HomeMy WebLinkAbout1992 08 12 City Commission Workshop Minutes
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CITY COMMISSION WORKSHOP
August 12. 1992
The meeting was called to order bv Mayor Kulbes at 7:05 P.M.
ROLL CALL:
Commissioner John V. Torcaso. Present
Commissioner Don Jonas. Present
Commissloner John Langellotti. Present
Commissioner Terri Donnelly. Absent
Commissioner Cindy Kaehler. Present
City Manager Rozanskv. Present
Attorney Tom Lang. Present
\Nlf')t~r~priD9~_ W.:it~r~_~~V{~[ f_a~i~ 9j)~~t.JQn?/R~tldD9?:___ ____
Attorney Lang stated that the Commission has a proposal to refund some
outstanding bonds. He said there are sonle questions on how the original was
structured and what the situation is with the performance bond that was
posted by the sellers.
Lang said there are two sets of bonds outstanding - the old system and the
new system. On the old system you have had a number of refundings to the
point that certain of those bonds cannot be refunded again. On the old
system there are about one million out of seven that can be refunded and the
others cannot be refunded. The others cannot be refunded because there is a
l1mitation that has been set by Congress as to how many times that you can
refund. You then have the new system where al"j of them can be refunded at
this point and it would be in the Clty's best lnterest to consider refunding
those bonds based on the numbers that have been oresented: because you can
reduce your lnterest costs on those bonds bv doing that. The other thing
that could hapoen is that there is a way to try to comblne the systems which
we may want to do from a revenue standpoint in that the Old system is
oreforming very well, the new system is not getting the hook-ups that had
been projected and as a result the revenues are not coming in at the rate
that had been projected and we have experienced some coverage problems.
Where we promised the bond holders and the rating agencies that we would
keep our rates set such that you would always have a certain ~nount would be
given to you as revenues on that system. We are not getting those kind of
revenues wh i ch means by contract we have to r'a i se rates on that system or
find a way to combine as such as the overall system gives us sufficient
coverage to avoid a rate increase; which would then take one system. which
would be the new system, out of equal ity with the old systeni. We fought
very hard to get those two systems into eauality so you wouldn't have anv
differentlal between the two.
Conmissioner Kaehler said that she thought that with tile oerformance bond
there was a built-in safety net. that should the revenues not come m as
exoected that there was a oercentage in there that it was suopose to cover.
Lang said that is the case once we get to 1994. the way that issue was
structured is that you have some protect ion in the ear 1 y yeal's of that issue
where you didn't have to make the same payments as you are going to have
start making. In 1995 we have a "bullet" that is going to have to be paid.
we have some principal due. there is not principal due prior to 1995. So
what was structured was since we are not making any orincioal payments until
1995. then the sellers agreed that in 1995 if you didn't have sufficient
C1ty CornTlission Workshoo
August 12. 1992
Page 2
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connections in order to give you the revenues to I~ake that orincioal oayment
then we could draw down the bond based on the connections that were not
made. i n other wor'ds. you have a bond but that bond was not intended to
protect the City during the years when there were not orincioal pa~ents
that had to be made.
Kaehler said in other words we are not making the interest oa~ents. Lang
said at this ooint we are making the interest oa~ents because of the
ability of hav1ng flexibility within the ut1lity but we are not meeting our
coverage test. The coverage test is an artificial test. but one that we
agreed to where we say we will not only oay our interest but we will have
revenues in excess of our interest. By covenant if we don't make the
coverage test you have got to raise rates.
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Lang said we are faced with either raising the rates on the new system or
figuring out a way to structure the financing so that we can get everybody
comfortable including the bond insurers and the rating agencies that we have
sufficient revenues and that we can live with those covenants and that we
can have a consolidated system. Based on rny conversations it would apoear
that ignoring the rate structur'e. it would be in the City's best interest
now to start working to trying to consolidate because in essence the systems
at'e identica 1. The good thing 1S in conjunct ion with all we have discussed
in regard with trying to combine then and getting the coverage. we also have
a favorable market olace where we have lower inter'est rates. So you not
on 1 y cou 1 d comb i ne thell but save money comb i n i ng them.
Jim Lentz of Cao i tal Market Consul tants. I nc.. sooke on the book 1 et that was
oassed out to the Commission on the oroposed consolidation and refunding he
suoo 1 i ed .
Lentz said that the first oage gives a little history of the east and west
side utility. It states that seoarate books are nlaintained and the City has
been for some time, orovided for the abil1ty without bondholders consent.
which 1S crucial. to combine both systems. As we all know the economic
climate in the last couole of years has been tough, interest rates have
finally starteo coming down to levels that we think we wi 11 star't seeing
some imor'ovement in the hous i ng area. It will be gradua 1, it wi 11 take
time, but ! think we are headed in the right direction as long as long term
interest rates stay low. Interest rates have declined and we have been in
meetings with Staff and with your Counc1l over the course of this year
trying to make the best determination of how to olace this refinancing in
light of slowness of the economy. We believe that your franchise, this
franchise for both systems, is a very valuable Fr'anchise which will indeed
prosper in good time. The question is when will that orosoerity take olace.
at least on the East side? It will be a little time but I believe with the
decline in rates and hooefully a more oositive Federal movement, to try to
spur some economic growth, you will start seeing some imorovellent.
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Lentz exolained Section 22 (H) to add additional covenants. He then
exolained Section 26. it talks about as long as we don't imoair the rights
of those bond holders. which are in effect. all you have to do is receive
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August 12. 1992
Page 3
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oP1n10ns from vour consulting engineers, your CPA's, your financial
advisors, bond council, that the consolidation of this system makes sense.
To me it makes sense long term, and we are prepared to advise you that we
believe that it 1S appropriate and that's the criter'ia here of whether you
should merge these two systems. It will unify rates and -it will allow us.
when we structure the debt, to build 1n in 1992 terms the economic forecast
that we see today that maybe wasn't seen in 1984 and 199i.
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Jonas asked about the statement "long term". Lentz said this is means if
you have two systems inherent ly with two different rate str'uctures because
if you fail to combine the two systems now you'll have to increase rates on
the East side. unfortunately we are not able to tap this bond until
somewhere down the road, so we could have discontented rate payers in one
oart of the City vs the other part, the second reason is the City is credit
basically is pledged to both bonds so you can't deal with only one problem.
The City has a responsibility for both bond issues, I think when you
combine, since you are combining a more mature system with a reasonably new
system from the City's perspective, it allows you to build maybe some 1992
growth patterns ,n connections and growth, based upon more or less this
years ex per i ence, so that we can look a 1; tt I e fut~ther out and not have any
"surprises" in terms of economic declines. [think long term combining the
systems now wi 11 give you much gt'eater strength both in the credit mar-kets
and will also be fair to both the east and west sides. because the rate
d i soat' i ty wou 1 d come back and create prob 1 ems.
There was discussion if this could be un-combined. Lang stated that this
could be done if that was the decision to do it, you may have some problems
paying off sane debt because we may have the same problem with the mi 11 ion
that we are refunding now.
L.entz went over the hi star i ca 1 numbers. The sav i ngs wou 1 d be on the East
side bonds would be a minimum of $350,000 today. We are able to recapture
350 -I n interest cost sav i ngs, so there is some re 1 i ef that can be prov i ded.
These bonds cannot be paid off until the year 2000 so we would have an
advance refunding and we would in effect orovide a mechanism to set up an
escrow between now and the year 2000. Because when the year 2000 comes the
outstanding bonds will be paid off.
Lentz stated that the next page on the historlcal summary came out of the
C it y 's budget and aud] ted fi nanc i ,:'1 I statements.
Discussion on the recent bond the City acquired for the utility.
~entz went over the West and East side outstanding debts and on the
following page the sources and uses of funds.
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Lentz stated that we reconrnend that we stat~t the process to be ab 1 e to
access the market, we think prior to the November election because of the
uncertainties. You probably read that the interest rates both short term
and long term rates are at somewhat historic lows and while there is a good
chance they might come a little lower the fact we think yOU have about 400
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August 12, 1992
Page 4
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thousand dollars in the east side system in interest cex:;t sav'lngs given the
econani c env i r'orment it may be prudent to capture those sav 1 ng::; and he 1 D
mitigate sane of the s~owness as a result of the econany.
Lentz said the next page is a listing of the existing debt and the new debt
and the d-:ffer'ences. He stated what they would like to do in structuring
this refundin~l 1S if you cornbine both systems is with your finance
depart:rlent and el':g i neel~S, sort of rnap:>ut a conservative debt structure that
a llows you tc i Ii effect "button dow:-: the hatches" for maybe a few n"Dre years
until this econOliY debt wise, s:xtsi L:;e 1 f out and ','Ie f i r;i11 y be 1 i eve it
wil~. it can be structured a lot of different ways. we can provide sane
"eliefin the ear-lier years as you're developing the system or we can rnake
debt service exactly the same you currently have and those are decisions we
are not prepared to make a decision:::(, tonight and we wi 11 be back to you at
sane ooint reviewing how to structut~e that debt.
Lentz stated that: we can ~)(olide i:') :r:e debt structure a payment schedule
that is very conservative today however, if we start getting the connections
yOLi can oayoff that debt, that ;3 called a "supel~ s-inkel-" without getting
all the technical side of it. there is a way of sort of planning for the
worst aid also if U-ing:::; ge: better we can e/cph:i'3.te the debt soonel- so we
are not strapped into a debt serv 1 ce schedu 1 e that someday S0I11eone wi 11
have t:. raise rates by 30% just t keeo c,p w'th thi:~ th~ng,
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Lentz stated that it 1S their reccmnendation that you proceed with the
refundhg and we thll:k the appropriate way of doing it is combirying both
systems. There's a substant i a' sav i ngs ava i 1 ab 1 e today ft~orl1 that issue and
it would be helpful to have another 400 thousand dollars in savings.
Lentz mentioned tha: this bond lssue we believe involves a degree of
canple/ity and J have FOl/:d :.egotiated bond sale on a matter like this and
other matters for market r-easons and in this particular as a sounding board
to rea 11 y out -3 we 11 des! gned fi (')f:e: (~g [) ::tr together' makes an awfu 1 lot of
sense. I think that the underwriting costs will be very similar or less
than if you so 1 d it on a COl1ioet 'I t i ve ~ ssue. Tn i 2:; allows an underwr iter- to
oremarket the issue and wor-k wi th us espec i a 11 y if we get dowl- the road and
we want t.o or'o v ide sorne of these opt -i ons -;' ::y y 0L
Lentz said that they have developed a Request for Proposal and we would
reconmend and last t'ime we did a bo(d ~SS:~:f~ ther-e was a finance corrrnitte~
put togethet~ of your City i1anager, Finance Dir'ector and a City COIITI1issioner,
we would advise your- COIll111ttee, we fir-r:!it heloful to have your management
and at least one representative of the COI11Tlission as part of the on-gomg
decision orocess and it would start w,th the rev :ew of the RFP's.
~lana98'- Rozansky sa i d that he wou 1 d rec<XIlllend that we do that Mayol", if you
will recall with the oresent issue the refunding where we brought ~entz in
we '3aved a lot of rr'Oney. i think that is the best way to do it, sit down
wich the cmmittee like that and f-eview it and (lick tilE' right one fot~ it.
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Kaehler asked Lentz to
RFP. Lentz said that on
explain the difference between the negotiated and
the last issue you sold bonds th: 8ugh a
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City Commission Workshop
August i 2, 1992
Page ":
broker/dealer, Southeasten Municipal Bonds, they actually structured the
issue and we were brought in for pricing. We believe by being involved in
the structur i ng and sett i ng the terms and condi t i on" ahead of time, i can
guarantee that your selling costs will be at least 30%-40% lower because of
our involvement. and a130 'trill allow for' someone sitting on your' side of the
table that deals in these matters on a day to day basis and can understand
terms and conditions.
Lentz stated that Will i am R. Huff and Co.. Leedy Corpor' at i on together out of
Orlando and st. Petersburg. A.G. Edwards and Co. OL:t of st. Pete.
Pr'udential. and Gardner Michael Caoit.al :nc. a local Orlando Co., these four
firms have contacted myself. Rozansky and Martin. These firms are qualified
and have expressed and interest: we WOLl 1 d f'eCOllTnend that we submi t th i s RFP
to these four firms, have your cOllTnittee formed and with our advise and then
select one to in effect negotiate the bonrl'terest rates with the City at a
later date.
Ther"e was discuss ion on oub 1 ish i n9 for RFP. ! twas determi ned that there
would be an ad published in the Orlando Sentinel on Sunday, August 16, 1992.
L.er~tz went over a or'el iminar"} fir:ancing schedule that was in
This is a very aggressive time schedule, we would like to have
1 ater than the elect i on in November. With Dub 1 ish 'I ng the ad
this schedule will be moved back one week.
the booklet.
this done no
f or' the RFP,
D']scussion on the cOInnittee.
Kaehler to the cOllTnittee
Director.
Tre C0II111isslon decided to appoint COIlmissioner
along with the City Manager and the Finance
~_ang went over aga 1 n the dl f f er'ence between a compet i t -1 ve and negot i at i ve
sale.
Lentz ment i oned one of the f -j nns and a 1 on9 with hi s firm has looked at the
1989 imprOVEment lssue and it was a 9 mi 11 ion dollar lssue of which
approximately 4 1/2 illil>Oi; \"e~~e fOI cavital add-itions or qualify for'
another advance refund i ng . The coupon r ate ~~: the same 7.45, if you
refunded these there is 100 thousand do 11 drs iKesent va 1 Lie sav i ngs i nvo 1 ved
in tris issue also which we would like you to cOI':sider, depending on the
interest rates etc. !t is ,-,at as crucial as Hie east side financing but it
is about 20-25% e'f a years debt service, it might be wOI-th it.
The meeting was adjourned at 8:10 P.M.
Respectfully Submitted,
Margo '-!opk ins
Deputy City Clerk