Boardwalk concept for California Public Finance

California Case Study 02

City of South Gate
Water Utility

In early 2019, Columbia began working with the City of South Gate, California on a potential refunding of the City’s Utility Authority’s Series 2012 Water Revenue Bonds. The Series 2012 Bonds had a term bond that would be currently callable in October 2019, and serial bonds that would be callable in October 2022. Due to the elimination of tax-exempt advance refundings as part of the Tax Cut and Jobs Act of 2017, only the term bond would be eligible to be refunded on a tax-exempt basis in 2018.

As Columbia worked with the City and the Authority on the refunding through the summer of 2019, fixed income markets rallied, and interest rates approached historical lows. By the time the current refunding window approached, the portion of the Series 2012 Bonds that would require a taxable advance refunding were candidates to be refunded for economic savings.

Columbia worked with the City and the Authority to draft an RFP for underwriter, and the team included a question to evaluate the taxable advanced refunding. Respondents were unanimous that these bonds could be refunded for economic savings. Raymond James was chosen as the underwriter for the transaction.

At that time the City and the Authority decided to move forward with two series of bonds, a tax-exempt current refunding and a taxable advance refunding. This allowed for the closure of the existing lien, and the ability to issue the refunding bonds on a senior lien basis. The Authority would also be able to restructure the debt to provide overall level debt service going forward.

Throughout this process, Columbia spent considerable time working with City and Authority staff to understand the historical transactions of the Authority, the current state of the Authority, and how the refunding transaction would impact the future operations. Columbia worked with the underwriter to create and evaluate multiple structuring scenarios before agreeing on the final structure.

The Bonds were priced via negotiated sale on December 5, 2019. The underwriter had unsold balances in a few maturities, but that was mainly due to the small block sizes being offered. At the re-price, the underwriter was able to tighten spreads to improve the refunding savings.

Overall, the transaction generated net present value savings of $3.027 million, or 9.25% of refunded par. In addition to the savings, the restructure resulted in overall level debt service for the Authority and a shortening of the amortization by two years to fiscal year 2036.