special workshop presentation on finance

1200 Fifth Avenue, Suite 1220Seattle, WA 98101

(360) 445-0238

September 30, 2015

City of Oak HarborClean Water Facility ProjectWastewater Treatment Plant

Overview

I. Project Overview

II. Financing Plan Considerations

III. Interest Rate Overview

IV. Financing Options

2

3

• The City of Oak Harbor is in the early stages of design, financing and construction of a new wastewater treatment plant, the “Clean Water Facility Project” or the Project, near Windjammer Park

• The City expects to fund the Project through a combination of State revolving fund (SRF) loans, cash, grants, and bond proceeds

• The construction draw schedule anticipates the majority (approximately 65% or $50 million) of project funding needs in late 2017/early 2018, during the main stage of construction

Financing Plan Considerations

• Total project costs are estimated between $90 and $110 million

• The City was awarded SRF loans for $11.46 million in 2015 and $15.0 million in 2016, and it will seek an additional SRF loan in 2017 for $15.0 million

2015 2016 2017 2018$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

Estimated Annual Capital Expenditures

4

• The City expects to issue bonds in an approximate amount of $45 million to $75 million, depending on several factors and considerations

− The City is a leading candidate to receive future SRF loans, which offer low 20-year interest loans

− Design of the project is currently at 60%, with significant uncertainty regarding total project cost

− Site conditions or permitting may create project delays, which may add costs

• Interest rates are near historical lows, though market participants expect they will go up in 2016

While market participants have expected rates to increase each of the past five years, interest rates have generally remained in a range of historical lows


5

• Ideally, the City would like to avoid “over-borrowing” or “under-borrowing”

• Over-borrowing:• Project costs are lower than anticipated• City is awarded additional SRF loans and/or grants• Would result in excess project funding• Bonds may be structured to accommodate partial redemption with excess project funds

• Under-borrowing:• Project costs are greater than anticipated• City does not receive expected SRF loans or grants• City would require additional funding, likely in the form of additional bonds• Bonds would need be issued in a future, uncertain market environment


Interest Rate Overview

6 (1) The Municipal Market Data “MMD” is a daily index that is used as a market benchmark for tax-exempt rates

(2) Source: Bloomberg forecast interest rates represent the average of interest rate forecasts of approximately 85 financial institutions as of August 31, 2015

• FOMC meetings are highly correlated with interest rate forecasts (next meeting 10/27)

• During the most recent meeting, the Fed left its benchmark rate at current levels

• Demand for municipal bonds is high

• Rates have been forecasted to increase for each of the past four years

Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 160.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%Bloomberg Interest Rate Forecast(2)

Central Bank Rate 3-Month Libor 2-Year US Treasury Note 10-Year US Treasury Note

% Y

ield

Today

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 300.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%Municipal Market Data (MMD) "AA" Revenue Yield Curve1

Present (9/24/2015)3-months ago1-year ago2-years ago

Maturities

% Y

ield

s

7

• PFM has estimated the size of the prospective 2015-2016 bond issue in connection with the WWTP project

• Common assumptions:• Large bond issue in late 2015/early 2016; size dependent on total project cost• Smaller bond issue in 2017, which may be an SRF loan if the City qualifies• Additional project funding composed of cash, $7.5 million State grants, and awarded SRF

loans

• Scenario 1: $90 million total project cost• $36 million bond issue in late 2015/early 2016• $12 million bond issue in 2017

• Scenario 2: $98 million total project cost

• $40 million bond issue in late 2015/early 2016

• $15 million bond issue in 2017

• Scenario 3: $110 million total project cost

• $53.5 million bond issue in late 2015/early 2016

• $15 million bond issue in 2017

Financing Options

8

Scenario 1: • $90 million total project cost• $36 million bond issue in late

2015/early 2016• $12 million bond issue in 2017

Debt Service

Scenario 1 - $90 Million Total Project Costs

2015/2016 Bonds 2017 Bonds

Year SRF Debt Service Bond Debt Service Bond Debt ServiceAggregate Debt

Service2015 - -2016 - $1,475,363 $1,475,3632017 - 1,857,100 1,857,1002018 $1,626,686 1,927,100 $986,950 4,540,7362019 1,626,686 1,930,000 983,250 4,539,9362020 1,626,686 1,932,750 984,450 4,543,8862021 1,626,686 1,930,350 985,950 4,542,9862022 1,626,686 1,927,150 987,000 4,540,8362023 1,626,686 1,933,950 982,600 4,543,2362024 1,626,686 1,930,350 983,000 4,540,0362025 1,626,686 1,926,750 987,600 4,541,0362026 1,626,686 1,927,250 986,200 4,540,1362027 1,626,686 1,932,500 984,000 4,543,1862028 1,626,686 1,932,250 985,250 4,544,1862029 1,626,686 1,931,750 985,000 4,543,4362030 1,626,686 1,931,000 983,250 4,540,9362031 1,626,686 1,930,000 985,000 4,541,6862032 1,626,686 1,928,750 985,000 4,540,4362033 1,626,686 1,932,250 983,250 4,542,1862034 1,626,686 1,930,250 984,750 4,541,6862035 1,626,686 1,933,000 984,250 4,543,9362036 1,626,686 1,930,250 986,750 4,543,6862037 1,626,686 1,927,250 987,000 4,540,9362038 - 4,544,000 - 4,544,0002039 - 4,544,500 - 4,544,5002040 - 4,543,000 - 4,543,0002041 - 4,544,250 - 4,544,2502042 - 4,542,750 - 4,542,7502043 - 4,543,250 - 4,543,2502044 - 4,540,250 - 4,540,2502045 - 4,543,500 - 4,543,5002046 - 4,542,250 - 4,542,2502047 - 4,541,250 - 4,541,250

$32,533,713 $87,366,363 $19,700,500 $139,600,575

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

2037

2039

2041

2043

2045

2047

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

SRF Debt Service 2015/2016 Bond Principal2015/2016 Bond Interest 2017 Bond Principal2017 Bond Interest

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Scenario 2: • $98 million total project cost• $40 million bond issue in late


Debt Service

Scenario 2 - $98 Million Total Project Costs

2015/2016 Bonds 2017 Bonds


Service2015 - -2016 - $1,637,032 $1,637,0322017 - 2,060,600 2,060,6002018 $1,626,686 2,150,600 $1,228,500 5,005,7862019 1,626,686 2,152,900 1,227,700 5,007,2862020 1,626,686 2,155,050 1,226,700 5,008,4362021 1,626,686 2,152,050 1,229,900 5,008,6362022 1,626,686 2,153,050 1,227,500 5,007,2362023 1,626,686 2,148,850 1,229,650 5,005,1862024 1,626,686 2,149,650 1,230,050 5,006,3862025 1,626,686 2,150,250 1,229,450 5,006,3862026 1,626,686 2,149,500 1,227,850 5,004,0362027 1,626,686 2,148,500 1,230,250 5,005,4362028 1,626,686 2,152,250 1,229,250 5,008,1862029 1,626,686 2,150,500 1,226,500 5,003,6862030 1,626,686 2,153,500 1,227,000 5,007,1862031 1,626,686 2,151,000 1,230,500 5,008,1862032 1,626,686 2,153,250 1,226,750 5,006,6862033 1,626,686 2,150,000 1,231,000 5,007,6862034 1,626,686 2,151,500 1,227,750 5,005,9362035 1,626,686 2,152,500 1,227,250 5,006,4362036 1,626,686 2,148,000 1,229,250 5,003,9362037 1,626,686 2,148,250 1,228,500 5,003,4362038 - 5,008,000 - 5,008,0002039 - 5,004,250 - 5,004,2502040 - 5,008,000 - 5,008,0002041 - 5,008,500 - 5,008,5002042 - 5,005,500 - 5,005,5002043 - 5,003,750 - 5,003,7502044 - 5,007,750 - 5,007,7502045 - 5,006,750 - 5,006,7502046 - 5,005,500 - 5,005,5002047 - 5,008,500 - 5,008,500

$32,533,713 $96,785,282 $24,571,300 $153,890,295

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

2037

2039

2041

2043

2045

2047

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000


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Scenario 3: • $110 million total project cost• $53.5 million bond issue in late


Debt Service

Scenario 3 - $110 Million Total Project Costs 2015/2016 Bonds 2017 Bonds


Service2015 - -2016 - $2,157,632 $2,157,6322017 - 2,715,900 2,715,9002018 $1,626,686 3,030,900 $1,228,500 5,886,0862019 1,626,686 3,031,450 1,227,700 5,885,8362020 1,626,686 3,031,700 1,226,700 5,885,0862021 1,626,686 3,031,650 1,229,900 5,888,2362022 1,626,686 3,032,850 1,227,500 5,887,0362023 1,626,686 3,028,450 1,229,650 5,884,7862024 1,626,686 3,028,650 1,230,050 5,885,3862025 1,626,686 3,028,250 1,229,450 5,884,3862026 1,626,686 3,033,250 1,227,850 5,887,7862027 1,626,686 3,027,000 1,230,250 5,883,9362028 1,626,686 3,030,000 1,229,250 5,885,9362029 1,626,686 3,031,750 1,226,500 5,884,9362030 1,626,686 3,032,250 1,227,000 5,885,9362031 1,626,686 3,026,500 1,230,500 5,883,6862032 1,626,686 3,034,750 1,226,750 5,888,1862033 1,626,686 3,026,250 1,231,000 5,883,9362034 1,626,686 3,031,750 1,227,750 5,886,1862035 1,626,686 3,030,500 1,227,250 5,884,4362036 1,626,686 3,027,750 1,229,250 5,883,6862037 1,626,686 3,028,500 1,228,500 5,883,6862038 - 5,887,500 - 5,887,5002039 - 5,886,750 - 5,886,7502040 - 5,887,000 - 5,887,0002041 - 5,887,750 - 5,887,7502042 - 5,883,500 - 5,883,5002043 - 5,884,000 - 5,884,0002044 - 5,883,500 - 5,883,5002045 - 5,886,500 - 5,886,5002046 - 5,887,250 - 5,887,2502047 - 5,885,250 - 5,885,250

$32,533,713 $124,336,682 $24,571,300 $181,441,694

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

2037

2039

2041

2043

2045

2047

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000


Conclusion

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• Bonds could be issued as early as December 2015

• The size of the near-term bond issue may depend on total project costs

• Total debt service may vary between approximately $4.5 to $5.8 million, depending on total project costs

• The City may secure up to $15 million of future SRF loans to further reduce costs

• Goal may be to under-size the bond issue, to avoid excess bond proceeds

• The City can access short term (interim) financing at rates below 0.75%, if needed

• The Council will be asked to:• approve a Bond Ordinance to authorize financing• approve a schedule of rate increases to support financing

special workshop presentation on finance

Government & Nonprofit