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HomeMy WebLinkAboutEDB 4.18.23 CCUA Financing Presentation v5 c. pfm 7, 0 Clay County Utility Authorityre PFM Overview, Market Update & Cash Flow Model April 18, 2023 PFM Financial Advisors LLC 200 South Orange Ave 407.648.2208 Suite 760 pfm.com Orlando, FL 32801 OVERVIEW • Introduction to • Update on Capital Improvement Plan Agenda CASH FLOW MODEL • Goal • Assumptions • Functionality • Financing Options • Recommended plan of Finance • Timeline MARKET UPDATE QUESTIONS © PFM 2 Lo Introduction The Florida Financial Advisory Team to Senior Strategic and Client Management Services: Financial Advisory Practice IJeremy Niedfeldt David Miller Sergio Masv idal Jay Glover Brent Wilder Managing Director Managing Director Managing Director Managing Director Managing Director I Senior Project and Client Support ILaura Howe Hope Scarpinato Julie Santamaria Nicklas Rocca Pete Varona Director Director Director Director SeniorManaging Consultant Analytical and Project Support Mara Lugo Michael Dennis Xiaoyun Li Kirsten Patterson Natalie Aristor Senior Analyst SeniorAnalyst Analyst Analyst Analyst © PFM 4 Clay CountyUtilityAuthority's Capital Improvement Plan • Approximately $325,000,000 over the next 5 years to • Peter's Creek accounts for the bulk of the projects to be financed in FY23 Capital Expenditures by Fiscal Year $140 c 0 $120 $100 $80 $60 $40 $20 $0 2022 2023 2024 2025 2026 2027 © PFM 5 Cash Flow Model Cash Flow Model - Goal • CCUA engaged PFM to develop a cash flow model in February 2023 to • The primary goal of the Cash Flow Model is to assist CCUA Staff with strategic planning and execution of the Capital Improvement Plan by: • Projecting monthly anticipated cash flows and key metrics such as debt service coverage and days cash on hand • Using real time data provided by Staff to project borrowing needs • Analyzing the most efficient and cost-effective borrowing strategies Projected Annual Debt Service Coverage 70 cc C 60 2 50 � di • • . I 40 ■ ■ ■ li i ■ 30 ■ . , ■ ■ . ■ • 20 10 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 Operating Cash Flow(Current Customers) Rate Increase Operating Cash Flow Operating Cash Flow(Future Customers) Capacity Charges -Investment Earnings -Total Debt Service 0 PFM 7 Inputs Capacity/Connection Inputs Cash Flow Model - Assumptions/Flexibility Starting date 4/1/2023 Average Annual Connections over last 5 years 1,070 Average Monthly Connections over last 5 years 89 Beginning Fund Balance' 47,482,816 Total Capacity Charge Per ERC $4,385.71 Operating Cash Flow2 1,350,000 Monthly Service Charge per new Connection $100.00 Operating Cash Flow Growth 3.00% Scenario Analysis Recession • The model has several important, fully flexible assumptions Base Available Cash Threshold 20,000,000 Annual Connections Growth Rate 3.00% Annual Capacity Charge Growth Rate 5.00% to • Beginning Balance Project Cost User input User Input(annual CIP cost) Recession 9/30/2023 50,000,000 Annual Connections Growth Rate 0.00% s of CCUA used as the cash available "startingpoint" 9/30/2024 30,000,000 Annual Capacity Charge Growth Rate 5.00% • Holdings 9/30/2025 30,000,000 9/30/2026 30,000,000 User Input 9/30/2027 30,000,000 Annual Connections Growth Rate • Operating Cash Flow (monthly basis - from current customers) 9/30/2028+ 30,000,000 10/1/2023 3.00% 10/1/2024 3.00% Project Cost Inflation 0.00% 10/1/2025 3.00% 10/1/2026 3.00% • Investment Earnings Investment Earnings 10/1/2027 3.00% 10/1/2022 4.00% 10/1/2028+ 3.00% 10/1/2023 3.50% Annual Capacity Charge Growth Rate • Available Cash Threshold 10/1/2024 3.00% 10/1/2023 80.00% 10/1/2025 2.50% 10/1/2024 3.00% 10/1/2026 2.00% 10/1/2025 3.00% • We don't want available cash to go below X - when we reach X, borrow $ 10/1/2027+ 1.50% 10/1/2026 3.00% 10/1/2027 3.00% Bond,Line of Credit or Loan 'Line of Credit -I 10/1/2028+ 3.00% • Project Cost Annual Rate Increase-Current Customers J Bond Calculate Bond 10/1/2023 8.00% Amount 75,000,000 10/1/2024 5.00% Interest Rate 4.18% 10/1/2025 5.00% • CIP costs projected over several years Term(Years) 30 10/1/2026 5.00% Cost of Issuance($/Bond) $4.50 10/1/2027 3.00% Underwriter's Discount($/Bond) $5.00 10/1/2028+ 3.00% • Capacity/Connection Inputs New Connections Loan Calculate Loan Continue Average New Monthly Connections Until: 10/1/2040 Amount 40,000,000 Interest te • Connection charges (number of connections, $/connection, annual growth) Terrm(Years) 4.002r0 Cost of Issuance($/Bond) $4.50 • Financing Strategies Line of Credit Calculate LOC Total Amount 100,000,000 Draw Increments 25,000,000 • Bond, Line of Credit (LOC) or Bank Loan? Capacity Charge(undrawn portion) 0.25% Interest Rate(drawn amount) 4.50% Interest Only Period 3-yrs Term(Years) 30-yrs Cost of Issuance($/Bond) $3.50 Grant amount per year 1,500,000 © P F M Grant term(years) 50 8 Cash Flow Model -Assumptions/Flexibility (Capital Expenditures) Debt Ser r Current Customers I Future Projected C-u7r111 ustomers Operating Rate perating 0 Cash Flow Increase lash Flow I Beginning (current Operating (future apacity vestment Total Cash Proj rincipal Interest Debt otal Debt otal Capital Date Balance customers) Cash Flow customers) Charges Earnings Grants LOC Draw Available Costs Payments Payments Service Service Expenditures Ending Balance 4/1/2023 $47,482,816 $1,350,000 $0 $8,915 $390,986 $158,276 $125,000 - $49,515,993 $7,142,857 - - $764,165 $764,165 $7,907,022 $41,608,971 5/1/2023 41,608,971 1,350,000 0 17,830 390,986 138,697 125,000 - 43,631,484 7,142,857 - - 740,331 740,331 7,883,188 35,748,296 6/1/2023 35,748,296 1,350,000 0 26,745 390,986 119,161 125,000 - 37,760,188 7,142,857 - - 740,331 740,331 7,883,188 29,876,999 7/1/2023 29,876,999 1,350,000 0 35,660 390,986 99,590 125,000 - 31,878,235 7,142,857 - - 740,331 740,331 7,883,188 23,995,047 8/1/2023 23,995,047 1,350,000 0 44,575 390,986 79,983 125,000 - 25,985,592 7,142,857 - - 740,331 740,331 7,883,188 18,102,403 9/1/2023 18,102,403 1,350,000 0 53,490 390,986 60,341 125,000 25,000,000 45,082,221 7,142,857 - 114,921 740,331 855,252 7,998,109 37,084,111 • Above is an output of the monthly projected cash flows based on flexible inputs from the prior slide. Below is a description of each output from a capital expenditures perspective • Project Costs:Annual projected CIP cost per CCUA, on a straight-lined monthly basis • Projected Principal & Interest payments: in this scenario, a LOC was issued in the amount of $100mm and $25mm was drawn. In this interest only scenario, the interest payment component contains an interest rate on the $25mm, and an interest rate on the undrawn balance ($75mm). I • Current Debt Service: Provided by CCUA • Total Capital Expenditures: A sum of the hypothetical outputs based on the various inputs • Ending Balance: Total Cash Available less Total Capital Expenditures © PFM 9 Cash Flow Model -Assumptions/Flexibility (Revenues) Debt Ser r Current Customers I Future Projected C-u7r111 ustomers Operating Rate perating Cash Flow Increase lash Flow I t0 Beginning (current Operating (future apacity vestment Total Cash Proj rincipal Interest Debt otal Debt otal Capital Date Balance customers) Cash Flow customers) Charges Earnings Grants LOC Draw Available Costs Payments Payments Service Service Expenditures Ending Balance 4/1/2023 $47,482,816 $1,350,000 $0 $8,915 $390,986 $158,276 $125,000 - $49,515,993 $7,142,857 - - $764,165 $764,165 $7,907,022 $41,608,971 5/1/2023 41,608,971 1,350,000 0 17,830 390,986 138,697 125,000 - 43,631,484 7,142,857 - - 740,331 740,331 7,883,188 35,748,296 6/1/2023 35,748,296 1,350,000 0 26,745 390,986 119,161 125,000 - 37,760,188 7,142,857 - - 740,331 740,331 7,883,188 29,876,999 7/1/2023 29,876,999 1,350,000 0 35,660 390,986 99,590 125,000 - 31,878,235 7,142,857 - - 740,331 740,331 7,883,188 2 ,99 8/1/2023 23,995,047 1,350,000 0 44,575 390,986 79,983 125,000 - 25,985,592 7,142,857 - - 740,331 740,331 7,883,188 18,102,403 9/1/2023 18,102,403 1,350,000 0 53,490 390,986 60,341 125,000 25,000,000 45,082,221 7,142,857 - 114,921 740,331 855,252 7,998,109 t,O154,1 • Above is an output of the monthly projected cash flows based on flexible inputs fro , the prior slide. Below is a description of each output fr.- a revenue perspective • Beginning balance (starting point): provided by CCUA, of -$47mm as of 3/1/2023 • Operating Cash flow: provided by CCUA, $1.35mm (existing customers)& ascending cash flo , (future custom- ; as new connections are added • Capacity charges: one-time fees realized from new connections • Investment Earnings: earnings received based on current cash balance • Grants: projected to be received per CCUA • LOC: In this scenario we assume "once the ending balance is below $20m , draw on the hypothetical LOC for $25mm" • Total Cash Available: A sum of the hypothetical outputs based on the various inputs © PFM 10 Financing Options • As shown on the prior slide, a line of credit was utilized Bond, Line of Credit or Loan Line of Credit to Bond Calculate Bond • As the model is currently configured, there are 3 financing options, and each has its own benefits Amount 75,000,000 Bond Interest Rate 4.18% • Term (Years) 30 Cost of Issuance ($/Bond) $4.50 • Ability to issue a larger $ amount over a longer period (up to 30 years) at a fixed interest rate Underwriter's Discount($/Bond) $5.00 • Typically amortizes principal and interest on an annual basis Loan Calculate Loan Amount 40,000,000 • More involved (continuing disclosure) and expensive (cost of issuance) than a bank loan Interest Rate 4.00% Term (Years) 20 • Bank Loan Cost of Issuance ($/Bond) $4.50 • Smaller $ amount and typically over a shorter period (1-20 years) at a fixed interest rate Line of Credit Calculate LOC Total Amount 100,000,000 • Typically amortizes principal and interest on an annual basis Draw Increments 25,000,000 Capacity Charge (undrawn portion) 0.25% • Line of Credit Interest Rate (drawn amount) 4.50% Interest Only Period 3-yrs Short term financing used to draw cash as needed and avoid paying interest of unused funds Term (Years) 30-yrs • Cost of Issuance ($/Bond) $3.50 • Has the ability to be restructured and fixed out as a bond/bank loan • Interest only period (3 years in the previous example) © PFM 11 Bond Issuance vs Bank Loan •Bond Issuance Bank Loan Pros ➢ Financings up to 30 years are typical and easy to finance ➢ No ratings required to ➢ Future tax law change risk is with holders of bonds ➢ No offering documents & minimal disclosure requirements ➢ 10-Year Call Provision is the industry standard ➢ Minimal issuance costs ➢ More efficient for larger financings in current market ➢ Usually, shorter timeframeto close financing ➢ Flexibility on call provisions and drawdowns Cons ➢ Ratings would be required ➢ Banks typically comfortable providing funding for up to 20 ➢ Issuance documentation considerations and ongoing years administration ➢ Call provisions can vary greatly between banks ➢ Issuance costs much greater than Bank Loan ➢ Priced at par resulting in reduced future call option value ➢ Additional time to complete financing due to additional documents and ratings process Professionals Typically Involved (Cost of Issuance) Bond Bank Loan Bank Counsel x Bond Counsel x x BondBuyer x BondLink x DAC x Disclosure Counsel x Financial Advisor x x Paying Agent x Printer x Rating Agency x © PFM 12 Recommended Plan of Finance & Timeline • PFM's recommended approach would be a Line of Credit with the expectation of restructuring as a long-term bond ° Current market conditions and TE ratios are favorable for a draw-down Line of Credit, providing cashflow when needed without the interest carrying cost Below is the estimated timeline for a competitively priced Line of Credit: Staff directs Inititate Ratings Working Group to Prepare LOC Process; Board Board Approval of Pricing Closing Move Forward Documents Approval ri> Bond Documents r_r> May 2023 June 2023 June 2023 June 2023 April 2023 May 2023 © PFM 13 Market Update (Week of April 10 , 2023) Federal Reserve Dot Plot • The Dot Plot is chart showing estimates of what the Federal Reserve DOT Plot 6 federal funds rate, the short-term interest rate controlled • to by the Fed, should be 575. ••. • 5.5 ... • • Members of the rate-setting Federal Open Market 5.25 Committee each assign a dot for what they view as the •• midpoint of the rate's appropriate range at the end of 5 each of the next three years and over the longer run. 4.75 Investors focus on the median dot 4.5 .. . 4.25 • As many as 19 monetary policy makers -- the seven governors on the Fed Board in Washington and the 4 presidents of the 12 regional banks -- can contribute a 3.75 dot 3.5 1 . . •• • Of the 12 regional Fed presidents, only five are voting 3.25 = members of the FOMC in any given year. That raises 3 ...: questions over how well the dots accurately reflect 2.75 longer-term FOMC intentions 2.5 . •• • Dot Plot projections don't reflect a commitment by the 2.25 FOMC to act and aren't an official consensus forecast 2 2023 2024 2025 Longer Term FOMC Dots Median —Fed Funds Futures -Latest Value OIS - Latest Value © PFM 15 Municipal Interest Rate Movements MMD AAA G.O. Curve MMD AAA G.O. Yield Curve Changes 4/6/2023 O 39 i 3.00% ♦ / / ` — I / _ 2.50% / �'✓�� 0 I v 2.00% -10co -12 -13 1.50% m 17 I -17 15 -2 2 1.00% -40 -51 -51 0.50% -56 -69 0.00% 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 30 Maturity 2 yr 5 yr 7 yr 10 yr 30 yr Current — — 1WkAgo — — 1MoAgo — — 1YrAgo ■1WkAgo ■1MoAgo 1YrAgo Source:Bloomberg,Refinitiv © PFM PFM Pricing Group 16 Treasury Interest Rate Movements U.S. Treasury Yield Curve U.S. Treasury Yield Curve Changes 6.00% 4/6/2023 5.00% 150 132 91 100 4.00% 65 67 69 -0 41 50 .) 3.00% 0 . . . . . . . . . . - O 2.00% ■ ■ ■ '■ cn m -50 -28 -29 -27 -25 20 1.00% 38 -100 -82 -68 0.00% -90 -107 2 yr 5yr 7yr 10 yr 30 yr -150 Maturity 2 yr 5yr 7yr 10 yr 30 yr Current — — 1 Wk Ago 1 Mo Ago - — 1 Yr Ago ■1WkAgo •1 Mo Ago 1YrAgo Treasury Rate Movement for the Past 3 Months Date &Weekday Total Tenor 1/6 1/13 1/20 1/27 2/3 2/10 2/17 2/24 3/3 3/10 3/17 3/24 3/27 3/28 3/29 3/30 3/31 4/3 4/4 4/5 4/6 0 4/6 Rate Fri Fri Fri Fri Fri Fri Fri Fri Fri Fri Fri F M T W T F M T W T 1 4.71 -2 -1 0 p 11 10 11 5 i -2 4 4 1 -4 4.51 2 4.24 -2 5 11 20 10 18 8 -26 -79 -5 2 -4 -9 -13 -5 3 -42 3.82 3 3.96 -5 6 23 14 19 8 -29 -63 -10 3 0 -6 -8 -13 -5 4 3.59 5 3.69 -9 -4 6 5 26 10 16 7 -30 -52 -3 18 4 4 -1 -6 -8 -13 -3 1 3.37 7 3.63 -8 3 25 9 15 5 -29 -41 -5 17 3 2 -1 -6 -7 -10 -4 0 3.34 10 3.55 6 -1 4 1 21 8 13 2 -27 -31 -1 15 2 2 -2 -7 -5 -8 -5 0 3.30 20 3.84 -5 -2 0 0 19 5 10 1 -22 -14 1 13 0 1 -3 -7 -3 -6 -5 -1 3.66 30 3.67 'L -6 5 -2 -1 20 5 5 -3 -20 -10 4 13 0 1 -4 -7 -3 -4 -4 -2 3.54 Source: treasury.gov © PFM PFM Pricing Group 17 Treasury & Municipal Interest Rate Movements AAA Municipal Curve U.S. Treasury Curve 5.00% - 5.00% - 10yr Historical Range 10yr Historical Range 4/6/2022 4 /2022 0 4/6/2023 4,rA/2023 4.00% - 4.00% - 3.00% - I 3.00% - 2.00% - 2.00% - 1.00% - 1.00% - 0.00% 0.00% 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 Source:Bloomberg,treasury.gov © PFM PFM Pricing Group 18 Lo Questions to Thank you ! • pfm