BRADENTON, Fla. - Riviera Beach, Fla., plans to price $57 million of pension obligation bonds Wednesday as part of a comprehensive restructuring of its employee retirement system.
The bond offering is part of a plan implemented by the Riviera Beach City Council this year that city officials expect will save it as much as $124 million over the next 30 years.
The city's own pension plans will be closed to future employees, who will be required to join the state-run Florida Retirement System, which offers fewer benefits. Some existing employees voted to join the FRS, but the city will maintain its plans for those who opted not to participate in the state system.
"That's where the majority of savings will come over time," Sherman said, referring to cost-reductions from placing new staff in the FRS and ultimately reducing liabilities associated with the city's pension plans.
RBC Capital Markets and Academy Securities Inc. are underwriting the taxable public improvement revenue bonds.
Public Financial Management Inc. is the city's financial advisor. Greenspoon Marder PA is bond and disclosure counsel. Underwriter' counsel is Mark E. Raymond Esq.
Bond proceeds will be used to fully fund the unfunded accrued liability of the city's three pension plans to achieve long-term savings along with other measures.
The deal is preliminarily structured with 20-year serial bonds, but term bonds may be allowed.
The city will make a final decision about insuring the bonds closer to pricing, according to finance director Randy Sherman.
The pension bonds are rated A-plus by Standard & Poor's and A by Fitch Ratings. Both assign stable outlooks.
City officials expect about $26 million of the long-term savings will be attributable to interest earnings on the pension bond investment program.
The bonds are estimated to price with an all-in interest rate around 5%, Sherman said.
The city expects the invested bond proceeds will earn more than the assumed rate of return on the current plans, which is between 7.15% and 7.5%. Actual earnings have been in the "high 6s," he said.
Riviera Beach has a population of about 33,369 and covers about 8.5 square miles in east-central Palm Beach County.
The city has lower wealth indices than neighboring West Palm Beach, analysts said, and is largely built out.
Analysts said the city has very strong budget flexibility and liquidity, and is well on the way toward recovering from the great recession.
Based on an actuarial analysis, Fitch analyst Larry Levitz said the savings from the city's pension reform measures should be "significant" over time because of lower benefits offered by the FRS.
Both Fitch and S&P warned that the bonds substitute a hard debt obligation for a "soft" pension liability, and could expose the city to investment results that are less than bond costs. If that happens, the city's budget could be pressured.
"Some comfort is derived from the difference between projected low financing costs and an assumed conservative investment rate of return, as well as from anticipated savings from future workers' lower benefit levels," Levitz said.
While there will be no debt service reserve, Levitz said that is mitigated to a degree by the wide coverage from pledged non-ad valorem revenues securing the bonds. That coverage was 3.4 times based on 2014 revenues.
The city also has included an anti-dilution test limiting maximum annual debt service, including future debt, to no more than 50% of non-ad valorem revenues.
S&P analyst Stephen Doyle said the pension bond will not significantly change the city's liabilities overall.
Doyle also noted that the city's contributions to its retirement plans met or exceeded the annual required contribution in each of the last three fiscal years. The combined pension and health-benefit contributions were 14.8% of total governmental fund expenditures in 2014.
"From now on, we expect this ratio to fall drastically with the funding of all three plans with these bond proceeds," he said.
Riviera Beach's bond issuance was delayed a week to avoid a conflict with the $1 billion pension deal priced by Kansas on Aug. 12, officials said.
Kansas's offering sold with interest rates under 5% on all maturities between 2017 and 2045. The highest rate on the deal was 4.92% on a $414.9 million block of bonds maturing in the final year.
Some analysts and pension experts were critical of Kansas's transaction in part because the state has not fully funded its annual contribution.
