AGENDA MEMORANDUM

 

Meeting Date:           July 26, 2010

 

From:                          Jerry Boop, Finance Director, CPA, CGFO

 

Subject:                      Resolution accepting TD Bank’s proposal to purchase the City’s not to exceed $20.0 Million Electric System Revenue Note, Series 2010 to finance Capital Improvements to the City’s Electric System and costs of issuing the Note; Authorizing the execution and delivery of a Loan Agreement with said Bank to secure the repayment of said Loan;

 

 

Staff Recommendation:

Staff recommends accepting TD Bank’s Proposal to purchase the City’s not to exceed $20.0 Million Electric System Revenue Note, Series 2010 to finance Capital Improvements and Cost of Issuance associated with the Electric System Smart Grid/AMI Project; authorizing the proper officials of the City to do any other additional tasks deemed necessary or advisable in connection with the execution of the Loan Agreement.

 

Analysis:

Following application, award and acceptance of the Department of Energy (DOE) Grant of $19,497,625 and State EECBG Grant of $1,240,000, the City issued an RFP to obtain financing to fund these requirements, prior to receiving Federal and State Grant reimbursements.  The balance remaining represents the City’s share of costs totaling $9,748,843 associated with the Electric System Smart Grid/ AMI Project.  At the end of the estimated 24 month construction project period and interest only period under the Note through October 1, 2013, the total amount of the Note including costs and interest, is projected to be approximately $10,047,000.  Funding of up to $20.0 M was obtained in order to allow for funding of the project as needed and provide for adequate time for the repayment of City expenses with Grant Proceeds.  At any point in time throughout the construction project period, actual expenses for Capital Outlay may exceed the final amount to be financed by the City.  However, funds obtained through the grant reimbursement process will be used to pay down the balance of the note throughout the construction phase until the project is completed.

 

Respondents to the RFP included SunTrust Bank, BBVA/Compass Bank, Bank of America, Branch Bank and Trust, Regions Bank and TD Bank.  Analysis of the respondents shows TD Bank’s Proposal to be the most favorable to the City with respect to funding and interest rates.   In order to obtain the greatest savings possible for the Electric Utility, Staff chose to pursue the respondents with the most favorable terms and drawdown capability.  TD Bank’s proposal offers a floating or variable rate based off of one month labor (London Interbank Offered Rate) that was 1.29% as of the date of the RFP responses, and will be adjusted every month for the first three year Interest Only period.  The first three years of the note are considered the drawdown or construction phase.  At the completion of the project, October 1, 2013, the remaining amount of the Note will be paid off over a ten year Term Period based on the City’s selection of either a floating or variable rate, or a fixed interest rate that will be applied to the Term Period of 10 years ending October 1, 2023.  TD Bank has included a “call provision” in their note at the end of 7 years or on October 1, 2020.  If the call provision is exercised by the bank, the Electric Utility will be given six months to satisfy the loan and obtain new financing by October 1, 2020.  In addition, the Electric Utility may pay off the Note without penalty at any time during the first three years which may allow for more favorable financing terms should market conditions allow or during a Term Period if a floating rate option is selected.

 

Options:

1.  Staff recommends accepting TD Bank’s Proposal to purchase the City’s not to exceed $20.0      Million Electric System Revenue Note, Series 2010 to finance Capital Improvements and related Cost of Issuance associated with the Electric System Smart Grid/AMI Project; authorizing the proper officials of the City to do any other additional things deemed necessary or advisable in connection with the execution of the Loan Agreement; Or

2.  Such alternative action as the Commission may deem appropriate.

 

 

Fiscal Impact

Based on information provided by R.W Beck’s AMI Business Case, future five year cash flows were projected by Larson Consulting LLC comparing the incremental cost/benefit of the Electric System with the AMI/Smart Grid improvements versus no AMI/Smart Grid project and respective Note debt service obligations.  Their projections indicate adequate additional cash flows through the end of fiscal year 2014.  In fiscal year 2015, cash flows are projected to be deficient by $244,395 as this is the first fiscal year that includes a mandatory principal repayment.  Staff will be monitoring the incremental cash flows monthly with our Financial Advisor and AMI/Smart Grid Project Team associated with the project and, if necessary, pursue other longer term financing prior to October 1, 2013 more closely aligned with the needs of the Electric Utility and the estimated useful life of the Smart Grid/AMI project assets.  The Utility also plans to pursue the benefit of prepaying some of the note prior to October 1, 2013 by utilizing the projected interest rate savings due to extremely low floating rates currently in the market versus a budgeted fixed rate of 4.00%.  If necessary, the Electric Utility will have access to available Renewal and Replacement Funds to cover the projected shortfall of $244,395.

 

Submission Date and Time:    7/22/2010 10:41 AM____

 

Department: __Finance_____________

Prepared by:  __Jerry Boop___________                     

Attachments:         Yes__X__   No ______

Advertised:   ____Not Required ______                     

Dates:   __________________________                     

Attorney Review :       Yes___  No ____

                                                

_________________________________           

Revised 6/10/04

 

Reviewed by: Dept. Head _JB_____

 

Finance  Dept. ___________JB_____                                     

                              

Deputy C.M. ___________________                                                                         

Submitted by:

City Manager ___________________

 

Account No. _________________

 

Project No. ___________________

 

WF No. ______________________

 

Budget  ______________________

 

Available _____________________

 

 

 

 


RESOLUTION NO. ___

A RESOLUTION OF THE CITY OF LEESBURG, FLORIDA ACCEPTING THE PROPOSAL OF TD BANK, N.A. TO PURCHASE THE CITY’S NOT TO EXCEED $20.0 MILLION ELECTRIC SYSTEM REVENUE NOTE, SERIES 2010 TO FINANCE CAPITAL IMPROVEMENTS TO THE CITY’S ELECTRIC SYSTEM, REIMBURSE PRIOR CITY CAPITAL EXPENDITURES, AND TO PAY COSTS OF ISSUING THE NOTE; AUTHORIZING THE EXECUTION AND DELIVERY OF A LOAN AGREEMENT WITH SAID BANK TO SECURE THE REPAYMENT OF SAID LOAN; PROVIDING FOR THE PAYMENT OF SUCH NOTE FROM THE NET REVENUES OF THE CITY’S ELECTRIC SYSTEM ON PARITY WITH CERTAIN OUTSTANDING ELECTRIC DEBT OF THE CITY, AND FROM CERTAIN GRANT PROCEEDS ALL AS PROVIDED IN THE LOAN AGREEMENT; AUTHORIZING THE PROPER OFFICIALS OF THE CITY TO DO ANY OTHER ADDITIONAL THINGS DEEMED NECESSARY OR ADVISABLE IN CONNECTION WITH THE EXECUTION OF THE LOAN AGREEMENT, THE NOTE, AND THE SECURITY THEREFOR; AUTHORIZING THE EXECUTION AND DELIVERY OF OTHER DOCUMENTS IN CONNECTION WITH SAID LOAN; DESIGNATING THE NOTE AS “BANK QUALIFIED;” PROVIDING FOR SEVERABILITY; AND PROVIDING AN EFFECTIVE DATE.

 

 

BE IT RESOLVED BY THE CITY COMMISSION OF THE CITY OF LEESBURG, FLORIDA, AS FOLLOWS:

AUTHORITY FOR THIS RESOLUTION.  This Resolution is adopted pursuant to the provisions of Chapter 166, Florida Statutes, the Florida Constitution, and other applicable provisions of law.

FINDINGS.  It is hereby ascertained, determined and declared:

The City of Leesburg, Florida (the “City”) deems it necessary, desirable and in the best interests of the City and its residents that the City finance the construction or acquisition of capital improvements to the City’s Electric System (the “Project”), all as more particularly described in the Loan Agreement (as defined herein).

Pursuant to Section 2(b), Article VIII of the State Constitution, and Section 166.021, Florida Statutes, municipalities have the governmental, corporate and proprietary powers to enable them to conduct municipal government, perform municipal functions, and render municipal services, and may exercise any power for municipal purposes, except when expressly prohibited by law.  The issuance by the City of its Electric System Revenue Note, Series 2010 (the “2010 Note”) and the execution and delivery of the Loan Agreement for the purposes of financing the Project is not prohibited by law.

Following the City’s issuance of its Request for Proposal #100312 and the receipt of responses, the City’s financial advisor, Larson Consulting Services, LLC (“Financial Advisor”), and City staff have reviewed the proposal of TD Bank, N.A. (the “Bank”) regarding a loan in an amount of not to exceed $20.0 million as provided in the 2010 Note (the “Loan”) to the City, the proceeds of which will be applied to finance the Project.

The 2010 Note will be issued as “Additional Bonds” in accordance with the provisions of City Resolution No. 7141 (the “Original Instrument”) and will be secured by the Pledged Revenues as provided in Section 6 hereof and the Loan Agreement pursuant to which the City will issue the 2010 Note to secure the repayment of the Loan.  Pursuant to the provisions of the Original Instrument at the time of issuance of the 2010 Note as Additional Bonds pursuant to the Original Instrument, the Project will become part of the Electric System within the meaning of the Original Instrument.

In accordance with the provisions of City Resolution 7141, it is hereby found that all of the covenants contained in said resolution shall be fully applicable to the 2010 Note except as otherwise provided in the Loan Agreement.

The City is advised by its Financial Advisor that due to the present volatility of the market for municipal debt, it is in the best interest of the City to issue the 2010 Note pursuant to the Loan Agreement by negotiated sale, allowing the City to issue the 2010 Note at the most advantageous time, rather than a specified advertised future date, thereby allowing the City to obtain the best possible price, interest rate and other terms for the 2010 Note and, accordingly, the City Commission of the City hereby finds and determines that it is in the best financial interest of the City that a negotiated sale of the 2010 Note to the Bank be authorized.

AUTHORIZATION OF FINANCING OF PROJECT. The City hereby authorizes the financing of the Project as more particularly described in the Loan Agreement.

ACCEPTANCE OF COMMITMENT LETTER WITH BANK.  Based on a recommendation from the City’s selection team and the City’s Financial Advisor, the City hereby accepts the commitment letter of the Bank dated June 18, 2010 (as amended on June 30, 2010) to provide the City with the Loan.

APPROVAL OF FORM OF AND AUTHORIZATION OF LOAN AGREEMENT AND EXECUTION OF LOAN AGREEMENT AND 2010 NOTE.  The Loan and the repayment of the Loan as evidenced by the 2010 Note shall be pursuant to the terms and provisions of the Loan Agreement and the 2010 Note.  The City hereby approves the Loan Agreement in substantially the form attached hereto as Exhibit A and authorizes the Mayor or the Mayor Pro-Tem of the City (collectively, the “Mayor”) and the City Clerk or any deputy or assistant City Clerk of the City (collectively, the “City Clerk”) to execute and deliver on behalf of the City the Loan Agreement by and between the City and the Bank substantially in the form attached hereto as Exhibit A (the “Loan Agreement”) and the 2010 Note in substantially the form attached to the Loan Agreement, with such changes, insertions and additions as they may approve, their execution thereof being evidence of such approval.

PAYMENT OF DEBT SERVICE ON 2010 NOTE.  Pursuant to the Loan Agreement, the 2010 Note will be secured by (i) the Net Revenues of the City’s Electric System on parity with the City’s outstanding Electric System Revenue Bonds, Series 2004 and the City’s outstanding Electric System Revenue Bonds, Series 2007A and Taxable Electric System Revenue Bonds, Series 2007B, and (ii) certain grant proceeds, all as more particularly described in the Loan Agreement.

AUTHORIZATION OF OTHER DOCUMENTS TO EFFECT TRANSACTION.  To the extent that other documents, certificates, opinions, or items are needed to effect any of the transactions referenced in this Resolution, the Loan Agreement or the 2010 Note and the security therefore, the Mayor, the City Clerk, the City Manager, the Finance Director and the City Attorney are hereby authorized to execute and deliver such documents, certificates, opinions, or other items and to take such other actions as are necessary for the full, punctual, and complete performance of the covenants, agreements, provisions, and other terms as are contained herein and in the documents included herein by reference.

PAYING AGENT AND REGISTRAR.  The City hereby accepts the duties to serve as Registrar and Paying Agent for the 2010 Note.

LIMITED OBLIGATION.  The obligation of the City to repay amounts under the Loan Agreement and the 2010 Note are limited and special obligations, payable solely from the sources and in the manner set forth in the Loan Agreement and shall not be deemed a pledge of the faith and credit or taxing power of the City.

DESIGNATION OF 2010 NOTE AS BANK QUALIFIED.  The City designates the 2010 Note as a “qualified tax-exempt obligation” within the meaning of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended (the “Code”).  The City does not reasonably anticipate that the City, any subordinate entities of the City, and issuers of debt that issue “on behalf” of the City, will during the calendar year 2010 issue more than $30,000,000 of “tax-exempt” obligations, exclusive of those obligations described in Section 265(b)(3)(C)(ii) of the Code. 

EFFECT OF PARTIAL INVALIDITY.  If any one or more provisions of this Resolution, the Loan Agreement or the 2010 Note shall for any reason be held to be illegal or invalid, such illegality or invalidity shall not effect any other provision of this Resolution or the 2010 Note or the Loan Agreement, but this Resolution, the Loan Agreement and the 2010 Note shall be construed and enforced as if such illegal or invalid provision had not been contained therein.  The 2010 Note and Loan Agreement shall be issued and this Resolution is adopted with the intent that the laws of the State of Florida shall govern their construction.

EFFECTIVE DATE.  This Resolution shall take effect immediately upon its adoption.

PASSED, APPROVED AND ADOPTED this 26th day of July, 2010.

 

CITY OF LEESBURG, FLORIDA

(SEAL)

 

 

By:                                                                              
                                      Mayor

ATTEST:


By                                                        ______

City Clerk

 

 

Approved as to form and correctness:

 

 

By                                                        ______

City Attorney

 

 

 

 

 

 

 

 


EXHIBIT A

LOAN AGREEMENT

 

(See Attached)