When the city of Poway financed the construction of City Hall and City Council Chambers in 2003, certificates of participation were used to issue $17.6 million of debt securities to build the two buildings on Civic Center Drive.
Unlike the capital appreciation bonds that have drawn attention to the Poway Unified School District recently, the certificates of participation, or COPs, provide opportunities to refinance the debt, according to a city staff report. The first opportunity to refinance is January 2013, and the City Council voted this week to move forward with refinancing the debt, as interest rates are lower than they were in 2003.
City staff estimates that by refinancing, the city can expect to save around $200,000 a year, totaling $4 million in savings over the next 20 years, when the bonds will be paid in full.
The 2003 COPS were issued at rates ranging from 3 percent up to 5 percent, and city staff believe that current market conditions would allow for all of the 2012 COPS to be issued at 3.5 percent. After a 10-year “call protection period,” the city could again refinance the debt if market conditions are favorable in 2023.
The certificates have been rated AA+ by Standards and Poors, according to city officials. The rating service noted Poway’s strong financial position, “good financial policies and practices,” unemployment rates lower than the national average and strong household income when issuing the high rating.
“The refunding is estimated to save the city about $200,000 per year, or $4 million over the life of the debt,” City Manager Penny Riley said. “This is great news for the residents of Poway.”
In a presentation by the city’s financial advisor, Tim Schaefer of Magis Advisors, it was stressed that the terms of the loan are not changing, and the amount of money borrowed is not rising. The COPS will be offered to bidders on Oct. 3 and will be closed on Oct. 17.
Completed in 2004, the project to build City Hall and Council Chambers cost $21.6 million. The city put down a $4 million down payment, and $17,655,000 was financed by the 2003 COPs. The outstanding amount of the COPs is $14,490,000.
The cost of issuing the 2012 COPs is estimated at $207,750, according to a city staff report. Bond counsel by Richards, Watson & Gershon will cost $62,300; disclosure counsel by Best, Best & Krieger will cost $32,000; and financial advisor Magis Advisor will be paid $44,750, according to a staff report.
A PowerPoint presentation by Tim Schaefer at this week’s City Council meeting is attached in the PDF section of this article.