HomeMy WebLinkAbout1988-05-03; City Council; 9410; Palomar Airport Road Assessment District Selection of Underwriter8 &
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J OF CARLSBAD - AGENW BILL
AB# qL// 0 TITLE: PALOMAR AIRPORT ROAD MTG. 513188 ASSESSMENT DISTRICT --
DEPT. F1N CITY MGRs
RECOMMENDED ACTION:
SELECTION OF UNDERk-RITER
Adopt Resolution No. ff-/4/ selecting Smith Barney as the underwriter for the
Palomar Airport Road Assessment District.
ITEM EXPLANATION
The City of Carlsbad is moving forward with the Palomar Airport Road Assessment
District.
June with the construction taking about nine months to complete.
In order to meet this schedule it is appropriate to select an underwriter now tc
begin working on structuring the bond issue and preparing for the upcoming bond
sale.
In late March,
interest in assisting the City with this issue.
considering the firms' experience, the staff assigned to the project, and the fc
structure of each, the City staff is recommending the selection of Smith Barney
represented by Robert L. Anderson.
The Smith Barney proposal is priced competitively and provides the City with
experienced staff to help guide the financing along.
The firms contacted include:
The tentative calendar for this project calls for the sale of bonds
the City solicited proposals from sewer underwriters with an
After reviewing all proposals
Drexel Burnham Rauscher Pierce Refsnes
Stone & Youngberg
Sutro & Co., Inc. Smith Barney
Prudential Bache
Security Pacific Merchant Banking Group
The fees proposed by Smith Barney should total approximately 1.7% of the bond
issue (about $17 per $1,000 bond).
to 2.3% of the issue.
the bottom of a range of costs from 1.5% to 1.9%.
FISCAL INPACT
The selection of Smith Barney as underwriter provides the City with a fair and
equitable base price structure for the issue. On an issue of $3.1 million Smith
Barney would collect fees of about $53,000. These costs will be included in the
issue size and made part of the assessment.
EXHIBITS
1. Resolution No. gf-)L// accepting the proposal. of Smith Barney to act as
Fees proposed by other firms ranged from 1.5
The 1.5% figure proposed by Drexel Burnham was proposed a
underwriter for the Palomar Airport Road Assessment District.
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RESOLUTION NO. 88-141 --
A RESOLUTION OF THE CITY COLTNCIL OF THE CITY
OF CARLSBAD, CALIFORNIA, APPOINTING SMITH
BARNEY TO ACT AS THE CITY' UNDERhXITER ON THE
PALOMAR AIRPORT ROAD-WEST ASSESSMENT DISTRICT
(ASSESSMENT DISTRICT NO. 86-1)
hXEREAS, the City of Carlsbad intends to issue bonds for the improvemei
of a portion of Palomar Airport Road, and
WHEREAS, the City requires the services of an underwriter for the issui
said bonds, and
WHEREAS, the City has selected Smith Barney to act as the City's
underwriter in the above transaction because of their excellent staff and
competitive pricing structure.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carl$
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as follows:
1. That Smith Barney shall act as underwriter in the above transactio1
2. That the fees and compensation for said services shall be as descr
in the attached proposals which are incorporated herein by reference, and ari
contingent on the sale of bonds.
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3. That the City Council reserves the right to remove Smith Barney fro
this project at any time.
PASSED, APPROVED AND ADOPTED at a regular meeting of the City Council o
the City of Carlsbad held on the 3rd day of May , 1988, by the following
vote, to wit:
AYES: Council Members Lewis, Kulchin, Pettine, Mamaux and Larson
NOES: None
ABSENT: None
-4 CL &[k&* UDE A. LEWIS, Mayor
ATTEST : *
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CITY OF CARLSBAD
Palomar Airport Assessment District
Request to Serve as Underwriter
April 1,1988
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;\h i SMITHBARNEY \\t!' ' \'
I April 1, 1988
Mr. James F. Elliott
Finance Director City of Carlsbad
1200 Elm Avenue Carlsbad, CA 92008
Dear Mr. Elliott:
Thank you for considering Smith Barney as the City's underwriter on the Palomar Airport Assessment District Project. We are very familiar with the project area and we understand the critical need for these road improvements.
This appears to be a very straight forward financing. Nonetheless, both Mark Epstein and I will be available to assist you in any way you find necessary. We recognize that this is not a large financing by most standards. However, we also know that good relationships are developed over time, and by assisting our clients whatever their need may be. Should
Smith Barney be selected as underwriter on this project, we will commit all of our
resources necessary to make this a successful financing.
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Sincerely,
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obert L. Anderson
Vice President
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CITY OF CARLSBAD Palomar Airport Assessment District Request to Serve as Underwriter April 1, 1988
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TABLE OF CONTENTS
Page
1. FEES ............................................................ 1
2. LOCAL PRESENCE AND EXPERIENCE WITH 1913/1915ACTDISTRICTS ....................................... 2
3. PERSONNEL TO BE ASSIGNED TO THIS PROJECT . . . . . . . . . . . . . . . . . . . . 4
4. MARKETING PLAN AND CAPABILITY . . . . . . . . . . . . . . . . . . . . . . . . .. .. . . . 5
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5. PRICING STRATEGIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
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CITY OF CARLSBAD
Palomar Airport Assessment District Request to Serve as Underwriter April 1, 1988 Page 1
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I 1. FEES
Based on our understanding of the City's financing, we believe that the following fees fairly reflect the cost of managing and selling this financing as of March 29, 1988. All fees quoted above are payable on a contingent basis.
TABLE 1
$3J0O90O0 City of Carlsbad Palomar Airport Assessment District
Proposed Fee Structure
$/1,000
Management Fee $1.50 Underwriting Fee .SO 15.00
3.00
Takedown
Expenses *
GROSS SPREAD $20.00
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Palo m ar Airport Assessment District Request to Serve as Underwriter April 1, 1988 Page 2
1.
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2- LOCAL PRESENCE AND EXPERIENCE WITH 1913/1915 ACT DISTRICTS
Local Presence
Even though Smith Barney is one of the largest underwriters of municipal bonds in the
United States, we are very aware of the need to provide a timely response to our clients
locally. Our commitment to the communities of the greater San Diego area is evidenced
by the firm's decision to assign two of its California public finance bankers to service our clients in this area, from this area. While some firms are "cutting back" public finance personnel, and in some instances consolidating local offices into so called major cities,
we are doing the opposite. We believe in the future of San Diego and the value of
providing local people who can respond quickly to client needs. We also realize that
being available to assist local staff and elected officials in formulating plans or finding
solutions to problems, while extremely important, is nonetheless usually more accepted if that assistance comes from local experienced professionals.
With our local presence we have become part of the community and continue to endeavor to involve ourselves in the issues of local government, our high schools and colleges, etc. This, we believe, helps us to better serve our clients, not only when we underwrite various bond issues, but as we sell them. With greater depth of knowledge of the area,
we find it much easier to explain to a potential investor the situation surrounding the
issuance of debt for our clients.
Table 2, which follows, lists the recent experience and reference for Robert Anderson,
who recently joined Smith Barney.
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TABLE 2 San Diego County 1913-1915 Act Financing Experience
Negotiated Assessment District Issues
Contact Issue Amount
Warren Diven City of San Marcos Assessment District #1 $3,400,000
City Attorney (NordaN Road)
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(619) 756-5994
James F. Elliott City of Carlsbad Assessment District #85-2 9,600,000
Finance Director (College Blvd.)
(619) 434-2867
Ron Null City of Vista Assessment District #86-1 8,200,000
City Attorney (Raceway Basin)
George Simpson Asst. Dir. Engineering
(619) 236-7067
(415) 756-5994
City of San Diego Assessment District #4007 24,800,O 0 0
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CITY OF CARLSBAD Palomar Airport Assessment District - Request to Serve as Underwriter April 1, 1988 Page 3
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TABLE 3 SMITH BARNEY San Diego County 1913-1915 Act Financing Experience I Assessment Districts in Progress*
Expected
Sale Date Issue Amount
06/15/88 San Diego County Assessment District $8,000,000
06/15/88 Escondido Assessment District (Valley Parkway) 3,000,000 I 07/0 1/88 San Diego County Assessment District 30,000,000
* There are many other local projects in process which are not yet developed to the point where it would be appropriate to include them in this listing.
TABLR 4
SMITH BARNEY Competitive Special Assessment District Pinancings
1986 to Date
Sale Date Issuer Principal Amount
Senior Managed
06/17/87 Upland - Improvement Bonds $3,816,000
03/09/87 Eastern Municipal Water District 5,977,000
11/06/86 San Diego - Wastewater Bonds 2,115,000
06/23/86 Upland - Improvement Bonds 896,000 I Subtotal $12,804,000
Co-Managed
08/18/87 San Pablo - Refunding Bonds $3,865,000
Subtotal $5,535,000
GRAND TOTAL $18,339,000
0 1/0 8/8 7 San Diego - Municipal Improvement Bonds 1,670,000
I I Bold face indicates San Diego financings.
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CITY OF CARLSBAD Palomar Airport Assessment District Request to Serve as Underwriter April 1, 1988 Page 4
3.
San Diego Public Finance Liaison
ROBERT L. ANDERSON, Vice President
Mr. Anderson received both a Bachelor and Masters degree from Colorado State University. He has been involved in the municipal bond industry since 1964. From 1964 to 1980, he was associated with Kirchner Moore & Company in Denver, Colorado. He was a principal shareholder in the company, was the executive vice president and served
on the executive committee and the board of directors of the firm. He has been
acquainted with 1915 Act Bonds since 1968 and witnessed the evolution from a not so
marketable bond to their present status as a very accepted fixed income instrument. He brings to Smith Barney many years of public finance experience, plus a knowledge of the local communities of the San Diego area.
San Prancisco Public Pinance
R. MARK EPSTEIN, Associate
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1 PERSONNEL TO BE ASSIGNED TO THIS PROJECT
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(619) 544-6573
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Mr. Epstein joined Smith Barney's San Francisco Public Finance Department in 1984 and has considerable experience in managing and structuring general municipal financings for
California issuers statewide. Mr. Epstein served as Senior Manager for $110 million of
tax-exempt offerings and Co-Manager for nearly $40 million of tax-exempt offerings in San Diego since 1986. Since assuming responsibility for the San Diego County region, Mr.
Epstein's efforts, in large measure, account for Smith Barney's rise to the number one ranked underwriter of tax-exempt securities for issuers within the County for the past twelve months. His experience as senior manager includes a $52,790,000 financing for
the City of San Diego, a $28,360,000 Joint Powers Authority financing and a $29,360,000
San Diego County Capital Asset Leasing Corporation (llSANCALft) financing. He also
served as Co-Manager for SANCAL's $39,100,000 interim justice facility financing.
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CITY OF CARLSBAD Palo rn ar Airport Assessment District Request to Serve as Underwriter April 1, 1988 Page 5
4. MARKETING PLAN AND CAPABILITY
General
The marketing of non-rated securities is perhaps the most complicated marketing effort
an underwriter can undertake. Smith Barney underwrites more California non-rated
securities than any other firm in the nation. We know what it takes to conduct a successful sale of non-rated securities. Since 1982, Smith Barney has sold nearly $980 million of California non-rated securities - almost as much the next two firms corn bined.
The difficulty in selling non-rated securities is that, unlike other rating categories, %on- rated" describes a wide variety of credit worthiness from good to highly speculative.
Underwriters describe non-rated bonds with good credit as "story bonds," that is bonds
with a good story which explains why the bonds are a good credit risk despite the fact
that they are non-rated. A strong credit, such as Carlsbad's proposed Palomar Airport
Assessment District would afford an excellent story bond marketing opportunity.
Marketing Plan
The selling of story bonds, by its very nature, hinges upon communication between the
managing banker and his distribution network. A story bond, after all, is only as good as
its story and everyone -- retail salesmen, institutional salesmen and buyers of all types -- must know the story.
The dissemination of the story is accomplished in a variety of ways. First, we distribute
a sales memo to each of our five California assessment district specialists. These
specialists will coordinate the retail sale of the City's bonds with our 275 account
executives located in eleven sales offices throughout California. Our sales offices are in the following locations:
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Beverly Hills Newport Beach Walnut Creek
Beverly Wilshire San Diego Westlake Village
San Francisco Los Angeles West Los Angeles Menlo Park Santq Barbara
Next, we prepare a preliminary prospectus for the assessment district for distribution to
selected members of our high net worth group of California and national retail investors. This group, which includes individuals with municipal portfolios in excess of
$500,000 (on average $1.6 million), will be a primary area of market demand for the
City's bonds. Other areas of demand include general retail investors and limited
institutional interest especially among casualty companies.
As the sale date approaches, we will distribute a sales memorandum to our eleven California offices. We will hold a pre-pricing conference call to answer all remaining
questions and the managing banker will make himself available for conference calls with potential investors.
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CITY OF CARLSBAD Palo mar Airport Assess m en t District
Request to Serve as Underwriter April 1, 1988
Page 6
Finally, the delivery of the preliminary official statement to each prospective investor
completes the pre-marketing effort. On the day of pricing the City, the managing
banker and the manager of our Los Angeles Trading Headquarters will hold a conference
call to set an interest rate scale for the issue. The scale may be adjusted up or down
from its original level to reflect the actual market reception for the bonds. Bonds can be priced as many times as necessary to secure an interest rate which the City believes to
be most advantageous to the interests of the property owners in the district.
As the City approaches the scheduled pricing date we will provide our forecast of the
expected near term market conditions and adjust the date of pricing to coincide with the strongest market foreseeable. Following the date of pricing, Smith Barney will commit to specific coupon rates and sign an agreement to purchase the City's bonds.
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CITY OF CARLSBAD
Palomar Airport Assessment District
Request to Serve as Underwriter
April 1, 1988
Page 7
5. PRICING STRATEGIES
Our California trading department has 18 full time professionals who monitor California
issues daily. We would have excellent indications of market conditions in May and check
the market direction regularly as we approach the projected sale date of June. If we saw
a favorable interest rate window at any time, we could quickly confirm a purchase price
to the City and lock in an attractive rate. As this is a relatively small issue, and because
Carlsbad is such a fine credit, it would be very easy to sell the City's bonds on a bought
deal basis. If the window did not occur, we would then recommend the most appropriate
time available for the City to sell its issue.
Pricing strategies include not only timing and market conditions, but, most importantly,
knowledge of the community, its financial condition and how well it is administered.
This information plus the dynamics of the area in general must be conveyed to our people
pricing the bonds, in a manner that will convince them of the merits of the bonds.
We believe this can be accomplished by those people who have personal involvement in
the community and local knowledge that comes from living and working in the area. For
these reasons, we feel our ability to price your issue as attractively as possible cannot be
matched.
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