Item No: 5G.
Meeting Date: April 22, 2013
From: William Spinelli, Director of Finance, CPA
Subject: Resolution authorizing approval of the Term Sheet and an Interest Rate-Lock option on the Smart Grid Refunding Note, Series 2013 with STI Institutional & Government, Inc., a subsidiary of SunTrust Bank ("SunTrust"). A rate lock is available for ninety days from the date of the attached letter, March 26, 2013 to June 24, 2013, at an additional cost of nine basis points added to the applicable interest rate option.
City staff, following a review and input from the City’s Financial Advisor, Larson Consulting Services, recommends the City Commission sign a rate approval Agreement and Term Sheet with SunTrust, so as to avoid any risk of rising interest rates until the projected closing date of June 7th. Staff also recommends taking advantage of the rate lock at an additional cost of 9 basis points added to the applicable interest rate option. This will produce an estimated Fixed Interest Rate on this Twenty Year Refunding Note of 3.13%.
On July 26, 2010, the Commission approved resolution 8688, which was a proposal of the TD Bank, N.A. to purchase the City’s not to exceed $20 million Electric System Revenue Note, Series 2010. The series 2010 was used to finance capital improvements to the City’s electric system, reimburse prior city capital expenditures, and pay costs of issuing the note.
The purpose of the loan was to assist the Electric Department with the cost associated with the award and acceptance of a fifty percent grant funded project through Department of Energy (DOE) Grant of $19,497,625, the City issued an RFP to obtain financing to fund these requirements, prior to receiving Federal and State Grant reimbursements.
On October 22, 2012 the City Commission approved a loan agreement by and between The City of Leesburg and SunTrust Bank. The loan agreement was for a twenty year straight line loan at 3.20%, which was going to be used to partially refund the Series 2004 Electric Utility Bonds. SunTrust bank was the only bank to propose on a twenty year straight line term. Traditionally, banks do not go out past ten years with a non-bank qualified loan. The City staff and the City’s financial advisor do not believe the City will get any additional banks willing to give the City a non-qualified twenty year loan.
The City reviewed four different options (see attached):
Option 1- Continue with the current TD bank rate structure, which the first principal payment is due April 1, 2014. The term is for a ten year level paying amount at 2.53%. The maximum annual debt service is $1,011,526.
Option 2- Go to the public market for the Series 2013 Electric Utility Refunding Bonds, which the first principal payment is due October 1, 2013. The term is for a thirty year level paying amount at 3.856%. The maximum annual debt service is $532,713.
Option 3- Borrow from a Non-Qualified Bank Note with SunTrust Bank, which the first principal payment is due October 1, 2013. The term is for a twenty year level paying amount at 3.04%. The maximum annual debt service is $621,372.
Option 4- Renegotiate the TD Bank term, which would increase the interest rate to 2.750% at fifteen years. The first principal payment is due October 1, 2013. The maximum annual debt service is $726,985.
1. City staff recommends option#3.
2. Such alternative action as the Commission may deem appropriate
If the City stays with option one, the electric department annual debt service will be approximately $1,011,100 per year. The City recommends option #3, which would lower the annual debt service to approximately $621,400 per year. Overall total debt service would increase from $10,110,398 to $11,932,374. Due to the significant budget constraints, City staff will be able to have an additional $389,600 per year for annual budget purposes with option 3.
Prepared by: ______________________
Attachments: Yes____ No ______
Advertised: ____Not Required ______
Attorney Review : Yes___ No ____
Reviewed by: Dept. Head ________
Finance Dept. __________________
Deputy C.M. ___________________
City Manager ___________________
Account No. _041-1088-517-7121__
Project No. ___________________
WF No. ______________________
RESOLUTION OF THE CITY COMMISSION OF THE CITY OF LEESBURG, FLORIDA, AUTHORIZING AND DIRECTING THE MAYOR AND CITY CLERK TO EXECUTE A RATE APPROVAL AGREEMENT AND TERM SHEET BETWEEN THE CITY OF LEESBURG AND SUNTRUST BANK, N.A. FOR THE PURPOSE OF LOCKING IN THE INTEREST RATE ON AN AS YET TO BE FINALIZED TERM NOTE FOR THE REFINANCING OF THE CITY'S EXISTING OBLIGATION INCURRED TO FUND THE SMART GRID PROJECT, AND PROVIDING AN EFFECTIVE DATE.
BE IT RESOLVED BY THE CITY COMMISSION OF THE CITY OF LEESBURG, FLORIDA:
THAT the Mayor and City Clerk are hereby authorized and directed to execute a Rate Approval Agreement and Term Sheet between the City of Leesburg and SunTrust Bank, N.A., for the purpose of locking in the interest rate on an as yet to be finalized term note for the refinancing of the city's existing obligation incurred to fund the smart grid project, so as to avoid any risk of rising interest rates until the projected closing date of June 7, 2013.
THIS RESOLUTION shall take effect upon its passage and adoption according to law.
PASSED AND ADOPTED at the regular meeting of the City Commission of the City of Leesburg, Florida, held on the __22nd day of April , 2013.
THE CITY OF LEESBURG, FLORIDA
DAVID KNOWLES, Mayor
BETTY M. RICHARDSON, City Clerk