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HomeMy WebLinkAbout11/15/2005, BUS 4 - NACIMIENTO PROJECT INTERIM FINANCING FOR DESIGN COSTS council "imicjDi 11-15-05 AQenaa 126PORt lba Numb. CITY OF SAN LUIS OBI SPO FROM: Bill Statler,Director of Finance&Information Technology Carolyn Dominguez,Finance Manager SUBJECT: NACUWENTO PROJECT INTERIM FINANCING FOR DESIGN COSTS CAO RECOMMENDATION Adopt a resolution requesting the issuance and sale of bond anticipation notes by the San Luis Obispo County Financing Authority in an amount not to exceed $1,000,000 in order to fund the City's share of the Nacimiento pipeline design costs. DISCUSSION Background. On June 29, 2004, the Council adopted a resolution approving the agreement with the San Luis Obispo County Flood Control and Water Conservation District (County)- for the design, construction and operation of the facilities required to deliver water to the City om the Nacimiento water supply project. That agreement envisioned issuing bond anticipation notes (Notes) to finance the City's share of design-related costs on an interim basis. Following design of the project, these costs will then be rolled over into a subsequent permanent financing for construction of the project via revenue bonds issued by the San Luis County Financing Authority(Authority). An option in the agreement allows each participating agency to pay the design costs"up-front'in a lump-sum payment. However, the use of Notes has been reflected in all of our financial planning for this project, including rate reviews as part of the 2005-07 Financial Plan.. Accordingly, we recommend financing our share of the design costs of approximately$6.6 million with Notes issued by the Authority. Note Structure. On April 5, 2005, the Council adopted Resolution No. 9670 declaring the City's intent to reimburse certain expenditures from the proceeds of the Notes. The Notes will mature in 36 months. At that time, "permanent financing" in the form of revenue bonds will be issued by the Authority. If the Authority is not able to issue revenue bonds prior to the maturity date of the Notes, the resolution approves the issuance of "Roll-Over Notes" by the Authority in an amount sufficient to pay maturing principal and accrued interest of the original Notes. Along with approving the issuance of Notes by the Authority on the City's behalf, the attached resolution also approves the following documents in draft form: 1. Membership Agreement. The Authority will.take the lead in selling the Notes on the City's behalf. In order to implement the financing, the City must become an Associate Member of the. Authority. Ultimately, all agencies participating in the permanent financing for the pipeline will .be required to become Associate Members. l_1 Nacimiento Project Interim Financing for Design Costs _ Page 2 2. Pledge Agreement. To avoid any General Fund commitments,the City will pledge Water Fund revenues as the soie security for the Notes. The City will make semi-annual, interest-only payments over a 36-month period. As discussed above, it is anticipated that the principal amount will be rolled-over into the permanent financing for this project. 3. Appendix A: The Water System. This document is intended to be used as an appendix to the preliminary and final official statements of the.Authority in marketing the sale of the Notes. It describes the City's water system and provides relevant statistics and recent financial information of the Water Fund. In accordance with the City's past practice with similar financing documents, the Director of Finance & Information Technology is authorized to execute these documents in their final form as well as other agreements that may arise in the course of this financing, and to make minor administrative changes to them as needed based on the recommendations of the City's financial advisor and bond counsel. CONCURRENCES 1. Utilities Department. The Utilities Department concurs with this recommendation. 2. City Financial Advisor and Bond Counsel. While the Authority is taking the lead in issuing the Notes, we have worked very closely with them and their financing team in preparing the financing documents. Additionally, while the Authority has contracted with very capable firms in providing financial advisor, bond counsel and underwriting services, we have.involved the City's financial advisor (Fieldman Rolapp) and bond counsel (Jones Hall) in reviewing these documents; and they concur with approval of the recommended action. FISCAL llMPACT The financing Notes will include the City's share of design costs of$6.6 million along with the cost of issuance and underwriters discount for a total amount not to exceed $7 million. Interest at approximately 4:5% will be paid semi-annually (about $133,800 each) for up to 36 months. The Water Fund has adequate resources to make these interest payments and retain working capital at policy levels, and the mid-year budget review in February 2006 will update the Water Fund budget for 2005-07 to reflect these costs. As discussed:above, the principal portion will become part of the permanent financing. The City has already committed to funding the design phase of the project. However, there are "opt-out" provisions following design if the construction bids exceed the current estimates. In the event that construction does not go forward, then the principal balance will be due at that time. However, approval of the recommended resolution does not change our obligations to fund design costs,but it does provide the City with greater financial flexibility in meeting them.. Nacimiento Project Interim Financing for Design Costs Page 3 ALTERNATIVES Do Not Approve the Resolution.. This would limit the City's options for paying for design costs to a lump-sum, out-of-pocket payment of $6.6 million right away. Given previously approved financing plans,we do not recommend this alternative. ATTACHMENT Resolution Requesting the Issuance and Sale of Notes by the Authority ON FILE IN THE COUNCIL OFFICE 1. Associate Membership Agreement 2. Pledge Agreement 3. Appendix A The Water System G:Debt Financing/Nacimiento/Agenda Repots Approval of Interim Financing for Design Costs W -3 RESOLUTION NO. (2005 Series) RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO REQUESTING THE ISSUANCE AND SALE OF BOND ANTICIPATION NOTES (NAMHENTO PIPELINE PROJECT), 2005 SERIES A BY THE SAN LUIS OBISPO COUNTY FINANCING AUTHORITY IN AN AGGREGATE PRINCIPAL AMOUNT NOT TO EXCEED $7,000,000, AUTHORIZING THE EXECUTION OF A PLEDGE AGREEMENT AND OTHER MATTERS RELATED THERETO WHEREAS, the City of San Luis Obispo (the "City") is a chartered city and municipal corporation duly organized under the laws of the State of California, and is authorized pursuant to Article 4 of Chapter 5 of Division 7 or Title 1 of the California Government Code, commencing with Section 6584, et seq. (the "Act"), to borrow money by the issuance of short- term notes, the proceeds of which may be used and expended for any purpose for which the City is authorized to spend moneys; and WHEREAS, the City has heretofore entered into that certain Water Delivery Entitlement Contract, dated as of July 7, 2004, as amended (the "Delivery Contract"), with the Flood Control District of the County of San Luis Obispo (the "Flood Control District"), pursuant to which the City has undertaken certain obligations with respect to the proposed construction of the Nacimiento Pipeline (the "Pipeline"); and WHEREAS, pursuant to the terms of the Delivery Contract; the City is obligated to pay its pro rata share (the "City Share") of the Design Phase Expenses (as that term is defined in the Delivery Contract) for Pipeline construction, in an amount not to exceed $7,000,000; and WHEREAS, the City has now elected to pay the City Share through the issuance of certain bond anticipation notes(the "Authority Notes") by the SLO County Financing Authority (the "Authority") on terms to be established upon the pricing and sale of the Authority Notes; and WHEREAS, the City has previously incurred certain obligations against its water enterprise (the "Water Enterprise"), for which the net revenues of the Water Enterprise are pledged (the "Senior Obligations"); and WHEREAS, the City has determined to pledge available revenues of the Water Enterprise on a basis subordinate to the pledge-supporting the Senior Obligations for the payment of scheduled interest on the Authority Notes, redemption premium thereon, if any, and, to the extent that revenue bonds of the Authority to pay the long-term costs of the Pipeline ("Revenue Bonds") are not timely issued and the Authority Notes are not rolled over, the principal thereof (the "Pledged Revenues"); and WHEREAS, in order to obtain the assistance of the Authority in fulfilling its obligations with respect to the Pipeline, the City desires to apply to become an associate member of the Authority; and WHEREAS, in order to effect the preceding actions, there have been presented at this meeting of the Council the following documents: �1-y Resolution No. (2005 Series) Page 2 1. Form of Associate Membership Agreement (the "Membership Agreement"); and 2. Form of Pledge Agreement in favor of the Authority, pursuant to which the City will pledge the Pledged Revenues to secure the Authority Notes; and 3. Draft Appendix A: The Water System ("Appendix A") intended to be used as an appendix to the preliminary and final official statements of the Authority for the,marketing and sale of the Authority Notes. NOW, THEREFORE, the Council of the City of San Luis Obispo (the "Council") does hereby resolve and determine as follows; Section 1. The foregoing recitals are true and correct. Section 2. It hereby applies to the Authority for the status of Associate Member, pursuant to the terms of the JPA Agreement, in order that the City may be able to meet its obligations under the Delivery Contract. Section 3. The Council hereby requests the Authority to issue the Authority Notes in the aggregate principal amount of not to exceed $7,000,000 at an interest rate of not-to-exceed 4.5% per annum. The Authority Notes shall have a term of not to exceed (36) thirty-six months, subject to the right of the Authority to roll the Authority Notes over for additional terms. The Authority Notes shall provide by their terms that interest thereon shall be paid from Pledged Revenues and that maturing principal shall be paid, first, from the proceeds of the Revenue Bonds or roll-over bondanticipation notes of the Authority, and second, from Pledged Revenues. Section 4. The forms of Membership Agreement and the Pledge Agreement, each by and between the Authority and the City are hereby approved and the Director of Finance & Information Technology of the City ("Authorized Officer") is hereby authorized and directed to execute and deliver the Membership Agreement and the Pledge Agreement substantially in the forms presented and considered by this meeting of the Council, with such changes therein, deletions therefrom and modifications thereto as he shall approve, such approval to be conclusively evidenced by the execution and delivery of each thereof. Section 5. The draft Appendix A is hereby approved, in substantially the form submitted to and considered by the City Council at this meeting, to be used in the disclosure documents of the Authority respecting the Authority Notes, with such changes therein, deletions therefrom and modifications thereto as the Authorized Officer shall approve, such approval to be conclusively evidenced by his delivery to the Authority or its underwriter of a certification_ to such effect. Section 6. The net proceeds of the Authority Notes shall be applied towards the City Share of Design Phase Expenses and for the payment of costs of issuance associated with the Authority Notes; and for no other purpose; provided, that any excess proceeds may be applied to the payment thereof at maturity. y -5 f Resolution No. (2005 Series) Page 3 Section 7. The City hereby evidences its intention to comply in all respects with the requirements of the Act and the Internal Revenue Code of 1986, as amended (the "Code"), applicable to the Authority Notes and declares that.the Authority Notes shall be allocable to the City for purposes of Section 265(b)(3) of the Code.. Section 8. Members of the Council, City Officials .and staff are hereby authorized and directed,jointly and severally,to do any and all things and to execute and deliver any and all documents which they may deem necessary or advisable in order to assist the Authority with the issuance of the Authority Notes and otherwise carry out, give effect to and comply with the terms and intent of this Resolution. Such actions heretofore taken by such officers, officials and staff are hereby ratified, confirmed and approved: Section 9. The City Clerk is hereby directed to certify a copy of this Resolution promptly following its adoption and to deliver a copy hereof to the Authority and to Bond Counsel for the Authority, being the law firm of Fulbright&Jaworski L.L.P. Section 10. This Resolution shall take effect immediately upon its adoption. Upon motion of __ _ seconded by. and on the following vote: AYES': NOES: ABSENT: the foregoing resolution was adopted on November 15, 2005. Mayor David F. Romero ATTEST: Audrey Hooper, City Clerk APPROVED AS TO FORM: Jona an P. Lowell, City Attorney y - t�