Title
Refunding of Utilities System Revenue Bonds, 1993 Series A & B and 1996 Series A, Other Financing Items (B)
Explanation
In December 2002 the City Commission authorized the issuance of up to $100 million of new money revenue bonds for payment of Costs of Acquisition and Construction (capital projects). That transaction was completed in March 2003 with the issuance of the Utilities System Revenue Bonds, 2003 Series A and 2003 Series B totaling $40.625 million.
Also in December 2002 the City Commission authorized the refunding of the 1993 Series A & B Bonds on either a fixed-rate or synthetic fixed-rate basis, at a time and in a manner deemed prudent by staff and GRU's Financial Advisor (Morgan Stanley & Co. Inc.) prior to the first call date of those Bonds on October 1, 2003. In February 2003, based on advice of GRU's Financial Advisor and staff's belief that rates might go up, all parties determined that it was prudent to proceed with a competitive bid for an interest rate swap to lock in the rates for the refunding bonds, then scheduled to be issued in July 2003. Based on a competitive bid, GRU entered into an interest rate swap transaction with JPMorgan Chase Bank, which locked in substantial savings of almost $7 million.
Since that time, with the assistance of Morgan Stanley, our Financial Advisor, we have continued monitoring market conditions in relation to the refunding. Market conditions have continued to change with interest rates dropping to unprecedented levels. During this time, the firm of Morgan Keegan & Company, Inc. began analyzing the swap and the potential benefits of terminating the swap. Morgan Keegan then approached GRU with a comprehensive analysis showing the benefits of terminating the swap, making the swap termination payment required under the agreement and entering into a fixed-rate refunding, which could result in additional savings. Their analysis was reviewed by GRU staff, verified by Morgan Stanley, and confirmed by Goldman, Sachs & Co., our senior underwriter. While these additional savings are anticipated at the time of the preparation of this agenda item, the benefit could increase, decrease or go away depending upon interest rate changes.
Given the additional savings that can be realized through future debt service payments, we recommend that the interest rate swap with JPMorgan be terminated.
Because of the substantial work done by Morgan Keegan and the value that their work has in relation to the refunding, we recommend adding them as Co-Manager for the fixed-rate refunding. Additionally, in the December 9, 2002 agenda item the City Commission approved among others, that AG Edwards & Sons, Inc. be a part of a fixed-rate financing. Since December 2002 the primary members of the AG Edwards team that covered the City have left AG Edwards' employment. Consequently, we recommend that AG Edwards be removed from the financing team.
In 1996 the City issued the 1996 Series A Bonds to refund previously outstanding Utilities System Revenue Bonds and to provide funds for construction. GRU has the ability to advance refund all or a portion of these bonds. While we might not normally consider doing so at this time, it is prudent that we advance refund a small portion of them in order to reach the needed votes for the amended bond resolution to come into effect. The work on the amended resolution was also authorized by the Commission in December 2002. The amended bond resolution will provide benefits, one of which is eliminating the debt service reserve. This will increase potential earnings and provide additional moneys needed to fund construction.
As a result of an accelerated timeline for completing the refunding, and in consideration of the significant time constraints of all parties involved, particularly the Commission during budget season, and the fact that we do not specifically know when we can complete the fixed-rate financing, we recommend the City Commission adopt the attached Authorizing Resolution which approves the sale of the 2003 Series C Bonds and delegates certain authority to the General Manager or his designee. This delegation authorizes the General Manager, or his designee, (i) to determine among other things (a) the aggregate principal amount of the 2003 Series C Bonds to be issued to refund the 1993 Series A & B Bonds and certain of the 1996 Series A Bonds, (b) the maturity dates of the 2003 Series C Bonds and the respective principal amounts of the 2003 Series C Bonds maturing on each maturity date, (c) the interest rates to be borne by the 2003 Series C Bonds of each maturity, (d) the identity of the particular 1996 Series A Bonds to be refunded and (e) the underwriters' discount and the price at which the 2003 Series C Bonds will be sold to the Underwriters; provided, however, that (w) the maximum aggregate principal amount of the 2003 Series C Bonds shall not exceed $125 million, (x) the final maturity date of the 2003 Series C Bonds shall not be later than October 1, 2013, (y) the true interest cost for the 2003 Series C Bonds shall not exceed 3.5% and (z) the net present value savings to be realized as a result of the refunding shall not be less than 6.00% of the principal amount of the 2003 Series C Bonds, (ii) to make such changes to the documents (other than the Authorizing Resolution and the Supplemental Resolution) as he determines are necessary or appropriate, subject to the approval of the City Attorney as to form and legality and (iii) to negotiate and execute the swap termination, including the amount to be paid by the City in order to terminate the swap.
The Clerk of the Commission, the General Manger or other Authorized Officers of the City (as defined in the Utilities Bond Resolution) may be required to take certain other actions and hire certain other professionals to proceed with the issuance of the 2003 Series C Bonds. Therefore, we recommend that these officials be authorized to take such other actions that may be necessary or desirable to proceed with the issuance and closing of the bond issue, and termination of the swap, in accordance with City Commission authorization and delegation.
Recommendations
The City Commission: 1) Authorize the termination of the interest rate swap with JPMorgan Chase Bank entered into in March, 2003 in anticipation of the refunding of the Utilities System Revenue Bonds, 1993 Series A & B (1993 Series A & B Bonds); 2) Approve the addition of Morgan Keegan & Company, Inc. as Co-Manager for the fixed-rate refunding; 3) Approve the deletion of AG Edwards & Sons Inc. from the refunding team; 4) Authorize the advance refunding of a portion of the Utilities System Revenue Bonds, 1996 Series A (1996 Series A Bonds) on a fixed-rate basis; 5) Adopt a Resolution (Authorizing Resolution) incorporating by reference and adopting, and authorizing the execution and delivery of a Thirteenth Supplemental Utilities System Revenue Bond Resolution (Supplemental Resolution) for the purposes of (a) authorizing the issuance, sale, execution and delivery of not to exceed $125,000,000 of the City of Gainesville, Florida's Utilities System Revenue Bonds, 2003 Series C (2003 Series C Bonds) in order to provide a portion of the moneys necessary to refund certain of the City's outstanding Utilities System Revenue Bonds, 1993 Series A, 1993 Series B and 1996 Series A and delegating the authority to determine certain matters in connection therewith and (b) making certain amendments to the Amended and Restated Utilities System Revenue Bond Resolution adopted by the City on January 30, 2003; approving the negotiated sale of the 2003 Series C Bonds and approving the form, and authorizing the execution and delivery, of a contract of purchase and delegating the authority to determine certain matters in connection therewith; approving the form, and authorizing the execution and delivery, of a continuing disclosure certificate; approving the form, and authorizing the execution and delivery, of an escrow deposit agreement; authorizing the deposit of bond proceeds and certain other amounts into the escrow account to be established pursuant to the escrow deposit agreement and the investment of such moneys in United States Treasury Securities - State and Local Government Series and ratifying the subscription therefor; delegating the authority to procure municipal bond insurance for all or a portion of the 2003 Series C Bonds; authorizing the authentication and delivery of the 2003 Series C Bonds; approving form and use of the preliminary official statement and the official statement relating to the 2003 Series C Bonds and authorizing the execution and delivery of said official statement; authorizing the registration or qualification of the 2003 Series C Bonds under the blue sky laws of various states; authorizing certain City officials to take other actions in connection with the issuance, sale and delivery of the 2003 Series C Bonds; providing a severability clause and providing an effective date; and 6) Authorize the Clerk of the Commission, the General Manager and other Authorized Officers to execute such documents as may be necessary to proceed with the transactions authorized above and on December 9, 2002, and to take such other actions as may be necessary or advisable to proceed with the issuance of the 2003 Series C Bonds in accordance with this City Commission authorization.
Fiscal Note
There will be additional savings that accrue to our ratepayers in an amount that is expected to total more than $1.0 million for the years 2005 through 2013. These additional savings will help keep our customers' rates lower.
Drafter
Prepared by: Kim C. Simpson, Utility Finance Director
Submitted by: Michael L. Kurtz, General Manager