title
TAXABLE PENSION OBLIGATION REVENUE BONDS, SERIES 2003A (B)
A RESOLUTION OF THE CITY COMMISSION OF THE CITY OF GAINESVILLE, FLORIDA, AMENDING RESOLUTION NO. 020918 OF THE CITY RELATED TO THE CITY'S TAXABLE PENSION OBLIGATION REVENUE BONDS, SERIES 2003A (EMPLOYEES' PLAN) AND TAXABLE PENSION OBLIGATION REVENUE BONDS, SERIES 2003B (CONSOLIDATED PLAN); APPROVING THE FORM AND AUTHORIZING THE EXECUTION AND DELIVERY OF A MASTER AGREEMENT, SCHEDULE, CREDIT SUPPORT ANNEX AND CONFIRMATION WITH CITIBANK, N.A., NEW YORK PERTAINING TO AN INTEREST RATE SWAP TRANSACTION RELATING TO SUCH BONDS; PROVIDING AN ADDITIONAL COVENANT TO BUDGET AND APPROPRIATE FROM LEGALLY AVAILABLE NON-AD VALOREM REVENUE TO SUPPORT CERTAIN TERMINATION PAYMENTS UNDER THE MASTER AGREEMENT; DELEGATING TO THE CITY MANAGER, THE ADMINISTRATIVE SERVICES DIRECTOR OR THE FINANCE DIRECTOR OF THE CITY THE AUTHORITY TO EXECUTE AND DELIVER SUCH DOCUMENTS ON BEHALF OF THE CITY UNDER CERTAIN DELEGATION PARAMETERS; PROVIDING CERTAIN OTHER DETAILS IN CONNECTION WITH SUCH TRANSACTION; PROVIDING AN EFFECTIVE DATE.
recommendation
The City Commission adopt the resolution authorizing the execution and delivery of a master agreement, schedule, credit support annex, and confirmation with Citibank, N.A., New York, and delegating to the City Manager, Administrative Services Director or Finance Director the authority to execute and deliver such documents.
explanation
At its February 23, 2004 meeting the City Commission heard a presentation on a proposed Taxable Pension Obligation Bond interest rate swap. The Commission took action to authorize the City Manager or his designee, with the advice of the City's financial advisor, to negotiate and when market conditions justify, execute such an interest rate swap agreement.
Market conditions are currently favorable for execution of the swap transaction. As indicated during the February 23 presentation, one of the final steps necessary preceding execution of the swap is amending Resolution No. 020918 which authorized the issuance of the underlying Series 2003 A & B Taxable Pension Obligation Revenue Bonds (the "2003 Bonds").
This resolution amends the definition of "Bond Service Requirement" contained in Resolution No. 020918, adopted by the City on February 24, 2003 (the "Pension Resolution"), related to the 2003 Bonds, and amends the anti-dilution test contained in Section 9.01 of the Pension Resolution, in each case so the City may enter into Qualified Hedge Agreements with respect to, and subsequent to the issuance of, the 2003 Bonds. The Resolution contains a separate covenant to budget and appropriate, solely from Non-Ad Valorem Revenues, amounts sufficient to pay any termination payment that might become due under any such Qualified Hedge Agreement (after providing for all payments due on the 2003 Bonds and paying for essential government services). The Resolution delegates to the City Manager, the Administrative Services Director and the Finance Director (each a "City Authorized Representative" in the Resolution) the power to enter into a Qualified Hedge Agreement (including a Standard ISDA Master Agreement, Schedule and Confirmation, and Credit Support Annex to the extent the City elects to post collateral) with Citibank, N.A. as the counterparty and Qualified Swap Provider, subject to the satisfaction of certain delegation parameters described therein relating to the credit rating of the Qualified Swap Provider, the notional amount of the swap, the duration of the trade, the minimum fixed rate payable by the Qualified Swap Provider, and the floating rate payable by the City.
Fiscal Note
Creation of this synthetic variable rate debt is designed to provide for 1) generation of interest savings over the current 100% fixed rate structure that currently exists on the pension obligation bonds and 2) a better matching of interest earnings on the bond proceeds deposited in the pension funds with interest expense associated with the Series 2003 bonds. In rising interest rate environments, the increased expense associated with the rising variable rate payment on the swap should be offset by increased interest earnings on the proceeds. In a declining interest rate environment, the reduced interest earnings on the proceeds should be mitigated by the net positive cash flow that results from the lower variable rate payment on the swap. The net result is more stable and predictable net cash flows.