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City of Missoula, Montana Item to be Referred to City Council Committee Committee: Administration & Finance Item: Ratification of Recommended Refunding of the 2001A General Fund Obligation Bond Issue in order to save future interest costs Date: April 2, 2010 Prepared by: Brentt Ramharter Initiated by: City Administration based on recommendation from City's Financial Advisor Action Required: Pass the resolution: "RATIFYING AND CONFIRMING THE SALE, ISSUANCE AND DELIVERY OF $1,200,000 OF THE CITY’S LIMITED TAX GENERAL FUND OBLIGATION REFUNDING BONDS, SERIES 2010A, TO D.A. DAVIDSON & CO.; FIXING THE PRINCIPAL AMOUNT, THE ANNUAL MATURITIES, INTEREST RATES AND REDEMPTION PROVISIONS THEREON; AND PROVIDING FOR OTHER MATTERS PROPERLY RELATING THERETO. Recommended Motion: I move the City Council pass the RESOLUTION OF THE CITY OF MISSOULA, MISSOULA COUNTY, MONTANA, RATIFYING AND CONFIRMING THE SALE, ISSUANCE AND DELIVERY OF $1,200,000 OF THE CITY’S LIMITED TAX GENERAL FUND OBLIGATION REFUNDING BONDS, SERIES 2010A, TO D.A. DAVIDSON & CO.; FIXING THE PRINCIPAL AMOUNT, THE ANNUAL MATURITIES, INTEREST RATES AND REDEMPTION PROVISIONS THEREON; AND PROVIDING FOR OTHER MATTERS PROPERLY RELATING THERETO. Timeline: Referral to committee: April 2, 2010 Committee discussion: April 21, 2010 Council acts to set hearing: Not needed. Public Hearing: Not needed. Deadline: Need to have Council approve resolution on April 26th in order to ratify the negotiated sale that will occur as early as the last week of April. Background and Alternatives Explored: The City of Missoula's Finance office has received analyses of most of our outstanding indebtedness from our Financial Advisor, Springsted Public Financial Advisor. Springsted has determined that one of our outstanding General Fund bond issues could easily be refunded and refinanced in order to save money in future required debt service interest payments in our General Fund. The City's Financial Advisor was asked to review the proposed refunding to ascertain that it meets the minimal criteria established in the City's debt policy. Due to the small size of the refunding, the City's Financial Advisor recommended a negotiated sale be undertaken with D.A. Davidson as the selected underwriter. We are targeting a pricing date for the Bonds as early as within two weeks to as late as within 6 months. D.A. Davidson has advised that the best execution for the sale will be for it to take place during ---PAGE BREAK--- the middle part of the week. This presents a logistical issue since the City Council meets on Mondays. We recommend that the City Council adopt a “parameters” resolution at its April 26 meeting at which time it will set the maximum par amount of the refunding bonds of $1,200,000, the maximum interest rate of a 4.0% true interest cost (TIC) and a minimum savings target for the transaction of $35,000. This permits flexibility in the pricing of the bonds and allows the underwriter to enter the market at the optimum time. Subsequent to the pricing, the Council will be presented with a confirming and ratifying resolution memorializing the final terms of the issue on April 26th. The proposed refunding substantially exceeds the minimal criteria and should provide a minimum of $35,000 in future debt service payments (at least $3,500 less per year) for the next 10 years. Financial Implications: See discussion above: The proposed refunding substantially exceeds the minimal criteria and should provide a minimum of $3,500 per year savings to our General Fund for the next 10 years starting on July 1, 2010. Attached to this referral is the bond resolution (complete except for the interest rates to be determined on the date of the sale) along with a full discussion from the City's Financial Advisor of the bond sale recommendations, interest savings and graphical presentation of expected savings). Attachments: Hyperlink to attachments here