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TO: |
Board of Trustees |
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THROUGH: |
Jay Fox, Executive Director |
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FROM: |
Viola Miller, Chief Financial Officer |
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PRESENTER(S): |
Viola Miller, Chief Financial Officer |
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Rob Lamph, Comptroller |
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Brian Baker, Zions |
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Randall Larsen, Gilmore & Bell |
TITLE:
title
R2024-06-07 - Resolution Authorizing (I) a Tender Offer for a Portion of the Authority’s Outstanding Bonds and (II) the Issuance and Sale by the Authority of its Sales Tax Revenue Refunding Bonds in the Aggregate Principal Amount of Not to Exceed $650,000,000, a Portion of Which is Related to the Tender Offer; and Related Matters
end
AGENDA ITEM TYPE:
Resolution
RECOMMENDATION:
Approve Resolution R2024-06-07 to authorize the sale of the Authority’s Sales Tax Revenue Refunding Bonds, including a potential Tender Offer as presented.
BACKGROUND:
Refinancing of Build America Bonds (“BABs”), Make Whole Call (MWC) and Tender offer.
§ UTA has $461.45 million of bonds outstanding with interest rates ranging from 5.7% to 5.9% (Series 2009B & 2010).
§ The Authority receives a subsidy from the Federal Government each year to offset some of the interest cost.
§ Since the issuance of the Bonds, various Congressional Acts have reduced the subsidy to UTA (subsidy risk). UTA has approximately $130 million in remaining subsidy payments at risk.
§ The BABs have a call feature (make whole) that previously made refinancing very costly to UTA.
§ Today, unique financial market conditions may present UTA an opportunity to refinance all or a portion of the BABs and achieve savings or at a minimal cost.
§ Several entities across the country are contemplating or have already executed similar financings in order to reduce risk from future reductions or elimination of subsidy payments.
§ A MWC and tender refunding can be incorporated into a broader BABs refunding transaction relatively seamlessly and at a minimal incremental cost.
§ Favorable current market conditions may also allow UTA to execute a bond tender refunding of certain additional outstanding bonds in order to improve overall financing results.
§ UTA completed a tender refinancing in 2023 under similar favorable market conditions.
As required in Utah Code §17B-2a-808.1(4), the Authority received approval from the State Finance Review Commission on this proposal on May 15, 2024, and on May 22, 2024 consulted with the Local Advisory Council as required in Utah Code §17B-2a-808.1(2)(C).
DISCUSSION:
Key Benefits
Risk Reduction: Refinancing of all $461.45 million of BABs will eliminate UTA’s exposure to the risk of further subsidy reductions as the result of Federal Government actions or inactions.
Market Conditions: Current market conditions, unique on a historical basis, may allow UTA to refinance its BABs with the issuance of tax-exempt bonds and potentially achieve overall debt service savings.
Future Optionality: In 10 years, UTA will likely have the option to refinance the bonds issued today at a lower interest rate and achieve savings.
Lower Overall Debt: the proposed transaction would lower UTA’s outstanding indebtedness by approximately $45 million.
ALTERNATIVES:
Not issue refunding bonds.
FISCAL IMPACT:
In the current market, a refunding of all outstanding Series 2009B BABs and 2010 BABs would result in the following:
§ Aggregate (2009B & 2010 combined) debt service cashflow savings of approximately $4.0 million.
§ Aggregate Net Present Value (NPV) dis-savings are roughly neutral at approximately -$42,000 or -0.01% of refunded par.
The financing would result in significant future optionality (option to refinance again at a lower interest rate for savings). For example, in 2034, assuming current rates, UTA would be able to refund the bonds issued today and achieve NPV savings of $20.6 million (e.g., “Second Order Savings”). This optionality is meaningful given the current lack of a 10-year par call option on the outstanding BABs.
UTA can achieve added near-term cash flow savings (2025-2029) through additional refunding strategies. Tax-exempt Make-Whole Call (“MWC”) refunding of UTA’s Series 2007A bonds maturing 2026-2029 generates $13.9 million of total debt service savings in those years. A tender refunding of UTA’s Senior Lien Series 2015A maturing in 2025 (assuming 40% tendered/refunded), results in $12.1 million of savings in 2025.
ATTACHMENTS:
Resolution R2024-06-07, including Exhibits