TITLE
Recommendation to adopt resolution authorizing City Manager to execute amendments to certain documents restructuring the 2007 Natural Gas Purchase Revenue Bonds issued by the Long Beach Bond Finance Authority to acquire a 30-year supply of natural gas for ratepayers of Long Beach Gas and Oil. (Citywide)
DISCUSSION
The Long Beach Gas and Oil Department (LBGO) operates the City-owned natural gas utility, serving about 150,000 ratepayers primarily in the cities of Long Beach and Signal Hill. In 2007, the Long Beach Bond Finance Authority (Authority) issued Natural Gas Purchase Revenue Bonds Series 2007A $635,665,000 (Fixed Rate) and Series 2007B $251,695,000 (LIBOR Index Rate Bonds) to finance the prepayment to Merrill Lynch Commodities, Inc., for a 30-year supply of natural gas for LBGO. This resulted in annual savings to the Gas Fund of $7.2 million for ongoing funding of LBGO's long-term infrastructure and pipeline replacement projects.
Since the bonds were originally issued, financial market conditions have changed considerably, providing an opportunity for the City to achieve significant upfront savings from this deal. The LIBOR floating rate bonds are currently trading at a significant discount to par value, as are to a lesser extent the fixed rate bonds. This is primarily due to investors' perceptions regarding the stability of financial institutions. Under current market conditions, the City's financial advisor and investment banker advise that a number of investors would be willing to sell (tender) their bonds back to the City and Merrill Lynch at a significant discount, providing savings to the City. The tendered bonds would reduce, by approximately 30 percent, Merrill Lynch's contracted natural gas supply commitment to LBGO, which LBGO will replace with like volumes purchased at market prices. In exchange, the Long Beach Bond Finance Authority would receive upfront the present value of the future 28 years of annual savings on the remaining natu...
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