Title
2008 Series A Bonds and 2008 Series B Bonds (B)
This item is related to financing for costs of acquisition and construction.
Explanation
In October 2006, the City Commission authorized the Utility to enter into certain "floating-to-fixed" interest rate swaps in order to "lock-in" interest rates on $90,000,000 of new money Bonds expected to be issued in February 2008. In October 2006, the Utility entered into swaps totaling $90,000,000 with Bear Stearns Financial Products (BSFP) and JPMorgan Chase Bank (JPMorgan).
In November 2007, the City Commission authorized, among other things, (1) the financing of up to $205 million of new money for payment of Costs of Acquisition and Construction (capital projects) through the issuance of fixed-rate bonds; and (2) approved the selection of Goldman Sachs as Senior Manager for the bonds and authorized the appointment of additional Co-Managers if doing so would enhance the distribution of the bonds.
After the approval was received, GRU staff and our financial advisor determined that under current market conditions, in order for GRU to achieve the lowest all-in interest rate, it would be preferable to issue variable-rate bonds that are converted synthetically to a fixed rate through the use of the two existing "floating-to-fixed" interest rate swaps with BSFP and JPMorgan for $90 million of the new money for payment of Costs of Acquisition and Construction previously authorized. On January 14, 2008, the City Commission authorized the issuance of such synthetically fixed variable-rate bonds.
The issuance of the 2008 Series A and B Bonds for the purposes referred to above is scheduled to occur in mid-February. We recommend that the City Commission adopt the attached Authorizing Resolution which approves the sale of the 2008 Series A and B Bonds and, in order to afford Utilities staff the flexibility to determine when market conditions are best for pricing the fixed-rate 2008 Series A Bonds, delegates certain authority to the General Manager or her designee to determine specific details with respect to the 2008 Series A Bonds. (As a result of the entry by the City into the two interest rate swaps with BSFP and JPMorgan, the details of the variable rate 2008 Series B Bonds already have been determined, so no such delegation is required in connection with the authorization of those Bonds).
This delegation authorizes the General Manager or his designee:
(i) to determine, among other things:
(a) the aggregate principal amount of the 2008 Series A Bonds to be issued to fund Costs of Acquisition and Construction;
(b) the maturity dates of the 2008 Series A Bonds and the principal amounts of the 2008 Series A Bonds maturing on each maturity date and, if any 2008 Series A Bonds maturing on a particular date are to be issued as term bonds subject to mandatory redemption to satisfy sinking fund installments, the due dates and amounts of such sinking fund installments;
(c) the interest rates or rates to be borne by the 2008 Series A Bonds of each maturity;
(d) certain optional redemption provisions for the 2008 Series A Bonds;
(e) whether to procure municipal bond insurance for all or a portion of the 2008 Series A Bonds; and
(f) the underwriters' discount and the price at which the 2008 Series A Bonds will be sold to the Underwriters;
provided, however, that:
(1) the maximum aggregate principal amount of the 2008 Series A Bonds shall not exceed $105 million;
(2) the final maturity date of the 2008 Series A Bonds shall not be later than October 1, 2026;
(3) the maximum rate of interest that the 2008 Series A Bonds may bear shall be 7.00%;
(4) the spread over the "Treasury Rate" to be used to determine the price at which the 2008 Series A Bonds may be redeemed at the election of the City shall not exceed 1.00%; and
(5) the true interest cost for the 2008 Series A Bonds shall not exceed 6.25%; and
(ii) to make such changes to the documents (other than the Authorizing Resolution and the Nineteenth and Twentieth Supplemental Resolutions) as she determines are necessary or appropriate, subject to the approval of the City Attorney as to form and legality.
In addition, since the effective date of the interest rate swaps is February 1st, we also recommend that the City Commission authorize staff to amend the interest rate swaps to postpone their effective date to the expected date of issuance of the 2008 Series A and B Bonds and to allow for the amortization schedule to be changed if the financing team decides that it is beneficial to the Utility to do so.
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 2008 Series A and B 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 in accordance with this City Commission authorization and delegation.
Recommendations
The City Commission: 1) Adopt the attached resolution (Authorizing Resolution), which:
(a) incorporates by reference and adopts, and authorizes the execution and delivery of:
(i) a Nineteenth Supplemental Utilities System Revenue Bond Resolution (Nineteenth Supplemental Resolution) which authorizes the issuance, sale, execution and delivery of not to exceed $105,000,000 in aggregate principal amount of the City's taxable Utilities System Revenue Bonds, 2008 Series A (Federally Taxable) (2008 Series A Bonds) in order to provide monies needed for payment of Costs of Acquisition and Construction (capital projects) that cannot be financed on a tax-exempt basis, and delegates the authority to determine certain matters in connection therewith; and
(ii) a Twentieth Supplemental Utilities System Revenue Bond Resolution (Twentieth Supplemental Resolution) which authorizes the issuance, sale, execution and delivery of $90,000,000 in aggregate principal amount of the City's tax-exempt Variable Rate Utilities System Revenue Bonds, 2008 Series B (2008 Series B Bonds) in order to provide monies needed for payment of Costs of Acquisition and Construction that can be financed on a tax-exempt basis;
(b) in the case of the 2008 Series A Bonds:
(i) approves the form, and authorizes the execution and delivery, of a contract of purchase between the City and an underwriting group for which Goldman, Sachs & Co. serves as senior book-running manager, and delegates the authority to determine certain matters in connection therewith;
(ii) approves the form, and authorizes the execution and delivery, of a continuing disclosure certificate;
(iii) delegates the authority to procure municipal bond insurance for all or a portion of the 2008 Series A Bonds; and
(iv) approves the form and use of the preliminary official statement and the official statement relating to the 2008 Series A Bonds and authorizes the execution and delivery of said official statement;
(c) in the case of the 2008 Series B Bonds:
(i) approves the form, and authorizes the execution and delivery, of a contract of purchase between the City and Goldman, Sachs & Co., as sole underwriter;
(ii) in the event that the 2008 Series B Bonds are converted to the auction mode, the term mode or the fixed mode, approves the form, and authorizes the execution and delivery, of a continuing disclosure certificate;
(iii) approves the form, and authorizes the execution and delivery, of a remarketing agreement between the City and Goldman, Sachs, pursuant to which Goldman, Sachs will serve as the initial remarketing agent for the 2008 Series B Bonds;
(iv) approves the form, and authorizes the execution and delivery, of a tender agency agreement between the City and U.S. Bank Trust National Association (who currently serves as Trustee for our Utilities System Revenue Bonds), pursuant to which U.S. Bank Trust will serve as the initial tender agent for the 2008 Series B Bonds;
(v) approves the form, and authorizes the execution and delivery, of a standby bond purchase agreement between the City and The Bank of New York, pursuant to which The Bank of New York initially will provide liquidity support for any 2008 Series B Bonds that are tendered for purchase and not remarketed;
(vi) approves the form and use of the official statement relating to the 2008 Series B Bonds;
(vii) delegates the authority to extend the term of any facility providing liquidity support for the 2008 Series B Bonds or to procure another facility in substitution therefore; and
(viii) delegates the authority to remove the remarketing agent and/or the tender agent for the 2008 Series B Bonds and to appoint successor(s) therefore;
(d) in the case of the 2008 Series A and B Bonds:
(i) authorizes the authentication and delivery of the 2008 Series A and B Bonds;
(ii) authorizes the registration or qualification of the 2008 Series A and B Bonds under the blue sky laws of various states; and
(iii) authorizes certain City officials to take other actions in connection with the issuance, sale and delivery of the 2008 Series A and B Bonds.
1. Authorize the amendment of the interest rate swap transaction between the City and Bear Stearns Financial Products Inc. (BSFP) entered into on October 23, 2006 to (a) postpone the effective date of the swap to the expected date of issuance of the 2008 Series A and B Bonds and (b) allow for the amortization schedule to be changed if the financing team decides that it is beneficial to the Utility to do so, in order to lower the total debt service expected to be paid on the 2008 Series B Bonds.
2. Authorize the amendment of the interest rate swap transaction between the City and JPMorgan Chase Bank, N.A. (JPMorgan) entered into on October 23, 2006 to (a) postpone the effective date of the swap to the expected date of issuance of the 2008 Series A and B Bonds and (b) allow for the amortization schedule to be changed if the financing team decides that it is beneficial to the Utility to do so, in order to lower the total debt service expected to be paid on the 2008 Series B Bonds.
3. 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 [January 14????, 2008], and to take such other actions as may be necessary or advisable to proceed with the issuance of the 2008 Series A and B Bonds in accordance with this City Commission authorization.
Fiscal Note
Issuing new money debt and at current low interest rates will help hold down future debt service costs.
Drafter
Prepared by Jennifer Hunt, Utilities Chief Financial Officer
Reviewed by Raymond O. Manasco, Jr., Utilities Attorney
Submitted by Karen S. Johnson, General Manager