Department of Finance Debt Policy and Debt Profile
Department of Finance Debt Policy and Debt Profile Overview Finance Committee/City Council August 9, 2010
Purpose Department of Finance • Establish parameters for issuing and managing debt • Provide information to decision makers related to debt legal requirements and affordability standards • Establish objectives to be achieved • Promote objectivity in the decision making process • Facilitate the actual financing process by establishing important policy decisions in 2 advance
Legal Requirements Department of Finance • State Law Authorizes the issuance of debt • Federal and State Laws Govern the eligibility for tax exempt status • Federal and State Securities Laws Govern disclosure, sale and trading of the debt 3
Current City Credit Ratings Department of Finance • Current Underlying ratings (GO rating) - S&P AAA - Fitch AAA • Maintenance of high credit rating minimizes cost of borrowing 4
Types of Debt Department of Finance • GO Bonds • Utility Revenue Bonds • Certificates of Participation • Tax Allocation Bonds • Special District Tax Bonds • Special Assessment Bonds 5
Types of Debt (continued) Department of Finance • Joint Venture Arrangements • TRAN • • Lines and Letters of Credit Bond Anticipation Notes • Tax Exempt Commercial Paper • Housing Revenue Bonds 6
Methods of Sale Department of Finance • Negotiated • Competitive – Utility Revenue Bonds • Private Placement 7
Selection of the Financing Team Department of Finance • Bond Counsel • Underwriter’s Counsel • Financial Advisor • Trustee and Paying Agent • Underwriter(s) • Other Service Providers 8
Refundings Department of Finance • Current Refunding • Advance Refunding • Restructuring of Debt 9
Credit Enhancement and Derivatives Department of Finance • Letters of Credit • Bond Insurance • Surety Bonds • Interest Rate Swaps • Derivatives Policy 10
Basic Legal Documents Department of Finance • Authorizing Resolution • Indenture • Official Statement • Bond Purchase Agreement • Continuing Disclosure Agreement • Tax Certificate 11
Department of Finance Pasadena Debt Profile 12
Total Debt Department of Finance (in millions) General Fund Debt $477. 68 Electric Revenue Bonds 155. 50 Water Revenue Bonds 57. 14 Tax Allocation Bonds Total $696. 72 13 6. 40
Summary of Outstanding General Fund Debt Department of Finance 14
Statistics for Comparable California Cities Department of Finance (As of 2009 Fiscal Year End) (1) (2) Excludes notes/loans payable, line-of-credits, capital leases, compensated absences, etc. Pasadena Non-Self-Supporting Debt figure excludes Pension Obligations as they are considered Self-Supporting until 2014 15 Source: 2009 Comprehensive Annual Financial Reports, Budgets and Cities’ websites
Financial Management Assessment Department of Finance 16
City of Pasadena Credit Strengths Department of Finance • Strong general fund balances and reserve levels • Diverse revenues Moderate debt levels Conservative financial management policies Regional employment center Major destination for retail, tourism and entertainment No significant other post-employment benefit liabilities • • • 17
City of Pasadena Credit Challenges Department of Finance • Projected debt levels may deteriorate credit profile > Total debt per capita is already high relative to peers although adequate if self-supported debt is excluded • Continued soft local residential property market • Maintain balanced budgets and strong reserves during slow economic environment 18
Debt Capacity Conclusions Department of Finance • Based on staff and financial advisor’s analysis, it is estimated that Pasadena’s debt capacity is approximately $75 -100 million if the City wishes to maintain its AAA ratings from two rating agencies. 19
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