HomeMy WebLinkAboutAgenda Report - April 2, 2008 K-04AGENDA ITEM K,4
CITY OF LODI
%W COUNCIL COMMUNICATION
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AGENDA TITLE: Presentation of financing options for outstanding Electric Utility Variable Rate Debt
Obligation Certificates of Participation ($46.7 million) and authorization for City
Managerto procure necessary services related to restructuring these obligations.
MEETING DATE: April 2, 2008
PREPARED BY Deputy City Manager
RECOMMENDED ACTION: Receive presentation on financing options for outstanding Electric
Utility outstanding variable rate debt obligations and authorize City
Manager to procure financing services including bond counsel,
underwriting services, letter of credit or other credit enhancement facility, and other costs as necessary.
BACKGROUND INFORMATION: The Electric Utility has approximately $46.7 million of outstanding
Variable Rate Debt Obligations (VRDOs), which were issued in
January 2002. This type of debt offers the holders the opportunity
for early redemption of their certificates. As a result of financial market conditions, some of the holders of
these VRDOs have exercised their right to redeem these certificates. At this time, there are $2.5 million
of these certificates that have been redeemed and not remarketed by the city's agent (Citigroup). These
COPs were redeemed in early March and there has been no additional redemptions of these securities.
In early March the City of Lodi engaged its financial advisor, Lamont Financial Services, to explore
alternatives and recommend possible solutions to reduce the potential additional costs associated with
these early redemptions. There are several courses of action that are possible to address this emerging
issue.
All options and the associated costs and resulting debt service scenarios were not available at the time of
this communication. Staff will review the various elements of the financing structures available for the
VRDOs on April 2nd along with a recommendation to pursue one of the alternatives or to defer until a
future meeting pending final determination of costs or other factors needed to make a decision on this
issue.
FISCAL IMPACT: Not Applicable
FUNDING AVAILABLE: Not Applicable
es R. Krueger, Deputy City Manager
APPROVED:
Bla' A ity Manager
Summary ofAlternate Refunding Scenarios
Maximum Change8to
Net Annual Revenue
Put Bond Par Amount Requirement"
Scenario Description Yld. Spread Issued S FY Ended Average $ Increase Risk Factors! Marketissues
1
(Unenhanced Refunding. Terminate Swap)
64,340,000
2,018,700
06/30109
11431,924
Z
(Unenhanced Refunding, Don't Terminate Swap)
54,190,000
2,430,260
05/30110
1,089,513
3
(Insured Refunding. Terminate Swap)
58,360,000
1,287,461
06!30109
677,084
least Risk, ?Ability to market
4
(Insured Refunding. Don't Terminate Swap)
49,110,000
1,898,479
06130110
443.204
Nexttoleast risk, ?Abilitylomarket
5
(LOC Backed 3 Year Put Bond Refunding. Don't Terminate Swap)
A
0.75%
52,180,000
2,730,355
06!30110
1,405,753
B
1.50%
53,840,000
2,759,925
0813(k10
1,903,531
C
2.25%
54,275,000
3.W9.271
06!30110
2,255,416
8
(LOC Backed 5 Year Put Bond Refunding, Don'tTerminate Swap)
A
0.75%
52,705,000
2,753,888
06/30110
1,511.885
B
1.50%
54,370,000
2,809,981
06130110
1,946,979
C
2.25%
54,805,000
3,051,879
06130110
2,321,207
7
(LOC Backed VRDO Refunding. Don't Terminate Snip)
A
3Yr. RateCaa 4.00%
54,010,000
1,030,542
06/30/13
693.235
B
3Yr Rate Cap 500%
53,905,000
1020,363
6851??
C
53.865 000
OBS
Higher risk, easier to market
D
No rate cap
53 725,000
1005 751.,
8
(LOC BackedVRDO Refunding. Terminate Swap)
A
3Yr Rate Cap 4,00%
64,135,000
1,293,788
06/30119
960.963
B
C
3Yr Rate Ca 500%
64,010,000 1,284,096
63,960,000
D6130119 947751
06130119
Hi!,4',( risk. easierlo market
4
No rate cap
63,790,000
1263,214
06130119
934,686
Beal topliorls
MBIA
• City of Lodi paid ~$400K for Bond
Insurance in 2002 for VRDOs
• Fitch ratings service has put MBIA on
negative watch
• Options
— Issue new bonds without MBIA as insurer
• Fixed interest
• VRDO with Letter of Credit
Summary of Alternate RefundingScenarins
Maximum Changes to
Net Annual Revenue
Put Bond ParAmount Requirement"
Scenario Description Yld. Spread Issued S FY Ended Average Increase Risk Factors/ Marketissues
1
(Unenhanced Refunding, Terminate Swap)
64,340,000
2,018,700
06130109
1,431,924
2
(Unenhanced Refunding, Don't Terminate Swap)
54.190,000
2,430,260
06130110
1,089,513
3
(Insured Refunding, Terminate Swap)
58,360,000
1,287,461
06130109
677,084 Least Risk,?Ability to market
4
(Insured Refunding. Don't Terminate Swap)
49,110,000
1,896,479
06130110
443,204 Next to least risk, ? Ability to market
5
(LOC Backed 3 Year Put Bond Refunding. Don't Terminate Swap)
A
0.75%
52,180,000
2,730,355
06/30/10
11405,753
B
1.50%
53,840,000
2,759,925
06130110
1,903,531
C
2.25%
54,275,000
3,009,271
06130110
2,255,416
6
(LOC Backed 5 Year Put Bond Refunding. Don't Terminate Swap)
A
0.75%
52,705,000
2,753,888
06130110
1,511,885
B
1.50%
54,370,000
2,809,981
06130110
1,946,979
C
2.25%
54,805,000
3,051,879
06130110
2,321,207
7
(LOC BackedVRDO Refunding. Dcn't Terminate Swap)
A
3Yr. RateCso 4.00%
54,010,000
1,030,542
06430113
693.235
8
3Yr. RA9 Cap 5.00%
53905,000
1,020,363
06130113
685,122
C
53 865,000
06133113
Higher risk, easier to market
D
No rate cap
53 725.000
G 785
06130113
670,901
a
(LOC BackedVRDO Refunding, Terminate Swap)
A
3 Yr Rate Cap 4.00%
64135,000
1.293.788
06130119
960.963
B
3Yr. Rate Cap 5.000/6
64010,000
1,284,096
06130119
947.751
C
63960,000
",4 Higher risk. easierto market
D
No rate cap
63 790 000
1 283 2'4
06130119
934,686
Best options . .
- - . — .-i -
Detailed Results Of Subprime Stress Test Of
Financial Guarantors
Standard & Poor's Ratings Services, continuing its series of stress tests of the monoline financial guarantors with
respect to their domestic nonprime mortgage exposure, today announced several rating actions (see "S&P Takes
Additional Bond Insurer Rating Actions," published Feb. 25).
For this review, we developed a set of net cumulative loss assumptions by asset type and vintage that we believe will
likely turn nut to be no less than, and perhaps higher than, the ultimate loss levels experienced. As such, save for the
possibility of materially adverse asset class performance beyond our current expectations, we view this stress test as
one that will retain its relevance over time.
Nevertheless, given the unprecedented level of mortgage market deterioration that has occurred, we remain
circumspect about assigning stable outlooks to insurers even if they have sufficient capital when measured against
our projected stress case losses. Accordingly, we will still assign negative outlooks to those firms with significant
exposure to domestic nonprime mortgages and/or meaningful lower credit quality exposures. The assignment of a
negative outlook may also reflect our assessment with regard to the comprehensiveness and degree of completion of
projected capitalization strengthening efforts underway.
The financial strrngth ratings of Assured Guaranty Corp. (AAA/Stable), Financial Security Assurance Inc.
(AAA/Stable), and Radian Asset Assurance (AA/Stable) were not reviewed in conjunction with this latest stress test.
These companies do not have material amounts of direct nonprime mortgage or ABS CDO exposure and therefore,
in our view, are not at risk to have significant losses from these sectors. We also did not review the 'CCC' financial
strength rating of ACA Financial Guaranty Corp. because the company is in negotiations to modify its obligations to
its counterparties. ACA's rating remains on Creditwatch with developing implications, reflecting the dual
possibilities that a favorable result of the negotiations could improve the company's credit standing, while a negative
outcome could leave the company with significant liquidity and capital shortfalls.
Rating Actions
• The 'AA' financial strength rating of Financial Guaranty Insurance Co. has been lowered to 'A' and remains on
Creditwatch with developing implications.
• The 'AAA' financial strength ratings of XL Capital Assurance Inc. and XL Financial Assurance Ltd. have been
lowered to 'A-' and remain on Creditwatch with negative implications.
• The 'AAA' financial strength rating of MBIA Insurance Corp. has been affirmed and has been removed from
Creditwatch. The outlook is now negative.
• The 'AAA' financial strength rating of Ambac Assurance Corp. has been affirmed and remains on Creditwatch
with negative implications.
• The 'AAA' financial strength ratings of CIFG Guaranty, CIFG Europe, and CIFG Assurance North America Inc.
have been affirmed and continue to have negative outlooks.
Standard & Poor's Ratings0irect I February25.2008 2
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