Staff recommends approval of the resolution authorizing execution of the Indemnity and Hold Harmless Agreement with Citigroup Global Markets, Inc.
In July of 2007, the City issued $11,265,000 in tax exempt bonds (part of a larger issuance) to fund various improvements to the City’s electric infrastructure. During the transaction, an error was made by Citigroup (functioning as Underwriter) with regard to the pricing of the bonds. Citigroup placed the bonds at a 4.75% interest rate, but the Purchase Agreement and closing documents all reflected a 5% interest rate, and Citigroup paid the City $353,908 more than the 4.75% rate would have provided. The error was entirely Citigroup’s.
The City and Citigroup examined the alternatives available to remedy the discrepancy and determined that it was in each party’s best interest to adjust the closing documents to reflect the 5% rate and for the City to retain the additional funds. To attempt to un-do the error could prove disastrous due to the extraordinary effort required to obtain bondholder consent after the bonds have been sold and resold, and the financial liability incurred by any post-closing change. This conclusion was arrived at after several months of deliberation between Citigroup’s team and the City’s team (City Manager, Finance Director, Financial Advisor, City Attorney, Bond Counsel, and Disclosure Counsel).
Citigroup has agreed to reimburse the expenses incurred by the City as a result of the error, up to $25,000. City staff believes this will cover the costs. Citigroup will also hold the City and its counsel harmless from claims resulting from the incorrect information that Citigroup provided. The City will pay the higher interest rate of 5%, but is made “whole” by retaining the $353,908.
1. Approve the resolution authorizing execution of the Indemnity Agreement; or
2. Such alternative action as the Commission may deem appropriate
The City will retain the $353,908 and will pay 5% on the bonds, thus there is additional capital available for electric infrastructure projects, yet the interest payment is .25% higher.
Prepared by: ______________________
Attachments: Yes____ No ______
Advertised: ____Not Required ______
Attorney Review : Yes___ No ____
Reviewed by: Dept. Head ________
Finance Dept. __________________
Deputy C.M. ___________________
City Manager ___________________
Account No. _________________
Project No. ___________________
WF No. ______________________
A RESOLUTION OF THE CITY COMMISSION OF THE CITY OF LEESBURG, FLORIDA AUTHORIZING THE MAYOR AND CITY CLERK TO EXECUTE AN INDEMNITY AND HOLD HARMLESS AGREEMENT WITH CITIGROUP GLOBAL MARKETS, INC. IN REGARDS TO THE CITY'S 2007A ELECTRIC SYSTEM 2037 TERM BONDS; AND PROVIDING AN EFFECTIVE DATE.
BE IT RESOLVED BY THE CITY COMMISSION OF THE CITY OF LEESBURG, FLORIDA:
THAT the Mayor and City Clerk are hereby authorized to execute an Indemnity and Hold Harmless Agreement with Citigroup Global Markets, Inc. to cover the expenses and liability associated with an error contained in the documents for the 2007A Electric System 2037 Term Bonds.
THAT this resolution shall become effective immediately.
PASSED AND ADOPTED by the City Commission of the City of Leesburg, Florida, at a regular meeting held the __13th___ day of _October___ 2008.
INDEMNITY AND HOLD HARMLESS AGREEMENT
THIS AGREEMENT is made and entered into as of the 18th day of August, 2008, between THE CITY OF LEESBURG, FLORIDA (hereafter referred to as “The City”) and CITIGROUP GLOBAL MARKETS INC. (hereafter referred to as “Underwriter”).
That the City utilized the services of Underwriter in connection with the issuance by the City of its Electric System Revenue Bonds, Series 2007A 2037 Term Bonds (the “Bonds”). During a routine post – closing audit Underwriter discovered that it had provided erroneous information to the City and other members of its finance team as to the pricing of the Bonds, and had paid over to the City excess funds in the amount of $353,908.00 at the time the proceeds from the sale of the Bonds were transferred to the City. The City and the Underwriter have now determined that it would be in the best interests of both to leave in place the interest rate on the bonds of 5% which was the result of the erroneous information, for the City to retain the excess funds which were transmitted to it due to the error and to pay the interest on the bonds at the 5% rate, and for the parties to cooperate in adjusting the other closing documents to reflect an interest rate of 5% on the bonds. The City is requiring, as a condition of proceeding, that Underwriter indemnify it against the costs it has incurred by reason of the error.
NOW THEREFORE, for and in consideration of the City agreeing to pay a 5% rate on the bonds and to adjust the closing documents to reflect that rate as necessary, and other good and valuable considerations, Underwriter hereby agrees as follows:
1. Underwriter hereby agree to, and shall, pay and reimburse and be liable to City and each director, officer and employee of the City, and to Fred Morrison, the City’s outside general counsel (City and each such other person being an "Indemnified Person") on demand for, and to indemnify and hold harmless each such Indemnified Person from and against, without limitation, any and all losses, liabilities, judgments, claims, causes of actions, costs and expenses (including fees and disbursements of legal counsel and financial advisors) (collectively referred to herein as "Losses") incurred or suffered by an Indemnified Person in any way, directly or indirectly, arising out of, related to, or connected with the furnishing by Underwriter of incorrect information regarding the pricing of the Bonds and the coupon rate thereon (the "Matter"), including, without limitation, (i) any claim, cause of action, litigation, proceeding, action or investigation (whether civil, criminal or administrative and whether sounding in tort, contract or otherwise and whether such Indemnified Person is a party to such litigation, proceeding or investigation) in any way directly or indirectly, arising out of, related to, or connected with, the Matter and (ii) Losses resulting from, arising out of or in any manner connected with, directly or indirectly, (a) a determination that City or any other Indemnified Person breached its or their professional, fiduciary, statutory, regulatory or contractual duty in connection with the Matter, and (b) the enforcement of this agreement, provided, however, that the foregoing indemnity (the "Indemnity") shall not be applicable to any Losses suffered or incurred by an Indemnified Person as a result of an Indemnified Person's gross negligence or willful misconduct, as determined by a judgment of a court that is binding on such Indemnified Person, is final and is not subject to review on appeal. The City and the Underwriter agree that the expense component of the Indemnity shall be capped at $25,000.
The undersigned hereby represent and warrant that this agreement and the Indemnity contained herein have been duly authorized, executed and delivered on each of their respective behalves and constitutes their legal, valid and binding obligations enforceable in accordance with their terms, except as such enforceability may be limited by (i) bankruptcy, insolvency or other similar laws affecting creditors' rights generally and (ii) general principles of equity; and hereby waives any defenses based upon the invalidity of such representations and warranties.
This agreement and the representations and warranties contained herein shall be binding upon each of the undersigned and its successors and assigns and shall inure to the benefit of each Indemnified Person and its successors and assigns.
The Indemnity authorized herein shall be in addition to any other remedies, relief or indemnification available to each Indemnified Person. The rights and remedies conferred hereunder shall be cumulative and the exercise or waiver of any such right or remedy shall not preclude or inhibit the exercise of additional rights or remedies or the subsequent exercise of such right or remedy. In any action to enforce this letter agreement, the prevailing party shall be entitled to recover its reasonable attorney’s fees and court costs, whether at trial, on appeal, in any proceedings to collect or enforce any judgment or decree obtained, and in any proceedings in bankruptcy or insolvency.
The undersigned each agree that (i) the terms of this agreement and the Indemnity contained herein will be governed by and construed in accordance with the substantive laws (and not the choice of law rules) of the State of Florida and (ii) all actions and proceedings relating to or arising from, directly or indirectly, this agreement and the Indemnity contained herein may be brought by any Indemnified Person in courts located within the State of Florida with venue in Lake County, Florida, and each of the undersigned hereby submits to personal jurisdiction of such courts for such actions or proceedings.
(remainder of page intentionally
This letter agreement may be executed in separate counterparts. Facsimile or electronically transmitted signatures shall be as fully binding on the parties as original signatures.
Citigroup Global Markets Inc.
The City of Leesburg