FROM: Robert Thompson, General Manager
Originator: Wally Ritchie, Director of Finance
SUBJECT:
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WASTEWATER REFUNDING REVENUE OBLIGATIONS, SERIES 2026A
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GENERAL MANAGER'S RECOMMENDATION
recommendation
RECOMMENDATION: Recommend to the Board of Directors to:
A. Adopt Resolution No. OC SAN 26-XX titled: “A Resolution of the Board of Directors of the Orange County Sanitation District authorizing the execution and delivery by the District of an Installment Purchase Agreement, a Trust Agreement, a Purchase Agreement, a Continuing Disclosure Agreement and an Escrow Agreement in connection with the Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2026A, authorizing the execution and delivery of such Revenue Obligations evidencing principal in an aggregate amount of not to exceed $60,000,000, approving a Notice of Intention to Sell, authorizing the distribution of an Official Notice Inviting Bids and an Official Statement in connection with the offering and sale of such Revenue Obligations and authorizing the execution of necessary documents and related actions”; and
B. That the Orange County Sanitation District Financing Corporation approve the documents supporting and authorizing the Revenue Obligations in an aggregate amount not to exceed $60,000,000.
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BACKGROUND
A portion of Orange County Sanitation District’s (OC San) debt portfolio will soon be subject to optional redemption. As interest rates are lower than the coupons on the outstanding debt, there is an opportunity to refinance the outstanding debt to reduce interest costs for OC San. The Wastewater Refunding Revenue Obligations Series 2017A (2017 Revenue Obligations) are subject to optional redemption on February 1, 2027. Under current market conditions, a refunding of $50,700,000 of the outstanding 2017 Revenue Obligations would generate more than 3% net present value savings (the minimum percentage required by OC San’s debt policy).
RELEVANT STANDARDS
• Comply with OC San Debt Policy - Financial Management and Procedure 201-3-1; net present value savings are at least three (3) percent of the par amount of the refunded bonds from refunding outstanding bonds
PROBLEM
The interest rates payable on the 2017A Revenue Obligations are higher than current market yields.
PROPOSED SOLUTION
The issuance of up to $60,000,000 of Wastewater Refunding Revenue Obligations, Series 2026A would allow OC San to refund up to all of the outstanding 2017A Revenue Obligations using a refunding amortization structured with the objective of providing level annual debt service savings (in years with principal maturing) and to generate net present value debt service savings of approximately $2.0 million (equal to 4.0% of refunded principal), based on market conditions as of August 26, 2026.
TIMING CONCERNS
OC San has the option of early redemption of the 2017A Revenue Obligations as of February 1, 2027. If the 2017A Revenue Obligations remain outstanding past the earliest optional redemption dates, OC San would pay interest costs above current market yields.
RAMIFICATIONS OF NOT TAKING ACTION
Not refunding the 2017A Revenue Obligations would result in OC San continuing to pay above market interest costs.
PRIOR COMMITTEE/BOARD ACTIONS
July 2026 - Authorized the General Manager to issue fixed rate Certificates of Participation, to be referred to as Wastewater Refunding Revenue Obligations, in an amount sufficient to refund up to $50,700,000 of Wastewater Refunding Revenue Obligations, Series 2017A.
December 2016 - Adopted Resolution No. OCSD 16-32 entitled: “A Resolution of the Board of Directors of the Orange County Sanitation District authorizing the execution and delivery by the District of an Installment Purchase Agreement, a Trust Agreement and a Continuing Disclosure Agreement in connection with the Orange County Sanitation District Wastewater Refunding Revenue Obligations, Series 2017A, authorizing the execution and delivery of such Revenue Obligations evidencing principal in an aggregate amount not to exceed $91,620,000, approving a Notice of Intention to Sell, authorizing the distribution of an Official Notice Inviting Bids and an Official Statement in connection with the offering and sale of such Revenue Obligations and authorizing the execution of necessary documents and related actions;” and that the Orange County Sanitation District Financing Corporation approve the documents supporting and authorizing the Revenue Obligations in an aggregate amount not to exceed $91,620,000.
ADDITIONAL INFORMATION
Since this is a fixed-rate debt issuance, staff is proposing to issue the refunding through a competitive sale because it is the most expeditious way to access the market, and it is expected to provide the lowest costs for this given structure. All costs involved with the refunding, including costs for PFM Financial Advisors LLC (Municipal Advisor) and Norton Rose Fulbright US LLP (Special Counsel and Disclosure Counsel), will be paid from the proceeds of the new refunding issue.
For the anticipated issuance of 2026A Revenue Obligations, OC San’s Municipal Advisor, Public Resources Advisory Group, estimates, based on market conditions as of August 26, 2026, and subject to changing market conditions which may result in the figures being higher or lower, the following:
a) true interest cost of 2.72% (currently 5.00%);
b) sum of all fees and charges paid to third parties of $643,344;
c) net proceeds of $50,838,516; and
d) total payments of $54,384,072.
Legal Authorization and Approvals
The OC San Board of Directors and Financing Corporation will each be required to adopt separate Resolutions to complete this refunding. A Financing Corporation is required by the structure of the Revenue Obligations and was formed in April 2000 solely to satisfy this need. The Board of Directors of the Corporation are the same as the Board of Directors of OC San, and the Corporation meets after a recess of the OC San Board meeting.
Following is a list of the remaining steps to be completed for the issuance of the Wastewater Refunding Revenue Obligations, Series 2026A debt issuance:
September 2026:
- Board approval of legal and disclosure documents
- Financing Corporation approval of legal and disclosure documents
- Receive ratings from bond rating agencies
October 2026:
- Marketing and sale through a competitive sale process
November 2026:
- Closing
- Begin debt administration
CEQA
N/A
FINANCIAL CONSIDERATIONS
Refunding the 2017A Revenue Bonds will save approximately $2.0 million in interest costs.
ATTACHMENT
The following attachment(s) may be viewed on-line at the OC San website (www.ocsan.gov) with the complete agenda package:
• Proposed Resolution No. OC SAN 26-XX
• Proposed Financing Corporation Resolution No. FC-XX
• Draft Installment Purchase Agreement
• Draft Trust Agreement
• Draft Purchase Agreement
• Draft Escrow Agreement
• Draft Notice of Intention to Sell
• Draft Official Notice Inviting Bids
• Draft Preliminary Official Statement
• Draft Continuing Disclosure Agreement