In October 1992, the Sunnyvale Financing Authority issued $23.5 million of Utilities Revenue Bonds, 1992 Series A (the "1992 Bonds"). The 1992 Bonds were issued to finance wastewater reuse and sludge management facilities. The 1992 Bonds carry interest rates ranging from 5.50% in 2001 to 6.30% in 2017.

On March 24, 1998, Council authorized staff to proceed with a refunding of the 1992 bonds to reduce the annual debt service due to a decline in interest rates from the original date of issuance. After the Council’s initial approval, several legal and other developments occurred to delay the implementation of this refunding and cause a change in the recommended approach. Fortunately, since that time, interest rates have improved and the savings will now be even greater than what was anticipated in 1998. Additionally, it is advantageous to issue new bonds to raise approximately $12.5 million for wastewater capital projects identified in the FY 2001/2002 budget.

At the June 19, 2001 Council meeting, Council took several actions which authorized staff to proceed with the bond sale.

Issuance of the 2001 Bonds by the Financing Authority will provide funds to:

• Refund approximately $19.1 million of the outstanding 1992 Bonds.
• Finance approximately $12.5 million in capital improvements to the City’s wastewater system.
• Fund a reserve fund (or purchase a reserve fund surety), for the 2001 Bonds.
• Pay for the costs of issuance incurred in connection with the 2001 Bonds.

The 2001 Bonds will be issued in an amount not to exceed $35,000,000, will have a final maturity of no more than 30 years from the date of issuance, and will bear interest at rates not in excess of six percent. Based on current market conditions, it is expected that the final maturity of the 2001 Bonds will be 25 years from the date of issuance, and the average interest rate would be approximately five percent.

As noted in the June 19, 2001 Report to Council, the 2001 Bonds will present, at current interest rates, a reduction of the City’s annual debt service payments by approximately $200,000 per year for each of the remaining 16 years of debt. Total savings over the life of the issue would be approximately $3.2 million and present value savings would be approximately $2.0 million.

On June 19, 2001 Council approved the flexibility for staff to sell the 2001 Bonds on a competitive or negotiated basis, depending on market conditions and concerns over the potential impact of the State of California’s planned $13 billion Energy Bond issue. Given the time needed to prepare a thorough disclosure document (the "Official Statement") and to make a comprehensive presentation to the rating agencies on both the 2001 Bonds and the City’s general credit, staff is concerned that a competitive sale of the 2001 Bonds could conflict with the State’s Energy Bonds. Additionally, the added flexibility of a negotiated sale would allow each bond maturity to be tailored to specific investor needs, which would provide favorable interest rates to the Authority and the City while still meeting the City’s targeted time line. As a result, staff recommends that the Council proceed at this time with a negotiated bond sale with an underwriter, as described below.

Staff recommends the firm of E.J. De La Rosa & Co. ("De La Rosa") to serve as the underwriter of the 2001 Bonds. De La Rosa has agreed to underwrite the 2001 Bonds for the same underwriter’s discount that the City would otherwise have obtained in connection with a competitive sale of the 2001 Bonds. Unlike previous bond issues, De La Rosa will receive no fee for structuring the 2001 Bonds. The City’s financial advisor, Ross Financial, will work closely with De La Rosa to assure that the 2001 Bonds will be structured within the parameters that the City would have set for a competitive sale.

E. J. De La Rosa & Co. is a California-based investment bank focused solely on municipal bonds. The firm is one of the most active participants in the California municipal bond market, serving as an underwriter on over 95 California municipal bond transactions since 2000. The firm has served the City in the past as underwriter on its 1998 Refunding Certificates of Participation and Mello-Roos financing. The firm has extensive experience underwriting utility revenue bond issues in California and is currently serving as co-senior manager on the State’s upcoming $13 billion energy bond issue.

• Escrow Agreement

These documents are not included with this report due to their length, but are available for review in the Council Conference Room.