HomeMy WebLinkAboutRPT 5 BOND REDEMPTION 6-18-84I~TE:
June 13, 1984
REPORTS
NO. 5
Inter-Corn
SUBJECT:
Bill Huston, City ~r
Ron Nault, Finance D~
Park and Civic Center Bond Redemption Options
BACKGROUND
Civic Center Park
Date Issued 04-01-73 10-01-71
Size $950,000 $1,200,000
Bonds/Denomination 190/$5,000 240/$5,000
Date Matures 04-01-98 04-01-91
Current Interest Rate 5.25% 5.25%
First Call Date 04-01-88 04-01-85
Call Premium 0.5% max. 5% 0.5% no max.
DISCUSSION
The City Council has discussed the possibility of redeeming the outstanding
general obligation bonds when the legal opportunity arises. The goal being to
utilize the available fund balance in each fund to reduce the debt burden to the
taxpayer.
I have gone over the alternatives with our bond financial consultants at Battle
Wells & Associates, and bond market brokers, and developed the following four
actions that can be taken.
CALL/REDEMPTION
As of 4-88 the principal balance of the Civic Center Bonds will be $580,000 and
interest rates varying from 5.4% - 5.6%. A call premium of 0.5% for each year
remaining in the original issues at the time the call provision is exercised,
not to exceed 5% (10 years remaining x 0.5% = 5%). If all bonds are not
redeemed at one time they must be called in inverse order, Bond No. 190 first,
etc. It is estimated that with the available fund balance as of 4-88
approximately 30% or 57 of the total 190 bonds could be redeemed.
As of 4-85 the principal balance of the Park Bonds will be $575,000 and interest
rates will vary from 5.4% to 5.7%. A call premium of 0.5% for each year
remaining in the original issue at the time the call provision is exercised. (6
years remaining x 0.5% = 3%). If all bonds not redeemed at one time they must
be called in inverse order, Bond No. 240 first, etc. It is estimated that with
available fund balance as of 4-85 approximately 53% or 137 of the total 240
bonds could be redeemed.
Bill Huston, City M~nager
3une 13, 1984
Park and Civic Center Bond Redemption Options
page 2.
PURCHASE BONDS ON OPEN MARKET
Based on current alternative bond yields, our outstanding bonds are probably
worth about 60% of par or 60 cents on the dollar. Using available records from
our paying agent we could issue buy orders through a broker (they are willing to
work in $100,000+ increments), who will contact known bond holders, and tender a
buy offer. Some 90% (216) of the Park Bonds could be purchased with available
fund balances and some 57% (108) of the Civic Center Bonds coul~ be purchased
with available fund balances.
Open market purchases would maximize the use of available resources and give the
bond holder an opportunity to recover principal and then some by buying current
issues at significantly higher yields.
USE OF FUND BALANCES TO REDUCE
ANNUAL TAX REVENUES
We have utilized this option in the past. This method simply reduces each
years' tax revenue needed for debt service by a portion of the available fund
balance. This reduces the tax rate in any year it is used.
USE OF FUND BALANCES FOR ADDITIONAL
CAPITAL IMPROVEMENTS
At the time of final maturity any fund balances in the debt service funds are
automatically transferred to the General Fund. The status quo could be
maintained in the existing bond funds, and at the time of final maturity all
fund balances could be transferred to the General Fund designated for Capital
Improvements.
RECO~,~ENDATION
Priority:
1. Purchase bonds in open market
2. Use fund balance to reduce tax effort
3. Status quo, fund balance designated for Capital Improvements
4. Redeem bonds
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