HomeMy WebLinkAbout2018CV149 - SUTHERLAND V. CITY OF FORT COLLINS, STEVE MILLER & IRENE JOSEY - 030D - EXHIBIT BFollow-up with S&P
4-18-2018 Electric Utility Enterprise Revenue Bonds Series 2018
DATE FILED: July 18, 2018 8:12 PM
FILING ID: BF0E70FBC34B1
CASE NUMBER: 2018CV149
1) Welcome and Introductions
2) Recap of 3/8 Discussion and follow-ups
3) Construction & Development in Fort Collins Area
4) Broadband Project:
A. Planning, Recruitment, and Execution
B. Risks, Opportunities, and Mitigation
5) Closing Remarks and Q&A
Agenda
2
Recap of 3/8 Presentation
3
The City of Fort Collins Electric Utility Enterprise provides electricity to over
72,000 customers within the corporate limits of the City and its suburban fringe
at rates among the lowest in the state and nation
The City has been exploring ways to improve the reliability and speed of internet
services in Fort Collins since 2010
Current private sector providers are unable or unwilling to meet the needs
identified by the community and the City’s Strategic Plan
Construction will begin in 2018 with services anticipated to begin in 2019
The City is issuing Series 2018 Electric Utility Enterprise Revenue Bonds (the
Bonds)
Proceeds will be applied to the costs of forming and constructing a fiber-to-
premise (FTTP) system to provide gigabit broadband services to subscribers
throughout the City
The Bonds will be secured by a pledge of the net revenues generated by the
City’s existing Electric Utility
4
Introduction
Diverse customer base and growing population
Strong economy anchored by Colorado State University
Transparent and experienced management focused on
customer needs
Voter approval (twice) for new broadband
Evidence of strong customer demand
Deliberate and careful process by management
Low customer rates with rate-raising flexibility
Rates set by City Council (no external regulatory oversight)
Low debt levels with limited future financing needs
Ample liquidity coverage metrics
The City is seeking a rating in the AA category on the 2018 Bonds based on the following:
5
Ratings Request and Rationale
6
Integration of Utilities with City Leadership System
149,327
152,359
156,479
160,574
162,919
167,500 170,100
135,000
140,000
145,000
150,000
155,000
160,000
165,000
170,000
175,000
2012 2013 2014 2015 2016 2017 2018
Unemployment Rates
Top 10 Employers Per Capita Income
Employer Employees Rank
Colorado State University 6,701 1
University of Colorado Health 5,400 2
Poudre School District R-1 3,615 3
Larimer County 1,639 4
Broadcom Ltd. 1,500 5
Hewlett-Packard 1,490 6
Woodward Inc. 1,475 7
City of Fort Collins 1,200 8
Front Range Community College 1,000 9
Otter Products 854 10
Total 24,874
Source: BizWest 2017 Book of Lists.
Source: U.S. Department of Commerce, Bureau of Economic Analysis; All dollar estimates are in current dollars
(not adjusted for inflation).
Source: U.S. Department of Labor, Bureau of Statistics.
Population of Fort Collins, CO
Source: U.S. Census Bureau 2012-2016; City Planning Department 2017-2018
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
2012 2013 2014 2015 2016 2017
Fort Collins Larimer Colorado
$40,685 $42,241
$44,503 $46,119 $47,117
$45,089 $46,824
$49,952 $51,876 $51,999
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
8
Fort Collins
Financial Information
*2017 Amounts are unaudited
Enterprise funds exclude the Golf fund
192 226 249
255 251 252 272
173
192 201
207 203 221
227
365
418
450 462 454
472 499
0
100
200
300
400
500
600
2011 2012 2013 2014 2015 2016 2017*
Revenues - City Funds
(in millions)
Governmental Funds Enterprise Funds
48 41 48
44 39 34 39
101
90 80
71
61
51 41
149
131 128
115
100
86 80
0
20
40
60
80
100
120
140
160
2011 2012 2013 2014 2015 2016 2017*
Long Term Debt - City Funds
(in millions, excluding DDA and equipment leases)
Governmental Funds Enterprise funds
City Council approves financial policies. Policies are reviewed every 3 years
Healthy fund balances across the City
General fund had a fund balance of $75M at the end of 2016
Including $32.5M of minimum fund balance
Enterprise Funds maintain a minimum Available Working Capital equal
to 25% of Operating Expenses, less depreciation
Enterprise funds share in costs for shared services (i.e. City Manager, HR,
Finance, etc.) but make no other transfers to the General Fund
Enterprise Funds charge a 6% PILOT on revenue to pay to the General Fund
9
Q&A: Follow-ups from 3/8 Meeting
Provided list of top 10 non-public sector employers
Emphasis on high tech research & manufacturing
Broadband subscriber projections at modeled levels
of market share
Debt service coverage, sources and uses, and year-
end working capital separated across core L&P
operation and Broadband project
Light & Power Capital Improvement Plan detail
Confirmed PRPA Contract through 2050
Construction & Development in Fort Collins Area
10
11
12
13
14
Broadband Project
15
16
Broadband Project
City of Fort Collins’ Retail fiber-to-the-premise (FTTP) broadband network
Governance
Council agreement of appropriate oversight for competitive utility different from single source utilities
Delegation of authority to operating management
Appropriate use of executive sessions to maintain competitive position
Right People
TD Madison currently recruiting top 4 key positions
Chattanooga Director Technology retained consultant since early 2017
City Brand & Customer Service
Very strong brand and customer service reputation within the community
Customer service integrated into existing utilities customer service/billing organization
Construction
City experience with large projects (MAX)
Utility experience with large infrastructure projects & underground utilities
Conservative estimates
17
Critical Success Factors
Competitor response and revenue uncertainty
Ramp up period for signing up new customers and expected
market share
Core competence of management
Inherent differences between electric utility systems
Delay/cost overruns: construction risk, timing, and cost
Technology risk & future-proofing
Risks & Threats
In the worst case scenario, if the project fails and no revenues are generated,
a $10 monthly fee per electric account would cover the debt costs
18
Implementation Risks
and Mitigation
Debt service met even in conservative market share scenarios
Gradual roll-out grants flexibility
Revenue not a cliff event tied to full capital build
Early indicators of success
Structured bonds to 25 years with call feature, vs. original 15
Key Management positions for the broadband project will be
filled in year 1 of the project
Design and construction to kick off during year 1 of the project
with firm, fixed price contracts
Monitoring next generation wireless/mobile/satellite standards
Mitigants
Market share greater than assumed
Base case share 28.2%, target share of 45%-50%
Confidence in City brand
City customer satisfaction
Possible additional revenue streams
Video services
Can leverage capacity within existing conduit to run fiber, at significant cost savings
Success in Broadband can contribute to further rate stabilization in Light & Power
Opportunities
19
Implementation Opportunities
(1) Includes all Operating Revenues and Non-operating Revenues, excluding gains on sale of capital assets, net increase in the fair market value of investments, and grant revenue restricted
for capital improvements.
(2) The Broadband System has not yet imposed any rates and charges and does not yet have any operation and maintenance expenses.
(3) Generally includes all expenses properly allocable to the System pursuant to GAAP. Does not include depreciation or amortization, interest expense or transfers out.
(4) Represents the estimated Combined Maximum Annual Principal and Interest requirements payable on the 2018 Bonds; Beginning in 2023 MADS is displayed inclusive of the added debt service
for presumed 2023 Bonds
(5) $9.6M of bond proceeds will offset working capital expenses for Broadband from 2018-2020. Associated 2018-2020 working capital not displayed for purposes of debt service coverage
as there are no debt service
payments during that period.
20
Proforma Financial Performance
28.2% Take Rate
2018 2019 2020 2021 2022 2023 2024
Gross Pledged Revenues(1)
Electric Gross Pledged Revenues $ 141,368,860 $ 146,420,240 $ 152,263,210 $ 158,935,530 $ 163,292,950 $ 167,176,640 $ 171,752,260
Broadband Gross Pledged Revenues(2) - 914,646 4,866,122 10,853,537 18,143,551 22,692,767 23,680,328
Total Gross Pledged Revenues $ 141,368,860 $ 147,334,886 $ 157,129,332 $ 169,789,067 $ 181,436,501 $ 189,869,407 $ 195,432,588
Operation & Maintenance Expense(3)
Electric System $ 129,165,860 $ 132,324,460 $ 135,779,000 $ 139,092,240 $ 142,322,190 $ 145,672,070 $ 149,087,710
Broadband System (5) - - - 4,683,117 5,408,755 5,587,894 5,773,707
Total O&M Expenses $ 129,165,860 $ 132,324,460 $ 135,779,000 $ 143,775,357 $ 147,730,945 $ 151,259,964 $ 154,861,417
Net Pledged Revenues (5) $000 12,203,$426 15,010,$ 21,350,332 $709 26,013,$556 33,705,$ 38,609,443 $ 40,571,171
Broadband Estimated Net Annual Debt Service - - - 5,903,453 6,998,453 9,238,961 9,747,751
L&P Debt Service ($20M @ 5% 10yr in 2023) 2,700,000 2,700,000
Total Debt Service $ - $ - $ - $453 5,903,$ 6,998,453 $961 11,938,$ 12,447,751
Pro Forma Annual Debt Service Coverage - - - 4.41 4.82 3.23 3.26
Estimated Maximum Annual Debt Service (MADS)
Requirements (4) $ 10,353,830 10,353,830 10,353,830 10,353,830 10,353,830 13,053,830 13,053,830
Pro-Forma Coverage of MADS (2018 Bonds only) 1.18 1.45 2.06 2.51 3.26 2.96 3.11
Proforma Net Pledged Revenues and Debt Service Coverage
(1) Includes all Operating Revenues and Non-operating Revenues, excluding gains on sale of capital assets, net increase in the fair market value of investments, and grant revenue restricted
for capital improvements.
(2) The Broadband System has not yet imposed any rates and charges and does not yet have any operation and maintenance expenses.
(3) Generally includes all expenses properly allocable to the System pursuant to GAAP. Does not include depreciation or amortization, interest expense or transfers out.
(4) Represents the estimated Combined Maximum Annual Principal and Interest requirements payable on the 2018 Bonds; Beginning in 2023 MADS is displayed inclusive of the added debt service
for presumed 2023 Bonds
(5) $9.6M of bond proceeds will offset working capital expenses for Broadband from 2018-2020. Associated 2018-2020 working capital not displayed for purposes of debt service coverage
as there are no debt service
payments during that period.
21
Proforma Financial Performance
20% Take Rate
2018 2019 2020 2021 2022 2023 2024
Gross Pledged Revenues(1)
Electric Gross Pledged Revenues $ 141,368,860 $ 146,420,240 $ 152,263,210 $ 158,935,530 $ 163,292,950 $ 167,176,640 $ 171,752,260
Broadband Gross Pledged Revenues(2) - 738,074 3,941,495 8,846,148 14,913,398 18,783,163 19,751,038
Total Gross Pledged Revenues $ 141,368,860 $ 147,158,314 $ 156,204,705 $ 167,781,678 $ 178,206,348 $ 185,959,803 $ 191,503,298
Operation & Maintenance Expense(3)
Electric System $ 129,165,860 $ 132,324,460 $ 135,779,000 $ 139,092,240 $ 142,322,190 $ 145,672,070 $ 149,087,710
Broadband System (5) - - - 4,526,420 5,249,047 5,420,200 5,597,629
Total O&M Expenses $ 129,165,860 $ 132,324,460 $ 135,779,000 $ 143,618,660 $ 147,571,237 $ 151,092,270 $ 154,685,339
Net Pledged Revenues (5) $ 12,203,000 $ 14,833,854 $ 20,425,705 $ 24,163,018 $ 30,635,111 $ 34,867,532 $ 36,817,959
Broadband Estimated Net Annual Debt Service - - - 5,903,453 6,998,453 9,238,961 9,747,751
L&P Debt Service ($20M @ 5% 10yr in 2023) - - - - - 2,700,000 2,700,000
Total Debt Service $ - $ - $ - $ 5,903,453 $ 6,998,453 $ 11,938,961 $ 12,447,751
Pro Forma Annual Debt Service Coverage - - - 4.09 4.38 2.92 2.96
Estimated Maximum Annual Debt Service (MADS)
Requirements (4) $ 10,353,830 10,353,830 10,353,830 10,353,830 10,353,830 13,053,830 13,053,830
Pro-Forma Coverage of MADS (2018 Bonds only) 1.18 1.43 1.97 2.33 2.96 2.67 2.82
Proforma Net Pledged Revenues and Debt Service Coverage
Summary and Conclusion
22
Timing
March 5
Circulate information
to Rating Agencies
March 7-9
Rating Agency
meetings
April 30
Receive ratings
May 15
Print & Mail Preliminary
Official Statement
May 24
Institutional Order Period
Execute Bond Purchase
Agreement
June 5
Closing
Working Group Contacts
Name Contact Information
Jim Manire, Senior Advisor
Hilltop Securities, Inc.
303-771-1678
james.manire@hilltopsecurities.com
Kevin Langlais, Managing Director
Bank of America Merrill Lynch
646-743-1356
kevin.langlais@baml.com
Mike Beckstead, Chief Financial Officer
City of Fort Collins
970-221-6795
mbeckstead@fcgov.com
23
Timeline
Thank you!
24
This PILOT is paid by the rate payers and has not changed in 10+ years
More information about all financial policies can be found at:
https://www.fcgov.com/finance/policies.php
133 154
184 216 225
234 236
151
154
166
284 180 173 156 156
308
350
396 398 390 392
0
50
100
150
200
250
300
350
400
450
2011 2012 2013 2014 2015 2016 2017*
Cash and Investments - City Funds
(in millions)
Governmental Funds Enterprise Funds
$45,000
$50,000
$55,000
$60,000
2012 2013 2014 2015 2016
Larimer County Colorado
7
Fort Collins
Demographic Information