HomeMy WebLinkAbout04-21-11 FA&C Committee PacketOTAY WATER DISTRICT
FINANCE,ADMINISTRATION AND COMMUNICATIONS
COMMITIEE MEETING
aod
SPECIAL MEETING OF THE BOARD OF DIRECTORS
2554 SWEETWATER SPRINGS BOULEVARD
SPRING VALLEY,CALIFORNIA
BOARDROOM
THURSDAY
April 21,2011
11:30 A.M.
Ttl's is a Oistrict committee mooting.This meeting is being posted as a spadal meeting
in order to compty with the Brown Act (Govwnment Code Section §54954.2)in the event that
a quorum of the Board is present.Items will be deliberated.howe~er,no formal board actioos
will be taken at this meeting,The committee makes recommendations
to the full board for its consideration and formal action.
AGENDA
1,ROLLCALL
2.PUBLIC PARTICIPATION -OPPORTUNITY FOR MEMBERS OF THE PUBLIC
TO SPEAK TO THE BOARD ON ANY SUBJECT MATIER WITHIN THE
BOARD'S JURISDICTION BUT NOT AN ITEM ON TODAY'S AGENDA
DISCUSSION ITEMS
3.INFORMATIONAL REPORT ON THE LETIER OF CREDIT (LOC)
SUBSTITUTION FOR THE OUTSTANDING VARIABLE RATE DEBT
(BEACHEM)[5 minutes]
4.APPROVE AN AMENDMENT TO THE COOPERATIVE AGREEMENT
CREATING THE INTERAGENCY WATER TASK FORCE WITH REFERENCE
TO WHEN THE TASK FORCE WILL MEET (WATION)[5 minutes]
5.ADJOURNMENT
BOARD MEMBERS ATIENDlNG:
Gary Croucher.Chair
David Gonzalez
1
All items appearing on this agenda,whether or not expressly listed for action,may be
deliberated and may be subject to action by the Board.
The Agenda,and any attachments containing written information,are available at the
District's website at WWlNotaywater.qov.Written changes to any items to be considered
at the open meeting,or to any attachments,will be posted on the District's website.
Copies of the Agenda and all attachments are also available through the District secre-
tary bv contactina her at (6191670-2280.
If you have any disability which would require accommodation in order to enable you to
participate in this meeting.please call the District secretary at 670-2280 at least 24
hoursorior to the meetin .
Certification of Posting
I certify that on April 15,2011 I posted a copy of the foregoing agenda near the
regular meeting place of the Board of Directors of Otay Water District,said time being at
least 24 hours in advance of the meeting of the Board of Directors (Government Code
Section 554954.2).
Executed at Spring Valley,California on April 15,2011.
Susan Cruz,District se tary
2
STAFF REPORT
AGENDA ITEM 3
TYPE MEETING:
SUBMITTED BY:
Special Board ~e~
Joseph R.Bea~~.
Chief Financial Officer
MEETING DATE'
W.OJG.F.NO:
May 16,2011
ON.NO
APPROVED BY:,-
APPROVED BY:German Al~arAssistant General Manager.Finance and
(A..lGM):
Adrninistr "io
SUBJECT:substitution of the Letter of Credit for the Outstanding
Variable Rate Debt
GENERAL M1lNAGER'S RECC»tMENDATION:
That the Board accept this informational report on the Letter of
Credit (LOC)substitution for the outstanding variable rate
debt.
COHMU'TU AC'l'ION:
See Attachment A.
PURPOSE:
To inform the Board of the upcoming request to replace the
Letter of Credit Bank.On May 16th the General Manager will bring
the required resolutions to the Board for approval.
ANALYSIS:
SUMMARY
The Letter of Credit Bank,Landesbank Hessen-Thuringen
Girozentrale (Helabal,is discontinuing the service.In order
to maintain the debt,the District must find a substitute Letter
of Credit and have it in place a few weeks prior to the June IOtb
expiration of the existing LOC.The District's continued
Capital Improvement Program requires the ongoing financial
funding provided by this debt while the variable rate
accomplishes this at a very low cost.
The General Manager has secured the services of Suzanne Harrell,
Harrell &Company Advisors,LLC as the Financial Advisor and the
legal firm of Stradling,Yocca,Carlson &Rauth to serve as Bond
Counsel.Both of these firms were selected due to their
excellent work in the past,reasonable fees,and familiarity of
the District.Due to these factors,the work can be completed
in the short turnaround time required.
The new LOC Bank will be selected through a competitive bid
process so the District obtains the most cost effective fee
possible.This competitive bid process includes six banks and
began the same day the notice was received from Heleba.Staff
was prepared for this possibility and had prior conversations
with various banks to insure that there were options available.
Staff will present the resolutions listed below at the Hay 16~
Budget Workshop.The timing of Heleba's decision to discontinue
the LOC leaves the District very short on time,requiring that
this be presented to the Board no later than mid-Hay.The
selection of the new bank and the preparation of the documents
is not expected to be completed until then.
BACKGROUND
The District currently has five outstanding debt issuances and
one loan from the State of California.Four of the debt
issuances have purchased credit enhancements from various
sources which enables the District to save on the interest costs
of the debt.
The 1996 variable rate debt issuance has a face value of
S15,400,000 and a current balance of $11,300,000.The debt was
sold by the District to finance the cost of design,acquisition,
and construction of certain capital improvements.The debt has
a LOC for both credit enhancement and liquidity guarantee
provided by Helaba.The LOC allows the interest cost to float at
a variable rate,based on a short-term seven-day rate.
Helaba has expressed that the District's debt is smaller than
those they would like to work with and has also commented that
they are trying to reduce their exposure to california debt.As
a reSult,they are opting to discontinue their services as the
LOC ~nk.The LOC will expire on June 10~of this year.In
order for the District to maintain this variable rate debt a
substitute LOC must be obtained from another bank.
The trust agreement approved by the Board in connection with the
original issuance requires that this bond have a liquidity
guarantee and a credit enhancement.Substitutions of LOC's are
a common occurrence in the debt markets and should raise no
concerns.While unlikely,it is possible that bondholders will
contact District representatives to inquire of the pending
change.This is a simple substitution with no substantive
changes in the debt.The most significant change may be that
the new bank could have a single ·A~rating whereas Heleba had a
AA rating.At the time of this report,proposals have not been
received or evaluated so the bank's rating is not yet known.
Staff will be evaluating the overall cost of each of the bank's
proposals and will recommend the least costly option for the
District.Staff has sent out six RFPs with a deadline of April
2Su for proposals.
The new LOC will enable the District to maintain its existing
debt.This action is consistent with the strategic goal to
provide for sound financing of District facilities.Hinor costs
will be incurred by the original Trustee,Bond Counsel,and the
new LOC Bank.These costs will be evaluated in the RFP process
to insure the lowest cost solution to this action.
OPTIONS
When the Letter of Credit expired in June,instead of
substituting the LOC and allowing the debt to remain
outstanding,the District could consider using its existing
reserves to payoff this debt.However,the District's reserves
would then fall below the target levels and even below the
minimum levels outlined in the Reserve Policy.This would put
the District in the position of borrowing other funds at a
higher cost.
With the termination of the existing LOC,the District could
exercise an option to convert the debt to a fixed rate.Staff,
with the assistance of Su:anne Harrell,have dete~ned that the
variable rate debt remains financially beneficial to the
District.Over the remaining life of the debt,the District is
expected to save approxi.ately $100,000 dollars by retaining the
variable rate as compared to a fixed rate,taking in the cost of
the LOC substitution.
Maintaining this variable rate debt will also enhance the
flexibility of the District to pay down debt as this debt can be
prepaid on 30 days notice with no premium.However,based on
the District's six-year rate model,the District will need to
retain the debt for at least five to six years.This debt is
necessary to fund the District's Capital Improvement Program.
It is possible that after six years the District could be in a
position to begin paying down debt.
RESOLUTIONS
Resolution for the Otay Water District:
•Approve Substitution of the Letter of Credit;form of
Reimbursement Agreement.
•Approve Amendment to Trust Agreement (to facilitate the
substitution).
•Approve Amendment to Installment Sale Agreement (to revise
the parity test to conform to other outstanding debt)
•Approve form of Reoffering Memorandum.
•Authorize the General Manager,Chief Financial Officer and
designees to execute the new and amended documents and take
all steps necessary to cause the new Letter of Credit to be
delivered.
Resolution for the Otay Service Corporation:
•Approve Substitution of the Letter of Credit;form of
Reimbursement Agreement.
•Approve Amendment to Trust Agreement (to facilitate the
substitution).
•Approve Amendment to Installment Sale Agreement (to revise
the parity test to conform to other outstanding debt).
•Authorize the Executive Director,Chief Financial Officer
and designees to execute the new and amended documents and
take all steps necessary to cause the new Letter of Credit
to be delivered.
PARTIES AND COSTS
Unlike a new debt issuance.where all costs to establish the
debt are paid from the proceeds of the debt issuance,on this
substitution the costs will be paid from the District's
reserves.These costs have been incorporated into the
District's 2012 rate model.The following parties are key in
order to complete the LOC substitution.The list below shows
the various parties and the related costs.
Financial Advisor $25,000 paid only if transaction i'
completed
Bond Counsel $40,000 paid only if transaction i'
completed
Rating Agency
LOC Bank Commitment
LOC Bank Counsel
~5,000
~30,000
~35,000
to ~45,000
to $45,000
FISCAL IMPACT'
The financial Advisor and the Bond Counsel were selected unde~
the General Manage~'s authority based on their prior work with
the District and the reasonableness of their fees.This matter
is time sensitive so their availability and ability to start
working on this project on such short notice was a tremendous
benefit to the District.
The rating agencies fees are estimated above and are in line
with other similar transactions.
The LOC Bank and their fees will be set based on a competitive
process.The following banks have been contacted and given an
RFP,Union Bank,Bank of the West,Banco Popular,JP Morgan,
CitiBank,and Wells fargo.7:e
The onetime costs to substitute the LOC are expected to be
approximately $150,000.The annual LOC costs are not expected
to be significantly different from the existing LOC,and will be
approximately $110,000 per year.The net result of maintaining
this variable ~ate debt as compared to a fixed rate borrowing is
expected to save the District approximately $1 million over the
next seven years.
STRATEGIC GOAL:
Sound financing of District facilities.
LEGAL IMPACT;
Non .
Attachments:
A)Committee Action form
ATIACHMENT A
Substitution of the Letter of Credit for the Out~tanding
SUBJECTIPROJECT:Variable Rate Debt
CCNa!'TU:ACTION:
This i~an informational item only.
NOTE:
The ~Committee Action~is written in anticipation of the
Committee moving the item forward for board approval.Thi~
report will be sent to the Board as a committee approved item,
or modified to reflect any discussion or changes as directed
from the committee prior to presentation to the full board.
STAFF REPORT
AGENDA ITEM 4
TYPEIoIEET1HG:Regular Board
SlJllMITTEOBY:Hark Watton,
General Manager
W.OJGF.NO:
Hay 4,2011
OIV.NO.
N'f'ROYED BY:-APPRO\IED BY:--SUBJECT:Approve an Amendment to the Cooperative Agreement Creating
the Interagency Water Ta~k Force
GENERAL MANAGER'S REcaoa:NDATION:
That the board approve the attaChed second amendment to the
Cooperative Agreement creating the Interagency Water Task Force.
COMMITTEE ACTION:
Please see Attachment A.
P01U'OSE;
To present for the board's consideration the approval of the proposed
amendment to 'Part III'of the Cooperative Agreement creating the
Interagency Water Task Force,with reference to when the task force
will meet.
ANALYSIS:
The Interagency Water Task Force was implemented in June 1990 through
a mutual cooperative agreement between the Otay Nater District,
Sweetwater Authority and the City of Chula Vista.The Task Force's
purpose is to study water related issues facing the City of Chula
Vista and make recommendations with regard to such issues to the City
Council and to affected water agencies.
The members of the Interagency Water Task Force wish to update the
bylaws with regard to when the task force shall meet.The current
bylaws indioate that the task torce Shall meet Kat least t~ice a
year,or quarterly as agenda matters require.~The members are
proposing the following change:
··The Interagency Water Task Force shall meet as required and
mutually agreed as agenda matters require on the day and at the
time and in the place that it shall designate by resolution
and/or by bylaw and such special meetings as the Task Force may
require."
It was suggested that the proposed second amendment be presented to
the Task Force participants'boards and the city's council for formal
adoption.The attached agreement is presented for this purpose.
FISCAL IMPACT:
None.
LEGAL IMPACT:
None.
ATIACHMENT A
Approve an Amendment to the Cooperative Agreement Creating
SUBJECT/PROJECT:the Intecagency Watec Task Focce
COMMITTEE ACTION:
This page of staffs'cepoct will be updated with the notes fcom
the committees'discussion of this item at a meeting scheduled
on April 21,2011
SECOND AMENDMENT TO THE COOPERATIVE AGREEMENT
BETWEEN THE CITY Of CHULA VISTA,OTAY WATER
DISTRICT,AND SWEETWATER AUTHORITY CREATING
THE CHULA VISTA INTERAGENCY WATI'R TASK FORa
AND ESTABLISHING THE FUNCTIONS AND DUTIES THEREOF
This SECOND AMENDMENT is made aod entered into as of ~~
2011,by and among the City of Chula Vista (City),Otay Water District (Otay),and
Sweetwater Authority (Sweetwater),in view of the following facts:
WHEREAS,on February 26,1991,by Resolution 16081,the Chula Vista City
Council approved a Cooperative Agreement (Agreement)between the City of Chula
Vista (City),the Otay Water Distril;t (Otay),and Sweetwater Authority (Sweetwater)that
formed the Chula Vista Ad Hoc Water Task Force for the purpose of studying water
related issues facing the City of Chula Vista,and making recommendations to the City
Council and the affected water agencies regarding water related matters;and
WHEREAS,on March 22,1991 the Governing Boards of Otay and Sweetwater
also approved said Agreement on March 22,1991;and
WHEREAS,the First Amendment to this Agreement was entered into by City (by
Resolution No.2007-049),Otay,and Sweetwater on April 11,2006;and
WHEREAS,City,Otay,and Sweetwater now deSire to modify the conditions with
respect to the schedule of ~tings,
NOW,THEREFORE,THE CITY COUNCIL OF THE CITY OF CHULA VISTA,THE
BOARD OF DIRECTORS OF OTAY WATER DISTRICT,AND THE BOARD OF
DIRECTORS OF SWEETWATER AUTHORITY AGREE AS FOllOWS,
1.That Section Pan Ill:Meetings,shall be amended to read as follows:
The Interagency Water Task Force shall meet as required and mutually agreed
as agenda matters require on the day and at the time and in the place that it
shall <fusignate by resolution and/or by bylaw and such special meetings as Ihe
Task Force may require.
Signature Page to the
Second Aml'fldment to the Cooperative Agreement Creating the
Chula Vista Interageocy Water Task Force
0,,"',42,1-'1"'.-I'#1L1_
o/wA
Approved as to form:
General Counsel
Dated:_
CITY OF CHULA VISTA
Ch",1 cof!:;IA
-
OTAY WAlER DISTRICT
Mark Watton,General Manager
SWEETWATER AUTHORITY
J.
_l.Smyth,General Manager
2