2010 Debt Report - Volusia County Government

RESTRUCTURING OF DEBT
There are usually three major reasons for restructuring debt: to reduce the issuer’s interest
costs, to restructure debt service; or to remove a burdensome or restrictive covenant imposed
by the terms of the bonds being refinanced. Due to the legal, financial advisory, and issuance
costs associated with the issuance of the new refunding bond, present value savings should
be calculated to determine whether a refunding is financially feasible. The following is a
brief discussion of restructuring methods.
• Refunding – A process whereby an issuer refinances an outstanding bond issue by issuing
new bonds. The proceeds of the new bond issue either are used to immediately retire the
outstanding obligations or are used to purchase a portfolio of U.S. Treasury securities
whose cash flows are used to pay off the remaining debt service of the old, refunded
bonds until they are called or mature.
o Current Refunding – a refunding in which the prior, refunded bonds are called or
mature within 90 days of issuance of the refunding bonds.
o Advance Refunding – the prior, refunded bonds remain outstanding until maturity
or their first call date. The maturity or call date may be years in the future.
Governmental bonds are generally limited to one advance refunding.
o Forward Refunding – the issuer may lock in existing low interest rates and refund
the bonds on their first call date. Therefore, all the terms of the transaction are
agreed upon today, but the transaction does not occur until the first day of the
current refunding period.
• Defeasance – To discharge the lien of an indenture relating to a bond issue and, in the
process, render inoperative restrictions under which the issuer has been obligated to
comply. Ordinarily, an issuer may defease an indenture requirement by depositing with a
trustee an amount sufficient fully to pay all amounts under a bond contract as they
become due. When defeased, the security lien of an indenture is released, and the debt is
legally satisfied even though it may not have been formally retired.
HISTORICAL REFERENCE
While the 2010 Comprehensive Annual Financial Report (CAFR) does not report defeased
debt from a prior year, details of the 2009 current refunding and defeased debt are included
in this section for historical reference. The transactions occurred during the months of
September and October 2009.
2009 CURRENT REFUNDING
On September 10, 2009, the county issued $5,812,000 of Capital Improvement Refunding
Revenue Bonds, Series 2009B and used existing debt service sinking fund resources to
refund the remaining portion ($7,005,000) of the Series 1998 Subordinated Lien Sales Tax
Revenue Bonds. The sinking fund resources along with the new issue provided sufficient
funds to purchase U.S. Government State and Local Government Series securities. These
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