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HomeMy WebLinkAboutCC AG PKT 2008-05-27 #K AGENDA STAFF REPORT . DATE: TO: THRU: FROM: May 27, 2008 Honorable Mayor and City Council David Carmany, City Manager Robbeyn Bird, CPA Director of Administrative Services/Treasurer SUBJECT: PENSION OBLIGATION FUNDING SUMMARY OF REQUEST: Direct staff to pursue alternative funding options for pension obligations and authorize City Manager to execute all necessary documents to complete the transaction. BACKGROUND: . On November 5,2007, the City Council directed staff to pursue a pension obligation bond utilizing the California Statewide Community Development Authority. Staff was directed to only consider fixed rate debt resulting in a net present value savings of $500,000 or more. Due to several delays in the Statewide pool transaction and adverse market conditions, the City wanted to consider funding alternatives. The Bank of America has submitted an attractive proposal to the City for consideration. After the City performed a side by side comparison of the Statewide Pool and the Bank's proposal, staff determined that the bank's proposal provides the most savings to the City as can be seen by comparing Attachment A and B. FINANCIAL IMPACT: If the transaction were completed today, the City would yield a net present value savings of approximately $1 million by finalizing the Bank of America proposal as opposed to saving $800,000 with the Statewide pool resulting in an additional $200,000 savings to the City. . Agenda Item K Page 2 RECOMMENDATION: . Direct staff to pursue alternative funding options for the pension obligations and authorize the City Manager to execute all necessary documents to complete the transaction. SUBMITTED BY: NOTED AND APPROVED: . ~~ '"3Kd Robbeyn Bird, CPA Director of Administrative ServicesfTreasurer crA;o- - David carma~y, ~ity Manager Attachments: A. Taxable Pooled Pension Funding Bonds, Series 2008 B. Private Purchase Pension Funding C. RFp. Bank of America D. Resolution # 5736 . . . CITY OF SEAL BEACH Taxable Pooled Pension Funding Bonds, Series 2008 S' AI'PPI - S;dch S:llet~ HC(II Clllelll Pl.lII SLttlStllS Iii e 1'1:\11 Police 1'1:\11 Risk Pool $2 148936 5 Years Risk Pool $8 698 840 11 Years S"fell S;ile(.~ ( 0111 billed S,I~ IIl!!S Heslllts "II e 1'1.111 Police 1'1.111 1'1.111\ 137333 6.39% 32 548 162741 747 278 8.59% 94 809 I 042 894 884611 8.15% 109 603 I 205 635 ~--.~.-' ~";'."~'7r'''!1Imf''"'xl~'T,'ffi2'=i]'~r-f.'''CYC[t)~ ,\,.c,; ~'-7 ~~~.-;--<~'"~ '. .,':;Or.:;.....;, "_~:,:'~".".:;I.,:i\o F)\ .cl.,,,HJJ!;\l.Fn,,~ Ct,.'",.. "'," ".<..<:,'.'. '. .:' ..~.........~~~."""","..._"" ~~~:dIf: ?IE,,_ ~C~~ ~_ l,......t,::2i-,;t...L4. ~.. "..co: ~~~ ~_."""'"'''''''''''"'''''''''_~~'''''~ rislal \ (';11 S.ile(~ Fill' POll Debt \1I1111." 1'\ 'II [lIdill(; l' \ \ L I'IIl(s Sel ~ Il e S,I\ III!!' (,.000% . . ATTACHMENT: A ~, . =:;;:: _,3TI1JfiliJiI:j)lltiD.1VJli2it,~1,f~}: :T=..~'__~ ~., Safet~ Polin' POB Dcllt \111111." 1'\ '(I' I \ \L I'~ lilts Sel' Ill' S,I\ Illg\ lJ.OOO% --~'O '-r>:""'~l'ir-:-:l~IF~:' 1'....-"7... t.; '-";;;:.J~ :":L. . __. u;..k~;Ili.!J{.utiJ)1~uJUJ~.l..~J..4.~1JJ1,al,._ ',' <~,,,;.::.'.. 'lot:1i POB Dellt \1I1l1l," 1'\ 1(/1 (1\\1,1'1111(\ Sel\lle S,IIIIl!!' (}.OOO'~II 2009 484,983 450,000 34,983 33,003 1,006,859 912,450 94,409 89,065 1,491,842 1,362,450 129,392 122,068 2010 500,745 470,000 - 30,745 27,363 1,039,582 947,450 92,132 81,997 1,540,327 1,417,450 122,877 109,360 2011 517,019 485,000 32,019 26,884 1,073,369 977,450 95,919 80,535 1,590,388 1,462,450 127,938 107,419 2012 533,822 500,000 33,822 26,790 1,108,253 1,012,450 95,803 75,885 1,642,075 1,512,450 129,625 102,675 2013 551,171 520,000 31,171 23,293 1,144,271 1,047,450 96,821 72,351 1,695,443 1,567,450 127,993 95,644 2014 1,181,460 1,087,450 94,010 66,273 1,181,460 1,087,450 94,010 66,273 2015 1,219,858 1,127,450 92,408 61,456 1,219,858 1,127,450 92,408 61,456 2016 1,259,503 1,162,450 97,053 60,892 1,259,503 1,162,450 97,053 60,892 2017 1,300,437 1,207,450 92,987 55,039 1,300,437 1,207,450 92,987 55,039 2018 1,342,701 1,248,375 94,326 52,671 1,342,701 1,248,375 94,326 52,671 2019 1,386,339 1,289,313 97,026 51,112 1,386,339 1,289,313 97,026 51,112 Totals 2,587,741 2,425,000 162,741 137,333 13,062,632 12,019,738 1,042,894 747,278 15,650,373 14,444,738 1,205,635 884,611 (I) Represents 6/3012008 Unfunded Liability received from City on October 24,2007. Prepared by De La Rosa & Co. 3/1312008 ATTACHMENT: B CITY OF SEAL BEACH Private Purchase Pension Funding s". AI'PPI - S:dell s~ leI \ I{clll elllellt ('1.111 Statlstlo rll (' /'1.111 l'oliLe I'lall Risk Pool $2 148936 5 Years Risk Pool $8 698 840 II Years Sa Ie II S:dcl\ COlllhilled S.n III!!S I{eslllts rll e 1'1.111 Police PI.IIl ('Ialls 145901 6.79% 34 565 172 823 854 182 9.81% 108,439 1 192 828 1 000 083 9.11% 124 150 1 365,651 """'7'--';;:;;;::;;:':1'1'8<jP;.r,;*,,~'iJ~P;:g?'4mnpr..'i]'~~ - ;,,~;:,~'i';;":I<7.' ,~;'""" ;:"':;Jf'Ei!1~<i\b,{;:kJ1;J~.1il,jl!JIi1J.ltJ!;.-, ,!cJ!A;L~UJ.!bc1:",'.a.!""'_ :... "-<_;~" '-.~ ,,:~.,;; rlseal \ eal S:det~ ril e I'OB Dellt \111111:\1 1'\ Iii Elldilll! II \ \L ('lilts "lei \ ILl' "1.\\ IlIltS (LlIUIJ"~, 2009 484,983 447,982 37,001 34,907 1,006,859 899,013 ]07,847 101,742 1,491,842 1,346,994 144,848 136,649 2010 500,745 466,865 . 33,880 30,153 1,039,582 933,598 105,984 94,326 1,540,327 1,400,463 139,864 124,479 2011 517,019 483,190 33,829 28,403 1,073,369 965,388 107,981 90,663 1,590,388 1,448,578 141,810 119,066 2012 533,822 499,468 34,354 27,212 1,108,253 998,625 109,628 86.836 1,642,075 1,498,093 143,982 114.047 2013 551,171 517,413 33,759 25,227 1,144,271 1,038,035 106,236 79,386 1,695,443 1,555,448 139,995 104.612 2014 1,181,460 1,073,573 107,887 76,056 1,181,460 1,073,573 107,887 76,056 2015 1,219,858 1,108,725 111,133 73,910 1,219,858 1,108,725 11I,133 73,910 2016 1,259,503 1,150,738 108,765 68,241 1,259,503 1,150,738 108,765 68,241 2017 1,300,437 1,191,288 109,149 64,605 1,300,437 1,191,288 109,149 64,605 2018 1,342,701 1,233,125 109,576 61,187 1,342,701 1,233,125 109,576 61,187 2019 1,386,339 1,277,698 108,641 57,231 1,386,339 1,277,698 108,641 57,231 Totals 2,587,741 2,414,918 172,823 145,901 13,062,632 11,869,804 1,192,828 854,182 15,650,373 14,284,722 1,365,651 1,000,083 (1) Represents 613012008 Unfunded Liability received from City on October 24,2007. .' ..;..:/~,; ''I 'J"'-jCf;'tl :!IIW{,lhl?PifoffT'i:i(iy'-;j4~';i::-;:::-~. -:. "":'" ~,",'de .. _" ......... ,;1:;6", ~;Jr!.l-f;! !.hla.":tt.3tlJ'.,,~;HW1 ,,{AtJ..~...-:_~ :t.~ }'':' . ....:t.:.':. S.dell Pollee POB Deht \ II II 1I.1i 1'\ II II \ \ L ('\ lilts "lei \ ILL' "1.\\ IlIgs 1,.IlIlIl"." c~::.:;;,:-.~- :' :;:J~@jlli1[1}l[]]it1!tJmHi~lG:n11 ::{";-: '.c. .~.~; loLd POI{ DellI \1I1111:1i 1'\ 'II 11\\II'\IIIIS SLl\ILl" S.I\IIIl!S (,.Illlll" " prepey De La Rosa & Co. . 5/19. ATTACHMENT "c" . Bank of America. ~ .;. Bank of America, N.A. CA Government Banking 333 S. Hope St., 13th Floor CA9-193-13-17 Los Angeles, CA 900071 May 16, 2008 CITY OF SEAL BEACH 211 Eight Street Seal Beach, CA 90740 Attention: David Carmany. City Manager RObbeyn Bird, Director of Administrative Services Subject: REQUEST FOR PROPOSAL FOR TAXABLE PENSION OBLIGATION FINANCING FOR THE CITY OF SEAL BEACH Dear Mr. Carmany and Ms. Bird: On behalf of Bank of America NA (the .Bankn), we are pleased to provide the attached proposal in response to the City of Seal Beach's (the .City") captioned request We would like to highlight the following points of our proposal: . 1. The Bank is very interested in being the sole purchaser of the City's bonds 2. The Bank's approach precludes the need to incur costs associated with a public debt underwriter, official statement, trustee. dissemination agent and debt service reserve 3. We can provide the City with a number of cost-effective debt structures We appreciate the opportunity to expand our relationship with the City by putting forward this proposal designed to meet the City's need to mitigate the cost of funding its actuarially determined unfunded pension obligation. . . We firmly believe that the Bank's extensive experience and commitment to public finance will enable the City to complete the contemplated transaction in the most efficient and cost-effective manner possible. In the event that the City may have any questions regarding the attached proposal, please do not hesitate to call the undersigned at 213-621-7131. Regards, -. :;::~/ _ -..f ::~-1.>. <!-q or:. ."j . /; t'~),17 ....c/O... { ,,'1, "-.l Greg Bailey Vice President Credit Products Grea.S.Bailev@bankofamerica.com . CC: David Choa, Client Manager Mike Whipple, M F Whipple & Associates . SUMMARY OF INDICATIVE TERMS AND CONDITIONS CITY OF SEAL BEACH THE PRIVATE PLACEMENT (PURCHASE) OF PENSION OBUGATlON BONDS TO BE ISSUED BY THE CITY OF SEAL BEACH May 16, 2008 PURCHASER: AMOUNT: MATURITY: INTEREST RATE: ORIGINATION FEE: SECURITY: REPAYMENT/ MATURITY: PREPAYMENT: CONDITIONS PRECEDENT TO PURCHASE: Bank of America, N.A. (the "Bank"), as sole purchaser of Pension Obligation Bonds {"POBs"} issued by the City of Seal Beach {the .City"} related to: . Safety Fire Plan of the City of Seal Beach . Safety Plan of the City of Seal Beach Up to $10,000,000 (representing portions of the City's UAAL for Plans) Up to 11 years (Maturity will be customized according to Plan's need) Indicative 5-vear Fixed Rate: 4.36% Indicative 11-vear Fixed Rate: 5.50% These are indicative rates as of May 16, 2008. Final rates will be subject to market conditions at time of closing. In order to provide prepayment flexibility, the 11-year rate contemplates a 5- year Call Provision The City may wish to consider a variable rate alternative for expanded . prepayment flexibility. The Bank would be pleased to present various scenarios for your consideration to assist the City with the efficient management of its interest rate risk or exposure. An origination fee of 5 bps will be payable at closing Unconditional obligation of the City payable from legally available funds Principal plus Interest is payable monthly in arrears. All calculations of interest and fees shall be made on the basis of actual number of days elapsed in a 360-day years Prepayment fee in an amount sufficient to compensate the Bank for any loss incurred by it as a result of the prepayment, as documented by the Bank, including any loss a~sing from the liquidation or reemployment of funds obtained by it to maintain the funds used to fund the financing or from fees payable to terminate the deposits from which such funds were obtained. For purposes of this paragraph, the Bank shall be deemed to have funded the transaction by a matching deposit or other borrowing in the applicable interbank market, whether or not the transaction was in fact so funded. Closing and ultimate purchase of the POBs will be SUbject to satisfaction of all conditions precedent deemed appropriate by the Purchaser for transactions of this type in general, and for this transaction in particular including, but not limited to the following . Subject to additional due diligence customary for transactions of this nature, with results satisfactory to Purchaser in its sole discretion, including but not limited to receipt and analysis of the latest pension . Bank of America, N.A. Page 2 of 4 . . COVENANTS/ OTHER TERMS AND CONDITIONS REPRESENTATIONS AND WARRANTIES: EXPENSES: . fund annual reports. most recent actuarial valuation and experience studies, verification of the UAAL, and other information such as the, status of employee contracts, insurance (or self-insurance) programs, capital improvement plan and expected funding sources, and obligations related to post-employment benefits for retired employees. . Final, non-appealable validation judgment on the issuance of the POBs, and determining that the POBs are general fund obligations of the City. . Adoption of the necessary Resolutions. . Credit approval and the negotiation, execution and delivery of definitive bond purchase documentation satisfactory to the City and the Purchaser. which shall include without limitation satisfactory opinions of Bond Counsel, and Counsel of the City, and such other customary closing documents as the Purchaser shall reasonably request. . The absence of any occurrence of a material adverse change in the business, assets, operation, condition (financial or otherwise) or prospects of the City or in the facts and information as represented to date. . The absence of any action, suit, investigation or proceeding, pending or threatened, in any court or before any arbitrator or governmental authority that purports to affect the City in a materially adverse manner or any transaction contemplated hereby, or that could reasonably be expected to have a material adverse effect on the ability of the City to perform their obligation under the documents to be executed in connection with the purchase. . Within 210 days of each fiscal year end, the City will provide the following to the Purchaser: o Annual audited financial statements of the City, prepared in accordance with generally accepted accounting principles for governmental entities. o Pension fund annual report City will deliver to Purchaser within 60 days of receipt by City, actuarial valuation and experience studies of the pension fund. City will deliver its annual budget within 60 days of adoption. No modification or amendments to the POB indenture without consent of Purchaser. Covenant to appropriate and transfer funds annually to the debt service fund. Other terms and conditions and covenants as determined upon completion of due diligence, including but not limited to certain notice provisions related to material adverse change, litigation, events of default. . . . . . Usual and customary for transactions of this type, to include without limitation: (i) Authority/enforceability; (ii) No material violation of law or governing documents; (Hi) No litigation the result of which, if adversely determined, would have a material averse effect upon the City; (iv) correctness of specified financial statements and no material adverse change; (v) validation of POB as a general fund obligation imposed by law, and (vi) compliance with retirement law. The City would pay all reasonable costs and expenses associated with the preparation, due diligence, administration and enforcement of all documentation executed in connection with the Facility, including, without limitation, Bank of America's attorneys' fees whether or not the Facility is Bank of America, N.A. Page 3 of 4 closed. Bank of America's attomey's fees are estimated at $15.000 - $20,000 . We appreciate your keeping this Indicative Term Sheet confidential except for disclosure on a confidential basis to your accountants. attorneys, and other professional advisors retained by you in connection with the Facility or as may be required by law. CONFIDENTIAUTY: This confidential Indicative Tenn Sheet is for discussion purposes and does not represent a commitment to lend by Bank of America N.A. (the "Bank'? The actual terms and conditions upon which the Bank may extend credit are subject to further due diligence, necessary credit approval, etc. and will have additional mutually agreed upon details. BANK CONTACTS: David Choa Vice President/Client Manager Bank of America California Government Banking 333 South Hope Street 13th Floor Los Angeles. CA 90071 Phone: 1.213.621.7144 Fax: 1.213.621.3606 david.choa@bankofamerica.com Greg Bailey Vice President/Credit Underwriter Bank of America California Government Banking 333 South Hope Street 13th Floor Los Angeles, CA 90071 Phone: 1.213.621.7131 Fax: 1.415.796.5697 area.s.bailev@bankofamerica,com . . Bank of America, N.A. Page 4 of 4 . RESOLUTION NUMBER 5736 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SEAL BEACH, CALIFORNIA DIRECTING THE CITY MANAGER TO EXECUTE ALL NECESSARY DOCUMENTS TO OBTAIN FUNDING FOR THE CITY'S PENSION OBLIGATIONS WHEREAS, on November 5,2007, the City Council of the City of Seal Beach (the "City") directed staff to pursue participation in the pension obligation bond pool with the California Statewide Communities Development Authority ("CSCDA") as the pooled bond issuer. Staff was directed to only consider fixed rate debt resulting in a net present value savings of $500,000 or more; and WHEREAS, due to several delays in the CSCDA pool transaction and adverse market conditions, the City desires to consider other alternatives to fund the City's pension obligation; and WHEREAS, the Bank of America ("BofA") has submitted an attractive proposal to the City for consideration; and WHEREAS, the City performed a side by side comparison of the CSCDA Pool and BofA's proposal and determined that BofA's proposal provides the most savings to the City, as can be seen by comparing Attachment A and B hereto; and . WHEREAS, the City desires to proceed with the BofA proposal as an option to the CSCDA pool due to the increased savings offered by the BofA proposal. . NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SEAL BEACH DOES HEREBY RESOLVE: Section 1. The City Council hereby finds and declares that it is in the best interest of the City to consider all options in order to fund the City's pension obligations. Section 2. The City Council hereby authorizes and directs the City Manager to execute all necessary documents which he deems necessary or advisable in order to consummate the transactions contemplated by this Resolution. PASSED, APPROVED, AND ADOPTED by the City Council of the City of Seal Beach on the 27th day of Mav , 2008 by the following vote: AYES: Council Members NOES: Council Members ABSENT: Council Members ABSTAIN: Council Members ATTEST: Mayor . City Clerk Resolution Number 5736 . STATE OF CALIFORNIA } COUNTY OF ORANGE } SS CITY OF SEAL BEACH } I, Linda Devine, City Clerk of Seal Beach, California, do hereby certify that the foregoing resolution is the original copy of Resolution Number 5736 on file in the office of the City Clerk, passed, approved, and adopted by the City Council of the City of Seal Beach, at a regular meeting thereof held on the 27th day of Mav , 2008. City Clerk . .