Transcription
Proposed FinancingTransactions 150 Million Series 2021 Bonds 150 Million Note Purchase Agreement 50 Million Liquidity AgreementBill BerryRates, Planning, and Analysis ManagerJune 30, 20211
Proposed Financing TransactionsFinancing Plan1. Issuance of up to 150 million TacomaPower Electric System Revenue Bonds,Series 2021 to pay down current Wells FargoNote Purchase Agreement2. Execute new three-year 150 million NotePurchase Agreement with Wells Fargo3. Modify and extend current KeyBank NotePurchase AgreementThe Ordinanceswould delegateauthority tocomplete thesetransactions to theDirector andSuperintendentThis presentation has been prepared by the City and its advisors and provides general background information about Tacoma Power’s proposed financing plan as of thedate of this presentation. The information in this presentation is provided in summary form only and does not purport to be complete. This presentation does not containall the information that is, or may be, material to investors or potential investors, and should not be considered as advice or a recommendation to, or relied upon by,investors or potential investors. The information contained in this presentation, including financial information and the plan of finance, is preliminary, subject to change.2
Series 2021 BondsIssue up to 150 million Tacoma PowerElectric System Revenue Bonds, Series 2021,to pay down current Wells Fargo NotePurchase Agreement (NPA)Sources of Funds*New Bonds Par 108,995,000Premium 31,635,020TOTAL SOURCES 140,630,020Tax-exempt Bondproceeds will beused to pay off thecurrent Wells FargoNPA and pay costsof issuanceUse of Funds*Repayment of Wells Fargo NPA 140,000,000Issuance Cost 630,020TOTAL USES 140,630,020* Preliminary estimates; subject to change.3
Series 2021 BondsPlan to issue all, or a portion, of the 2021 Bonds We have retainedas “Green Bonds”Kestrel Verifiers tord-partyprovide3 Amount of Green Bond issue based on theverification thatvalue of qualified capital projectsour projects Bond Ordinance provides flexibility to issuequalify as “Green”debt as “Green Bonds” Green Bonds offer may broaden the investorbase and may result in a reduced issue price Many utilities in the Pacific Northwest andother areas of the U.S. have issued GreenBonds4
Series 2021 BondsEnact a “Springing Amendment” to align MasterOrdinance language with operational processes1. Change language to reflect current rate-settingpractices that are based on forecasts of revenuesand expenses2. Enable an option to amortize debt service offuture Tacoma Power Bonds with principalballoon paymentsCurrent LanguageRate-settingAmortization ofprincipal BalloonpaymentsRequires rates be set to meetfinancial metrics based on actualresults This language would amendthe Master Ordinanceautomatically when at least50 percent of thebondholders consent to thechanges (likely to occurafter the 2013 series bondsare refunded and if theSurety company for ourdebt service reserve fundapproves the changes)Proposed LanguageReflect current practices based onforecasts of revenues and expensesTacoma Power can determine if a bondNone. Tacoma Power onlyhas a balloon payment structure andcollects the large debt service thespread that debt service over the yearsyear prior to the due dateprior to the due date5
Series 2021 BondsFinancing Statistics* Total Max. Annual Debt Service: 46,826,974 in 2030 Repay NPA balance: 140,000,000(2017 - July 2021 capital spending) Issuance Costs: 670,000(Underwriters, Green Bond Verification, Bond Counsel, Financial Advisor True Interest Cost: 3.215%* Preliminary estimates; subject to change.Aggregate Debt Service Overview 50M Bonds would payinterest-onlyduring spike years Bonds would berated by Standard& Poors and Fitch No Debt ServiceReserve Fund 40M 30M 20M 10M 0MExisting Debt ServiceNew Debt Service6
Series 2021 BondsInterest Rates as of 6/23/21TenorMaturityDateCouponYield*Yield toMaturityYield to %* The lesser of the yield to maturity or the yield to call. The assumed call date is January 1, 2031.7
Series 2021 BondsPotential Refunding Bond Issue up to 155million to refund the outstanding Tacoma Power2013A and 2013B BondsSources of Funds*Refunding Bonds Par 126,985,000TOTAL SOURCES 126,985,000Use of Funds*Refunding Bonds Escrow Cost 126,314,600Issuance Cost 670,400TOTAL USES 126,985,000 Tax-exempt advancedrefunding bonds are notcurrently allowed, butlegislation is beingconsidered Potential taxable refundingbonds could be issued as astand-alone issue later in2021. Will reduce the debtservice in the “spike” years Bond documents currentlyauthorize sale at any timeprior to December 31, 2021 This potential Bond issueincreases Tacoma Power’stotal request in theOrdinance to 320 million* Preliminary estimates; subject to change.8
150 million Note Purchase AgreementRequest approval to enter into new Note PurchaseAgreement with Wells FargoExisting Note Purchase Agreement has served us well The current Wells Fargo NPA began in 2015 andexpires in December 2021 Current NPA will be paid off from Bond proceeds New NPA would provide interim funding for capitalprojects from 2021 to 2023 The new NPA will be similar to the existing agreementWells Fargo’sresponse to our RFPprovided the bestpricing (lower all-incost by 30 percent)compared to thenearest competitorThe new Wells Fargo NPA is priced based on SIFMA rates Current Wells Fargo NPA advances are priced basedon the London Interbank Offering Rate (LIBOR index),which is currently set to sunset in June 2023 The Securities Industry and Financial MarketsAssociation Municipal Index (SIFMA) is an acceptedreplacement index9
150 million Note Purchase AgreementWells Fargo Note Purchase Agreement TermsCommitment Amount 150,000,000General PurposeInterim Financing of Capital ProjectsTermOctober 2024 Extensions as NegotiatedUpfront FeeNoneUndrawn Fee0.17 bps .0017 x amount not drawnInterest RateSIFMA Index 35 bpsas of 6/16/2021 .03 .35 0.38Downgrade Pricing .05 bps on unutilized and utilized fee per downgradebelow current ratingsRepaymentAnytimeMinimum Draw Amount 5,000,000Est. Issuance Costs 160,000 We estimate thecurrent NPA hassaved about 26million from 2015through 2020 bypostponing longterm bond issues10
KeyBank Liquidity Agreement In May 2020, Tacoma Power entered into a taxable 2 Tacoma Power’syear general liquidity 100 million line of credit withliquidity is stableKeyBank in 2020 in response to pandemic uncertaintyand the marketterms have We propose reducing the the commitment amountfrom 100 million to 50 million and extending the term improvedto 2024 We estimate savingExpiration DateCommitmentAmountRate on DrawnAmountUnutilized FeeLIBOR FloorCurrent Keybank NPA(taxable)Amended Keybank NPA(taxable)May 2022December 2024 100M 50M1M LIBOR 1.75%x amount drawn.35%x amount not drawn.50%1M LIBOR .50%x amount drawn.20%x amount not drawn0% 185,000 in feesfrom September2021 through May2022 by amendingthe terms11
Tacoma Power is Financially StrongInvestmentGradeNon-InvestmentGrade Baa2Baa3AAAAA AAAAA AABBB BBBBBB-AAAAA AAAAA AABBB BBBBBB-Ba1Ba2Ba3B1B2B3Caa1Caa2Caa3CaCBB BBBBB BBCCC CCCCCCCCCBB BBBBB BB-DTargetCCCDDDDDDCurrent Tacoma Power RatingAA credit ratings S&P confirmed AA rating in December 2020 Fitch will review Tacoma Power Credit in July andagain for upcoming transactionHealthy financial metrics Greater than 2.0x Debt Service Coverage Target Greater than 180 Days Liquidity TargetAdequate reserve fund levelsStrong management teamFlexibility to manage future debtserviceDemonstrated willingness to raiserates as necessary12
Financing TeamBond IssueShort-term FinancingBond Senior UnderwritersTax-Exempt Note Purchase Agreement LenderCo-ManagersWells Fargo’s CounselChapman and CutlerWells Fargo BankCitigroupKeyBankGoldman SachsSiebert Williams ShankTaxable Note Purchase Agreement LenderUnderwriter’s CounselKeyBankOrrick, Herrington & SutcliffeKeyBank’s CounselDavis Wright TremaineTacoma PowerFinancial AdvisorBond CounselMontague DeRose & AssociatesPacifica Law Group13
Current Schedule6/30Public Utility Board Study Session7/14Public Utility Board – Consideration of Bond Resolutions7/20Government Performance & Finance Committee (GPFC)7/27City Council Meeting – 1st Reading8/3City Council Meeting – 2nd Reading8/12Ratings Received8/24Price Bonds and Sign Bond Purchase Agreement9/8Closing of 2021 Bonds10/1Closing of Note Purchase Agreements14
Other Considerations15
Plan to Manage Debt Service SpikesSeries 2010B Bonds (Build America Bonds - BABs) and 2010C Bonds (CleanRenewable Energy Bonds - CREBs)1. Set aside revenue to pay off or defease approximately 75 million in principalpayments accrued in 2030 through 20342. Use the Rate Stabilization Fund and Current Fund to set-aside approximately 9 million revenue annually, if possible3. We plan to pay off or defease approximately 15 million of the 2010 CREBpayment with cash in 20264. Results in levelizing upcoming debt service payments and maintaining financialmetrics 50 Millions 40 75 million set-aside 30Large Principal Paymentsdue in January 2027 andfrom 2031 through 2035 Taxable and subsidizedby the FederalGovernment Expensive to call and welose the subsidy if weretire prematurely Without action,significant jump in rateincreases would berequired 20 10 02010B2010C2013A2013B201716
Current Debt Structure and Rate Projections 70Maximum Annual Debt Service: 66.2 million 60 Millions 50 40 30 202009-2019 6201520142013201220112010 02009 102017Projected rate increases to maintain AA-rated utility financial metricsThis forecast is subject to change, and is dependent upon actual financial performance in future years.2029 to 2034: 6.5% - 7.5%5.9%5.9%2023 to 2028: 3.0% - 4.0%201720182.0%2.0% 2920302031203220332034Light shading in future years represents uncertainty associated with revenues and expenses, mostly due topotential for adverse** or critical water conditions, changes to sales projections, and future debt service.17
Projected Debt Structure and RatesAssumes setting aside funds to levelize debt service 60M2010B2010C2023 204520432041203920372035203320312029202720252023 M2021 30M2030Projected rate increases with levelized-debt serviceThis forecast is subject to change, and is dependent upon actual financial performance in future years.5.9% 5.9%2023 to 2034: 3.0% - 242025202620272028202920302031203220332034Light shading in future years represents uncertainty associated with revenues and expenses, mostly due topotential for adverse or critical water conditions, changes to sales projections, and future debt service.18
Debt Service Coverage, Liquidity & Rate Forecasts(assuming use of RSF and defeasances to manage spike yearsDebt Service Coverage4.003.503.002.502.001.501.000.500.00Days of Liquidity3002001002021202320252027Debt Service Coverage Ratio20292031203320350Aa Target DSCR (2.0x)2023 to 2035: 3.0% - 4.0%1.5%2.0%20232025Days of Liquidity3-Year Averages3-Year AveragesRange of Projected Rate Increases202120272029203120332035Aa Target Liquidity (180 Days)Factors That Could Change Forecast–––––Load forecastWater conditionsPower pricesSpending differences compared to budgetLower rate Increases compared to basecase would likely translate into higherincreases in future years19
Thank You20
Series 2021 to pay down current Wells Fargo Note Purchase Agreement 2. Execute new three-year 150 million Note Purchase Agreement with Wells Fargo 3. Modify and extend current KeyBank Note Purchase Agreement The Ordinances would delegate authority to complete these transactions to the Director and Superintendent. 2
