Unique Characteristics of Project: The bond restructurings were executed during a time of significant challenges, including swap/variable rate bond risk, credit rating pressure, and Prop 218 litigation causing financial hardships and uncertainty for the City.
Executive Summary: NHA was hired by the City of Oxnard in 2017 to provide comprehensive consulting services and manage the City’s $500+ million debt portfolio. Over the prior 5 years, the City and both enterprise systems had faced significant financial challenges, primarily caused by (1) drought related revenue reductions; (2) a voter led Prop. 218 litigation initiative; (3) an inability to raise rates due to political challenges; and (4) significant staff turnover at the executive levels. In addition to these challenges, the City had more than $18 million in outstanding variable-rate wastewater and general fund bond debt that was accruing significant increases in Letter of Credit (LOC) fees with a lack of banks available to provide a renewal. In addition, a swap tied to the City’s 2004B wastewater bond issue and $27.8 million lease bond issue had been outstanding, with a termination value of $6.5 million. This variable rate/swap/LOC risk, under 1x coverage for both utilities in multiple years, combined with the other challenges above led to several rating downgrades and a negative credit outlook for the sewer enterprise. NHA helped negotiate a new LOC for both variable rate issues, working closely with the prior LOC bank to execute several extensions to assist with this short-term solution. Once the new LOC was locked in and the Prop. 218 litigation settled, NHA turned its attention to the City’s credit rating.
NHA helped prepare a comprehensive rating presentation for the City’s general fund and for the water and wastewater funds. The credit strategy focused on a new 5-year rate increase package that was approved by council, as well as a plan to address a worst-case potential Measure M litigation payment of $8 million. Throughout this process, the City’s wastewater rating was unchanged, but its outlook was raised from negative to positive. This stabilization, combined with a comprehensive clean-up of the City’s historical continuing disclosure compliance and implementation of new continuing disclosure compliance procedures, assisted NHA to help bring several restructurings to the marketplace after years of challenges for the City accessing the municipal market.
NHA also helped the City execute a $24.6 million wastewater refunding (refunding of 2004B and 2006 wastewater bonds), which also terminated the swap and put all the City’s debt into fixed rate mode. In addition, NHA helped the City execute a $40.4 million refunding of its 2006 water bonds. The City obtained a two-notch rating upgrade from “BBB” to “A-” for the sewer bonds and was able to obtain extremely aggressive bond insurance bids.