CALPERS UAL RESTRUCTURING PROJECT
2022 PENSION OBLIGATION BOND POS APPROVAL AND NEXT STEPS FEBRUARY 8, 2022
City of Rialto UAL Restructuring Update
Discussion Topics
2 Process Update
Updated Analysis
Sizing, Stress Testing and Interest Rate Sensitivity
Recommended Sizing
Market Update
Documents for Approval
Next Steps
Rialto 2022 POBs
Process Update
3 Spring 2021 – POB education / evaluation process
July 27, 2021 – POB validation process initiated
Fall 2021 – Underwriter RFP
January 12, 2022 – Update presentation to EDC
January 25, 2022 – Update presentation to City Council and approval of Underwriting team
February 8, 2022 – City Council Meeting
Updated analysis and recommended bond sizing
POS Approval
Discuss next steps
Note: Savings assumes CalPERS earns 6.8% investment earnings.
POB Sizing Options Based on Projected $103M UAL
67% vs. 83% vs. 100% of UAL Paid Off
4 UAL Paid Off 67% 83% 100%
Est. UAL ($) Paid Off $69M $86.3M $103.5M
Est. Interest Rate 3.50% 3.47% 3.46%
Present Value (PV) Savings ($) $13.5M $18.9M $22.7M
PV Savings (% of UAL Refunded) 19.80% 22.10% 22.2%
Total Cumulative Savings $3.1M $10.4M $15.6M
Savings from 2023 to 2032 $34.9M $38.5M $40.9M
Avg. Annual Savings from 2023 to 2032 $3.49M $3.85M $4.1M Stress Test Results / PV Savings If CalPERS Underperformance CalPERS Earns 5.8% Annual Returns $10.8M (15.8%) $13.4M (15.7%) $15.3M (15%) CalPERS Earns 4.8% Annual Returns $5.3M (7.8%) $6.7M (7.8%) $7.6M (7.5%) CalPERS Loses 20% in 1st Year After POB; 6.8% Thereafter $1.5M (2.1%) $1.7M (1.9%) $685K (0.7%) Rialto 2022 POB - Structuring Options (67%, 83% and 100% of UAL Paid Off) Savings Estimates and Stress Test/Risk Assessment
Current Market Interest Rates (No Cushion)
Interest Rate Sensitivity
83% of UAL Paid Off
5Note: Savings assumes CalPERS earns 6.8% investment earnings.
UAL Paid Off 83% 83% 83%
Est. UAL ($) Paid Off $86.3M $86.3M $86.3M
Est. Interest Rate 3.47% 3.98% 4.48%
Present Value (PV) Savings ($) $18.9M $15.5M $12.3M
PV Savings (% of UAL Refunded) 22.10% 18.20% 14.4%
Total Cumulative Savings $10.4M $4.4M -$1.75M
Savings from 2023 to 2032 $38.5M $35.5M $32.4M
Avg. Annual Savings from 2023 to 2032 $3.85M $3.55M $3.24M Stress Test Results / PV Savings If CalPERS Underperformance CalPERS Earns 5.8% Annual Returns $13.4M (15.7%) $10.5M (12.3%) $7.5M (8.8%) CalPERS Earns 4.8% Annual Returns $6.7M (7.8%) $4.1M (4.8%) $1.4M (1.6%) CalPERS Loses 20% in 1st Year After POB; 6.8% Thereafter $1.7M (1.9%) -$1.6M (-1.8%) -$4.9M (-5.7%) Rialto 2022 POB @ 83% UAL Funding
Savings Estimates and Stress Test/Risk Assessment
Current Market Interest Rates, + 0.50% and + 1.00%
Analysis Takeaways and Recommended Sizing
Stress testing / risk assessment demonstrates that City would be better off under all three stress tests
Only two scenarios where City would be slightly worse off is if interest rates move to 4.0 – 4.5% AND market crash (-20% CalPERS returns) occurred first year after issuance
Previously adopted not-to-exceed par ($150M) and all-in interest rate (4.50%) are still conducive
Even at 4.50%, annual savings is still strong at over $3M for next decade City staff and Municipal Advisors recommend targeting 83% to 90% of the projected UAL
Maximizes savings while mitigating the risk of being overfunded Financing team will monitor FY 2022 year-to-date returns in order to “fine- tune” the projected sizing closer to pricing
For example, if CalPERS is having a good year (i.e. 10% returns), the projected UAL may only be $91M
Or, if CalPERS were having a bad year (i.e. 0% returns), the UAL would be closer to $130M 6 Market Update
7 Range of Historical U.S. Treasury Rates
5-Year Historical UST Range
U.S. Treasuries are still near
historic lows but have increased in
recent weeks
High likelihood of Federal Reserve
rate hike at mid-March meeting
Demand for taxable bonds, like
POBs, is still anticipated to remain
strong given heavy redemptions
(additional cash to be reinvested)
Historical U.S. Treasury Rates
2/2/2022 UST
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22
10-Year 30-Year
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Documents Being Approved
1. Preliminary Official Statement (POS)
2. Continuing Disclosure Agreement (Included as
an appendix within the POS)
3. Bond Purchase Agreement
8 City of Rialto 2022 POBs
Tentative Next Steps
9 • City Council approval of POS and Related Documents + Recommended SizingFebruary 8
• Pension Funding Policy Approval
• City CAFR Finalized
• Credit Rating Presentation
• Validation Process Concludes (actual timing TBD)
March
• Price Bonds/Lock Interest Rate
• Closing and Pay Off UAL with CalPERS
Late
March/April