Summary In August 2001, the City issued a Promissory Note in the amount of $2,250,000 and participated in a pooled offering of certificates guaranteed pursuant with the United States Department of Housing and Urban Development (HUD) Section 108 Loan Guarantee Program for infrastructure improvements. The term of the current loan ends in August 2021. The current interest rates on the outstanding principal amount of $1,150,000 range from 6.25% to 6.67%.
The City was informed by HUD earlier this month that on or about May 28, 2015, HUD would be holding a new public offering of certificates issued under the Section 108 Loan Guarantee Program to refinance and legally defease, for savings, certificates issued in connection with the 2001 Public Offering. Based on HUD's current estimates, the net savings for the City would be approximately $175,006 between now and the loan's final maturity date. This net savings is 15.22% of the principal amount ($1,150,000) being refinanced. City fiscal policies require a present value savings of 3% or greater of the par amount of the outstanding bonds in order to allow any refinancing. Hence, this potential refinancing meets that requirement. The City then engaged its bond counsel firm of Bryant Miller Olive, P.A. (BMO) to assist with this transaction.
The total amount to be refinanced will be $1,150,000. This amount does not include any expenses (bond counsel, paying agent/registrar services, etc.) associated with the refinancing. HUD does not allow for these expenses to be added to the refinancing amount. Therefore, the City will have to pay for these costs from City funds. At this time we estimate these expenses to total $17,750 ($5,750 for HUD and $12,000 for bond counsel). These funds are currently budgeted in the Debt Service Fund.
The maturity date of the new 2015 Loan will be August 2021 which is exactly the same as the current loan. The projected interest rates (based on current US Treasury yields and estimated spreads) for the new loan will range from 0.35% to 2.08%. The new loan will not be prepayable, but will be able to be defeased at any time as provided in the Section 108 contract.
Even though the public offering will not be held until May 28, 2015, HUD must receive the properly executed documents from the City by the close of business on May 5, 2015. If the City's documents are not received by this date, we will not be included in the public offering.
The resolution presented to the Commission tonight authorizes the refinancing of the 2001 Section 108 Loan in an amount not to exceed $1,150,000. A representative from BMO is here tonight to answer any questions regarding this resolution. The Finance Department anticipates completing this transaction May 28, 2015. | | |