DEPARTMENT: Finance
DEPARTMENT HEAD: Troy Elliott
COUNCIL DISTRICT(S) IMPACTED: City Wide
SUBJECT:
Financial Matters pertaining to CPS Energy
SUMMARY:
CPS Energy requests City Council approval of the following:
A. An Ordinance authorizing the a) issuance of the City of San Antonio, Texas Electric and Gas Systems New Money Bonds, Series 2014 ("New Money Bonds"), in a principal amount not to exceed $200 million, and other financial matters as necessary and b) distribution of an Official Statement relating to the New Money Bonds.
B. An Ordinance authorizing the a) issuance of the City of San Antonio, Texas Electric and Gas Systems Revenue Refunding Bonds, New Series 2014 ("Refunding Bonds"), in a principal amount not to exceed $300 million, and other financial matters as necessary to refund certain maturities of the City of San Antonio, Texas Electric and Gas Systems Revenue Refunding Bonds, New Series 2005 ("Refunded Obligations") for debt service savings and b) distribution of an Official Statement relating to the Refunding Bonds.
The respective Ordinances authorizing issuance of the New Money Bonds and Refunding Bonds, includes a delegation of authority by the San Antonio City Council to CPS Energy's Designated Financial Officers, defined in the Ordinance to include the President and Chief Executive Officer ("CEO") and the Executive Vice President, Chief Financial Officer, and Treasurer of CPS Energy ("CFO"), to be exercised by either of such parties, to issue and set pricing of the Refunding Bonds and New Money Bonds, as permitted by Chapters 1207 and 1371, as amended, Texas Government Code, respectively, and to undertake necessary matters relating to the foregoing.
BACKGROUND INFORMATION:
CPS Energy issues bonds periodically to finance new capital construction and capital improvement projects and/or to refinance, defease, or restructure outstanding debt. CPS Energy has a Debt Management Plan (the "Plan") providing guidelines under which financing and debt transactions are managed. The Plan focuses on providing financial tools to lower debt service cost on outstanding debt, utilizing alternative financing methods to capitalize on present market conditions, outlining an optimal capital structure, and maintaining favorable financial ratios. The proposed issuance of the New Money Bonds will provide additional needed capital, while realizing significant debt service savings from the Refunding Bonds. These results are consistent with the Plan, and its on-going review and use of financing, refunding, and cash defeasance to decrease and/or manage debt service requirements.
New Money Bonds: The Ordinance pertaining to the issuance of the New Money Bonds authorizes CPS Energy to issue debt not to exceed $200 million to continue financing construction work in progress and take advantage of the tax-exempt market's currently low cost of long-term borrowing, to pay related costs and expenses, and to distribute an offering document with respect thereto. This proposed New Money Bond issuance was included in the recent rate case. The New Money Bond issuance supports an approximate $530 million capital program that includes multiple projects. Some of the projects, as highlighted during the rate adjustment process, include:
· Installation of mesh communications networks & broad deployment of automated meters (commonly referred to as Grid Optimization)
· Transmission line upgrades
· Standard aging pole replacements
· Aging underground cable replacement/injection
Refunding Bonds: The Ordinance pertaining to the Refunding Bonds authorizes CPS Energy to issue debt not to exceed $300 million to refund the Refunded Obligations, and to pay related costs and expenses, and to distribute an offering document with respect thereto. Additionally, CPS Energy is requesting the flexibility to perform either a forward or current refunding of the Refunded Obligations based on market conditions. The Ordinance provides that CPS Energy will deposit certain Refunding Bond proceeds and cash with the Escrow Agent, portions of which will be used to purchase noncallable obligations of the United States Government, and/or noncallable obligations of an agency or instrumentality of the United States Government, in the amount necessary to effectuate a legal defeasance of the Refunded Obligations. Such cash and investments will be held by the Escrow Agent in a fund irrevocably pledged to the payment of the principal of and interest on the Refunded Obligations. This refunding transaction is anticipated to generate an estimated $28 - $31 million**, or approximately 10.83%** average net present value debt service savings. The overall debt service savings generated are subject to the market conditions at pricing and could vary.
TRANSACTION SCHEDULE:
New Money Bonds
Date Transaction
6/3/2014* Price and Sell New Money Bonds
7/3/2014* Close New Money Bonds
Refunding Bonds
Date Transaction
October 2014* Price and Sell Refunding Bonds
November 2014* Close Refunding Bonds
* The date may change, as needed to effectuate the actual completion of these transactions.
** Market Data at April 8, 2014
ISSUE:
CPS Energy requests approval of an ordinance authorizing the issuance of debt not to exceed $200 million to continue financing construction work in progress and take advantage of the tax-exempt market's currently low cost of long-term borrowing. In addition, due to current market conditions, CPS Energy requests approval of an ordinance authorizing the issuance of debt not to exceed $300 million to refund the Refunded Obligations projected to generate an estimated $28 - $31 million average net present value debt service savings.
ALTERNATIVES:
CPS Energy could wait and refund the Refunded Obligations sometime in the future. However, with tax-exempt interest rates at all-time lows, it is prudent and advisable to refund them in today's market to lock in significant debt service savings for the CPS Energy rate payers.
FISCAL IMPACT:
Debt service on the bonds is paid from the revenues of CPS Energy. The Refunding Bonds will be issued for debt service savings and the debt service payments on the New Money Bonds were included in CPS Energy's most recent rate request to the City Council.
RECOMMENDATION:
On April 28, 2014, the CPS Energy Board of Trustees, by resolution, authorized CPS Energy to proceed with these transactions and request their adoption by the City Council. City staff recommends approval of the proposed ordinances authorizing the issuance of the New Money Bonds and the Refunding Bonds pursuant to a delegated authority.