Agenda Packets - 1983/10/24 - Laserfiche WebLink

Home Browse Search

Mr. Donald F. Pauley Mr. Donald llrager t 14 October 1983 Page 2 into three batches representing the various dates in which these bond issues mature or have interest payments. In reality, at the time a defeasance might be undertaken, a single escrow account attempting to specify the securities will result in a more efficient cash flow. By efficiency we mean retaining the lowest balance at any given time. You will notice that on principal payment dates file balance is extremely small, but on the semiannual interest payment dates the balance is increased significantly because of the yield from the securities. These balances can be invested as they accrue which will result in even greater earnings to the City. In order to accomplish a true defeasonce the investment income from those surplus balances cannot be included because they are not assured. We have taken the position that in order to have a true defeasance of the five bond issues, and to free up any surplus moneys in that fund, the cash flow of the escrow account must always retain a positive balance and that calculation must be demonstrated at the time the defeasance takes place. This may seem somewhat conservative but in our opinion this would be the only way the City could justify the closing of the debt service fund. Another factor to be considered in the evaluation of a defeasance is the timing of the transaction. We have assumed a settlement date of November I, 1983. This may appear rapid, however if the City wishes to proceed with the , defeasance and the money is available to acquire the securities, we recommend proceeding as rapidly as possible. As stated previously there are 43 separate securities that we have identified for this transaction. Some of those securities may not be available at the prices quoted because of market changes, and some substitutions may be required. The transactions are such that wherever possible we pinpoint the principal amount as closely as is feasible. In some instances we have used securities which can be acquired in $1,000 denominations. In other instances the minimum security amount must be in $5,000 or $10,000 denomin- ations. It is because of this fine tuning that more purchases are required. The other factor is the requirement of acquiring accrued interest. Again the accrued interest is calculated to November I. If the transaction takes place later than that there will be a greater amount of accrued interest. You will also notice that the ending cash balance in each of the three schedules is zero. This is because we have fine tuned it to a level of $1,000. Included in each of these groupings is also an amount called "beginning cash in escrow." We have fine tuned the cash flow to a point where because the securities must be acquired in $1,000 denominations or greater a small amount of cash will also be placed in the escrow account along with the principal of the securities purchased. That totals less than $1,000 for the combined amounts. To summarize the defeasance, theJoJ9lJnveS1PJMLre uireq�u LL� �.u+W account, based upon the assumpJgns hown f$_$2,59 3AI,33, It therefore appears a an mvesiment in the neighborhood of $2,600,000 can accomplish a defeasance of those five bond issues which have a current principal outstanding balance of $3,250,000. This will free up approximately $850,000 of excess money in the Improvement Bond fund. In addition the City will then be in a position to concel all remaining tax levies for those five bond issues. There are