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HomeMy WebLinkAbout08/01/2006, B5 - WATER TREATMENT PLANT IMPROVEMENT BONDS counat 8-1-06 agcnaa Pepoat ,�N..b. 4557 CITY O F SAN LUIS O B I S P O FROM: Bill Statler, Director of Finance &Information Technology ✓ Carolyn Dominguez, Finance Manager SUBJECT: WATER TREATMENT PLANT IMPROVEMENT BONDS CAO RECOMMENDATION Adopt a resolution approving the issuance of water revenue bonds with net proceeds of $15,464,900 to assist in financing water treatment plant improvements. DISCUSSION Overview The attached resolution implements the bond financing previously approved by Council in the 2005-07 Financial Plan and finalized on March 7, 2006. The following summarizes the funding for the project budget approved by the Council on May 16, 2006, when it also awarded the construction contract for the project to Stanek Constructors in the amount of$12,130,858. . . - Study $91,100 Design 1,220,400 Construction 12,130,900 Actiflo System* 1,384,000 Construction Management 1,100,000 Contingencies 850,000 Total $16,776,400 *The Council awarded the contract for this component of the project in July 2005. Paid-to-Date $1,311,500 Bond Proceeds 15,464,900 Total $16,776 400 Background The water treatment plant improvement project has been under study and design for the last three years. On May 16, 2006, the Council awarded the construction contract to Stanek Constructors and approved the project budget and funding sources. Accordingly, it is now time to finalize implementation of the financing plan. I Water Treatment Plant Improvement_Bonds Page 2 Debt Management Policy Links The proposed issuance of these bonds is consistent with the City's adopted capital financing and debt management policies as provided in the 2005-07 Financial Plan. The use of debt financing is appropriate for one-time capital improvement projects when the project's useful life exceeds the term of the financing. In addition, the proposed financing meets the following key criteria: 1. Revenues available for debt service are sufficient and reliable so that financing can be marketed with an investment grade credit rating. 2. The project securing the financing will support an investment grade rating. 3. Current market conditions present favorable interest rates. 4. The life of the project to be financed is longer than 10 years. Proposed Financing Structure As noted above, the net proceeds from the financing will be $15.4 million. Including the reserve fund (which will be used to pay the final year debt service payment) and other costs associated With issuing the bonds (such as bond counsel, financial advisor, trustee, rating agency and bond insurance) that will be funded from the financing, the maximum amount of the new bond issue is not to exceed$17.5 million. Net revenues of the Water Fund are secured by a pledge to meet debt service obligations over the 30-year life of the bonds. The 2005-07 Financial Plan Supplement anticipated this financing and included adequate resources to make the required debt service payment. It is important to note that only water revenues are pledged as repayment sources for this bonds issue: there are no General Fund(or other source) obligations for this financing. Professional Assistance In accordance with service agreements previously approved by the Council, bond counsel services will be provided by the law firm of Jones Hall and financial advisor services will be provided by Fieldman Rolapp. For trustee services, the City contracts with U.S. Bank. Description of Financing Documents The attached resolution approves the documents that are required in order to proceed with the financing. Prepared by the City's bond counsel (Jones Hall), the following is a brief description of these documents, which are on file in the Council office: 1. Indenture of Trust. This document contains all of the terms and provisions relating to the bond issue; including prepayment provisions, maturity schedules, rights and remedies of the bond owners and the trustee in the event of a default. 1 I Water Treatment Plant Improvement Bonds Page 3 2. Preliminary Official Statement. The preliminary Official Statement describes the financing for prospective purchasers of the bonds, and constitutes the primary marketing document for the financing. As reflected in the attached resolution approving these financing documents, the Director of Finance & Information Technology is authorized to make minor amendments to these documents as recommended by bond counsel and the financial advisor, and to execute the final documents. Competitive Sale of Bonds In accordance with our Financial Plan policies, the sale of these bonds will be a competitive process, with the award made to the lowest bidder. The attached resolution authorizes the Director of Finance & Information Technology to make this award based on the recommendation of our financial advisor. Credit Rating Agency Presentations There are three major municipal credit rating agencies: Fitch Ratings, Moodys and Standard & Poor's. Along with market factors, credit ratings play a key role in determining interest rates and related annual debt service costs. It is standard industry practice to solicit credit ratings from at least two of these agencies on any one issue. We plan to use Standard & Poor's and Fitch Ratings for this bond issue. As we have in the past on all new issues, the Financing Team (composed of the CAO, City Attorney, Director of Finance & Information Technology and Finance Manager as well as representatives from the Utilities Department and our Financial Advisor and Bond Counsel) will make comprehensive presentations to both of these firms. The purpose of these presentations is to: 1. Maintain our high credit rating. 2. Answer any questions that they may have about the nature and structure of this particular financing. Project Financing Schedule The following outlines key dates in refinancing these bonds: Date Council . - Council approval of financing August 1 Bid opening August 8 Bond closing and receipt of funds August 15 3 Water Treatment Plant Improvement Bonds Page 4 FISCAL IMPACT The average annual debt service will be about $1.1 million, with payments commencing on June 1, 2007. The 2005-07 Financial Plan Supplement anticipated this financing issue and includes adequate resources for the debt service payments. A detailed analysis of key project financing assumptions and annual debt service costs prepared by our financial advisor is on file in the Council office. ATTACHMENT Resolution approving the issuance of water revenue bonds to assist in financing the water treatment plant master plan improvements AVAILABLE FOR REVIEW IN THE COUNCIL OFFICE 1. Indenture of Trust 2. Preliminary Official Statement 3. Bond Analysis Prepared by Fieldman Rolapp G:Debt Financing/2006 Water Revenue Bonds/Council Agenda Report,8-1-06 RESOLUTION NO. (2006 Series) RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO AUTHORIZING THE ISSUANCE AND SALE OF WATER REVENUE BONDS IN THE PRINCIPAL AMOUNT OF NOT TO EXCEED $17,500,000 TO FINANCE WATER TREATMENT PLANT IMPROVEMENTS AND APPROVING RELATED DOCUMENTS AND ACTIONS WHEREAS, the City owns and operates a public enterprise for the supply, treatment and distribution of water within the service area of the City (the "Water System"), and the City wishes to provide financing for improvements to the water treatment plant of the City, consisting generally of upgrades to allow conventional treatment of water up to the full 16.0 mgd capacity of the plant (the "Water Project"); and WHEREAS, the City is a charter city organized and existing under the Constitution and laws of the State of California, and as such the City is authorized to make and enforce all laws and regulations in respect to municipal affairs under Sections 3, 5 and 7 of Article XI of the Constitution of the State of California and under Section 203 of the Charter of the City, subject only to such restrictions and limitations as may be provided in the Charter of the City and in the Constitution of the State of California; and WHEREAS, in order to provide financing for the Water Project the City wishes at authorize the issuance and sale of 2006 Water Revenue Bonds in the aggregate principal amount of not to exceed $17,500,000 (the `Bonds") as an exercise of the municipal affairs powers of the City as a charter city of the State of California, to be secured by a pledge of and lien on the net revenues of the Water System; and WHEREAS, the Council of the City has duly considered such transactions and wishes at this time to approve said transactions in the public interests of the City. NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo as follows: SECTION 1. Findings and Determinations. The Council hereby finds and determines that: (a) the City is a municipal corporation and charter city duly organized and existing under a charter pursuant to which the City has the right and power to make and enforce all laws and regulations in respect to municipal affairs and certain other matters in accordance with and as more particularly provided in Sections 3, 5 and 7 of Article XI of the Constitution of the State of California and Section 203 of the Charter of the City; and (b) the Council, acting under the powers reserved to the City under Sections 3, 5 and 7 of Article XI of the Constitution of the State of California and Section 401 of the Charter of the City, is authorized to adopt this Resolution for the purpose of authorizing the issuance of revenue bonds by the City for the purpose of financing improvements to the Water System as provided herein. SECTION 2. Authorization of Bonds. The City Council hereby authorizes the issuance of the Bonds in the maximum principal amount of $17,500,000, for the purpose of 1 Resolution No. (2006 Series) Page 2 of 3 providing funds to finance the Water Project. The Bonds shall be revenue bonds that are payable from and secured by a pledge of and lien on the net revenues of the Water System. The Bonds are authorized to be issued under the powers reserved to the City under Sections 3, 5 and 7 of Article M of the Constitution of the State of California and under Section 203 of the Charter of the City. SECTION 3. Approval of Financing Documents. The Bonds shall be issued under an Indenture of Trust dated as of September 1, 2006, between the City and U.S. Bank National Association, as trustee, which is hereby approved in substantially the form on file with the City Clerk together with any changes therein or additions thereto deemed advisable by the Director of Finance & Information Technology ("Director"), whose execution thereof shall be conclusive evidence of the approval of any such changes or additions. The Director is hereby authorized and directed to execute, and the City Clerk is hereby authorized and directed to attest and affix the seal of the City to, the final form of the Indenture of Trust on behalf of the City. SECTION 4. Competitive Sale of Bonds. The Council hereby authorizes and directs the competitive sale of the Bonds in accordance with the Notice of Sale in substantially the form on file with the City Clerk together with any changes therein or additions thereto deemed advisable by the Director. The Director is hereby authorized and directed to accept the best bid for the sale of the Bonds, as determined in accordance with the Notice of Sale. SECTION 5. Publication of Notice. Pursuant to Section 53692 of the Government Code, Jones Hall, as bond counsel to the City, is hereby authorized and directed to cause a Notice of Intention to Sell Bonds, in form and substance acceptable to said firm, to be published once in The Bond Buyer not later than 5 days prior to the date set for receipt of bids on the Bonds. SECTION 6. Official Statement. The Council hereby approves and deems nearly final within the meaning of Rule 15c2-12 of the Securities Exchange Act of 1934, the preliminary Official Statement describing the Bonds in the form on file with the City Clerk. The City Administrative Officer or Director (each, an "Authorized Officer") is individually authorized, at the request of the purchaser of the Bonds, to execute an appropriate certificate affirming the Council's determination that the preliminary Official Statement has been deemed nearly final within the meaning of such Rule. Distribution of the preliminary Official Statement by the purchaser of the Bonds is hereby approved. An Authorized Officer is hereby authorized and directed to approve any changes in or additions to,a final form of said Official Statement, and the execution thereof by an Authorized Officer shall be conclusive evidence of approval of any such changes and additions. The Council hereby authorizes the distribution of the final Official Statement by the purchaser of the Bonds. The final Official Statement shall be executed in the name and on behalf of the City by an Authorized Officer. SECTION 7. Authorization to Obtain Municipal Bond Insurance. The Council hereby authorizes the Director to determine whether the Bonds are eligible for municipal bond insurance and, if so, whether it is in the best interests of the City to obtain such insurance. If the Director determines that it is in the best interests of the City to obtain municipal bond insurance, the Director is authorized to determine which municipal bond insurer offers the most favorable terms and conditions, to execute a commitment for such insurance and to take all actions required to implement the delivery of such policy. '' J Resolution No. (2006 Series) Page of 3 SECTION 8. Official Actions. The City Administrative Officer, the Director-, the City Clerk, the City Attorney and all other officers of the City are each authorized and directed in the name and on behalf of the City to make any and all assignments, certificates, requisitions, agreements, notices, consents, instruments of conveyance, warrants and other documents, which they or any of thern might deem necessary or appropriate in order to consummate any of the transactions contemplated by the documents approved pursuant to this Resolution. Whenever in this resolution any officer of the City is authorized to execute or countersign any document or take any action, such execution, countersigning or action may be taken on behalf of such officer by any person designated by such officer to act on his or her behalf in the case such officer shall be absent or unavailable. SECTION 9. Effective Date. This resolution shall take effect from and after the date of approval and adoption thereof. On motion of seconded by and on the following roll call vote: AYES: NOES: ABSENT: the foregoing resolution was adopted on August 1, 2006. David F. Romero, Mayor ATTEST: Audrey Hooper, City Clerk janathan AS TO F owell, City Attorney