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HomeMy WebLinkAbout1997-06-03; Municipal Water District; 366; Authorization to Refund Existing Debt Issues.- QlGZk 0 1 . . CARLSBAb MUNICIPAL WATER DlSTRltT -AGENDA BILL m# 366 -- TITLE- MTG. 6-3-97 DEPT. CM AUTHORIZATION TO REFUND EXISTING DEBT ISSUES RECOMMENDED ACTION: Adopt Resolution No. 9 75 authorizing the staff to proceed with refunding existing bond issues. ITEM EXPLANATION: During the past 20 years, the City of Carlsbad and CMWD have not been heavy users of debt financing. However, from time to time the City and the Water District have issued tax exempt bonds to purchase property, construct roads, or build public improvements. Each bond issue was priced and sold at the most favorable interest rates available at the time the bonds were offered to the market. Just as interest rates have risen and fallen in the general economy, rates are constantly changing in the public finance market. From time to time there are periods when interest rates decline below the rates at which a bond issue was originally sold. In these markets it may be in the City’s and CMWD’s best interest to refinance the issue by doing what is called a “refunding”. This action is very similar to refinancing a home in that the old debt is paid off, or satisfied in some manner, and the new loan, with its lower interest rates and annual debt service payment, is carried forward. In the recent past, the City has refunded two multi-family mortgage revenue bond issues, the Redevelopment Agency Bonds, and the Encina Phase IV Expansion Bonds. And, CMWD has refunded the existing Certificates of Participation (COPS) to take advantage of declining interest rates. In each case the refunding resulted in a significant annual and cumulative savings on debt payments. There are currently several existing bond issues which are candidates for refunding. These issues are summarized in the table below. Debt issues like Hosp Grove or the CMWD COPS are excellent candidates for refunding because current interest rates are below those associated with these issues, and market demand for these types of issues is strong. Although Assessment District Bonds, such as College Boulevard, Palomar Airport Road, and Alga Road may be slightly weaker candidates for refunding due to the market’s general view of land backed securities, there are opportunities for refunding these issues which should also be investigated. In order to complete a successful refunding on these Assessment District issues the City would need to show that the Districts are well developed with diverse land ownership, and has a history of making debt payments on time. In any case, if a refunding can be accomplished, it will reduce the annual debt service costs for the City and/or the property owners in the Assessment District areas. The staff is asking the City Council and the CMWD Board to adopt the attached Resolution which would direct staff to review all outstanding bond issues and to proceed with the refunding of those issues that would result in a substantial savings in debt service a-% : payments. The Council’s, and Board’s, authorization would allow the staff to solicit proposals from underwriters, financial advisors, legal council and other experts necessary to assemble a refunding proposal. The staff would then return to the Council and the Board with the proposals received seeking approval of the makeup of the financing team. Staff will then begin work with the team members to assemble a refunding plan, calendar, and draft the necessary documents for Council and Board Approval. The attached resolution allows staff to proceed with requesting proposals, and directs staff to return with a recommended financing team. It also authorizes the staff to consider refunding options which include merging both City and District issues into a combined refunding if such a structure is to the advantage of both. Existing issues that are candidates for refunding are summarized in the table below: II DEBT ISSUE I TYPE OF ISSUE 1 OUTSTANDING 1 CURREkTRANtiE 11 College Blvd Palomar Airport Road Alga Road Hosp Grove CMWD 1913 Act Assessment District 1913 Act Assessment District 1913 Act Assessment District Certificates of Participation Certificates of Participation PRINCIPAL $6,180,000 $3,085,000 $16,940,000 $6,615,000 $8,160,000 OF INTEREST RATES 7.6 to 8% 7.38 to 8% 7.5 to 8% 6 to 7.6% 6.8 to 7.3% FISCAL IMPACT: The fiscal impact of any refunding will depend on the interest rates related to the original issue and the rates available in the market at the time the refunding is accomplished. The general goal is to provide the City and District with a significant net present value savings, generally in the range of 3.5% to 4%. In the case of Hosp Grove and the CMWD issues, this savings may be achievable in the current interest rate market. The ability to generate a significant savings on the Assessment District Bonds is more difficult to predict. There may be some advantage to combining issues into a single refunding to allow the strengths of one issue to help offset the weaknesses of another. Staff will pursue this strategy as well as single refunding. All costs for consultants, debt issuance, underwriting and legal costs will be paid from any resulting refunding. The City or CMWD will not bear any cost, other than staff costs, for these refundings. The Resolution attached to this Agenda Bill directs staff to recover as much of the related staff costs as possible if the refunding efforts result in a successful debt issue. EXHIBITS: 1. Resolution No. 9 3 5 authorizing the staff to proceed with refunding existing bond issues. 2. Draft Request for Statement of Qualifications From Underwriting Firms. RESOLUTION NO. 975 A RESOLUTION OF THE BOARD OF DIRECTORS OF THE CARLSBAD MUNICIPAL WATER DISTRICT AUTHORIZING THE STAFF TO PROCEED WITH PRELIMINARY WORK RELATED TO REFUNDING EXISTING BOND ISSUES WHEREAS from time to time the Carlsbad Municipal Water District (CMWD) has issued debt to finance the construction of public projects within the District; and WHEREAS the interest rates applied to these debt issues reflect the market conditions at the time the issue was originally sold to the market, and WHEREAS over time, interest rates in the tax exempt municipal markets fluctuate to reflect economic conditions and the market’s interest in various types of tax exempt debt; and WHEREAS it is in the best interest of CMWD and the residents of the District to achieve the lowest cost possible for any debt issue, consistent with prudent financial management principles; and WHEREAS from time to time it is appropriate for the staff to prepare and submit to the Board refunding proposals which will reduce the annual cost of funds to the District. -4- c-3 ? 4 1 2 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NOW THEREFORE BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE CARLSBAD MUNICIPAL WATER DISTRICT AS FOLLOWS: 1) That the above recitations are true and correct 2) That the staff is here by authorized to actively consider the refunding of any existing debt issue. 3) That the staff may proceed with requesting proposals from underwriters, financial advisors, legal experts and other parties necessary to accomplish a refunding of any of the subject debt issues. 4) That the staff may consider combining any CMWD refunding with any City of Carlsbad refunding where such combination results in improved savings for both entities. 5) That the staff shall present to the Board any recommended financing team prior to commencing any official work on a refunding. 6) That the staff shall endeavor to recover from any subsequent refunding an amount necessary to reimburse the City and/or District for staff time invested in the refunding effort, but not less than $10,000 per issue refunded, and any direct costs related to the refunding effort. -5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 .- PASSED, APPROVED, AND ADOPTED at a regular meeting of the Carlsbad Municipal Water District held on the 3rd day of JUNE , 1997, by the following vote, to wit: AYES: : Baard Members Lewis, Finnila, Nygaard, Kulchin, Hall NOES: None ABSENT: None ABSTAIN: None ATTEST: ALETHA L. RAUTENKRANZ, Secretary WQW -6- Exhibit 2 CITY OF CARLSBAD REQUEST FOR STATEMENTOFQUALIFICATIONS FROM UNDERWRITING FIRMS Date Distributed: June -, 1997 Date Due: June , 1997 CITY OF CARLSBAD REQUEST FOR STATEMENT OF QUALIFICATIONS FOR UNDERWRITING SERVICES The City of Carlsbad (the “City”), San Diego County, California is soliciting qualified firms to act as Underwriter for the City’s proposed refunding of several outstanding issues. The City plans to accomplish this refunding(s) on a negotiated sale basis with a single Underwriter. The refunding effort may include any or all of the following issues, at the City’s option: I Issue 1 Original Issue Date 1 Amount I Outstanding Hosp Grove ‘- Certificates of Participation Carlsbad Public Improvement Corporation Alga Road Assessment District f 19 15 Act Bonds) June 1988 Sentember 1990 6,615,OOO 16,940,OOO ' I Costa Real Municipal Water District (Independent October 1988 9,040,000 Public Facilities 8 Corporation) - Certificates of I Participation College Boulevard Assessment District (1915 Act March 1986 6,910,OOO 1 .Bonds) I Palomar Airport Road Assessment District No 86-l I July 1988 I 3,085,OOO (1915 Act Bonds) I BACKGROUND During the past ten years the City has issued bonds to finance a variety of projects. In 1987, the City acquired approximately 52 acres of land located in the City, known as Hosp Grove, for retention as open space. The original purchase vehicle was a $6,459,384 bank note, which was taken out with the proceeds of a $6,555,000 note (the “1987 Note”). The 1987 Note was subsequently taken out with the proceeds of the 1988 COPS. The 1988 COPS also provided $650,000 of funds for improvements to improve traffic flow and adjacent storm drainage. (Please refer to the attachment for a summary portion of the Official Statement.) The City has completed several Assessment District issues used to finance the construction of roads and related improvements in the Aviara development (Alga Road), and the central office/industrial portion of the City (Palomar Airport Road, and College Blvd.). The Aviara development is almost entirely residential with the exception of the nearly completed Aviara Four Seasons Resort, while the Palomar and College developments are entirely office and light industrial areas. The Costa Real Water District issue (now the Carlsbad Municipal Water District, a subsidiary district of the City of Carlsbad) funded the construction of various water lines, and the construction and improvement of various reservoirs. -I- Additional information is included in the exhibits to this request for qualification. SPECIALREQUIREMENTS The following terms will be required with respect to this refunding. Any Underwriter offering its services must understand and agree to the following: 1. The underwriting spread, management fee, expenses and sales, including takedown, will be negotiated based on comparable transactions and market conditions and will be fmalized at the time of pricing. 2. All underwriter compensation will be contingent on the successful negotiation, execution and final closing of the transaction. 3. Joint proposals will not be accepted. ,SCOPEOFSERVICES The firm selected as the City’s Underwriter will be expected to fulfil1 the following duties: Assist the City and assume primary responsibility for preparation of the Preliminary and Final Official Statements. Attend and participate in meetings related to financing. Provide support services for completion of the financing, including identifying methods of reducing debt service costs, development of a financing strategy, rating agency liaison, and assistance with continuing disclosure requirements. Assist in preparation and review of financing and contract documents. Assist in preparation for presentations to the City Council, rating agencies, investors and insurers, as appropriate. Analyze and assist in the evaluation of credit enhancement proposals, as appropriate. Provide ongoing information to staff and the City’s financing team regarding the activity and status of the financing. Structure, market and purchase the financing. Prepare and present pre- and post-sale market analyses. -2- PROPOSALREQUIREMENTS Responding firm should address the following topics: 1. Describe the organizational structure of your firm as it relates to municipal investment banking, underwriting and sales. Describe the firm’s presence and activity in the State of California. Include brief summaries of your firm’s investment banking services, underwriting and trading and the firm’s sales organization. 2. Describe the firm’s experience in lease revenue bond and certificate of participation and assessment district financing in California and provide no more than two brief case studies for comparable California financings managed by the lead banker assigned to the City’s financing. Please provide in Appendix 1 a list of negotiated California lease revenue and certificate financings, and assessment district financings managed by your firm since 1991. Include the name of issuer, size of the financing, pricing date, role of the firm, lead banker, and agency contact. 3. Identify the individual who will be the firm’s senior representative for the daily management of this transaction - the individual who will attend the City’s financing team meetings, appropriate City Council meetings, and meetings with City staff. Discuss the availability of this individual. List the other members of your team including underwriting and marketing personnel. Please provide a list of public agency executives who the City may contact as personal references for the lead banker. In Appendix 2, provide brief resumes of your team, their relevant experience, and briefly describe their proposed role in serving the financing. If an interview is scheduled with your firm, only key members of the team should appear. 4. Provide your firm’s capital position as of the date of your most recent financial statement and indicate your firm’s willingness to commit its capital to underwrite public finance transactions in difficult markets. 5. Describe your firm’s institutional and/or retail bond distribution capabilities. Describe your approach to marketing the COPS or other products you propose, including any investor liaison you would recommend. The City is interested in maximizing local participation in the distribution process if this does not increase the cost of the borrowing to the City. How would you suggest accomplishing this goal? 6. Please summarize your views with respect to the following matters. a. b. t. Discuss the key credit rating factors the City will be facing in the issuance of the financing. Preferred structure for the proposed issue. Timing of the proposed issue, given current and anticipated market conditions. Financing techniques you have used in California for minimizing rate impacts. -3- 7. Is your firm involved in litigation regarding sales methods, security dealings, underwritings, or related practices? Please disclose the status of such matters. STATEMENT OF QUALIFICATION CONTENT The submittal should specifically address the topics given above. Please retrain from submitting general marketing materials which do not explicitly respond to the questions below. Responses should not exceed a total of fifteen (15) pages in length, excluding a one or two-page cover letter, and two appendices as follows: 1. List of negotiated California lease revenue or certificate of participation, and assessment district transactions managed by your firm since 1991; 2. Resumes of finance team members. SELECTION CRITERIA AND EVALUATION OF QUALIFICATIONS Your submittal will be evaluated in accordance with your responses to the questions raised under “Proposal Requirements” and will be evaluated for specificity, completeness, demonstrated knowledge of lease-based fmancings, structuring ideas, relevant experience and qualifications .of personnel, past participation in comparable financings and, if interviews are deemed advisable by the City, your interview presentation. SCHEDULE The City intends to proceed with the following schedule in the selection of an Underwriter for the financing: l Request Statement of Qualifications l Receive Submittals l Announce Underwriters to be Interviewed l Interviews, if appropriate, of short-listed Underwriters l Recommendation by Selection Panel to City Council and selection of Underwriter June 4,1997 June 11,1997 June 17,1997 June 24,1997 July 8, 1997 POINT OF CONTACT -4- Questions regarding this Request for Qualifications and the City should be directed to Jim Elliott, Financial Management Director 760/434-2948, or Lisa Hildabrand, Finance Director 6191434-2872. SUBMITTALINSTRUCTIONS All submittals should be delivered no later the 5:00 p.m., California time, June 11, 1997. No exceptions will be made to this deadline. Seven (3) bound copies should be delivered to the City at the address indicated below: City of Carlsbad 1200 Carlsbad Village Drive Carlsbad, CA 92008-1989 The submittal shall be transmitted with a cover letter that includes but is not limited to the following: a. Signed by an officer authorized to contractually bind the underwriting firm. b. Provides that name, title, address, fax number and telephone number of the individual to whom correspondence and other contacts should be directed during the selection process; and C. Provides the name, title, address and telephone number of the individual who will negotiate with the City and is authorized to contractually bind them. Responses should provide straightforward, concise responses to satisfy the requirements. Emphasis should be on completeness and clarity of content. It is not sufficient for the Underwriter to respond in general terms or in terms other than those outlined herein. No printed brochures or materials other than the written responses to the specific requirements will be accepted. Each copy of the submittal should be bound as a single volume. REJECTIONOFSUBMITTALS The City reserves the right to reject any or all submittals received as a result of this request and to waive any informality, technical defect or clerical error in any submittal as the interests of the City may require. Non-acceptance will not imply any criticism of the submittal and shall be construed as simply that another submittal was deemed to be more advantageous to the City. Late or non-responsive submittals will be rejected. -5- 0 /I