CONCLUSION
On March 25, 2019, City Council approved (via CR19-18) that the Executive Director, Financial Strategy and Sustainability, be authorized to negotiate external financing, including signing any necessary documents, to a maximum of $13 million to refinance a one-time capital debt repayment due June 2, 2019 and that the required Borrowing Bylaw be provided to Council for approval along with a report summarizing the financial arrangements.
The Executive Director, Financial Strategy and Sustainability has negotiated external financing with RBC Capital Markets for a $12 million debenture issuance that includes a 6-year term at an interest rate of 2.35 per cent annum. To execute the borrowing City Council is required to pass a borrowing bylaw.
BACKGROUND
On May 25, 2009, Council approved Borrowing Bylaw No. 2009-34 pertaining to the borrowing of $41.5 million, including $25.5 million for the 2009 General Capital Plan and $16.0 million for the 2009 Water and Sewer Utility Capital Plan. The $25.5 million General Capital Plan debt was used to fund:
(a) General Capital requirements ($5.5 million);
(b) Evraz Place Redevelopment ($20 million). This represented the City’s 33.3 per cent share of the Municipal/Provincial/Federal grant for the multipurpose facility primarily made up of the multi-arena complex. The total cost of the project was approximately $60 million.
The $16.0 million Water and Sewer Utility Capital Plan debt was used to fund three projects:
(a) McCarthy Pump Station and Forcemains Upgrade;
(b) Infrastructure Renewal;
(c) Wastewater Treatment Plant Expansion, Improvement and Renewal.
In the May 25, 2009 Council report (CR09-77) where this debt was approved, the report originally contemplated that the debt repayment would reflect a term which more closely aligns with the economic life of the underlying infrastructure funded by this debt. The actual term of the debt was ten years (2009-2019), structured to be paid in equal annual payments from 2009 to 2018, and an outstanding balance of $20.8 million (principal plus interest), due in June 2019, payable through a one-time payment.
The one-time debt repayment of $20.8 million includes $12.8 million relating to the General Fund and approximately $8.0 million relating to the Utility Fund. The Utility Fund final payment is included in the 2019 Utility Operating Budget, funded through the General Utility Reserve. There is no available funding to pay the outstanding $12.8 million related to the General Fund.
In the 2019 Budget report to Council (CM18-15), Administration noted that it would bring forward a report to Council early in 2019 to discuss options on how to address the cost of the required payment and the potential of a new debt issuance. This new borrowing is to refinance the outstanding debt and structure the payments of the new debt such that the annual payment would closely align with the City’s annual budget for debt payments.
On March 25, 2019, City Council approved (via CR19-18) that the Executive Director, Financial Strategy and Sustainability, be authorized to negotiate external financing, including signing any necessary documents, to a maximum of $13 million to refinance a one-time capital debt repayment due June 2, 2019 and that the required Borrowing Bylaw be provided to Council for approval along with a report summarizing the financial arrangements. Refinancing this debt is the best option and is consistent with the original intent of repaying the debt over a term that is more closely aligned with the economic life of the underlying assets. While refinancing will result in an additional interest cost, there will be no incremental cost compared to the 2018 budgeted payment for this debt of $2.2 million. In other words, the City will not be required to identify new funding in the 2019 and future operating budgets to service this debt.
The purpose of this report is to facilitate the passing of a borrowing bylaw so that Administration can execute the borrowing.
DISCUSSION
The Executive Director, Financial Strategy and Sustainability has negotiated external financing with RBC Capital Markets for a $12 million debt issuance that includes the following terms and conditions:
(a) The term of the debenture is 6 years;
(b) The interest rate is 2.35 per cent per annum; and
(c) Interest payments will be made semi-annually. Principal payments will be made annually. Total annual payments from 2020 to 2025 will be approximately $2.13 million.
The proposed borrowing of $12 million is within the City of Regina’s authorized debt limit of $450 million. The City’s total debt outstanding as of May 27, 2019 was $316.9 million, 70% of the debt limit approved by the Saskatchewan Municipal Board (SMB). The source of funding for the debt repayments is the General Revenue Fund. While the payment to pay the outstanding debt related to the General Fund is $12.8 million, the 2019 budgeted debt payments were used to reduce the borrowing to $12 million.
RECOMMENDATION IMPLICATIONS
Financial Implications
While debt refinancing will result in additional interest costs, it will not significantly impact the available debt capacity within the City’s debt limit approved by SMB or the internal debt limits established by the City. The City’s debt outstanding at May 27, 2019 is $316.9 million.
Graph 1 shows the City’s projected debt based on projects included in the capital plan and this new borrowing of $12 million. The projected debt balance includes the guaranteed Buffalo Pound Water Treatment Corporation debt related to the Electrical Upgrade Project, the Regina Exhibition Association Limited placeholder debt totaling $13 million, which is guaranteed by the City, and other proposed future debt.
Graph 1: Projected Debt Position
Environmental Implications
None related to this report.
Policy and/or Strategic Implications
Refinancing $12 million of the debt due to June 2, 2019 allows the City to better align debt obligations to its cash flows and budget. It also provides an opportunity to better match the payback period of this debt with the useful life of the assets funded by the debt. This is consistent with the benefits model identified in the OCP, which requires the City to allocate the cost of delivering services to the beneficiaries.
Other Implications
None related to this report.
Accessibility Implications
None related to this report.
COMMUNICATIONS
Public Notice has been given as required by Section 101 and 102 of The Cities Act and Bylaw 2003-8.
DELEGATED AUTHORITY
The borrowing identified in this report requires the passing of a borrowing bylaw and therefore requires the approval of City Council
Respectfully submitted, 
| Respectfully submitted, 
|
June Schultz Director, Financial Services | Barry Lacey Executive Director, Financial Strategy and Sustainability |
Report prepared by:
Curtis Smith, Manager, Budget and Long-Term Financial Plannin