Item No: 5M
Meeting Date: November 26, 2012
From: William Spinelli, CPA
Subject: Memorandum for 2004 Bond Refunding Options
Option 1: Do nothing- Effect: Lose savings from SunTrust refunding of approximately $3.1 million as approved by the City Commission
Option 2: Proceed with SunTrust refunding; use City cash for termination cost of approximately $1.3 million.
Option 3: Proceed with SunTrust refunding, finance $1.3 million termination cost with the SunTrust bank note.
Option 4: Do not go forward with the SunTrust Bank Note, and move forward with three separate bond refinancing in the spring of 2013. As per Wells Fargo, the bank will amend the DSDA agreement, so the City will not have to pay the$1.3 million termination fees. The City will incur higher bond issuance costs for these transactions.
Following City Commission approval on October 22nd to proceed with the SunTrust RFP response and 20 Year Tax Exempt Fixed Rate of 3.18% for the partial refundings on the City’s respective 2004 Utility and Electric Utility Revenue bonds, the City proceeded to work with Bond Counsel and Larson Consulting Services (LCS) towards a closing set for November 7th.
As in 2009 when the City refunded its 1999 Capital Improvement Bonds with a 2009 Fixed Rate Bank Placement refunding, the two refundings for this year also required an amendment to an existing July 2005 Debt Service Deposit Agreement (“DSDA”) with Wachovia Bank/Wells Fargo. This DSDA , or investment agreement, thru a City approved Bid Process in 2005, provided the City with approximately $925,000 in July 2005. LCS worked in 2009 to obtain Wachovia bank approval for the DSDA amendment, and expected the same result in 2012.
The DSDA is an arrangement whereby the City sends its monthly 1/6th and 1/12th sinking fund deposits to a Custodian Bank, US Bank, that releases these funds to Wachovia/WellsFargo upon receipt of US Treasury securities held in the City’s name that mature into Cash prior to each semi- annual interest payment and annual principal payment for the 1999/2009 Bonds/Note, the 2004 Electric Bonds, the 2004 Utility Bonds, and the 2004 Capital Improvement bonds. The Agreement goes out to 2034 and the present value of these funds is what generated the 2005 cash receipt to the City of $925,000.
LCS approached Wells Fargo (they acquired Wachovia Bank) with the same request that they had approved in 2009, with the same documents and objectives. Wells Fargo told us that they were not allowing any amendments to these DSDA agreements. Per Jeff Larson, this response did not make sense, as there was no additional risk or exposure to the Bank, and in fact the City’s Electric Utility and Utility have better ratings today than in 2009.
1. See above options 1-4.
2. Such alternative action as the Commission may deem appropriate
Option 1- loss to the City of approximately $3.1 million (PV savings)
Option 2-Gross savings of $4,178,750 less $1,300,000 termination fees (annual savings of approximately $155,000).
Option 3- Annual savings from option #2 goes from $155,000 to $65,000
Option 4- There should be no termination requirements, which saves the City $1.3 million. Bond issuance costs will be higher.
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Reviewed by: Dept. Head ________
Finance Dept. __________________
Deputy C.M. ___________________
City Manager ___________________
Account No. _________________
Project No. ___________________
WF No. ______________________