§ 2-579. Structural features that may be considered.

Debt will be structured to achieve the lowest possible net cost to the city given market conditions, the urgency of the capital project, and the nature and type of security provided. Moreover, to the extent possible, the city will design the repayment of its overall debt so as to recapture rapidly its credit capacity for future use. In general, there will be no debt structures that include increasing debt service levels in subsequent years, with the exception of the first and second year. There shall be no "balloon" bond repayment schedules that consist of low annual payments and one (1) large payment of the balance due at the end of the term. There shall always be at least interest paid in the first fiscal year after the bond issue.

(1) Backloading. The city will seek to structure debt with level principal and interest costs-over the life of the debt. Backloading of costs will only be considered in rare circumstances as follows:

a. When natural disasters or extraordinary/unanticipated external factors make the short-term cost of the debt prohibitive;

b. When the benefits derived from the debt issuance can clearly be demonstrated to be greater in the future than in the present;

c. When such structuring is beneficial to the city's overall amortization schedule; or

d. When such structuring will allow debt service to more closely match project revenues during the early years of the project's operation.

(2) Call provisions. The city seeks to minimize the protection from optional redemption given to bondholders, consistent with its desire to obtain the lowest possible interest rate on its debt. The city seeks early call options at low or no premiums to allow for refinancing of debt at greater interest savings, provided there is no interest rate penalty for early call. The city shall obtain advice from its financial advisor in the evaluation of optional call provisions for each issue to assure that the city does not pay unacceptably higher interest rates to obtain more advantageous call provisions.

(3) Maturity of debt. Debt will be structured for the shortest period consistent with a fair allocation of costs to current and future beneficiaries or users. Generally, debt maturity should be of a duration that does not exceed the economic life of the asset or improvement that it finances and where feasible should be shorter than the projected economic life, as extended by periodic renewal and component replacement.

(4) Credit enhancements. Credit enhancements are mechanisms that guarantee principal and interest payments. They include bond insurance, a line of credit or letter of credit. A credit enhancement, while costly, can result in a lower interest rate on debt and a higher rating from the rating agencies, thus lowering overall costs. During debt issuance planning, the city's financial advisor will advise whether or not a credit enhancement is cost effective under the circumstances and what type of credit enhancement if any, should be purchased. Credit enhancements may be used, but only when net debt service on the bonds is reduced by more than the costs of the enhancement.

(5) Subordinate lien obligations. Creation of subordinate lien financing structure, if appropriate, shall be based on the overall financing needs of the city, expected credit ratings, relative cost, and impact to the city.

(6) Derivatives. Excluding existing derivative debt obligations currently outstanding, the city commission chooses not to employ the use of derivative products that are authorized under applicable laws. Derivatives are contracts and financing agreements involving interest rate swaps, floating/fixed rate auction or reset securities, or other forms of debt bearing synthetically determined interest rates. The use of derivatives can minimize risk, reduce cost and provide flexibility, however they may also add risk, restrict flexibility and add cost.

Before entering into such contracts or agreements, a review committee consisting of at a minimum the city manager, finance director and the city's financial advisor shall be formed to review the risks and benefits of such financing techniques and expected impacts on the city's long-term financial operations and credit ratings. The committee's findings will be presented in a written report to the city commission for consideration.

(Ord. No. 2013-03, § 1, 2-5-13)