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HomeMy WebLinkAboutAgenda Report - March 11, 2008 B-02 SMa -z CITY OF LODI COUNCIL COMMUNICATION TM AGENDA TITLE: Authorize the City Manager to Engage Lamont Financial Services to Provide Advice with Regard to Redemptions of Electric Utility Certificates of Participation Dated 2002 MEETING DATE: March 11,2008 PREPARED BY: Deputy City Manager RECOMMENDED ACTION: Authorize the City Manager to engage Lamont Financial Services for a not to exceed amount of $50,000 for professional services with regard to the redemption of Electric Utility Certificates of Participation dated 2002. BACKGROUND INFORMATION: The City Council has previously selected Lamont Services as the City's financial advisor. The Council has requested to authorize specific engagements that Lamont may provide. Recently, the City has been tendered with two "put" requests totaling $2.5 million of the outstanding 2002 Certificates of Participation. The remarketing of the put requests exceeds staffs capacity. Staff is recommending that Lamont be retained to assist in dealing with the currents puts tendered and any future puts related to the Electric Utility 2002 Certificates of Participation. FISCAL IMPACT: Unknown at this time. FUNDING: Not applicable. t"s R. Krueger, Deputy City a ager APPROVED: / 1314ig, City Manager U Lip -.;M Friday, March 7, 7002 Search the Last Year I Go Advanced $aarCl Welcome, KATHY YASI A Log Out Today's New— I Web Exclusives Special Reports Conferences/Events Related Sites Contact Us New Here? sme Irket News rgional Spotlight ashington vcstors & Investing Iderwriters Ft Dealers INiv er5 acing Agencies 3rkeL Statistics st 5 Issues tw-Issue Calendar end Sales Results aa{ Notices ocutive Placement ,nage Your Account .)/7/2009 California Issuers Eye New ARS Strategies Orrick, CSCO A Craft Pnnfed peb{ Program F : i(Lly, W rCr: 7. ZUOF. By Rich Saskal 1' Print z Email % Reprints OAKLAND, Calif. - It war a scene that is being played out of late in boardrooms and meeting rooms at publicagencies in California and around the nation i ire Bay Area Toll Authority's finance staff, bankers. attorneys, and advisers explained to the officials who serve on BATA's board just exactly why they were aski"?',or authority to refinance bonds that they never expected to worry about. You are not atone in what you are doing here," Mary Collins. partner with bond counsel Orrick, Herrington h Sutciiffe LLP, told the BATA board Wednesday. "wards all over the area are having similar types of meetings where they're asked to pursue a different strategy." iR the case of BATA, which has atmost 53 billion of outstanding variable. rate debt, the board approved a 51.2 billion restructuring plan to allow the authority to take out its auction -rate debt and its variable-rate demand bonds backed by troubled XL Capital Assurancefnc. R also authorized a pian to renegotiate liquidity agreements designed Io restore the marketability of VRf)Bs wrapped by Ambac Assurance Corp. ReaCOng to the ongoing turmoil that has roiled the variable-rate debt markets and brought the viability of the bond insurance industry into question, big issuers are planning major refinancings, lawmakers arc moving legislation, and conduit issuers are reworking their procedures RELATED L114KS Crt�'dit Crunch Hits Variable -Kale Market February 24, 2003 California's Biola University to Take Out variable Rates, Swaps That lied to Lawsuits - Fe?xuary 22, 2008 Calffornia's 1st stem Celt Deal will Be in Variable - Rate Mode - may 22, 2007 BATA 5et5 5500M Toll Deal October 5, 2007 RELATED TOPICS Market TUrmfill !-lits Munix Advert; Mo t. z. 3. 4, 5. p�t �L Given the sheer magnitude of the problem, Orrick attorneys are developing a pooled -debt program through the California Statewide Communities Development Authority that would provide a vehicle for variable-rate issuers to park their debt at a fixed rate for a year to provide time to gain breathing room while the market recalibrates itself The pooled bond proigram coutd be on a massive scale • measured in the tens Of billions - raid the program's architect, Orrick partner E3iil Doyle, who leads the firm's insured variable-rate auction bonds task force. "Thi: isn't a permanent solution," he said. "This is simply a means of buying one year's time for participating issuers to undertake their own refunding or own remarketing, but in their own time frame. and in a more --oned (ashi4n... The CSCDA will issue one-year liquidity notes, the proceeds of Which would be used to buy issuers' outstanding variable-rate debt to hold for a year. It works. Doyle mid. because typical variable-rate bonds permit the issuer to change interest -rate modes. an action that triggers a mandatory tender back to the issuer. Participants in this program will convert their bonds to a one-year fixed -term interest rate. After the ensuing tender, the issuers will remarket the bonds to the CSCDA, which will buy them with the proceeds of its liquidity note sale. Though the program is likely to incorporate some bank liquidity. Doyle mid, the credit quality of the pooled bonds would derive from the underlying quality of the bonds in the pool. which would have to have a minimum single-A level rating. The original bonds wilt remain outstanding. with the expectation that issuers can remarket them in a year. by which time the direction of the market may be clearer. Outstanding insurance remains in effect, which could benefit issuers if their Insurer is able to regain its reputation by then. Marketing for the program hasn't begun in earnest. Ooyie raid, but the potential, for it is sizable "The potential participant pool is well into the tens Of billions. That could he a pretty big financing," he said. adding that it could come in multiple series. Public Financial Management Inc. is financial adviser to the program: Morgan Stanley, Merrill Lynch h Co. and Goldman, Sachs Fl Co. arc underwriters. Given the urgency of the problem, with some issuers of failed auctunn-rate paper paying double-diqit penalty inter. the team is working to have the issue ready in weeks other issuers are already beginning to hit the market with refinancings. The California Department of water Resources plans to price 57.025 billion of power revenue bonds next Thursday. largely to refund outstanding auction -rate bonds insured by Ambac and XL. Auctions for those bonds have faiied, Causing interest rater to reset at maximum rates of up to 6.221., according to the rating report from Moody's Investors Service, which affirmed its underlying Aa3 rating and stable outlook on the DWR power bonds, Originally issued w pay for emergency power purchaser during the California power crisis of 2000 and 2001 Fitch Ratings this week upgraded its rating of the DAR power bonds to A -plus from A. retaining its positive outlook. Standard Ez Poor's assigns an A rating with positive outlook. Bear. 5tearns Et Cn. is the book -runner rhe California State Treasurer's Office is addressing the market turmoil on several fronts. T'he state has $500 million of outstanding general obligation auction rate bonds. "The Plan is to Convert 5400 million of that pronto into commercial paper." said Torn Dresslar, spokesman for Treasurer Rill Lockyer. The remaining 5100 million doer not reset until January. and the state can live with its current 3.15% rate until then, he said. Dresslar raid the treasurer s also backing emergency legislation launched this week in the California Assembly to address the problems in the variable-rate market. 'IC would make it crystal ctear m state law that issuerscan buy back variable-rate and auctian-rate bonds. old on to their for a while, and sell them back into the market at an appropriate time that maker sense for taxpayers," Dresslar said. While the new state law could help, there remains the issue. much debated aniong bond lawyers . of how 3/7/2008 p�e-S Friday. March 7, 20c8 Search the Last Year Go ' Advanced Search Log In Today's News Web Exclusives Special Reports Conferences/Events Related Sites Contact U. Home Market News Regional Spotlight Washington Investors &r Investing Underwriters is Dealers Insurers Rating Agencies Market Statistics Last 5 issues New -issue Calendar Bond Sales Results Legal Notices Executive Placement Manage Your Account California Issuers Eye New ARS Strategies Orrick, C5CDA Craft Pooled -Debt Program F,id W, Mnrch 7. 2008 (Page 2 of 2) :�h Pi -int 10 Entail '�' Reprints "One of the issues we can't solve in a state statute is this whole question out there of the extent to which issuers who buy back RELATED LINKS their bonds expose themselves to action by the SEC," Dresslar Credit Crunch Hits said. Variable -Race Mhrkep . February 29, 2()08 The California Health Facilities Financing Authority, a conduit Cali'ornia's Biota issuer operated under the auspices of the treasurer's office, University ro Take Out also announced plans to make iteasier for its borrowers to Variable Kates, Swaps refinance variable-rate debt the had issued using CHFFA as a Y 9 that Led to L2002 s February 22, 2002 conduit. California's 1st stem Thea enc announced this week that it will add board agency Cell Deal Will Be in variable -Rate Mode meetings so that borrowers can gain the authority they need to May ?2, 2007 refinance as soon as possible. The first special meeting will be BATA Sets $500M Toil Tuesday. two weeks before the next scheduled meeting. deal . oc.icb(r 5, 2007 "We'rejust trying to alleviate the strain on these borrowers as soon as we can," said CHFFA spokesman Joe DeAnda. "We j ust expedited the normal meeting date." RELATED TOPICS The first special meeting is Tuesday, and six health care Market Turrnoil Hits borrowers have reserved places on the agenda for applications monis to refinance as much as $4.6 billion in outstanding debt. the six potential applicants are Catholic Healthcare West, Sutter Health, Stanford Hospitals and Clinics, Lucile Salter Packard Children's Hospital, Scripps Health,and Hoag Memorial Hospital Presbyterian. "We haven't heard yet which ones are coming and for how much," DeAnda said " At BATA, the board Wednesday authorized the issuance of up to $1-2 billion in variable-rate bonds to refinance the toll authority debt most damaged by insurer downgrades and the collapse of the auction -rate market. It's a measured approach to dealing with problems in BATA's S2.9 billion varable•rate portfolio, chief financial officer Brian Mayhew told board members. lttp_//www.bondbuyer.ct)m/article.html`lid= 2008030695FQWXVY&pagenum=2&numpage... 3/712008 PSS e__ That approach should allow the agency to keep its extensive swap portfolio in place and keep debt service costs low enough to avoid an increase in the bridge tolls that back BATA's bonds, he said. , H0�5IhT� EMILITAR -,,,..,. The new debt would take out the agency's $720 million auction -rate portfolio. That market @;PRFWTIZATI ON appears to be structurally broken with little chance of correction, BATA executive director Steve Heminger told board members. The bonds would also allow the authority to take out S290 sniUion of variable-rate demand bonds insured by XL, which has been downgraded to single-A levels, repelling short-term investors and diving BA TA's rates for XL -wrapped VRDBs above 6%, despite the authority's double-A level underlying ratings. "They are in a place that they are not going to recover in all likelihood," Heminger said of XL. BATA also has almost $1.9 billion of outstanding VRDBs with a long-term wrap from Ambac. and doe5 not plan to refund that debt, at least for now. Mayhew said that the authority is now confident that it can renegotiate the bank iiquidity facilities supporting the Ambac-wrapped VRDBs in away that wiil assuage investor fears about Ambac, which sti I I has triple-A ratings from Standard Et Poor's and Moody's, and a AA Fitch rating. "We believe there is still a good chance that Ambac can straighten out its affairs, recover its triple-A rating. and we can go back to being the happy clams we used to be before all of this nonsense started," Heminger said. As the BATA meeting wound down to the unanimous authorization vote, the boards chair, Bill Dodd, a Napa County supervisor, noted that BATA had sunk a great deal of money into buying, insurance policies that will end up costing the agency miUicns of dollars. "Somehow, you guys have got to come back to us and say how are we going to recoup some of that money," Dodd said. Herninger replied: "Frankly, we owe you a serious discussion of that. Probably in closed session." Previous Page 1,2 View on Single Page More articles in Regional News he fiord 5uyer Today I A,Squt: ; Advertise i ContaCf: Us I Cu5WMer Service I Register I Site 1,�ap I Subscribe Pnw.cy Policy ; Subscriber Agreement a Terms of Use c ZOOS The Bond &dyer acid 5ovrceMedia Inc., AIL rights reserved. 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