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HomeMy WebLinkAbout1985-11-08 - City Commission Special Meeting Minutes• ply,"w MAIL. REPLY TO: P.O. BOX 25010 TAMARAC. FLORIDA 33320 5811 NORTHWEST 88TH AVENUE TAMARAC, FLORIDA 33321 TELEPHONE (305) 722-5900 November 6, 1985 NOTICE OF SPECIAL MEETING CITY COUNCIL OF TAMARAC, FLORIDA There will be a Special Meeting of the City Council on Friday, November 8, 1985, at 1:30 P.M. in the Council Chambers of City Hall, 5811 NW 88 Avenue, Tamarac, Florida. The purpose of the meeting is discussion and possible action on the following items: 1. Interviews with prospective underwriting firms for the Tamarac Utilities West revenue bond sale. 2. Function and need for a Financial Advisor for the TUW revenue bond sale. The public is invited to attend. Carol E. Sarbuto Assistant City Clerk Pursuant to Section 286.0105, Florida Statutes If a person decides to appeal any decision made by the city Council with respect to any matter considered at such meeting or hearing, he will need a record of the proceedings and for such purpose, he may need to ensure that a verbatim record includes the testimony and evidence upon which the appeal is to be based. AN EQUAL OPPORTUNITY EMPLOYER POLICY OF NONDISCRIMINATION ON THE BASIS OF HANDICAPPED STATUS a 1. 2. AGENDA FOR SPECIAL MEETING CITY COUNCIL November 8, 1985 1:30 P.M. Bond Underwriter Interviews a) 1:30 P.M. - Discussion of General Procedures related to the Revenue Bond Sale with Gerald Heffernan, Bond Counsel. b) 2:00 P.M. - Matthews & Wright c) 2:20 P.M. - Smith Barney Harris Upham & Co., Inc. d) 2:40 P.M. - Prudential-Bache Securities, Inc. e) 3:00 P.M. - Shearson Lehman Brothers, Inc. f) 3:20 P.M. - William R. Hough & Co. g) 3:40 P.M. - Council Discussion Function or need for a Financial Advisor for Tamarac Utilities West Revenue Bond sale. SPECIAL COUNCIL MEETING CITY OF TAMARA,C, FLORIDA UNDERWRITER INTERVIEWS NOVEMBER 8, 1985 Tape CALL T ORDER: Mayor Philip B. Kravitz called the meeting 1 Chambers. on Friday, November 8, 1985, at 1:30 p.m. in Council RQLL CALL: PRESENT: Mayor Philip B. Kravitz Vice Mayor Helen Massaro Councilman Sydney M. Stein ABSENT & EXCUSED: Councilman Arthur H. Gottesman Councilman Raymond J. Munitz ALSO PRESENT: Acting City Manager Larry Perretti City Attorney Jon Henning V. Diane Williams, Secretary Patricia Marcurio, Secretary MEDITATIO AND PLED E OF ALLE IA CE: Mayor Kravitz called for a Moment of Meditation followed by the Pledge of Allegiance. 1. Int ry s it ros ectiv and rw itin firms f r the T ma ac U ilities W st ev nu bond sa Y OP I F ACTIO : Smith Barney Harris Upham & Co. was chosen as senior underwriter with William R. Hough & Co. as co -underwriter Mr. Henning reported that there was an agenda and an appointment of times for each of the underwriters; however, he noted that the Shearson -Lehman group may not be in attendance. backup included a spread sheet He said Council s by the Committee. (see attachmenti.)which was prepared minutes had been assigned ttoAMr. Gerald1Heffernan, thed the iirst i thirty (30) Counsel, in order to establish lions Bond the representatives and stated thatonethat the dhas ubeennmost th difficult for Council to grasp was the importance of a refunding issue on the revenue bonds - what are the advantages and disadvan- tages. Mr. Henning said the question was whether the City should sell fifteen million dollars of new bonds or should the City refund or set up the sinking funds for the refunding of -approximately thirteen million dollars of outstanding bonds that were used to Purchase the sewer plant in 1979 and then a l thirty --one days later, issue the bonds on the rfifteen milliony to dollars for the present improvements which are desired for the sewer plant. The City Attorney also asked Mr. Heffernan for guide- lines as to any specific factors Council should be looking at. Mr.,Gerald Heffernan, Bond Counsel, reported that he has been in- volved with the GO and also the water and sewer for a two years and that he wanted what was best for the City�oxHeaeX1y plained that originally they had planned to do a parity bond with the outstanding 1979 bonds and one of the pro the covenants within the bond ordinance whchbwass encountered was ito issu those bonds. Mr. Heffernan said there was a discrepancy betweene the rate covenant and parity test covenant that were set forth in the official statement which the bonds were sold on and the original ordinance by which Council authorized the issuance of those bonds. He explained that the ordinance had stated that the 1 11/8/85 /vdw / parity test and the rate covenant needed to be 125% and the official statement said 110% and the bonds were sold at 110% which created a legal problem. Mr. Heffernan said, theoretically, the legal document binds the City and what the bondholders really look to for their rights and obligations is the bond ordinance and not an official statement; although, the official statement is there to induce people to buy but not as a legal document. He said subse- quent to the sale of the bonds the City amended the ordinance to bring the rate covenant down to 110% to put it in line with the ordinance and there was some question as to whether it was done properly because when there is a change to a significant covenant which affects the rights of the bondholders, the change needs to be approved by them. Mr. Heffernan said the change to 110% gave the bondholders less security than the original 125% which he did not envision as being a problem as long as the City continued to make debt service payments on the bonds and the City always has the ability to raise the revenues and rates, if needed. Mr. Heffernan said he would have liked to have had a lower parity test but in compliance with the ordinance the new bonds had to be at 125% - rate covenant and parity test. He explained a parity bond is one in which the same revenues are pledged as on a previous bond issue and the new bondholders as well as the old bondholders are going to have the same right to the revenues. The Bond Counsel explained that when the ordinance was done in 1979 allowances were made for parity bonds in the future (as is always the case) and the old bondholders are not concerned because they know before it can be done there must be enough revenue for 125. He said at the time he doubted whether the City could meet the 125 but later learned that it may be possible depending on how they did their accounting. Mr. Heffernan said the City made the decision to refund rather than do a parity bond, and that when a refunding is done it is actually the selling of bonds. Mr. Heffernan explained that the selling of bonds involved putting money in an escrow and the purchase of government securities which allows the holder to pay those bonds back when they become due by investing in government securities. He said many times if it is structured properly and if the interest rate is at the right amount, the City can actually make money on it. Mr. Heffernan ex- ampled the City of Homestead whereby they made a deal a few months ago in that they reduced their principal amount in their water and sewer utilities bonds from twenty-three million dollars to fourteen million dollars. He said they were able to sell fourteen million dollars worth of bonds and invest them at such a rate to pay off twenty-three million dollars worth and their debt service remained the same, and they also received $800,000 cash in closing to use for a capital project. V/M Massaro asked if the existing rate on the bonds affect whether the City of Tamarac would be in a position to do something like that. Mr. Heffernan said it was possible and that the City's financial adviser had run numbers about three to four months ago to show what the savings could be to the City. He said the difficulty in using that analysis now is that it was based on the current market rates then and stated that the City needed to do another analysis now to see whether the interest rate in the market today and what the City is paying on the bonds is enough spread to make that arbitrage. Mr. Heffernan said, in any event, the way the refunding is struc- tured under the IRS Code was another problem. He exampled a parity test under the IRS Code and explained that the issuance costs has to be paid to all the professionals whereby the bond size has to be increased. The Bond Counsel said with a refunding the government allows structure of the yield so that all the expenses come out of that yield so the bond size will not have to be increased to pay the issuance costs and stated it would be an advantage to the City in that respect. Mr. Heffernan said the difficulty now is that they are up against it because the government has now realized that this is a loophole and is a real benefit to the cities, and now one of the proposals in Congress is to eliminate advanced refundings and not allow cities to do this in the future, effective December 31, based upon the House Ways and Means Committee's proposal. He 2 11/8/85` /vdw advised, in view of this proposal, the City should proceed as quickly as possible if refunding is what the City wanted to do. The Bond Counsel said another problem the City faced is that they did not want to go out in the market at the same time with the twenty-seven million dollars worth of bonds including new and old money. He said it was decided that the interest rates would be much better in January to do the new money portion and commented that the City's financial adviser did what he considered a good analysis on what is called "window financing". Mr. Heffernan said the refunding is done on long coupons and thirty-one (31) days later, the City can go into the market on a new money issue for their new projects. He said having the refunding done first on long coupons affected the City's ability to get a better interest rate on the shorter coupons in January and then when the two are blended together the City comes out with a better overall debt service. V/M Massaro asked how can they be assured that they would have the money every time the term bonds became due. He said because at closing an entire debt service schedule will be set up. Mr. Heffernan explained that due to the mechanics of refunding the City would have to, within the next couple of weeks, award the bonds to whichever underwriter the City selects because once they are awarded and the underwriter prices the bonds on the market, it takes twenty-one (21) days to apply for the government securities. He said, in turn, the government will issue bonds to fit the City's needs; although he advised not to wait until the week of Christmas to try to sell the bonds. The City Attorney explained that Council has tentatively established a special meeting to pass whatever or- dinances or resolutions on the 20th or 21st of November. Mr. Heffernan said he wanted to insure that whatever underwriter was chosen has the Florida presence and ability to do a water and sewer refunding and is willing to take the risk to do it because it may be that this firm may have to purchase these bonds without a rating subject to getting a rating; he said the rating agencies are about eight (8) weeks behind on rating bonds. He said another thing that he would like to suggest to an underwriting firm is that the transaction be closed in Florida and not in New York. Mr. Heffernan said he was particularly concerned about a firm coming in and making a commitment to do the transactions and then when things get tough, he either says it is going to cost the City additional money to get it done because they are running out of time or they say they cannot do it. He advised Council to ask these firms if any of them has ever withdrawn from a transaction prior to taking delivery of the bonds because market conditions have changed or because of difficulty in selling the bonds within the fee schedule. Mr. Heffernan said, conversely, the underwriter proceeds forward with it anyway and they have to pay less to their sellers on the desk and the sellers say, in turn, sell them at a higher interest rate. V/M Massaro asked if the interest rate was set before the bonds are sold. Mr. Henning inquired if the rate would be set on the 20th. Mr. Heffernan said the City has the chance to review this issue but explained that once an underwriter has been selected, the underwriter has to put together what is called an "Official Statement" and in that statement is contained all the information about the City and the utility. He said the underwriter uses that initially to go out and obtain a price on the bonds, and then ask the desk and other investors what interest rates are they willing to pay, and once that rate is established, the underwriter will come back to Council. V/M Massaro asked if the commitment would be on the refunding plus the regular bonds. Mr. Heffernan answered that initially it will be on the refunding bonds and then there will be another round on the new money approximately one month later; he cautioned that the City needed to select an underwriting firm who will proceed quickly because they will have to put an OS together very quickly. Mr. Heffernan said Council should also in- quire if the firm would be willing to price the bonds without an Official, Statement. Mayor Kravitz announced that each underwriter will be given twenty 3 11/8/85 /vdw �/ (20) minutes to make a presentation. MATTHEL4S T I 1TERVI �W 1 n As ner n' r iceith Matthews & ri ht Mana r e Public F'n nc ffic t oc Eaton, Florida and Director of thp, National In est en nk ' n f t Mr. Ashner said a Request for Proposal basically states what the evaluation criteria will be that the issuer will use to select their underwriter and in the request there were three key areas: distribution capability of underwriter as measured by the number of bond salesmen, number of bond sales offices and the retail/institu- tional coverage that underwriter could give; the second area was the amount of experience as measured by the number of underwritings completed of the same type; the third was a request for an advance quotation on the underwriter's discount or spread that the managing underwriter will receive as a consequence of its efforts on the City's behalf. He said these requests, evaluated on the terms set up by the City's requests for proposals, are either irrelevant to the City's interest or in one particular instance, actually harmful to their interest in the way it has been established. D's ibut'ona ca abil't - Mr. Ashner explained except for private Placement where an issue is so small that the managing underwriter can go to one institution or a few institutions and directly negotiate the terms and sell the City's bonds, every managing underwriter will form a "syndicate" or selling group to distribute the bonds which will be the case of Tamarac because the amount of the issuance discussed precluded a private placement. He said all the salesmen of all of the sales offices of all of the firms that are placed into the "syndicates" will be trying to sell the bonds and they will have equal motivation because the major portion of the fee paid to the underwriters is for sales commis- sions and other direct selling expenses and that portion is passed on directly to every firm that sells. Mr. Ashner stated that re- gardless of whom Council may select from among the five firms scheduled to be interviewed the odds are very good that all five of them will be distributing the City's bonds to their salesmen because all five are known for effective distribution in Florida, and in instances where one has been chosen to lead, the others have been invited to be a part of this group. Mr. Ashner stressed the key to effective distribution is not the issue but how the issue is run during the offering period. x rience - Mr. Ashner granted that experience in underwriting is very important and said the only trouble with the information that Council has received thus far is it tells how many issues each underwriter has done but not how good a job they have done on those issues. He said in the last ten underwritings whereby they served as sole or lead manager the net interest cost that they obtained for the issuer was either at or below the average interest cost achieved during that time in nine of the ten issues. Unde write 's discount s read or fe - Mr. Ashner said asking an underwriter to set a fee in advance was to the City's disadvantage and not the underwriter's. He reminded Council that on the refund- ing portion of the proposed bond issue there would be no cost to the City for the underwriter's discount because the City will be permitted to get that discount back in the form of a higher invest- ment yield on the escrow in which the bond proceeds will be placed. However, Mr. Ashner explained that the new issue will definitely be a cost to the City, and that the major portion of the discount represents the part that underwriters will have to pay to all of the salesmen who work on the deal and what that amount will be cannot be known until the issue is ready to be marketed because it is the result of two things: the market condition at the time the City goes to market - the type of credit the City offers the market. Mr. Ashner said if the City were to get an advance indication of discount from the underwriter before the work is done and before the issue comes to the market, there would be two possibilities: 4 11/8/85 if /vdw - either the spread that he quotes will be higher than is necessary depending on the market conditions, which, in effect, would provide him excess profit that he is not entitled to or - it will be too low and if it is too low, he explained that investment firms are profit -making institutions and an investment banker is not going to allow himself to take a large loss because he does not have enough money to pay out in commissions. Mr. Armstrong, representative with Matthews & Wright, said the Will lower the City's coverage requirement in the rate covenant He said the users of the existing system 100% of the debt service plus an additional ysafetyfeesthat marginefoequal r 25 to Mr. Henning asked Mr. Armstrong if he were 2it• revalidate the bonds. Mr. Armstrongproposing that the City the City did not have the time to revalidatedtheabonds;hhe was not as r, proposed that Matthew & Wright could; however, he (1) change the covenant and lower that amount to cover the debt service plus 15% which would de users of the system in the form ofless relief to the (2) change the definition of Pressure. broader meaning and change gthe sdefinitiont"currentinclueex- pense" to a narrower meaning. (3) incorporate a special system, which Matthew & Wright developed, allowing the City to Pledge currently Pledged to meet the excess rate vcovenant. (4) structure new debt requirement to delay certain re uire- ments that might put a burden on the rate q such making gradual increases in the cash flow Payers aof Tape the new bond issue. This would allow the rate payers 2 more time to absorb costs of the additional services. Matthews Mr. statedght that bthrestructuring the City's debt, $397,530 (See attachment 2„ e City, within the first three years, stating that they can nt ),He concluded his presentation by provide the Ct pport all the information presented and plan works. Y with substantial proof and documentation that this Mr. Ashner elaborated on Mr. Armstrong's to achieve what they have presented and are Pre to Council in that City would need a new bond resolution and Mattthewr&dWrighttwo�ul the suggest three alternative recommendations; d (1) not to go through validation for the bond resolution (2) go through validation but consider closing the bond issu Prior to the expiration of the a e (3) closing a refunding in escrow forpaalimitedd time to protect against the end of the Period of said as long as the appeal process couldebe�coMr. Ashner within six (6) weeks of that closing the length of ordering time for slus wt e happens to be refu would still work and lock in the effective datenofng December 31. The City would have the time to complete the normal validation process. Mr. Henning asked what would ha Mr. Ashner replied the City would have the n if rmechanics tocallt bond and cancel the issue without any costs. He saidto he that the appeal was set aside. . assuming h bonds based on the same Official statement,ilbutave there woulder the cost to the City in doing so. The Cit be no yin parity were lowered to 115% would that have oaneadverrsereffectthe the interest rate to the City or the premiums for the insurance if it is an insured.the Cis on the issue were credit enhanced, she fee for credit y might pay also recoverable, then the coverage would no dAshner said if i investors would look to the third- art t matternbecausent is event the City decided not to P Y guarantor• He said in the enhancement cannot be achieved, Matthews or d&sWrightchavetbor eencrle market a 115 coverage to the ratin able to was their belief than the g agencies successfully and it accept the 115 coverage. y could get the investment community to 5 11/8/85 /vdw The City Attorney asked for a brief explanation of credit enhance- ment. Mr. Ashner explained that in addition to what the City offered investors from the water and sewer system or from any other revenues pledged, a third -party guarantor who is recognized by all people as having the resources to back up the guarantee states that in the event the City is unable to pay debt service, they will step in or they will pay up front and the City will reimburse them. He said the City would pay the third party a fee for providing this guarantee but that fee is usually more than compensated for by the lower interest costs that investors are willing to accept in return for the greater security. Mr. Heffernan, Bond Counsel, asked if the savings table was based upon the new issue as well as the refunding issue. Mr. Ashner said it was based upon the method called "window hedge refund" where they build a skewed debt service on the refunding bonds, the extra cost of which is recovered in investment yield on the escrow and then the new money issue is laid into the so called "window". He said they would be comparing the debt service of the existing issue as it stands together with a proposed new issue sold long term the conventional way against the debt service of the proposed refunding together with the debt service of the new money issue laid into that "window" structure. Mr. Ashner said it was a structure which they initiated themselves and closed fourteen times with similar results. Mr. Heffernan asked if it were true that the management and risk fees were generally fixed fees. Mr. Ashner said the management fee would be the same in either instance but he did not agree that the risk fee would be the same because depending on market conditions members of the syndicate might want more to protect their partici- pation pledge if the market were very volatile or if there was an oversupply. Mr. Heffernan asked Mr. Ashner if he had reviewed the current bond ordinance and he replied that he had. SMiTU.BARNEY HARRIS UPHAM & CO.,-INC. Mr. Henry-Sh-anning.First Vice -President and Mana gr of Public Financg__Qperation for the State of Florida Mr. Channing stated that Smith Barney is the largest privately - held investment banking firm having been in business for over 100 years with offices across the United States, and in 1984 they were the number one Florida underwriter. He said they were either senior or co -manager on 42% of the bonds that were issued in the State and, also in 1984, they were ranked number one nationally as far as water and sewer financing. Mr. Channing said Smith Barney has a major commitment to public finance within the municipal finance area and explained that as other firms have expanded into other areas, they have made the opposite decision and are trying to be the best at what they do rather than trying to be all things to all people. He said their prime securities market is, in fact, the municipal bond market and has been for over 100 years maintaining an average daily inventory of over 200 million dollars in tax exempt securities. Mr. Channing said there was more of a commitment of their resources, percentage - wise, in the public finance area than there is for many other firms. Beyond the commitment to public finance, Mr. Channing said Smith Barney has made a specific commitment to the State of Florida as they have been operating here since the 1940's they still serve the same clients. He said, more importantly, Smith Barney has the trading and underwriting operation in Tampa out of which they do all of the financing in which they are involved in the State of Florida. Mr. Channing reported that there are several tiers to the bond market: the national bond market and regional bond markets, the most prevalent of which is the State of Florida. He said Smith Barney has consistently proved over time that by doing deals here in Florida, having them priced and marketed here in Florida, they have achieved lower interest rates for their clients. Mr. Channing 6 11/8/85 /vdw said, historically, Smith Barney has been committed to being ex- tremely innovative and the tougher the deals are, the better they like them because they see the vis a vis tax reforms as challenges rather than disasters. He said as long as municipalities have needs, they are going to find an economic way to finance those needs and that is Smith Barney's job. Mr. Channing stated, historically, refundings have been a specialty Of Smith Barney and over the last five years they have done over eight billion dollars of refundings in the State of Florida. He said they use their own computers which the y progth they can tailor a program to meet their clients' cificmselves so rather than using a canned program that was developed for somebody else. He said the cities do face some has stated that if the cities are has because Congress to r they have outstanding it must be donenbefore ethedendeofothe year; therefore, timing is extremely critical. Mr. Channingsu gested that if the City is going to move forward, they do so as rapidly as Possible and informed that there are going to be substantial risks to be faced by trying to get an issue done by the end of the year. He said a similar case happened at the end of 1984, which involved and other kinds of issues that they were trying to get accomplished Mr. Channing said Smith Barney's response to that was to carry a billion dollars in inventory over December 31, 1984, literally buying bonds from their clients without having any time to sell or market them, simply so that they had cash, a closed issue and they accomplished their objectives. He said it was a matter of almost moving "heaven and earth" to get things done. Mr. Channing reported that here in Florida the action is centered primarily around solid waste facilities because landfilling is an increasingly difficult thing to accomplish. He that in a refunding structure, under certain circumstances, thedcosts in- curred for professional services are recoverable in terms of an increased investment yield on the moneset aside in escrow to pay Smith Off the old bonds. Mr. Channing said Barne in being able to achieve the lowest interest rate, anddes alsotinithe fact that they have been able to provide to their clients at the lowest costs or lowestofessional underwritingrvices discounts. He said that was possible in part because they are the number one underwriter in Florida vis a vis volume, thus enabling them to achieve some autonomies of scale, and secondly, because when they are hired by a client, they intend to be their investment banker forever. Mr. Channing said, in response to the City's request for o he contemplated that certain services would be performed bytheals, financial adviser, particularly running the numbers and doing some work on the official statement. He said, however, in the absence of that financial adviser with those functions having to be picked up by someone else, how would that affect costs. He said would increase costs slightly and stated that they had indicated la range which they felt would be appropriate for what the underwriting discount would be increasing from approximate) Mr. Channing said the Underwriters' Council wouldltake to almore definitive role in preparing the Official Statement in the absence of the financial adviser, and, therefore, would require a bit more compensation. He said the underwriters would be responsible for doing the computer work to structure the financing as well as the escrow which will also increase the cost. Mr. referenced increases should not exceed $20 and statednthatiabsente an Act of God or some other disaster, Smith Barney committed themselves to doing the work for $20 or less. Mr. Channing summarized that if the City took into consideration the commitment they have to public finance and to Florida and also the commitment for being innovative and doing a tough job, hopefully, it would translate into a commitment to the City of Tamarac that would be unequaled by any other firm. every client in Florida is a major client regardlessHof sthe size of the issue and that is the kind of service that can be expected from Smith Barney. 7 11/8/85 /vdw C/M Stein asked if it would be to their advantage, for this parti- cular issue, to continue with the City's financial adviser. Mr. Channing said it was a policy question for Council rather than a financial one and explained that Smith Barney's philosophy is that they do the same thing whether an issuer has a financial ad- viser or not. He said their services had to stand for themselves. Mr. Channing said financial advisers are usually engaged because the public body wants a third, independent person to monitor the transaction but felt if that was what the City wanted, they pro- bably should continue their financial adviser and advised if Council were having difficulties and was considering a switch in financial advisers, to abandon the process because they simply do not have the time to accomplish it. V/M Massaro inquired what harm would it do to abandon the financial adviser at this point. The City Attorney clarified that the City is not contemplating changing financial advisers but the question they are trying to resolve is whether they should keep the fin- nancial adviser or go without a financial adviser and concurred that it would be tough to go through the selection of another financial adviser. V/M Massaro asked what would the City lose by not having a financial adviser. Mr. Channing asked if the City has retained a financial adviser why do they not want him any more. V/M Massaro answered there might be a difference of opinion as to what all members of the Council thought about them. He answered that Smith Barney would not do anything different whether they had a financial adviser or not and felt that it would not really matter whether the City did or did not have a financial adviser; however, he felt it was a policy decision as to whether Council wanted the comfort of having a third party independent to the transaction to answer questions. Mr. Henning referenced the fees and stated that, tentatively, Council wanted to complete everything that has to be done by November 20 and asked if he felt his office had the capability, backup and staff to move forward with the necessary preparation of documents for Council's approval. Mr. Channing said it was typical for the city to take the proceeds and invest in state and local government securities which are called slugs and are special securities that the Treasury sells so that a city can set up its escrow. He said in order to buy slugs the city would need twenty- one (21) days. Mr. Henning said the financial adviser cautioned that December 30 and 31 would not be good days to sell bonds in New York. Mr. Channing said there is a difference between selling bonds and delivering bonds because the sale of the bonds is where the interest rates are established and buyers are found and then, three weeks later, there is a closing and that is when the money actually changes hands. He said from the sale to the day of closing the City would need twenty-one (21) days to purchase the slugs so if December 31 was viewed as the last day to close, then the City would need to accept bids on the loth of December or have a sale on the 10th. Mr. Channing said if that becomes impossible the City can close the escrow and open market Treasury securities, then apply for slugs and at some point do a switch. Mr. Channing said if on the 20th and 21st of December he was talking about having all the documents put together at a sale, would the City have a commitment from Amback that they would insure the refunding bonds. Mr. Heffernan said they do not. Mr. Channing said, at this point, they could go to Standard & Poor's and get a rating on the bonds and was certain that they would get an invest- ment grade rating; however, they are no longer providing ratings because they have a backlog. He said Smith Barney could meet the deadline of the 20th as far as documents, etc., but whether Amback will provide an insurance policy to the City by the 20th is some- thing that is not in his control, therefore, he could not answer. He urged the City to pursue Amback as soon as they have selected an underwriter to get them whatever documentation is needed. Mr. Channing said if the City cannot get a rating, insurance and so forth, Smith Barney will underwrite the City's bonds anyway because unless the City gets cash by the end of the year to effect this escrow, the City may have a problem doing advanced refunding. He 8 11/8/85 /vdw �� said the basic part of the question cannot be answered until the City has a team to work things out. Mr. Channing said for $100 worth of bonds, they will pay the City $98 and the 2% is broken down into four major components. He said the first is the management fee for the underwriters' professional services and it represents .2% of the issue ($2.0 bonds). He said there are also expenses incurred forrunderwritin the transactions such as clearance fees, underwriters' attorney, g etc. He said if the services of a financial adviser were absent, the expenses would increase by $.50 to $.75. Mr. ng under the category called "Underwriting" if most ofhthe 1bondsihave been sold then the underwriting risk goes down by approximately $.50 but, if the market is turbulent and Smith Barney has to appear before Council with a contract to purchase the bonds and of the twelve million they were purchasing, they have only sold five, then Smith Barney would go at risk for seven million dollars and the underwriting component would go up. Mr. Channing explained the "underwriters' average takedown" as the underwriter buys bonds from the City, they are distributed through a sales force (the salesmen who work for that underwriter and a dealers who operate in Florida group of thirty-nine or forty one of those groups sells bonds he is paid ahen commissionmwhicin h any this case is $14.00 and it varies with market conditions. He n warned that one thing the City should not do is put their bonds on the market and offer the entire Florida sales community a lower incentive to sell your bonds than to sell other issuers bonds. The City Attorney said there has to be a balance with the interest rate and everything else, too, and Mr. Channing concurred. Mr. Channing said he has direct control over the management fee and could estimate expenses and guarantee the City a number not to exceed a given amount and if it exceeds that amount, it would be Smith Barney's problem; however, he could not determine in advance what the "average takedown" would be because that is not known until the bonds go to market. WILLIAM HOU & CO. C k nn tt W'll'am R. Mr. Bennett reported that William R. Hough is Florida's single largest underwriter and that they do more Florida underwritings than any firm in the United States including Merrill Lynch, etc. He said his company understood Florida and its markets. V/M Massaro asked how the net interest cost for the majority of their sales compare with other issues that were sold at that time. Mr. Bennett inquired if she meant public sale or negotiated sale. V/M Massaro answered both. Mr. Bennett said they compared favor- ably because they are all on a competitive basis. He exampled that today they are buying bonds for the City of Margate and the net in- terest cost must be competitive and they will bring those compa- rables to show that they are competitive because the issuer has the right tnot to accept those bonds. Mr. hBennett said if they were to comeonds were out of line and William R. Hough could proveand Council by comparable sales, then the City does not have to sell his company the bonds. He explained "comparables" meant the same as used in conjunction with real estate sales in that if he had a Piece of property here that was similar to another piece of perty somewhere else, what would it sell for; he said if a bpro ond- were similar and it sold for a net interest cost of an unknown amount. He said it is reasonable to expect that within a certain timeframe, the City should expect that its bond should seal for the same price or if the market has improved, for even more. Mr. Bennett said the prices have to be competitive and that ever reputable firm should supply its clients with a list of comparables to show that the bond is priced relative to whatever markets are at that time. Mr. Heffernan asked in William R. Hough's pr, bow has their interest rate compared to other comparableudealslat the same 9 11/8/85 /vdw time on the market. Mr. Bennett said they are always competitive and will prove that by bringing to Council, should his company be selected, a list of comparables on the day of the sale. He said when he presented Council with the contract to purchase he would state that on a certain day a bond of similar quality, maturity and similar size sold in the market place for X amount. Mr. Bennett said they are strictly a Florida bond municipal underwriter and devote their entire energies to the underwriting and sales of municipal bonds. He said they make the largest after market of municipal bonds within the United States for Florida. Mr. Bennett said their Florida bonds portfolio are larger than any other in the United States and noted that it was important to the City from the standpoint that the City's bonds will be broadly distributed and will be actively traded in the secondary market and the bondholders will have a market for their bonds. He said it was irrelevant whether the City selected his company or another but urged Council, if they desired to do the financing and have it done by the end of the year, their decision to select an underwriter must be made quickly and that the person whom the City entrusts their financing to assures Council that he will undertake the instant he knows that he has been selected. Mr. Bennett also suggested that Council try to close the transac- tion locally because it would save the City money and also, because he could not get the City to New York in time if he wanted to. V/M Massaro asked if he saw any reason why it could not be done locally and Mr. Bennett responded that he felt comfortable that it could be done locally. C/M Stein asked if the City does not get the bonds insured in time, was William R. Hough & Company prepared to accept the bonds. Mr. Bennett said that his principal, William Hough, has been willing to buy deals when no one else would and felt certain that he would be willing to take the bonds. Tape Mr. Bennett said he did not believe that the crush at MGIC (Amback) 3 is as great as it is at FGIC (another insurer) or MBIA, and felt there was a good possibility that this bond could be insured. Mr. Bennett said it was his understanding that they would be per- forming additional work that was not contemplated prior or when this particular RFP was requested. Mr. Henning said the Council wished to pursue the alternatives of doing this with or without a financial adviser. He referenced section 9 of information which he supplied to Council asking that the City be provided with certain quotation fees. Mr. Bennett said the underwriter's risk is $.75 which is the risk his company takes in purchasing the bonds. He said their management fee is what they receive for basically the structuring and all of the work that is done to bring this bond to market, i.e., the application for cusips and the details that are performed to bring this bond to market. Mr. Bennett said the average takedown is nothing more than how much someone who takes the bonds is going to have to pay to the stockbroker who sells these bonds and is based on what was available in the market, and what was being paid at the time of issuance. He noted that there was a caveat which states that all of these are subject to market conditions, and if the market conditions are such that they can pay less than that takedown, then they will. Mr. Bennett said the gross expenses included out-of-pocket travel, communications, etc. He stated that the City's financial adviser was responsible for performing certain functions attendant to doing this bond issue and those functions were that he was to write the Official Statement and in addition, they were to have generated "the numbers". Mr. Bennett defined "the numbers" as all of the computer runs and printouts that were to prove the computations on which this financing was based, i.e., that it was done according to estab- lished IRS principles as well as legal principles. He said the financial advisers were also to have purchased the securities in the escrow and advised that if his company assumes the responsibi- lities of the financial adviser, he will have to seek an under- writer's counsel to write this particular document. He said he has spoken with five reputable underwriter's counsels who told him that they would look for $20,000 to $25,000 to produce an Official 10 11/8/85 /vdw I Statement and to act as underwriter's counsel if they had to do it. He said the remainder of the figures under estimated expenses would remain the same. Mr. Bennett also cautioned that the underwriter's counsels added "if we can do it" because they are also backed up with work; however, he felt he could find an underwriter's counsel who would do it. Mr. Bennett said their management fee would be $1.70 and whatever fee a joint underwriter got would have to be added to that. He added that his company could do the work alone or if Council felt comfortable having them jointly paired with another company, it would be satisfactory with them. Mr. Henning commented that Mr. Bennett's proposal was impressive and that the pie charts show activity in the Florida market. The City Attorney asked him for a thumbnail sketch comparison between his firm and Smith Barney, and asked for a comparison to companies like Bache or Shearson, who are considered to have national retail market access, and the advantages of having a co -manager. Mr. Bennett acknowledged that they are very active in the. Florida market and evidenced that they have just completed a $55,000,000 refinancing in Sunrise and today they will have completed approxi- mately $28,000,000 worth of bonds in Margate in which Mr. Heffernan and his firm are involved. He said his and Mr. Heffernan's firms conspired to do the City of Homestead's $23,000,000 financing. He said Smith Barney is a very fine, well organized, well run, well staffed firm and the people who made today's presentation are the cream of the investment community; however, he felt that his firm competes with them very favorably simply because they are primarily concentrated in the Florida markets and do not do business outside the State of Florida in financing. Mr. Bennett said national firms tended to lean toward the thought that because they have 4,000 retail salesmen they can dispose of the bonds all over the world. He said this is true but William-R. Hough & Company can do exactly the same thing and asked Council where did they think these other companies get the bonds to sell if they do not handle the sale themselves. He said they will form selling groups who undertake to distribute the City's bonds to as broad a spectrum of investors as Possible. Mr. Bennett said if they were to "lead" this deal, they will form a group which could possibly include Smith Barney and they will "take bonds down" from them. to put together sellingHe said a firm's ability the State of Florida, illiamsR. Hough yismwithout peer. within Mr. Bennett said his company, at any time, could command the national market to come down and look at Florida bonds simply because Florida bonds are in demand and the industry recognizes his firm as a Florida specialist. Mr. Henning asked what would be the advantage of having a co- manager if the firms create selling groups. Mr. Bennett said if the company is good enough to do the work there is not a reason to have one. He said many municipalities feel that if there is a co- manager the work would be disseminated more widely. Mr. Bennett said if his firm were senior manager the responsibility for doing the work would fall to them and not their co -managers. Mr. Heffernan stated if a co -manager is involved it does require the senior to place at least a certain amount with the co -manager that would not ordinarily have to be done in a selling group. Mr. Bennett concurred. The City Attorney asked if it were more typical to find co -managers in the absence of a financial adviser. Mr. Heffernan answered that it was totally unrelated and explained that sometimes the city feels more comfortable with the co -manager route. Mr. Bennett reiterated that the senior manager is the re- sponsible party the City looks to for performance. V/M Massaro asked if his company could guarantee an underwriter's counsel in the absence of the City's financial adviser. Mr. Bennett said they could do the work. V/M Massaro asked for assurance that if the bonds are not sold that his company would be able to buy them. Mr. Bennett said Mr. Hough would be willing to ll 11/8/85 /vdw buy the bonds and take a risk that other underwriters, especially the national firms, are unwilling to do.- V/M Massaro asked Mr. Heffernan what his fees were. Mr. Heffernan said their original fee agreement was for $15,0,00 plus expenses per issue. Mr. Heffernan said the fee arrangement was submitted based on the fact that it was to be a parity bond issue on the water and sewer and the General Obligation Bond issue and on both of these issues his fee was approximately $10,000 and if it was a competitive bid in which his firm would have to participate in the Official Statement, it would be $15,000. He said for the water and sewer it was $15,000; however, it was not contemplated that the City would be doing a refunding which does involve more work and suggested that he and Council discuss the fee arrangement. He said when everything is said and done he will have five times what he will be paid invested in the time. Mr. Heffernan said he would submit a proposal which would state a fee of $15,000 for each one; $15,000 for the refunding and $15,000 for the new bonds. Mr. Heffernan said one inaccurate statement made concerned the fees. He said the underwriter firms' fees are open to negotiation but the numbers less open to negotiations are the management fees. He said the higher the management fee the harder it will be to ne- gotiate with them. Mr. Heffernan said the "takedown number" submitted in the proposals was a little misleading and in all can- dor as most of the firms indicated, that is a number that the market dictates and it is very difficult to determine what it will be. Mr. Heffernan said whatever the market is for those bonds on the date of closing is all that they will be paid so there is no chance for a firm to charge the City extra dollars at the time of closing. C/M Stein said no matter who is selected the takedown will be about the same. Mr. Henning said once a selection is made the City will still have to negotiate a contract and return for Council's approval. Mr. Heffernan said, based on the assumption that a firm was selected today, the firm would need to submit a Bond Purchase Agreement and in it would be all the conditions for closing. He said part of that negotiation is the fee and, on the day they buy the bonds, part of Council's approval would be for the Bond Purchase Agreement. He said Council will have that contract before them, in advance, so they will be in a position to approve or disapprove the terms of that agreement. Mr. Heffernan said he would negotiate with them until the closing date at which time the firm will know what its takedown is and Council will set a price within the agreement. Mayor Kravitz asked if Council did not agree on an underwriter what would be the alternative because time is of the essence. The City Attorney said almost any one of the underwriters would be accept- able but what is essential is that Council reach a decision and move forward. C/M Stein said he was in favor of the staff's se- lection of William R. Hough & Company and asked if they needed a co -underwriter and if so, then he would select Smith Barney. V/M Massaro said she agreed with his choices. C/M Stein said William R. Hough & Company are specialists in this particular market and, for a local firm, they have pledged 28 water and sewer issues in Florida. He said this firm has also worked with the City's bond counsel and are recommended by Mr. Heffernan. V/M Massaro concurred. Mayor Kravitz stated that he felt all three were good and was sorry the other two were unable to attend. He said he was concerned with the timing but felt Smith Barney made a better presentation. C/M Stein agreed to have Smith Barney as the lead provided the City Attorney and Mr. Heffernan, Bond Counsel, received reassurance as they did from.Hough that they can get the job done in time. Mr. Heffernan said his biggest concern in having a national firm as the senior manager is the timeframe and he wanted to insure that the agreement will be completed within it. He suggested a manager that is located in Florida whom they have access to and can urge them to keep moving. Mr. Heffernan referenced the agreement with 12 11/8/85 /vdw the City of Homestead in which Hough was the senior and Dean Witter was the co -manager #nd the reason for that was to have the local strong .fizm .as. t.h.c_Jnanager for structuring and connections but using Dean Witter for its reputation'as well on a national basis giving them a bigger percentage. C/M Stein MOVED to select as underwriter Smith Barney and William R. Hough & Company as the co -underwriter. SECONDED by V/M Massaro. VOTE: ALL VOTED AYE Mayor Kravitz asked.if the underwriters needed to return to Council for approval of the contract. Mr. Heffernan said the contract will come before Council on the day that these firms price the bonds. He explained that he will notify the firms of their selections and ask them to present immediately the Bond Purchase Agreement which is the contract for review and comments. Mayor Kravitz asked whose decision was it to decide the insurance company used. Mr. Heffer- nan said Council would decide that but at this point, availability would be the determining factor. Mr. Heffernan said the under- standing which the City will have with the underwriter is that they deal with the insurance company that charges the City the least amount of money because there is no advantage to having one over another especially if one charges more than another. Mr. Heffernan said the underwriter selected can be asked for a progress report by Wednesday, November 13, 1985. 2. un n f F' an 'a1 adviser for the TUW avenue and sale. Y I OF CT1 N• APPROVED acceptance of Dean Witter's offer to terminate the agreement as made to the City Attorney. Tape C/M Stein asked how much of the bond preparation has been done by 4 the Financial Adviser. Mr. Heffernan said when a negotiated sale is done and the underwriter prepares the.Official Statement or the preliminary Official Statement himself it requires more time. He said the question is how much has the City's financial adviser done to date because he did not think that they had prepared an Official Statement for the water and sewer utility. C/M Stein said a Financial Adviser was nothing more than a third party monitoring the underwriter and advising the City. V/M Massaro asked the fees paid to the Financial Adviser. Mr. Henning said it was approximately $26,000 for the refunding and would be no more than double that for both issues, Mr. Heffernan said once the Official Statement is prepared for the first issue the preparation for the second is almost identical so it is a one- time expense. He said there was something to be said for financial advisers, in general, in that they offer the added comfort of a third, independent party monitoring the transactions. Mayor Kravitz said, at this point, he did not feel the financial advisers were needed and V/M Massaro agreed. Mr. Henning reported the telephone conversation with Dean Witter on Wednesday, November 6, 1985 in which Dean Witter stated that their letter of resignation had been placed in the mail from Tallahassee and that they have offered to waive their $3,000 minimum fee and their right to a thirty -day notice. The City Attorney stated, by Resolution 84-32 on February 8, Council approved a letter agreement with Dean Witter. He said they were going to use the principal, Stanley Ross and Craig Dunlap, whereby he referenced that the City, too, in paragraph 14, "...during such time as this contract shall be in effect either party may be released from this agreement at any time upon thirty days' notice with the City paying only for those services rendered for out-of-pocket expenses as defined herein up to $1500 maximum for each issue". Mr. Henning said the City is entitled, if they feel they need a financial adviser, to use them for the next thirty (30) days. 13 11/8/85 /vdw �/ C/M Stein MOVED to TERMINATE the agreement with Dean Witter and ACCEPT their offer of TERMINATION as transmitted to the City Attorney. SECONDED by V/M Massaro. VOTE: ALL VOTED AYE Mayor Kravitz suggested that Smith Barney and William R. Hough & Company be notified that they have been selected as senior and co- manager, respectively, and that the other three firms be notified of Councils selection. Mayor Kravitz adjourned the ppeting at 4:00 p.m. A - MAYOR ATTEST: ASSI TANT CITY CLERK CITY OF TAMARAC PROVED AT MEETING OF /- / _/ City Clerk This public document was promulgated at a cost of3.35or per copy to inform the general public and public officers and employees about recent opinions and considerations by the City Council of the City of Tamarac. 1 1 1 14 11/8/85 /vdw w z z W U d E-� E— I E 9 w r� va O V+wI �z o (D C) U) H w Cra 1 0 0 A w w rsa N ri N M p.+ m Ln r I r-4 r-I <A- A R� L �, U W 00 H z H � Q o w a n a m w U a O Ca 4n u� H CI] M Cr_, a U >+ un rf) � , va �+ ow O. >i -� � � • CY d W A �+ va cra u 0 D d W, KC 2a-1 al© H :� >+ d r- N + a w Q ern PQ spa H +n Ww w r-I N N r-i H C3 0 � w H Cy. w © z D Ca 3 N W " ;t X Ik d 04 Q Ul Q �-7 z a 2: H U W P- r- ca H z CL4CCl W H O Cc7 m � O .� Ua x z oz iJ} In CV x N N N Q w CA 2 FAk (N._� _ .. _ _ a d a O z W O flJ U] 'r co �w o r� AH tzw ua Sava ..a r w KC O zx H<z a m O a d z a: CJ C> CD H W 00 CEO VMz co H co o MHO �r- O U] N M W J U 940 W C.7 A C) w� d r� O r Cl� w Q ,_,a � � w H lI)H w d W W W {xi a: H w� A fxi w H >A W w xaa ww N z w z Qw H w J �+W d a �4 0 m aQ Ei rz l p U) z z m H O C� H w<�: uA a: w Ha x z fY4 S/] � W d w rsl r1a N rC 0 z Q w a'� woo D.1" : w'�� Z z x ��-+P4U) H d,'I Zoc w .D w ; cm a;�:a N l:) w w u a ATTACHMENT TWO SUBMITTED BY MATTHEWS & WRIGHT 11/8/85 A M cm N ,0% rq 01 4D Q1 0o W Co t► . co A