Rancho Water’s finance committee pushes bond refunds to board

The finance and audit committee of the Rancho California Water District meets Thursday, Oct. 1, via teleconference. Valley News/Courtesy photo

Rancho California Water Disrict’s finance and audit committee voted Thursday, Oct. 1, to recommend that the utility’s board of directors approve the 2020 bond issuance of legal documents to refund a portion of 2016A and 2016B bonds.

“As I mentioned, this refinancing is all about refunding a portion of our 2016 A and B bonds,” Richard Aragon, assistant general manager of Rancho Water, told the committee. “This has all come about mostly because of COVID-19, us trying to make something positive out of something very negative.

“When the federal reserve essentially lowered the rates to about zero back in March that put us into a historic low interest rate position. Again, at least that’s the way it’s been the last few months, and we’re now in a position to refund tax exempt debt, which is usually the other way around and still be able to get significant savings,” he said.

The move would save the district $1.3 million when the district moves on it when the market hits 3.5%, according to Aragon.

“Which would also be right on par with the amount necessary to replenish our rate stabilization funds from not doing the rate increase this year,” he said. “The idea is we will move forward with the 3.5% minimum and wait until the market’s good enough to do that. We think it’ll be good in the next few weeks but we may have to wait a little bit longer.”

Aragon said the utility received a reaffirmed AAA rating from Fitch and is awaiting a rating from Standard & Poor’s.

Jack Sang from Bank of America gave the committee an update on the market.

“Basically, there’s a lot of volatility, and that’s mostly seen from a day-to-day basis and rates as well as in equity markets,” he said. “There continues to be a number of headline items that the market will follow closely. Namely the election, stimulus talks, which have stalled in the past.

“Despite the volatility, we’re still seeing very attractive rates from a historical perspective all-time low. The 10 Treasury was a 0.52, and that occurred in early August. And we’re currently at about a 0.69, so not too far from the all-time lows. We look back just a year ago, (and) I don’t think anyone would have imagined that rates would be anywhere 60 to 160 basis points lower across the curve versus the same time last year. So, these are truly remarkable rates despite the volatility, and that’s what’s allowing us to potentially refund tax exempt transactions with taxable bonds to generate attractive PB savings to the district,” Sang said.

Director William Plummer asked if there were any changes to the documents provided by staff.

“That was the good thing is it is very close to the last one,” Aragon said. “There are obviously lots of minor updates, a big one as we talk about COVID-19 and this one, delinquency rates, all things that have been shared with the board before, obviously, we talk about this transaction. It’s really giving the investors a chance to look at our latest financials. They’re seeing the exact same information there.”

The vote was 3-0 to move it to a full board of directors’ vote, which will occur Thursday, Oct. 8, after press time.

The committee also reviewed and considered the preliminary audit reports of financial statements for the district and its entities, heard a presentation and reviewed a draft of the comprehensive annual financial report for the fiscal year and ended June 30, and heard an update on the recycled water accelerated retrofit program framework.

They also heard a report on unclaimed customer refunds and vendor payments, reviewed financial statements, the treasurer’s report, reviewed and ratified the register of audited demands for Aug. 27 to Sept. 23, and reviewed outside contracts, capital projects and purchasing reports.

The committee also heard a coronavirus report from staff and an assistant general manager’s report from Aragon.

Jeff Pack can be reached by email at jpack@reedermedia.com.