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TO: |
Board of Trustees |
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THROUGH: |
Jay Fox, Executive Director |
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FROM: |
Troy Bingham, Comptroller |
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PRESENTER(S): |
Troy Bingham, Comptroller |
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Brian Baker, Zion Public Finance |
TITLE:
title
Escrow Substitution for the 2019 and 2021 Defeased Bond Escrows
end
AGENDA ITEM TYPE:
Discussion
RECOMMENDATION:
Authorizing staff to consult the Local Advisory Commission to sell the securities in the current 2019 and 2021 escrows and re-populating with more efficient SLGS (State and Local Government Securities).
BACKGROUND:
State statutes governing UTA require several steps. The initial discussions for this escrow substitution starts with the Board of Trustees. If recommended by the Trustees, the proposal will proceed to the May 31st Local Advisory Council meeting for consultation. If these bodies concur with the substitution, the Board will have to act on a resolution at a future meeting of the Board of Trustees. At that meeting the Board of Trustees will set terms of the potential swap and authorize financial agents to carry out the process. Staff will then start working with Zions Public Finance (the municipal advisor), Gilmore Bell (bond counsel), and Causey, Demgen & Moore PC (bidding and verification agent) to prepare bidding and legal documents.
In November 2019 and 2021 escrows were originally created for 2015 Bond Refundings, UTA bid out the escrow and received better results from treasury securities than State and Local Government Securities (SLGS) at that time. Currently, the shift in rates allows the restructuring to capture savings and make the existing escrows more efficient. Present opportunities to generate cash savings are now available by doing an escrow substitution. The combined escrows hold approximately $500 million in securities that mature 15-30 days before they are needed to defease bonds in 2023-2025.
DISCUSSION:
As a result, a restructuring allows UTA to capture interest earnings on approximately $500 million over those 15-30 day periods when the bonds are due in 2023-2025. When current escrow securities are liquidated, SLGS will be purchased with those proceeds for less than the amount of the securities sold.
ALTERNATIVES:
UTA executes the escrow substitution on any day where the bond market rallies through the day (so that the rates on the sold escrow securities will be lower compared to the available SLGS rates that were published in the morning). The difference between the price the escrow is liquidated for and the cost of the SLGS necessary to re-populate the escrow is UTA’s cash savings. SLGS rates are known at 8 AM Utah time, UTA would not actually complete the escrow liquidation unless we know the economic savings would meet desired targets.
FISCAL IMPACT:
Desired staff targets are currently estimated at $500,000.
ATTACHMENTS:
None