City of Tukwila, Washington Limited Tax General Obligation Bonds, 2015 April 20, 2015 Presented by: Duncan Brown, Senior Managing Consultant Public Financial Management, Inc. (206) 858 5367 brownd@pfm.com
Overview of Topics 1) Completed Milestones 2) Sale Process and Market Update 3) Sale Results
Completed Milestones • City Council passed Bond Ordinance on March 16 th – Included delegation of authority to City finance director with respect to Bond sale – Included parameters limiting bond size, interest rate, final maturity, etc. • Obtained favorable credit rating – “AA” by Standard and Poor’s • City staff, in consultation with PFM, established method of sale – City’s first competitive sale • Finalized Preliminary Official Statement (“POS”) and distributed to prospective investment banks (underwriters) and investors On Tuesday, April 14 th , the City sold the Bonds by competitive sale • – PFM verified the bids for mathematical accuracy and compliance with bid parameters – After awarding the Bonds to the winning bidder, PFM made minor adjustments to the Bonds to ensure substantially equal annual debt service payments • Finalizing Official Statement • Bonds expected to close Tuesday, April 28 th (receipt of funds) 2
Methods of Bond Sale There are 3 different primary methods of selling bonds: competitive, negotiated, and direct placement: • In a competitive sale , the City selects an underwriter (or syndicate of underwriters) through a sealed-bid process on the day of sale – City receives bids from underwriters throughout the country – Bonds are awarded to the bidder offering the lowest True Interest Cost (“TIC”) – In general, competitive sales are better suited for strong, well-understood credits, with simple bond structures, and relatively stable market conditions – Strong nationwide demand for highly-rated bonds – bids may vary by as much as 0.30% • In a negotiated sale , the City selects an underwriter (or syndicate of underwriters) in advance of the bond sale – Negotiates interest rates with underwriter on the day of sale – Underwriter may be involved in bond structure and marketing strategy in advance of the sale – Better suited for unusual credit types, complex bond structures, and/or volatile market conditions • In a direct placement , the City sells bonds directly to a single investor, typically a commercial bank or other financial institution – Utilized by the City for its December 2014 Tukwila International Boulevard financings 3
Interest Rate Environment The chart below shows the MMD “AAA” General Obligation Index (the industry standard tax- exempt index) at various points over the last six months. The City benefitted from lower interest rates: rates declined by 0.2% to 0.3% between March and April. 3.00% 1 Month Ago Day of Sale 6 Months Ago 2.50% 3 Months Ago 2.00% 1.50% 1.00% 0.50% 0.00% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Day of Sale 4/14/2015 1 Month Ago 3/13/2015 3 Months Ago 1/14/2015 6 Months Ago10/14/2014 4
Summary of Bidders • A total of 8 underwriters registered to Registered Bidders bid on the Bonds in advance of the Wells Fargo Bank sale FTN Financial Capital Markets • 4 underwriters submitted bids BMO Capital Markets D.A. Davidson & Co. • The winning bid was submitted by Sterne, Agee & Leach, Inc., of Raymond James & Associates, Inc. Birmingham, Alabama Robert W. Baird & Co., Inc. – Determined by lowest “True Interest Cost” or “TIC” (incorporates interest Sterne, Agee & Leach, Inc. rate cost and underwriter compensation) Piper Jaffray • Piper Jaffray submitted the second Bidder Bid (TIC) place bid -- a mere 0.004% behind Sterne, Agee & Leach, Inc. 2.573588% the winner Piper Jaffray 2.577687% • After sizing and adjustments, the Wells Fargo Bank 2.730671% final TIC was 2.548145% Robert W. Baird & Co., Inc. 2.775197% 5
Debt Service Comparison • The second place bid (Piper Jaffray) would have cost the City an estimated additional $2,800 over the life of the Bonds Bonds’ Actual Second Place Bid Estimated Debt Service Est. Debt Service Savings $7,904,182 $7,907,000 $2,818 • The last-place bid (Robert W. Baird & Co.) would have cost the City an estimated additional $140,000 over the life of the Bonds Bonds’ Actual Last Place Bid Estimated Debt Service Est. Debt Service Savings $7,904,182 $8,045,000 $140,818 6
Actual vs. Preliminary and Budgeted Numbers • Average annual debt service on the bonds is $390,000 – over $50,000 less than budgeted in 2015 and 2016 Average Total Debt Annual Debt Service Service Actual $390,000 $7,904,182 Budgeted $448,000 $8,960,000 • The Bonds’ True Interest Cost and debt service also compare favorably to preliminary estimates prior to the sale date Average Total Debt TIC Annual Debt Service Service Actual 2.548145% $390,000 $7,904,182 Preliminary 2.854383% $406,900 $8,138,968 (as of April 1 st ) 7
Contact Information Susan Musselman Director (360) 445-0238 musselmans@pfm.com Duncan Brown Senior Managing Consultant (206) 858-5367 brownd@pfm.com 8
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