The city's underfunded pension fund just got a little extra cash. Check out the press release below:
MAYOR NUTTER ANNOUNCES $22.67 MILLION
CONTRIBUTION TO CITY PENSION FUND BY BOND REFINANCING
Philadelphia, December 12, 2012– Mayor Michael A. Nutter announced that the City has priced an innovative bond refinancing, that has generated a onetime $22.67 million contribution to the City's Municipal Pension Fund, a refinancing that does not increase any costs to the City or add any risks to the City's debt structure.
The City has reached an agreement with an investor to buy back $348.1 million maturity value zero coupon bonds at a discounted price. At the same time, the City sold $299.8 million City Service Agreement current interest refunding bonds through the Philadelphia Authority for Industrial Development (PAID). The bonds are federally taxable.
The City service agreement bond proceeds will be used to fund the repurchase of the zero coupon bonds from the investor, fund a capitalized interest account and fund the deposit to the Pension Fund. This refinancing will not increase net debt service of the City.
"Nancy Winkler is a great, talented City Treasurer who is always looking for creative and innovative ways to save money and strengthen the finances of the City and our pension fund. I am sure that Philadelphians join me in commending her for her creative work," said Mayor Nutter.
Despite making annual contributions of more than $450 million to the city's pension fund, it is underfunded by more than $4 billion so any incremental contributions help to raise the Plans funding level.
According to City Treasurer Nancy Winkler, over the course of the last 18 months the City Finance Director, Rob Dubow and the Treasurer have evaluated different financing structures to fund the repurchase from the investor in a manner that would generate a net economic benefit to the City and its pension fund without increasing risk. The investor purchased the pension bonds in 1999 when they were originally sold but with today's low interest rates it no longer wished to hold non-interest bearing bonds.
Yesterday, the City's underwriting team of Barclays, Goldman Sachs, Bank of America, Citi, Loop, Siebert Brandford Shank, and Wells Fargo received orders from thirty investors, which was significantly larger than the 6 to 10 investors targeted by the City, to purchase the refunding bonds at interest costs that would generate a net savings to the City of $22.67 million to fund the deposit to the pension fund.
As interest rates have fallen over the past several years, the City has been seeking to lower debt service costs and generate economic benefit to the City. The City has refinanced existing debt, and lowered the cost of letters of credit and other debt-related expenses. Since the beginning of FY12, the City has issued 9 refunding bonds, spanning each City issuer (General Obligation/General Fund, Airport, Water and PGW) and refinanced 16 separate Letters of Credit. This has generated $50.15 million of savings in the last two years in total, of which $26.78 million has benefitted the General Fund. This savings figure does not include the $22.67 million savings from today's bond issue which will be wired to the Pension fund next week.