Title
Refunding of Utilities System Revenue Bonds, 1996 Series A; Financing for Construction; and Amendment of Certain Interest Rate Swap Transactions (B)
Staff recommends the adoption the attached resolution (Authorizing Resolution).
Explanation
In July 2005, the City Commission authorized, among other things (1) the refunding of the 1996 Series A Bonds through the issuance of either fixed-rate bonds or variable-rate bonds that are converted synthetically to a fixed rate through the use of a "floating-to-fixed" interest rate swap; and (2) the negotiation of one or more "floating-to-fixed" interest rate swaps with Goldman, Sachs and/or Bear, Stearns if the financing team determined that it was most beneficial to the Utility to issue variable-rate bonds that are converted synthetically to a fixed rate.
Upon the advice of the Utility's Financial Advisor and the Co-Senior Managers, Utilities staff entered into two interest rate swap transactions on September 21, 2005. The first was a swap with BSFP that permitted us to achieve a favorable fixed rate of interest for a synthetic advance refunding of a portion of the 1996 Series A Bonds which, in conjunction with the issuance of the 2005 Series C Bonds, is expected to provide net present value savings of $6.861 million. The second was a swap with GSMMDP that permitted us to achieve a favorable fixed rate of interest for a synthetic current refunding of a portion of the 1996 Series A Bonds which, in conjunction with the issuance of the 2006 Series A Bonds, is expected to provide net present value savings of $6.376 million.
On November 16, 2005, the 2005 Series C Bonds were issued to complete the advance refunding of a portion of the 1996 Series A Bonds.
The issuance of the 2006 Series A Bonds is scheduled to occur on July 6, 2006 in order to complete the current refunding of a portion of the 1996 Series A Bonds and to provide funds for capital projects. We recommend that the City Commission adopt the attached Authorizing Resolution which approves the sale of the 2006 Series A Bonds.
Current market conditions present an opportunity for the Utility to benefit from the flat LIBOR yield curve by amending the current interest rate swaps to convert the floating rate option thereunder (which is based on a percentage of 1-month LIBOR (a taxable rate)) to an alternate floating rate option, without increasing the fixed rates payable by the Utility under the swaps and without requiring any other additional payments by the Utility thereunder. The options that we currently are evaluating either have the Utility (1) receiving a percentage of 10-year LIBOR; or (2) receiving a percentage of 10-year LIBOR less a predetermined spread.
In the case of each of the alternate floating rate options described above, it is expected that the Utility will receive higher payments from the counterparties than would be the case under the existing floating rate option, thereby reducing debt service on the 2005 Series C Bonds and the 2006 Series A Bonds. If realized, these savings would be spread over the lives of those Bonds and would serve to reduce in small part the amount of future rate increases that will be required of our ratepayers. However, the optimal solution will depend on various issues, including market conditions existing at the time of execution. In addition, in the case of the swap with BSFP relating to the 2005 Series C Bonds, federal income tax considerations prevent us from executing the amendment until October 2, 2006. Thus, since it is not absolutely clear which option is best for us at this time, we recommend that staff and our Financial Advisor continue to review the options, and that the General Manager be delegated the authority to execute appropriate amendments to the swaps if and when it is determined to be in the Utility's best interests to do so.
This delegation authorizes the General Manager or her designee: i) to determine, among other things, the indices on which payments to GRU by BSFP and/or GSMMDP will be based, provided that the indices shall be based on 10-year LIBOR or 10-year LIBOR less a negotiated spread; and ii) to make such changes to the swap documents as she determines are necessary or appropriate, subject to the approval of the City Attorney as to form and legality.
The Clerk of the Commission, the General Manger or other Authorized Officers of the City may be required to take certain other actions and hire certain other professionals to proceed with the issuance of the 2006 Series A Bonds and the amendment of the swaps as described above. 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 the amendment of the swaps in accordance with this City Commission authorization.
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, a Seventeenth Supplemental Utilities System Revenue Bond Resolution which authorizes the issuance, sale, execution and delivery of $53,305,000 in aggregate principal amount of the City's tax-exempt Variable Rate Utilities System Revenue Bonds, 2006 Series A (2006 Series A Bonds) in order to (i) current refund a portion of the City's Utilities System Revenue Bonds, 1996 Series A (1996 Series A Bonds) and (ii) provide monies needed for payment of Costs of Acquisition and Construction (capital projects);
b) approves the form, and authorizes the execution and delivery, of a contract of purchase between the City and Goldman, Sachs & Co., as sole underwriter; c) approves the form, and authorizes the execution and delivery, of a remarketing agreement between the City and Goldman, Sachs & Co., pursuant to which Goldman, Sachs & Co. will serve as the initial remarketing agent for the 2006 Series A Bonds; d) 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 2006 Series A Bonds; e) approves the form, and authorizes the execution and delivery, of a standby bond purchase agreement between the City and SunTrust Bank, pursuant to which SunTrust Bank initially will provide liquidity support for any 2006 Series A Bonds that are tendered for purchase and not remarketed;
f) approves the form, and authorizes the execution and delivery, of an escrow deposit agreement relating to the current refunding of a portion of the 1996 Series A Bonds, authorizes the deposit of bond proceeds and certain other amounts into the escrow account to be established pursuant to said escrow deposit agreement, authorizes the investment of such monies in United States Treasury Securities - State and Local Government Series and ratifies the subscription of such United States Treasury Securities; g) authorizes the authentication and delivery of the 2006 Series A Bonds; h) approves the form and use of the official statement relating to the 2006 Series A Bonds; i) authorizes the registration or qualification of the 2006 Series A Bonds under the blue sky laws of various states; j) in the event that the 2006 Series A 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; k) authorizes certain City officials to take other actions in connection with the issuance, sale and delivery of the 2006 Series A Bonds; l) delegates the authority to extend the term of any facility providing liquidity support for the 2006 Series A Bonds or to procure another facility in substitution therefore; and m) delegates the authority to remove the remarketing agent and/or the tender agent for the 2006 Series A Bonds and to appoint successor(s) therefore. 2) Authorize an amendment of the interest rate swap transaction between the City and Bear Stearns Financial Products Inc. (BSFP) entered into on September 21, 2005 to allow for the index upon which the floating rate payable to the City thereunder is based (the floating rate option) to be changed if the financing team decides that it is beneficial to the Utility to do so, in order to lower the debt service expected to be paid on the City's Variable Rate Utilities System Revenue Bonds, 2005 Series C (2005 Series C Bonds); 3) Authorize an amendment of the interest rate swap transaction between the City and Goldman Sachs Mitsui Marine Derivative Products, L.P. (GSMMDP) entered into on September 21, 2005 to allow for the floating rate option thereunder to be changed if the financing team decides that it is beneficial to the Utility to do so, in order to lower the debt service expected to be paid on the 2006 Series A Bonds; and 4) Authorize the Clerk of the Commission, the General Manager and other Authorized Officers of the City (as defined in the City's Amended and Restated Utilities System Revenue Bond Resolution) to execute such documents as may be necessary to proceed with the transactions authorized above, and to take such other actions as may be necessary or advisable to proceed with such transactions in accordance with this City Commission authorization.
Fiscal Note
There will be substantial present value savings that will accrue to our ratepayers from the refunding in the years through 2026 and, if it is determined appropriate to amend the swaps as described above, it is expected that there would be additional savings over that period.
Drafter
Prepared by: Jennifer L. Hunt, Utilities Chief Financial Officer
Submitted by: Karen Johnson, Interim General Manager