Title
Lease In/Lease Out Termination; Financing of Capital Costs (B)
This item is in regards to the termination of the Lease In/Lease Out transaction in connection with Deerhaven Units 1 and 2.
Explanation
Pursuant to City Commission authorization given on September 14, 1998, GRU staff negotiated entering into a LILO transaction in connection with the Plant. In accordance with that City Commission authorization, bids were taken for an equity provider, equity credit enhancer and debt provider for the transaction. These bids resulted in the selection of The Bank of New York (BNY), through a special purpose limited liability company, as equity provider and affiliates of Ambac Assurance Corporation (Ambac) as equity credit enhancer and debt provider.
As part of the LILO financing structure, the City entered into two "Head Leases" of the Plant to an owner trust formed on behalf of BNY, as equity investor. The owner trust prepaid a substantial portion of the rent under the Head Leases to the City in a lump sum at the closing, with proceeds coming from the equity provider and the debt provider. The trust then leased the Plant back to the City under a fairly conventional "net" lease for a shorter term (the Lease), which granted to the City an option to purchase back the remaining term of the Head Leases at the end of the Lease term for a fixed purchase option price.
The transaction was closed on December 10, 1998, and the net proceeds received by the City totaled $35.6 million. Of this amount, $5.1 million was transferred to the City's General Fund under the General Fund Transfer formula. The remaining funds were used to pay down generation debt of the Utility.
As provided in the Participation Agreement entered into in connection with the LILO transaction, the City is required to provide additional credit support for the benefit of the equity investor in the event of a downgrade in Ambac's credit ratings. On November 19, 2008, Standard & Poor's low...
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