HomeMy WebLinkAboutStaff Report 3337
City of Palo Alto (ID # 3337)
City Council Staff Report
Report Type: Consent Calendar Meeting Date: 12/10/2012
City of Palo Alto Page 1
Summary Title: BAWSCA Bond Resolution
Title: Resolution Authorizing the Making of a Prepayment Under the City's
Water Supply Agreement with the City and County of San Francisco and
Authorizing the City's Participation in a Bond Issuance by the Bay Area Water
Supply and Conservation Agency to Finance the Prepayment
From: City Manager
Lead Department: Administrative Services
Recommendation
Staff recommends the City Council consider and approve the resolution electing to be a
participant in the Bay Area Water Supply and Conservation Agency’s (BAWSCA’s) prepayment
of $367 million capital debt owed by the BAWSCA members to the City and County of San
Francisco (San Francisco) and authorizing the City’s Director or Assistant Director of
Administrative Services to take all necessary actions to enable BAWSCA to issue and sell bonds
to make the prepayment. Based on Palo Alto’s share of water purchases, $36.2 million of this
capital debt is attributable to Palo Alto. The present value savings to Palo Alto could be as high
as $2.7 million over the life of the bonds and $125 thousand annually.
Executive Summary
Based on historically low interest rates, staff is seeking Council review and approval to join
BAWSCA’s bond issuance to prepay capital improvement debt owed to San Francisco. BAWSCA
members could realize present value (PV) savings of $20 million to $34 million over 21.5 years
by prepaying approximately $367 million capital debt owed to San Francisco. Palo Alto’s
estimated PV savings range from $1.6 million to $2.7 million. Annually, the City is expected to
save $73 thousand to $125 thousand on debt service payment. Savings will be dependent,
however, upon interest rates at the time of the bond pricing. Based on the BAWSCA Board of
Directors’ (the “Directors”) unanimous approval to issue these bonds, staff recommends that
Council approve the attached resolution that authorizes BAWSCA to include Palo Alto in the
bond issuance and capital debt prepayment and to authorize staff to execute agreements
necessary for the bond issuance.
City of Palo Alto Page 2
Background
Palo Alto contracts with San Francisco to purchase water pursuant to a Water Supply
Agreement dated July 2009 (the “WSA”). Palo Alto is also a member of BAWSCA, which
represents the interests of 24 cities and water districts, and two private agencies (collectively,
the “Wholesale Customers” or “Members”), that purchase water wholesale from the San
Francisco regional water system. These entities provide water to 1.7 million people, businesses
and community organizations in Alameda, Santa Clara and San Mateo counties. Pursuant to the
WSA, the Wholesale Customers agreed to pay San Francisco for capital improvements
undertaken by San Francisco prior to their entering into the current WSA (the “Capital Debt”).
The Capital Debt was to be repaid over a 25-year period at a fixed interest rate of 5.13 percent.
Approximately $367 million of the Capital Debt remains outstanding. Each Wholesale Customer
pays for the Capital Debt in the form of a capital cost recovery charge which is one of many
components used to establish the annual wholesale water rate paid to San Francisco.
The WSA provides that the Wholesale Customers, acting through BAWSCA, may prepay Capital
Debt payments due to San Francisco on existing regional assets. BAWSCA is authorized by
statute (AB 2167 approved by the Governor September 2012) to issue debt on behalf of its
Members in order to make this prepayment and impose fees (aka surcharge) sufficient to pay
the principal and interest on the bonds. This will represent BAWSCA’s first bond issuance.
Discussion
Since Fall 2011, BAWSCA and its Financing Team have been exploring the possibility of a potential
bond issuance to prepay the Capital Debt the Members owe San Francisco in order to save
Members money. Given the current, historically low interest environment, BAWSCA’s Financial
Advisor estimates that by prepaying the outstanding Capital Debt, annual savings between six
percent and nine percent of Capital Debt can be realized. These savings will accrue to all water
customers (including Palo Alto). The Government Finance Officers Association has adopted a
minimum PV savings target of three percent of the par amount of refunding bonds as a “best
practices” standard. The Directors approved that PV savings must equal or exceed this “best
practices” standard.
The Directors present at the November 15th board meeting unanimously approved issuing bonds in
an amount sufficient to prepay the Capital Debt and to impose a surcharge on participating
Members for paying the bond’s debt service obligation. Other than collecting the debt service
payment as part of its monthly water bill from Members and remitting it to the bond trustee, San
Francisco has no obligation for the bond being issued by BAWSCA. All the Members who elect to
participate in this bond issuance will collectively be liable for the debt service payments. Included in
the Director’s deliberation and approval were the following key policy issues:
City of Palo Alto Page 3
1) How should the surcharge be set to pay the new bonds debt service? Two different methods
were considered:
(a) a variable charge based the amount of water purchased during the year; or
(b) a fixed charge amount regardless of how much water is used
The first method appears equitable to Members in that it is based on water purchases or
usage. The latter, however, would be appealing to bond buyers since each BAWSCA
members’ debt obligation would be fixed for the duration of the bonds.
The Directors approved a method that incorporates both approaches, a “Fixed Volumetric”
approach. This approach sets a fixed allocation each year and reconciles the following year
based on how much water each agency actually purchased from San Francisco. It is expected
that this approach will be positively received by the bond buyers and rating agencies resulting
in reduced borrowing costs and increased savings to Members. Also, this method most closely
reflects how the Capital Debt payments are currently being allocated to Members. The
disadvantage is the greater administrative burden of reconciling 26 Members balancing
accounts.
2) How should bond interest or debt service savings be allocated among Members?
As mentioned, BAWSCA consists of 26 agencies, two of which are private agencies (California
Water Service Company (CalWater) and Stanford University) which, based on water
purchases, comprise approximately 24.3 percent of BAWSCA membership. This means that,
due to federal tax law restrictions on prepayments, approximately a quarter of the bonds will
have to be issued as taxable bonds with a higher interest rate or cost. The remaining bonds
will be issued as tax-exempt.
The taxable and non-taxable bonds raise an issue of how to allocate debt service savings to
BAWSCA members. Two methods could be used:
(a) use two different interest rates - one for 24 public agencies and another for the two
private agencies); or
(b) use a uniform blended interest rate for all Members which is consistent with San
Francisco’s uniform wholesale water rates.
City of Palo Alto Page 4
On the second policy issue the majority of the BAWSCA Board Policy Committee on October 10th
and all of the Board of Directors present on November 15th approved using the blended interest
rate (option “b”). This method was adopted for a variety of reasons. A primary rationale is that the
San Francisco Public Utilities Commission (SFPUC) charges each BAWSCA member identical rates
regardless of location and how much water is used. It was logical, therefore, to treat each BAWSCA
member similarly in distributing the benefits of a refunding. Sharing the benefits of the refunding
and showing a united agency of 26 members to rating agencies were important objectives of
BAWSCA. The cost to the public agency members of allowing the refunding savings to the private
agencies is slight, $0.0038 per hundred cubic feet or 0.1%. If a two rate structure had been
approved, the customers of the two private members would effectively receive no or little savings
from the refunding.
The impact of using a blended interest rate is that the savings for the municipalities will be
diminished somewhat because of the higher interest rate (estimated at up to one percent higher)
on the taxable bonds and sharing saving from the tax exempt bonds with the private agencies.
Under option “a”, discussed above, the municipalities would realize higher savings because of their
tax exempt status. While public agencies are expected to save money under either approach, the
private agencies, under a blended interest rate, are estimated to realize additional present value
(PV savings) over 21.5 years of $5.9 million. Conversely, by using the blended rate the remaining
public agencies would forego $5.9 million in savings over the life of the bonds. Palo Alto’s share of
the foregone savings equals $0.6 million.
Council retains the discretion to decide, based on its assessment of the value to the City and its
water customers of using a uniform blended interest rate for all Members, to approve the BAWSCA
Board Policy Committee’s recommendation and Director’s approval as described above. The table
below shows the differences between a blended and non-blended rate.
The Directors also approved additional costs necessary for a bond issuance. These included:
contracts with the Financial Advisor, and Bond and Disclosure counsels. Rating agency and
underwriter fees were also approved as well as selection of a Trustee. A “not to exceed” bond
issuance amount of $385 million was approved.
City of Palo Alto Page 5
BAWSCA also is in the process of negotiating a Prepayment and Collection Agreement with San
Francisco which includes acknowledgement of receipt of prepayment of Capital Debt and provides
a written pledge to use bond proceeds in a manner consistent with federal laws and regulations,
use of bond proceeds in a way that doesn’t result in additional increases to wholesale prices for
Members, and collection and enforcement of debt service surcharge to Members and remittance
to trustee. Details of the proposed bond structure can be found in Attachment B.
Resource Impact
As stated, a preliminary analysis, based on expected interest rates in December, indicates Palo Alto
PV total savings (over 21.5 years) range from $1.6 million to $2.7 million and annual savings from
$73 thousand to $125 thousand. Actual savings will depend upon prevailing rates at the time the
bonds are sold. Savings for all BAWSCA members must exceed a net present value of three percent
or about $10.6 million for the bond sale to occur.
Policy Implications
The traditional City approach has been to issue or refinance City bonds with competitive bids in the
open bond market. Recently, the City has departed from this practice for the Golf Course and
University Avenue Parking Assessment District bonds. The former were refinanced using a private
placement and the latter were issued using a negotiated structure similar to the one BAWSCA is
proposing. Due to the complexity of issuing bonds for 26 agencies (two being private agencies) and
negotiating a prepayment agreement with San Francisco, BAWSCA is using an Underwriter for a
negotiated sale.
Timeline
September-November,
2012
Finalize transaction structure
Negotiated agreement with San Francisco
Meet with rating agency regarding preliminary credit rating
October 10, 2012 Board Policy Committee discussion
November 15, 2012 Board action approving bond documents and delegated
authority to execute documents subject to specified conditions
November – December,
2012
BAWSCA members adopt participation resolutions
San Francisco approval of agreement with BAWSCA
December, 2012 Receive final credit ratings
January, 2013 Marketing, pricing, and closing bond issuance
City of Palo Alto Page 6
Environmental Review
The adoption of this resolution does not meet the California Environmental Quality Act’s definition
of a “project” pursuant to Public Resources Code Section 21065, thus no environmental review
under CEQA is required.
Attachments:
Attachment A: Resolution.of the City Council Authorizing the Making of a Prepayment
Under the Water Supply Agreement with the City and County of San Francisco and
Related Matters (PDF)
Attachment B: Proposed Bond Structure (PDF)
Attachment C: BAWSCA Board of Directors November 15, 2012 Meeting Notes (PDF)
Attachment D: BAWSCA Board of Directors November 15, 2012 Presentation (PDF)
Attachment E: BAWSCA Board Policy Committee October 10, 2012 Meeting Notes
(PDF)
NOT YET APPROVED
1
121204 sh 6051847
Resolution No. _______
Resolution of the City Council of the City of Palo Alto Authorizing the Making
of a Prepayment Under the City's Water Supply Agreement with the City and
County of San Francisco and Authorizing the City's Participation in a Bond
Issuance by the Bay Area Water Supply and Conservation Agency to
Finance the Prepayment
RECITALS
A. The City and County of San Francisco (“San Francisco”) and wholesale water
customers of San Francisco in Alameda County, San Mateo County and Santa Clara County (the
“Wholesale Customers”), including the City of Palo Alto (the “City”), have entered into a Water
Supply Agreement, dated July 2009 (the “WSA”), providing for the sale of water by San
Francisco to the Wholesale Customers;
B. The City and other Wholesale Customers are members of the Bay Area Water
Supply and Conservation Agency (“BAWSCA”);
C. Pursuant to the terms of the WSA, the cost of water paid by the Wholesale
Customers (including the City) includes a component designed to provide San Francisco capital
cost recovery for existing regional assets (“ERA Payments”);
D. The WSA provides that the Wholesale Customers, acting through BAWSCA, may
prepay the remaining principal balance of the ERA Payments, in whole or in part;
E. Substantial savings over the term of the WSA may be achievable through the
prepayment through BAWSCA (the “Prepayment”) of the ERA Payments to be made by
Wholesale Customers participating in such Prepayment (the “Prepayment Participants”;
F. BAWSCA proposes to finance the Prepayment through an issuance of revenue
bonds (the “Bonds”) by BAWSCA;
G. To pay debt service on the Bonds, to maintain required reserves and to satisfy
BAWSCA’s other obligations related to the Bonds, BAWSCA will impose charges on Prepayment
Participants, which may be in the form of surcharges on water sold by San Francisco to
Prepayment Participants under the WSA (the “Surcharge”);
H. The Surcharge is expected to be payable by the Prepayment Participants to San
Francisco (for delivery to BAWSCA) together with the Prepayment Participants’ other payments
to San Francisco under the WSA;
I. The issuance of the Bonds and the making of the Prepayment are subject to a
variety of conditions, including a determination by BAWSCA that savings for Prepayment
Participants can be achieved thereby; and
NOT YET APPROVED
2
121204 sh 6051847
J. This City Council has determined that it is in the best interests of the City for the
City to be a Prepayment Participant.
NOW, THEREFORE, the Council of the City of Palo Alto does RESOLVE as follows:
SECTION 1. The City hereby elects to be a Prepayment Participant and hereby
authorizes BAWSCA to make the Prepayment on behalf of the City.
SECTION 2. The Director or Assistant Director of Administrative Services of the City
are each, acting individually, hereby authorized and directed to take, for and on behalf of the
City, all such actions by the City as shall be necessary to enable BAWSCA to issue and sell the
Bonds and make the Prepayment, including, without limitation, the following:
(A) Certify that the Prepayment has been duly authorized by the City and will not
violate any law or agreement (including agreements respecting obligations providing
for the issuance of debt secured by the revenues of the City’s water enterprise);
(B) Certify that payment of the Surcharge by the City will constitute an operation
and maintenance expense of the City’s water enterprise payable from the revenues
of the City’s water enterprise prior to the payment of obligations payable from the
net revenues of the City’s water enterprise;
(C) Certify that any information respecting the City and the City’s water enterprise
and the financial and operating data respecting the City’s water enterprise included
or incorporated by reference in the Official Statement delivered by BAWSCA in
connection with the sale and issuance of the Bonds is true and correct; and
(D) Execute and deliver any continuing disclosure undertaking, or agreement to
assist BAWSCA in connection with any BAWSCA continuing disclosure undertaking,
required in connection with the sale of the Bonds.
SECTION 3. All actions heretofore taken by any officers, employees, or agents of the
City with respect to the Prepayment and the Bonds are hereby approved, confirmed and
ratified; and any such other officers, employees, or agents of the City as may be authorized by
City Manager and/or Director or Assistant Director of Administrative Services are hereby
authorized and directed, for and in the name of and on behalf of the City, to do any and all
things and take any and all actions, which they, or any of them, may deem necessary or
desirable to carry out, give effect to and comply with the terms and intent of this Resolution.
SECTION 4. The adoption of this resolution does not meet the California
Environmental Quality Act’s definition of a “project” pursuant to Public Resources Code Section
21065, thus no environmental review under CEQA is required.
//
//
NOT YET APPROVED
3
121204 sh 6051847
SECTION 5. This Resolution shall take effect immediately upon its adoption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
__________________________ _____________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
__________________________ _____________________________
Sr. Deputy City Attorney City Manager
_____________________________
Director of Administrative Services
(in millions)
Total Par Amount 343.6$
Premium 37.6
Total Bond Proceeds 381.2$
Tax‐Exempt Bond Proceeds 268.3$
Taxable Bond Proceeds 85.9
Total Proceeds Paid to San Francisco 354.2
Capitalized Interest Initial Interest Payment Funded by Bond Proceeds 11.9
Cost of Issuance 1.9
Reserves (aka
Stabilization Fund)Equivalent to Half Year's Debt. Svc. Payment 13.2
Total Bond Proceeds Uses 381.2$
Estimated Present Value (PV) Savings for All Members $20.0 to $34.0
Estimated Avg. Annual Savings for All Members $1.0 to $2.1
Estimated Palo Alto's PV Savings $1.6 to $2.7
Estimated Palo Alto's Annual Savings
$73 thousand to
$125 thousand
Term Through 2034 or
21.5 years Bond Duration
Bond Proceeds Sources
Bond Proceeds Uses
Financial Advisor, Bond and Disclosure Counsel, Rating
Agency, Underwriter's Fee, Trustee, etc.
Attachment B
Proposed Bond Structure
Bond Proceeds
Capital Debt Prepayment
Funds
Savings
Bay Area Water Supply and Conservation Agency
''A multicounty agency authorized to
plan for and acquire supplemental
water supplies, encourage water
conservation and use of recycled
water on a regional basis."
[Bay Area Water Supply and Conservation Agency Act,
AB2°58(Papan-2oo2)}
Board of Directors
Meeting
November IS, 2012
otential Bond Issuance to tJrepay
Capital Debt Owed to SFPUC
Objective: Help water customers by lowering the
cost of water purchased from San Francisco
Items for consideration and action this evening:
#7 A: Policy Decisions
#7B: Actions Needed to Proceed
#7C: Approval of Financing Structure and Bond
Documents
#7D: Review of Investment Policy and Proposed
Modifications
rt Team Analyzed Alternatives,
Structured Bonds, Prepared Documents
• KNN -Financial advisor
• Orrick -Bond counsel and disclosure counsel
• Goldman Sachs -Senior Underwriter
• De La Rosa & Co -Co-senior Underwriter
• Stradling, Yocca, Carlson & Rauth -
Underwriter's legal counsel
• Hanson Bridget -General counsel
• BAWSCAstaff
~ _AN&~~&~~
11/15/2012
1
#7 A. Policy Decisions
Issues:
1. How should the surcharge be set to pay the debt
service?
2. How should bond interest be allocated among
agencies?
A. Policy Decision 1: "Fixed Volumetric"
Surcharge Setting Method
Issue:
1. How should the surcharge be set to pay the debt
service?
Recommended Approach:
• Set a surcharge for each agency in proportion to a
prior year's purchase of water from the SFPUC
• Adjust the surcharge the next year to reflect actual
purchases by the agency ("true-up")
~ -....... ...,.~
11/15/2012
2
A. Policy Decision 1: "Fixed Volumetric"
Surcharge Setting Method
Advantages of this Approach:
• This method minimizes risk to bond buyers, reducing the cost
of borrowing and increasing the amount to be saved
• This method most closely reflects how ongoing payments
would be shared by agencies if the bonds were not issued
Disadvantages of this Approach are Manageable:
• Administratively, this approach requires BAWSCA
maintain 26 separate "balancing accounts"
Without the Annual True-up, Agencies Could Pay
More or Less Than Their Proportionate Share
Three examples:
• Variable Purchases: Agency's percentage of water purchases has no trend
• Rising Purchases: Agency's percentage of water purchases increases
• Falling Purchases: Agency's percentage of water purchases decreases
20% 1 -VariablePurthases-RsingPurohases-FallingPurohases
10%
0%
.1[1% 1 Under:Cbame
·20%
2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
IMIIII!EA _,..VIIIitI/It"WQ __ , ~!I It 't
11/15/2012
3
With the Annual True-up, Agencies Ultimately
Pay Their Proportionate Share
Result: Cumulative payments more closely reflect the payments
under the base case
• Variable Purchases: Agency's percentage of water purchases has no trend
• Rising Purchases: Agency's percentage of water purchases increases
• Falling Purchases: Agency's percentage of water purchases decreases
20% -Variable Purchases -Rlslng Purchases -FaDing Purchases
10%
O%~"~~"~~~=-~~""~~~
·10% Under=Cbarge
-20%
2014 2016 2018 2020 2022 2024 2026 2028 2030
Policy Decision #1 Recommendation
1. "Authorize the CEO/General Manager to include a
fixed volumetric surcharge setting methodology in
the bond structure"
......:A. _AM ............ a:~
11/15/2012
4
A. Policy Decision 2: Charge All
Agencies a Blended Interest Rate
Issue:
2. How should bond interest be allocated among agencies?
BAWSCA must issue a portion bonds as taxable to satisfy
federal tax restrictions
BAWSCA examined two methods for allocating the debt
service among members:
(1) Two different interest rates
(2) A uniform blended interest rate for all participants
ow Much Taxable De
Issued?
~.
The amount depends on how much water privately
owned agencies would purchase of the bond term
Breakdown of FY 2011-12 water purchases:
o 75.7% Publicly-owned agencies
024.3% Privately-owned agencies
[22.8% CalWater + 1.5% Stanford]
11/15/2012
5
____ ._.,.: Historical SF
Wholesale Water Rates are Uniform
• SFPUC charges aU agencies at the same "postage
stamp" rate in dollars per hundred cubic feet of water
• SFPUC has issued taxable commercial paper for a
portion of the WSIP projects
• SFPUC does not separate those taxable expenses out
or charge CalWater and Stanford at a higher rate
• SFPUC's wholesale water rate includes recovering the
old capital debt using a uniform 5.13% interest rate
Context: Effect of a Blended Interest Rate
on Privately-Owned Water Agencies
• Would a uniform or blended surcharge generate
financial gain for either CalWater or Stanford at the
expense of the public agencies? No
• Why? These costs are passed through to water rate
payers without any mark-up
o CalWater cannot mark up operating costs under
California Public Utilities Commission regulations
o Stanford University is a tax-exempt institution. Its water
program is not designed to, and does not, make a profit
11/15/2012
6
Rate on Water Customers
• If the incremental cost of taxable debt were allocated
only to CalWater and Stanford
o Those costs would be passed through to their residential
and business customers
o Those customers would bear a higher cost than public
agency customers and enjoy less of the savings
• Public agency customers would pay slightly more
0$0.0038 per hundred cubic feet (wholesale), or 0.1 %
a.NSCA _~~~a~
Blended Rate Results in a Uniform
Distribution of Savings to Water Customers
Breakdown of FY 2011-12 water purchases:
75.7% Publicly-owned agencies III
24.3 % Privately-owned agencies III
Blended Rate
Savings
II Public
Agencies
II CalWater
& Stanford
Non-Blended Rate
Savings
II Public
Agencies
II CalWater
& Stanford
11/15/2012
7
A. Policy Decision 2:
Interest Rate -Recommended Action
2. "Authorize the CEO/General Manager to use a blended
interest rate on the allocation of debt service"
The Board Policy Committee voted to recommend a
blended interest rate be approved by the Board
........ "'---"'-
#7 A. Recommended Board Actions
1. Authorize the CEO/General Manager to include a fixed
volumetric surcharge setting methodology in the bond
structure
2. Authorize the CEO/General Manager to use a blended
interest rate on the allocation of debt service
(Recommended by the Board Policy Committee)
........ ... ----
11/15/2012
8
#7B. Actions Needed to Proceed
The BPC recommends that the Board:
1. Authorize the CEO/General Manager to amend the contract with
KNN for their financial advisory services until the completion of the
financing
2. Authorize the CEO/General Manager to appoint a bank as the
Trustee for the bonds
The CEO recommends that the Board also:
3. Authorize the CEO/General Manger to appoint Morgan Stanley and
Citigroup Global Markets as Co-Managing Underwriters for the
bond issuance
4. Authorize a maximum underwriters' discount of 0.0375% ($3.75 per
$1,000 in par amount or "per bond")
-1. Authorize KNN
Amendment
IIAIIUSCA iU$Am~~a~
1. Authorize the CEO/General Manager to amend
the contract with KNN for financial advisory
services until the completion of the financing
The fee for KNN's services will be $155,000, which
will include services provided since August 1,2012
Payment to KNN would be contingent on issuing
bonds and would be paid using bond proceeds
IIAIIUSCA _~W¥tu~SJ~
11/15/2012
9
2. Authorize Appoinlfnent of
Trustee
2. Authorize the CEO/General Manager to appoint a
bank as the Trustee for the bonds
KNN requested and received proposals from six
qualified banks
The Bank of New York's proposed fee was the lowest
The Bank of New York has one of the most active
trustee practices in the country
. Authorize Appol
Co-Managing Underwriters
·IJNIUIICA "'---"-
3. Authorize the CEO/General Manger to appoint
Morgan Stanley and Citigroup as Co-Managing
Underwriters for the bond issuance
• Additional underwriting firms are appropriate to ensure
the best possible distribution and the lowest interest
rate for an issuance of this size
• These two firms ranked highest after the senior
managers
11/15/2012
10
-4. Authorize Maximum
Underwriter's Discount
4. Authorize a maximum underwriters' discount of
0.0375% ($3.75 per $1,000 in par amount)
• Anticipated an underwriting discount of $2.75 per
bond based on the original proposals
• Goldman Sachs submitted a revised proposal for an
increase of total discount from $2.75 to $3.45
• The bond authorization provides ability to increase the
discount to accommodate changing market conditions
• The actual discount rate will likely be lower
BIWIIBCA "'---"-
#7B. Actions Needed to Proceed
The BPC recommends that the Board:
1. Authorize the CEO/General Manager to amend the contract with
KNN for their financial advisory services until the completion of the
financing.
2. Authorize the CEO/General Manager to appoint a bank as the
Trustee for the bonds.
The CEO recommends that the Board also:
3. Authorize the CEO/General Manger to appoint Morgan Stanley and
Citigroup Global Markets as Co-Managing Underwriters for the
bond issuance.
4. Authorize a maximum underwriters' discount of 0.0375% ($3.75 per
$1,000 in par amount or "per bond").
~ -,.....,.....,.~.--....
11/15/2012
11
c. Approval of Financing
Structure and Bond Documents
1. Approve the issuance and structure of a bond issue for
an amount not to exceed $385 million with a term ending
no later than December 31,2034
2. Approve the substantially final forms of financing
documents
3. Authorize the CEO/General Manager to execute the
financing documents subject to the following criteria:
a. Realize net present value savings of not less than 4%
b. San Francisco provides a written pledge to use bond proceeds in
a manner consistent with federal laws and regulations
~.
#7C-1. Proposed Bond Structure
(Values reflect October 29 market conditions and other assumptions, in millions)
Bond Proceeds
Prepayment Funds
Capitalized Interest
Cost: (iT I$$uooce
Reserves
Savings
Total Par Amount
Premium
Total Proceeds
Tax-Exempt Proceeds
Taxable Proceeds
Total Proceeds Paid to SFPUC
Interest Funded by Proceeds
Cost of Issuance
(From Bond Proceeds)
PV Savings for All Members over
Bond term
Avg Annual Savings for All
Members
l $343.6
~ Notto ($38iC exceed
$385M L $268.3'\"
I $85.9 )
\. $354.2/
~
11/15/2012
12
. Substantially Fina
Financing Documents
• Revenue Bond Indenture
• First Supplemental Indenture
• Continuing Disclosure Certificate
• Preliminary Official Statement
• Prepayment and Collection Agreement with San
Francisco
• Bond Purchase Agreement .......... "'--"-
repayment and Collection
Agreement with CCSF -under negotiation
• SF acknowledges receipt of prepayment
• SF acknowledges actions to be taken for non
participating members
• SF to collect and enforce payment of surcharges and
remit to Trustee
• SF to comply with tax restrictions on use of proceeds
• SF not to apply proceeds in a way that results in
additional increases to wholesale revenue
requirement .......... _,..,..,.8IiIt*t.CIMIt I ...,
11/15/2012
13
-3. Criteria for C
Financing Documents
a. Net present value savings of not less than 4% (or
about $14.2 million) over the term of the bonds
The BAWSCA Financing Team recommends a net present
value savings of not less than 3% (or about $10.6 million)
b. San Francisco must provide, in advance of
receiving any funds, a written pledge to use bond
proceeds in a manner consistent with federal laws
and regulations
This is accomplished by the Prepayment and Collection
Agreement with CCSF
~
. Approval of Finan~cTng
Structure and Bond Documents
1. Approve the issuance and structure of a bond issue for
an amount not to exceed $385 million with a term ending
no later than December 31,2034
2. Approve the substantially final forms of financing
documents
3. Authorize the CEO/General Manager to execute the
financing documents subject to the following criteria:
a. Realize net present value savings of not less than 4%
b. San Francisco provides a written pledge to use bond proceeds in
a manner consistent with federal laws and regulations
I Adoption of Bond Resolution by roll call vote I a.NBCA
_AM.,........,.~
11/15/2012
14
. Review of I nvestmen
and Proposed Modifications
• The previous review occurred on July 21, 2011.
• Recommend restricting investment of bond proceeds:
1. Federal Securities, meaning direct and general obligations of the
United States of America, such as Treasury bonds, notes and
bills;
2. Money Market Mutual Funds highly rated by S&P and Moody's;
3. Certificates of Deposit.
• Board could expand the types of permitted
investments over the life of the bonds, if desired
. Recommended Invesfments
for Bond Proceeds -Continued
• This recommended approach is more conservative
than all public agencies we surveyed
• The only other recommended change to the Policy is
to note that FDIC insurance coverage up to $250,000
has been permanently extended to deposits in banks
and savings associations
• An investment criterion of "social responsibility" to be
considered at future Board Policy Committee meeting
11/15/2012
15
. Review of Investment Policy
and Proposed Modifications
Recommended Action:
• To approve the revised modifications to the Investment
Policy (attached to staff report)
IJIMR'A ----,,-
Next Steps and Schedule
September-· Finalize transaction structure
November · Negotiate agreement with San Francisco · Meet with rating agency regarding preliminary credit rating
October-· Board Policy Committee Discussion
November · Board action approving bond documents and delegated
authority to execute documents subject to specified conditions
November-· BAWSCA members adopt participation resolutions
December · San Francisco approval of agreement with BAWSCA
December Receive final credit ratings
January, 2013 Market, price and close bond issue
11/15/2012
16