Estimated; Reflects UAL and new bond debt service at time of closing. Assumes annual CalPERS returns of 7% in future.
Unique Characteristics of Project: NHA helped the District structure a privately placed loan at a 3.36% taxable interest rate that was secured by net revenues of the District’s water and wastewater systems. The proceeds were used to pay off approximately 55% of the District’s UAL, with the new payments creatively structured to “smooth” out the District’s overall debt/pension repayment shape.
Executive Summary: NHA made several presentations to the District’s board related to CalPERS pension cost trends and various tools that could be used to address these rising costs. Ultimately, NHA helped the District achieve all of their stated objectives, including: (1) reducing the interest rate paid on pension debt to potentially create present value savings and maximize overall cash flow savings to the District and ratepayers; (2) creating a “smoother” and more predictable payment shape to minimize impact on rate payers, improve budget predictability, and enhance future fiscal sustainability; (3) amortizing the new loan over a period of 20 years or less; (4) increasing the funding level of the pension plan from 74% to between 85%-90%; (5) minimizing the loan/debt size to the extent above objectives can be met.
The loan was placed with a bank at a very aggressive 3.36% taxable rate, with estimated savings of over $2.5 million, 32% of refunded Unfunded Accrued Liability (UAL) on a present value basis. The loan was sized to strategically take-out one of the CalPERS UAL amortization bases that was contributing to the District’s peak in payments, with nothing extra paid off in order to mitigate the amount of reinvestment/market risk. The funding status of the plan was expected to increase to 90%, with rate management and budget predictability greatly enhanced for the benefit of the District and its ratepayers.