REFINANCING OF 2009A
WATER REVENUE BONDS
City Council
Presented by:
Christine Paras, ASD Asst. Director
SEPTEMBER 14, 2026 www.paloalto.gov
2 1. Overview of Federal Securities Laws (Jones Hall, outside counsel)
2. Refinancing of the 2009A Water Revenue Bonds (City Staff) • Overview & Background
• Debt Structure, Policy & Administration
• Refunding Mechanics
• Proposed Finance Committee Action
PRESENTATION OVERVIEW
1. OVERVIEW OF FEDERAL SECURITIES LAW
Chris Lynch, Jones Hall
SEPTEMBER 14, 2026 www.paloalto.gov
Overview of Federal Securities Laws
September 14, 2026
City of Palo Alto
City Council
Chris Lynch
Jones Hall
*
Outline of Discussion
Key Federal Securities Laws
Disclosure Responsibilities
Disclosure Policies and Procedures
*
Key Laws
Securities Act of 1933
(’33 Act)
Securities Exchange Act of 1934
(’34 Act)
SEC Rule 10b-5
SEC Rule 15c2-12
*
Rule 15c2-12
Initial Disclosure
(GO Bonds)
*
Rule 15c2-12
Continuing Disclosure
Annual reporting
Event reporting
*
Responsibilities of Officials – Orange County
• County was relying on risky investment strategies to balance its budget, and failed to disclose the risky nature of its investments • County filed for bankruptcy protection in 1994; SEC brought enforcement action in 1996 (there were no bond defaults) • Board of Supervisors failed to take “steps appropriate under the circumstances” to assure that the County's financial situation was being adequately disclosed to potential investors
“Public officials may not authorize disclosure while recklessly disregarding facts that indicate that there is a risk that the disclosure may be misleading”
• Takeaway: Public officials must exercise reasonable oversight *
SEC Guidance
“Lessons Learned from San Diego,” Linda Chatman
Thomsen, Director, SEC Division of Enforcement (2007)
“What should the municipal securities markets take away from these actions? I can tell you that the Enforcement Division believes there are five critical lessons that municipalities should learn from our recent actions”
• adopt written disclosure policies and procedures
• provide appropriate training to city officials and employees • focus on the big picture issues facing the city
• disclose the bad with the good
• hire competent professionals
*
Conclusion and Questions
*
Questions
Chris Lynch
[email protected]
415.391.5780
www.joneshall.com
2. REFINANCING OF
2009A WATER REVENUE BONDS
Christine Paras, ASD
SEPTEMBER 14, 2026 www.paloalto.gov
14 OVERVIEW
Refinancing of the 2009A Water Revenue Bonds
Removes the 2009 Bonds’ Available
Reserve requirement
•Obligation of the Water, Gas, and Electric Funds
collectively that is atypically high for modern
utility financing structures.
Provides flexibility for the Electric Fund
to issue future revenue bonds
•Removes burdensome reserve funding
requirement for the Electric Fund
Eliminates City’s exposure to Federal
sequestration
•The 2009 Bonds were Build America Bonds (BABs),
with a federal interest subsidy that is currently
subject to Federal sequestration
Staff recommends restructuring the 2009 Bonds
in the City’s overall best financial interest.
• Est. Net Present Value savings is close to 3%*
• CFO can waive 3% guideline if restructuring is
in the City’s overall best financial interest.
El Camino Park Reservoir construction
*Final savings figures subject to market conditions at pricing. 15 BACKGROUND
• $35M in Water Revenue Bonds were issued in 2009 to
finance major water system upgrades.
• Structured as BABs under the American Recovery and
Reinvestment Act
• City receives a federal subsidy equal to 35% of interest payments • Bonds are payable from Net Revenues of Water System
• Available Reserve requirement obligates that the Water, Gas, and Electric Funds collectively maintain atypically high reserve levels (5x max. annual combined debt service)
Park Tank Interior Coating
16 Competitive Method of Sale
• Interest rates will be determined the day of sale
• Underwriter will be selected based on lowest true
interest cost
• Rates will reflect prevailing market conditions
Debt Policy: Estimated to be Above 3% threshold
• May be waived by CFO if restructuring is in the
City’s overall best financial interest
Issuance Costs: Approx. $213K
Annual Debt Service Savings: $309K through FY 2035
Bond Credit Rating: AAA with Stable Outlook (S&P)
DEBT STRUCTURE, POLICY & ADMINISTRATION
2026 Water Revenue Refunding Bonds
Estimated Refunding Results*
(rates as of September 11, 2026)
$14,565,000Refunding Par
(principal amt. of new bonds)
$17,540,000Refunded Par
(principal amt. of 2009A Water Bonds)
$255,561$ Est. Net Present Value Savings
1.46%% Est. Net Present Value Savings
3.28%True Interest Cost
June 1, 2027First Maturity
June 1, 2035Final Maturity
*includes value of BABs federal tax credit
All results are preliminary; subject to change.
17 REFUNDING MECHANICS
To issue the Bonds, the Council will need to:
1. Adopt a resolution that authorizes the sale of up to $20M in bond principal
2. Approve required legal documents
a. Official Notice of Sale
b. Indenture of Trust
c. Preliminary Official Statement
• Subject to federal securities laws; require the Official Statement include all facts that would be material to an investor
d. Refunding Instructions
18 CITY COUNCIL ACTION
Finance Committee recommend that the City
Council:
1. Authorize staff to refinance the outstanding
City of Palo Alto Water Revenue Bonds, 2009
Series A through the issuance of Water
Revenue Refunding Bonds in the not to
exceed principal amount of $20,000,000; and
2. Approve the Official Notice of Sale, Indenture
of Trust, Official Statement, Irrevocable
Refunding Instructions, and authorize official
actions and related documents.
Passed by Finance Committee
2-0-1 (Burt absent)
Mayfield Reservoir
LAUREN LAI
Chief Financial Officer
[email protected]
CHRISTINE PARAS
ASD, Assistant Director
[email protected]