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PENSION BOND MARKET UPDATE

With CSMFO's recent webinar on POBs, there is clearly heightened attention to the current pension challenge and viable tools to address.  NHA listened very closely to the expertise and content that was shared on the webinar. As always, NHA is keenly interested in all viewpoints and information being presented on this topic and we’d greatly appreciate hearing about your opinions or thoughts, as well as answer any outstanding questions you may have.  If you weren’t able to listen to the webinar, a link to the presentation is provided below.
For those that want to learn more about the nuances of a UAL restructuring and the comprehensive evaluation process, the Town of Corte Madera recently concluded an extensive one. The case study below highlights the key components of the process that included over a year of stakeholder education, robust stress-testing and risk assessment analysis, and ultimately, a credit rating upgrade to “AAA” resulting in a POB 2.97% true interest cost on April 29th.  While interest rates have risen in the last 2 months, all 8 cities that have sold POBs in 2021 have secured < 3.0% interest rates.
Reinvestment / market timing risks and increased volatility after a POB issuance are all concerns that were rightfully brought up on last week’s CSMFO webinar. Quantifying what some of these downside risks may look like is crucial to prudent and strategic decision making. If an agency is comfortable with the risk/reward profile, the results from these stress tests can then also be helpful for optimizing a POB structure. As a fiduciary, NHA Advisors helps promote a due diligence and options-rich process that enables our public agency clients to best evaluate and decide for themselves if a UAL restructuring is a tool that is right for their jurisdiction.

CASE STUDY:
Corte Madera 2021 POBs
Credit Rating Upgrade to “AAA” Secures 2.97% True Interest Cost

Comprehensive & Inclusive 18-month Evaluation Process:
Considered wide array of options, GFOA/stakeholder objections, opportunities and risks
Enhanced Financial Resiliency:
Results of “What-If” stress-testing / risk assessment demonstrates that Town can now better absorb increased payment shocks from poor CalPERS returns
Pension Funding Policy:
Includes dedicating POB savings towards reserves, Section 115, CalPERS ADPs and early POB pay off
Credit Rating Upgrade to "AAA"!
Town upgraded from AA+ to AAA based on improved financial performance, new financial policies and multi-pronged pension funding strategy
Budgetary Savings:
$12.4 Million estimated savings over next 15 years; Over $6.5 Million present value (35% of Refunded UAL) savings overall*

* Projected savings assumes CalPERS earns 7.0% investment earnings; navy blue line represents combined POB debt service and unrefunded UAL. UAL figures sourced from 6/30/2019 CalPERS Actuarial Valuation reports.

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