City of Phoenix Civic Improvement Corporation Junior Lien Junior Lien - - PowerPoint PPT Presentation

Investor Presentation November 18, 2014

City of Phoenix Civic Improvement Corporation

Junior Lien Water System Revenue Bonds, Series 2014A Junior Lien Water System Revenue Refunding Bonds, Series 2014B

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Disclaimer

The investor presentation you are about to view is provided as of November 18, 2014 for a proposed offering of the City of Phoenix Civic Improvement Corporation Junior Lien Water System Revenue Bonds, Series 2014A (the “2014A Bonds”) and Junior Lien Water System Revenue Refunding Bonds, Series 2014B (the “2014B Bonds” and together with the 2014A Bonds, the “Bonds”). This presentation has been prepared for information purposes only and for your sole and exclusive use in connection with the proposed transaction. The information contained herein is subject to completion and amendment. Any

• ffer or solicitation with respect to the Bonds will be made by means of a final official statement. If you are viewing this

investor presentation after the date stated above, events may have occurred that have a material adverse effect on the financial information presented. This presentation does not constitute nor does it form part of an offer to sell or purchase, or the solicitation of an offer to sell

• r purchase, any securities or an offer or recommendation to enter into any transaction described herein nor does this

presentation constitute an offer, commitment or obligation on the part of the issuer, underwriter or any of its affiliates to provide, issue, arrange or underwrite any financing or enter into any other transaction. You will be responsible for making your own independent investigation and appraisal of the risks, benefits, appropriateness and suitability of the proposed transaction and any other transactions contemplated by this presentation and neither the issuer nor the underwriter is making any recommendation (personal or otherwise) or giving any investment advice and will have no liability with respect thereto. Neither the issuer nor the underwriter nor the financial advisor makes a representation or warranty as to the (i) accuracy, adequacy or completeness of any information in this investor presentation or (ii) legal, tax or accounting treatment of any purchase of Bonds by you or any other effects such purchase may have on you and your affiliates. This investor presentation contains “forward‐looking” statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results may differ materially from those expressed or implied by such forward‐looking statements. Accordingly, we caution you not to place undue reliance on these

• statements. All statements other than the statements of historical fact could be deemed forward‐looking. All opinions,

estimates, projections, forecasts and valuations are preliminary, indicative and are subject to change without notice. THE PRINTING, DUPLICATING, DOWNLOADING, SCREEN CAPTURING, ELECTRONIC STORING, RECORDING, PUBLISHING OR DISTRIBUTING OF THIS INVESTOR PRESENTATION IN ANY MANNER IS STRICTLY PROHIBITED. By viewing this investor presentation you acknowledge that you understand and agree to the provisions of this page.

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Neal Young, Chief Financial Officer Denise Olson, Assistant Finance Director Kathleen Gitkin, Acting City Treasurer

Key Personnel

City of Phoenix Finance Department Water Services Department Financial Advisor: Frasca & Associates Underwriter: Bank of America Merrill Lynch

Kathryn Sorensen, Water Services Director Troy Hayes, Assistant Water Services Director – Water Division Ken Cushine, Principal Jessica Soltz Rudd, Senior Director Jeffrey Bower, Managing Director

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Financing Summary

• $155,230,000* Junior Lien Water System Revenue Bonds, Series 2014A
• $454,840,000* Junior Lien Water System Revenue Refunding Bonds, Series 2014B

Purpose 2014A: New Money (Redemption of Commercial Paper) 2014B: Refunding of callable 2003 & 2005 Bonds Amortization 2014A: July 1, 2019 ‐ 2044 2014B: July 1, 2015 ‐ 2029 Tax Status Tax Exempt Optional Redemption Callable July 1, 2024 at par* Security Junior Lien on Water System Net Operating Revenues Pricing Date December 2, 2014* Delivery Date December 17, 2014* Confirmed Ratings Moody’s: Aa2 (Stable) Standard & Poor’s: AAA (Stable) Co‐Senior Managers BofA Merrill Lynch; J.P. Morgan Co‐Managers Barclays; Ramirez & Co., Inc.; US Bancorp; Wedbush Securities; William Blair & Company

*Preliminary, subject to change.

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City of Phoenix Overview

• 6th largest city in the U.S.

(based on population)

• Phoenix MSA is the largest

economic center in Arizona:

• Approximately 72% of the State’s

employment

• Healthy mix of employment

across industry sectors

• Unemployment rate of 6.2% as of

June 2014 (lower than Arizona at 7.1% and U.S. at 6.4%)

Manufacturing 6.4% Other 5.5% Construction 5.0% Trade 16.1% Financial Activities 9.0% Services 45.5% Government 12.5%

2014 Phoenix MSA Employment by Sector

Sources: Arizona Department of Economic Security & U.S. Department of Labor

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Prudent City Management Achieves Real Results

• Pension Reform: March 2013 voter approved changes for employees hired on or after

July 1, 2013:

• Increased retirement age by 3.5 years
• Changed multiplier for years of service to same as the State
• 50/50 contribution split between City/employees (employee contribution for

employees hired before July 1, 2013 capped at 5% of salary)

• OPEB Solution: Full funding of OPEB ARC since 2007
• Balanced Budgets: Arizona law and the City Charter require a balanced budget
• Innovation and Efficiency: Joint task force of private sector business leaders and

department heads initiated changes saving over $97 million since 2010

• Zero‐Based Budget: Provides defined cost and other information on over 400 City

programs

• Long‐Range Planning: All enterprise funds and the general fund develop five‐year or

longer capital and financial plans

• Transparency: Proactively address bond investors’ needs with dedicated staff and

interactive investor relations website

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Water System Overview

• Service area covers 540 square miles, with 416,623 water accounts
• Provides reliable, high‐quality water to 1.5 million people in and around the

City of Phoenix

• Ample water supply, treatment, and water distribution capacity
• Exceptional record of environmental compliance
• Responsible reinvestment in critical infrastructure
• Current CIP is nearly 100% Pay‐As‐You‐Go funded

Water Treatment Plants

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Miles of Water Mains

6,867

Active Groundwater Wells

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Lost & Unaccounted‐for Water

8.2%

Source: Preliminary Official Statement Appendix A.

Treatment Capacity

635 mgd

Maximum Day Demand

386 mgd

Average Daily Demand

265 mgd

Storage Capacity

500 mg

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Water User Account Characteristics

88% 8% 4%

# of Accounts – 416,623 Billed Volume – 120,713,333 ccf

51% 34% 15%

FY 2014 Accounts by User Group

■ Single‐Family ■ Non‐Residential ■ Multi‐Family

FY 2014 Billed Volume by User Group Single‐family residences comprise the majority of the Water System’s customer base

Source: Preliminary Official Statement page A‐2.

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2014 Rank Water Customer % of Total Revenue % of Total Consumption 1 City of Phoenix 4.07% 3.26% 2 Maricopa County 0.73% 0.57% 3 Paradise Valley Unified School District 0.50% 0.37% 4 Sheraton Phoenician Resort 0.47% 0.35% 5 Sitix of Phoenix 0.45% 0.33% 6 State of Arizona 0.42% 0.32% 7 Shamrock Foods 0.41% 0.31% 8 Phoenix Union High School District 0.37% 0.28% 9 Niagara Bottling 0.33% 0.24% 10 Pointe Hilton Tapatio Cliffs Resort 0.32% 0.24% Total 8.07% 6.27%

• Top 10 water users comprise 8.07% of revenue and 6.27% of consumption
• 5 of the top 10 customers are governmental entities
• No private entity accounts for more than 0.5% of total revenue

Diversity of Water Users Lends Stability to the System

Note: Customers shown in bold font are governmental entities. Source: Preliminary Official Statement page A‐2.

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MAJOR WATER SOURCE SALT RIVER PROJECT

(Salt/Verde Rivers)

MAJOR WATER SOURCE CENTRAL ARIZONA PROJECT

(Colorado River)

Phoenix Water Sources & Treatment Facilities

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Phoenix is Built for Drought

• Diverse and robust water supply

portfolio is sufficient to meet decades

• f projected demand
• Existing water treatment and delivery

infrastructure provides a high level of reliability with relatively minor losses

• The City has been preparing for

drought for decades

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Phoenix Water Supply is Sustainable

• Diverse portfolio of water supply from various sources
• Current excess supply creates a robust buffer for drought
• All wastewater is reclaimed, reused, or exchanged for water rights
• Phoenicians embrace a culture of wise water use and desert

landscaping

• Proactively maintain and replace infrastructure to ensure reliability

and minimize system losses

• Plan for a future that is perpetually hot and dry

Phoenix Water Supply

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100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000

Acre‐feet (AF) Demand 302,087AF Intermittent Supply 200,251 AF Off Project 186,557 AF On Project 353,967 AF

2013 Water Supply

Phoenix Water Supply

Total Supply ‐ 757,025 AF

Groundwater ‐ 16,250 AF

2013 Water Demand

Intermittent Supply refers to Verde River gate water, Roosevelt Dam new conservation space and water from the Roosevelt Irrigation District On Project refers to lands located within the Salt River Project area and rights to SRP Water Off Project refers to lands located outside the Salt River Project area with water supplied by the Central Arizona Project

Source: Preliminary Official Statement Appendix A.

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More than sufficient supply and treatment capacity, combined with proactive management, positions the City well to meet future water demand

Phoenix is Well Positioned to Meet Future Water Demand

Forecasted Annual Water Supply and Demand

Acre Feet

100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000

2020 2030 2040 2050 2060 Off Project On Project Intermittent Supply Groundwater Water Demand

Note: For forecast purposes, the intermittent supply is capped at 57,300 acre‐feet even though this supply may be higher in any given year

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Phoenix Water Rights – Additional Sources of Supply

Groundwater

• 16,250 AF in 2013 (29,710 AF projected by 2030)
• 182,000 AF of long‐term storage credits
• 3,699,500 AF of groundwater allowance credits

Reclaimed Wastewater

• 128,000 AF/annum current production
• All reclaimed wastewater is beneficially used

Arizona Water Banking Authority

• Stores unused Colorado River water for times of drought
• 1,600,000 AF in credits available on prorated basis to the City and other

water departments in Phoenix metro area

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Demand Management: Water Use Per Capita Decreasing

100 120 140 160 180 200 220 240 260

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Phoenix Water Use Arizona Water Use Target

Gallons per Capita per Day (GPCD)

2013 Arizona Water Use Target = 218 GPCD

The City’s water use consistently has been below target levels established by the Arizona Department of Water Resources (ADWR)

Calendar Year Source: Preliminary Official Statement page A‐5.

2013 Phoenix Water Use = 165 GPCD

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(in ’000s)

FY 2010 FY 2011 FY 2012 FY 2013 FY 2014* Net Revenues Available for Revenue Bond Debt Service $181,260 $185,824 $228,611 $261,800 $234,516 Junior Lien Debt Service $111,830 $111,832 $97,555 $108,680 $112,957

Junior Lien Debt Service Coverage 1.62x 1.66x 2.34x 2.41x 2.08x

Revenues Available After Junior Lien Debt Service $69,430 $73,992 $131,056 $153,120 $121,559

Available Fund Balance, End of Year $206,822 $188,011 $232,389 $275,366 $228,553

Fund Balance to Debt Service Ratio

1.85x 1.68x 2.38x 2.53x 2.02x

Strong Bondholder Protection

* FY 2014 is preliminary and unaudited.

Significant fund balance allows for mostly Pay‐As‐You‐Go CIP funding and deferred rate increases

Source: Preliminary Official Statement page A‐17.

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Projected Water System Capital Needs

Water CIP (FY 2015‐2020) Water CIP by Funding Source (FY 2015‐2020)

Source: Preliminary Official Statement page A‐16.

Projected Water System CIP for FY 2015‐2020 is $976.8 million

• Current CIP is flexible with 83% funding rehabilitation and replacement
• CIP will be nearly 100% Pay‐As‐You‐Go funded

Operating Funds, $800.8, 82% Commercial Paper, $98.2, 10% Other Sources, $77.8, 8%

($ in millions)

$0.0 $50.0 $100.0 $150.0 $200.0 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

$165.2 $178.6 $131.3 $147.6 $161.4 $192.7

millions

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0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

History of Rate Adjustments Plus Five‐Year Forecast

• History of consistent City Council support for rate increases, when needed
• 3.0% rate increases per year are planned in FY 2016 through FY 2020

Source: Preliminary Official Statement page A‐3 and B‐2.

19 Monthly Water Bill Average Single‐Family (Twenty Largest U.S. Cities)

City’s Water Rates Are Competitive

$0 $20 $40 $60 $80 $100

$37.75

Source: City of Phoenix, as of March 2014.

The City’s water rates compare favorably to other large, urban water systems

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(in ’000s)

FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Net Revenues Available for Revenue Bond Debt Service $222,796 $238,471 $249,241 $261,957 $277,240 Junior Lien Debt Service $107,558 $100,926 $111,547 $114,362 $117,400

Junior Lien Debt Service Coverage 2.07x 2.36x 2.23x 2.29x 2.36x

Revenues Available After Junior Lien Debt Service $115,238 $137,545 $137,694 $147,595 $159,840

Available Fund Balance (FYE) $155,008 $116,313 $125,467 $135,659 $138,558

Fund Balance to Debt Service Ratio

1.44x 1.15x 1.12x 1.19x 1.18x

Five‐Year Financial Forecast

Source: Preliminary Official Statement page B‐2.

Projected Net Operating Revenues provide strong debt service coverage

• Over the forecast period, the City targets Junior Lien Debt Service Coverage of at least

2.0x and a Fund Balance to Debt Service Ratio of at least 1.0x

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Water System Debt

• No Senior Lien debt currently outstanding
• 2014A Bonds will redeem all outstanding Commercial Paper
• No long‐term variable rate debt or derivative products
• No new money Revenue Bonds projected for next 5 years

Outstanding System Obligations

Source: Preliminary Official Statement pages A‐13, A‐14 and A‐15. As of November 1, 2014.

Senior Lien $ Junior Lien 1,230,515,611 CP (3rd Lien) 175,000,000 Total Obligations $ 1,405,515,611 Senior Lien $ Junior Lien 1,343,675,611 CP (3rd Lien) Total Obligations $ 1,343,675,611 Before Issuance of 2014A & 2014B Bonds After Issuance of 2014A & 2014B Bonds

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Projected Water System Debt Service

$0 $20 $40 $60 $80 $100 $120 $140

2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043

millions

Outstanding Jr. Lien Debt Service* Series 2014A Debt Service Series 2014B Debt Service

* Excludes the 2003 Bonds, 2005 Bonds and CP proposed to be refunded by the Series 2014 Bonds.

The Water System’s debt service is relatively front‐loaded

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• Essential service in large vibrant metropolitan area
• Abundant supply and distribution, no unmet regulatory mandates
• Diversified customer base – top 10 customers equal only 8.10% of

FY 2014 revenues

• Water rates are low compared to other cities
• Current CIP is rehabilitation focused and nearly 100% cash funded,

with no near‐term plans for new money Revenue Bonds

• Strong FY 2014 days cash on hand of 503 days
• Significant fund balance – FY 2014 fund balance is 2.02x debt

service

• Strong debt service coverage:
• FY 2014 Junior Lien debt service coverage – 2.08x
• Forecast Coverage ranges from 2.07x – 2.36x (FY 2015 ‐ 2019)

Water System Highlights

* FY 2014 data is preliminary and unaudited.

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Series 2014A&B Bonds Timeline

Holiday Key Date

NOVEMBER DECEMBER

S M T W T F S S M T W T F S 1 1 2 3 4 5 6 2 3 4 5 6 7 8 7 8 9 10 11 12 13 9 10 11 12 13 14 15 14 15 16 17 18 19 20 16 17 18 19 20 21 22 21 22 23 24 25 26 27 23 24 25 26 27 28 29 28 29 30 31 30

November 18: POS Available on Investor Webpage Week of December 1: Bond Pricing December 17: Closing

Note: Timeline is preliminary and subject to change.

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Phoenix Investor Information Website

http://phoenix.gov/finance/investor

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Contact Information

City of Phoenix Kathleen Gitkin (602) 262‐7166 kathleen.gitkin@phoenix.gov Financial Advisor – Frasca & Associates, LLC Kenneth Cushine (212) 355‐4050 kcushine@frascallc.com Senior Manager & Bookrunner – Bank of America Merrill Lynch Jeffrey Bower (213) 345‐9580 jeffrey.bower@baml.com