maintain the tax- exempt status of the Bonds. These Arbitrage Rules apply to amounts held in construction, escrow, reserve, debt service account(s), etc., along with related investment income on each fund/account. IRS audits will verify compliance with rebate, yield restriction and records retention requirements within the Arbitrage Rules. The City’s specific arbitrage responsibilities will be detailed in the Tax Exemption Certificate and Agreement (the “Tax Compliance Document”) prepared by your Bond Attorney and provided at closing. The Bonds may qualify for one or more exception(s) to the Arbitrage Rules by meeting 1) small issuer exception, 2) spend down requirements, 3) bona fide debt service fund limits, 4) reasonable reserve requirements, 5) expenditure within an available period limitation, 6) investments yield restrictions, 7) de minimis rules, or 8) borrower limited requirements. We recommend that the City review its specific responsibilities related to the Bonds with an arbitrage expert to utilize one or more of the exceptions listed above. We also recommend that you establish written procedures regarding compliance with IRS rules and/or contract with Ehlers to assist you. Risk Factors: Utility Revenue: The City expects to pay the Bond debt service with revenue derived from the operation of the Water System. In the event utility revenues are insufficient to pay debt service, the City Council is committing to consider appropriating funds from any other available sources in an amount sufficient to cover the shortfall. If it chooses to do so, the City may levy a tax to make up a shortfall. While the City is not required to appropriate the funds necessary to remedy any shortfall in revenues needed to pay debt service, failure to do so would result in either a lack of access to capital markets in the future, or access at a substantially higher cost. Current Refunding: The Bonds are being issued to finance a current refunding of prior City debt obligations. Those prior debt obligations are callable on or after January 1, 2022. The new Bonds will not be pre-payable until January 1, 2029. This refunding is being undertaken based in part on an assumption that the City does not expect to pre-pay off this debt prior to the new call date and that market conditions warrant the refunding at this time. Other Service Providers: This debt issuance will require the engagement of other public finance service providers. This section identifies those other service providers, so Ehlers can coordinate their engagement on your behalf. Where you have previously used a particular firm to provide a service, we have assumed that you will continue that relationship. For services you have not previously required, we have identified a service provider. Fees charged by these service providers will be paid from proceeds of the obligation, unless you notify us that you wish to pay them from other sources. Our pre-sale bond sizing includes a good faith estimate of these fees, but the final fees may vary. If you have any questions pertaining to the identified service providers or their role, or if you would like to use a different service provider for any of the listed services please contact us. Presale Report City of Oshkosh, Wisconsin Page 5 Bond Counsel: Chapman and Cutler LLP Paying Agent: Issuer, unless term bonds offered, then US Bank Rating Agency: Moody's Investors Service, Inc. City Council Adopts Parameters Resolution: September 28, 2021 Due Diligence Call to review Official Statement: Week of October 11, 2021 Conference with Rating Agency: Week of October 11, 2021 Distribute Official Statement: October 19, 2021 Estimated Parameters Sale Date: October 27, 2021 Estimated Closing Date: November 18, 2021 Redemption Date for the Obligations Being Refunded: January 1, 2022 Attachments Estimated Sources and Uses of Funds Estimated Debt Service Comparison Bond Buyer Index Todd Taves, Senior Municipal Advisor (262) 796-6173 Jon Cameron, Senior Municipal Advisor (262) 796-6179 Sue Porter, Senior Public Finance Analyst/Marketing Coordinator (262) 796-6167 Kathy Myers, Senior Financial Analyst (262) 796-6177 The Preliminary Official Statement for this financing will be sent to the City Council at their home or email address for review prior to the sale date. PROPOSED DEBT ISSUANCE SCHEDULE EHLERS’ CONTACTS Presale Estimate Est. Sale 10-27-2021 Est. Dated 11-18-2021 Water System Revenue Rfdg Bonds Series 2021G Tax-Exempt Deposit to Current Refunding Fund Series 2012F Water Revenue Bonds 3,316,959$ Less Prior Issue Debt Service Funds (356,959)$ Net Deposit to Current Refunding Fund 2,960,000$ Reserve Fund Adjustments New Reserve Fund Requirement 3,781,642$ Less Current Reserve Requirement (3,822,153)$ Net Deposit to Reserve Fund Required (40,511)$ Estimated Issuance Expenses Ehlers (Municipal Advisor)27,200$ Chapman & Cutler (Bond Counsel)15,000$ Maximum Discount (Bid Item) 37,688$ Moody's Investors Service (Rating Fee)14,000$ U.S. Bank (Paying Agent)850$ Build America Mutual (Bond Insurance)-$ TOTAL TO BE FINANCED 3,014,227$ Rounding 773$ NET BOND SIZE 3,015,000$ 2021 Refunding Bond Sizing Worksheet 8/18/2021 File: Oshkosh Debt Base Case_2021‐8‐12/Sizing CRFGPage 6 Prior Issue DS FundsTotal SavingsAmountAmountDatedDatedCall DateCall DateCall AmtCall AmtRate/Term2.250‐3.125%2022‐2032Rate/Term0.200‐1.300%2023‐2032Year Prin (1/1) Rate Interest TotalYear Prin (1/1) Est. Rate1Interest Total2022310,0003.000%89,269 399,269202214,055 14,055(356,959)28,2542023260,0002.250%81,694 341,6942023295,0000.200%22,395 317,39524,2992024265,0002.500%75,456 340,4562024295,0000.300%21,658 316,65823,7992025275,0002.625%68,534 343,5342025295,0000.400%20,625 315,62527,9092026280,0002.750%61,075 341,0752026295,0000.500%19,298 314,29826,7782027290,0003.000%52,875 342,8752027300,0000.700%17,510 317,51025,3652028300,0003.000%44,025 344,0252028300,0000.800%15,260 315,26028,7652029310,0003.000%34,875 344,8752029305,0000.950%12,611 317,61127,2642030320,0003.000%25,425 345,4252030310,0001.050%9,535 319,53525,8902031320,0003.125%15,625 335,6252031305,0001.250%6,001 311,00124,6242032340,0003.125%5,313 345,3132032315,0001.300%2,048 317,04828,265Total 3,270,000 554,166 3,824,166 Total 3,015,000 160,995 3,175,995 Total291,211 Maturities Subject to Optional RedemptionPlus Rounding773ESTIMATED FUTURE VALUE SAVINGS NET OF COSTS291,984NOTES:1Estimated rates are City of Oshkosh June 22, 2021 sale results (reoffering yields).Estimated Refunding Savings - Series 2012F Water Revenue BondsPresale Estimate$2,960,000$930,000$5,430,000$3,015,00015‐Nov‐1218‐Nov‐2101‐Jan‐221‐Jan‐29Existing Debt Service To Be RefundedDebt Service After RefundingIssueWater System Revenue Bonds, Series 2012FIssueWater System Revenue Refunding Bonds, Series 2021G8/18/2021File: Oshkosh Debt Base Case_2021‐8‐12/2012F Water SavingsPage 7 Schedule of Water Utility Revenue Debt Outstanding Plus Proposed 2021G Refunding BondsAs of January 1, 2022AmountDatedPaying AgentCallableCallable AmtRate/TermYearPrincipal Interest Total Prin (1/1) Est. Rate1Interest TotalNet Revs21.2X Req'd Rev P&I G.O. P&I Total Net Revs2Year20224,269,223 1,542,794 5,812,018 14,055 14,055 5,826,0739,255,354 1.595,826,073 650,794 6,476,8679,255,354 1.43202220233,848,901 1,330,242 5,179,144 295,0000.200%22,395 317,395 5,496,5399,255,354 1.685,496,539 497,825 5,994,3649,255,354 1.54202320243,823,809 1,205,536 5,029,344 295,0000.300%21,658 316,658 5,346,0029,255,354 1.735,346,002 389,700 5,735,7029,255,354 1.61202420253,758,950 1,086,831 4,845,780 295,0000.400%20,625 315,625 5,161,4059,255,354 1.795,161,405 249,425 5,410,8309,255,354 1.71202520263,869,331 973,520 4,842,851 295,0000.500%19,298 314,298 5,157,1499,255,354 1.795,157,149 252,994 5,410,1439,255,354 1.71202620273,269,958 862,027 4,131,985 300,0000.700%17,510 317,510 4,449,4959,255,354 2.084,449,495 150,434 4,599,9299,255,354 2.01202720283,220,836 757,161 3,977,997 300,0000.800%15,260 315,260 4,293,2579,255,354 2.164,293,257 151,544 4,444,8019,255,354 2.08202820292,855,000 656,984 3,511,984 305,0000.950%12,611 317,611 3,829,5969,255,354 2.423,829,596 47,569 3,877,1649,255,354 2.39202920302,930,000 560,491 3,490,491 310,0001.050%9,535 319,535 3,810,0269,255,354 2.433,810,026 51,478 3,861,5049,255,354 2.40203020312,620,000 471,797 3,091,797 305,0001.250%6,001 311,001 3,402,7989,255,354 2.723,402,798 50,269 3,453,0679,255,354 2.68203120322,375,000 396,500 2,771,500 315,0001.300%2,048 317,048 3,088,5489,255,354 3.003,088,548 53,900 3,142,4489,255,354 2.95203220332,450,000 325,300 2,775,300 2,775,3009,255,354 3.332,775,300 52,400 2,827,7009,255,354 3.27203320342,330,000 253,900 2,583,900 2,583,9009,255,354 3.582,583,900 55,825 2,639,7259,255,354 3.51203420352,245,000 187,031 2,432,031 2,432,0319,255,354 3.812,432,031 0 2,432,0319,255,354 3.81203520361,845,000 129,881 1,974,8811,974,8819,255,354 4.691,974,881 0 1,974,8819,255,354 4.69203620371,455,000 85,506 1,540,5061,540,5069,255,354 6.011,540,506 0 1,540,5069,255,354 6.0120372038955,000 55,231 1,010,2311,010,2319,255,354 9.161,010,231 0 1,010,2319,255,354 9.1620382039980,000 32,669 1,012,6691,012,6699,255,354 9.141,012,669 0 1,012,6699,255,354 9.1420392040685,000 14,066 699,066699,0669,255,354 13.24699,066 0 699,0669,255,354 13.2420402041350,000 3,500 353,500353,5009,255,354 26.18353,500 0 353,5009,255,354 26.18204150,136,008 10,930,968 61,066,976 3,015,000160,995 3,175,995 64,242,97164,242,971 2,654,156 66,897,127NOTES:1Estimated rates are City of Oshkosh June 22, 2021 sale results (reoffering yields).2Net revenue calculation based the City's 2020 preliminary unaudited financial statements. = Maturities Subject to Optional RedemptionPresale EstimateExisting + Future IssuesDebt Service CoverageTotal Utility DebtDebt Service CoverageIssueExisting Water Revenue Debt (Less Bonds to be Refunded)Water System Revenue Refunding Bonds, Series 2021G8/18/2021File: Oshkosh Debt Base Case_2021‐8‐12/Water Rev Debt CRFGPage 8 5 YEAR TREND IN MUNICIPAL BOND INDICES Source: The Bond Buyer The Bond Buyer “20 Bond Index” (BBI) shows average yields on a group of municipal bonds that mature in 20 years and have an average rating equivalent to Moody’s Aa2 and S&P’s AA. 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