HomeMy WebLinkAboutExhibit A0-7Y OF UAW FLORIDA
INTER -OFFICE MEMORANDUM
FOrI
Honorable Mayor and City Commission
Carlos A. Nagoya
City Manager
DATE:
SUBJECT'
REFERENCES-.
ENCLOSURES:
December 11, 2010
FILE:
Port Tunnel Lerter of Credit
Background
The Commission may recall as part of the City's participation in the Miami Tunnel project, the City is required to
contribute $50 Million, plus interest from the start of construction, to be paid upon completion of the Tunnel. As
part of that agreement, the City was required by the State of Florida, Department of Transportation, to obtain a $50
Million Letter of Credit to guarantee its funding participation. In order to comply with these requirements, the City
entered into a one-year $50 Million Irrevocable Standby Letter of Credit (the "LOC") with Wachovia Bank, National
Association on October 7, 2009,. Since that time, Wachovia has been acquired by Wells Fargo Bank, NA.
It was anticipated by the Administration that bonds would have been issued by the Omni Community
Redevelopment Agency (OMNI CRA) which would be the funding source for the City's contribution to the Miami
Tunnel Project and that such funding would have occurred prior to the expiration of the LOC, which was extended
by the Bank to expire January 6, 2011 to accommodate that expectation. However, Bond Counsel, in conjunction
with the City Attorney's office, has determined that the proposed OMNI CRA bonds should be validated by the
courts given the multiple legislative changes to the District over the years. The validation process can take six
months to two years to complete depending on challenges, if any are made.
As a result of the need for validation and the pending expiration of the LOC, which Wachovia cannot extend further,
the City was poised to allow the LOC to be drawn upon by the State thereby converting the LOC into a five-year
Term Bond for which a reimbursement agreement has been in place and approved by the City Commission.
A few weeks ago, Wachovia/Wells Fargo offered an alternative option in the form of a two-year direct loan to the
City.
Contrasting Points of the Five -Year Term Bond vs. the Two -Year Direct Purchased Bonds
1) Salient terms of conversion of LOC into 5-Year Term Bond
a. Final Maturity five years from conversion
b. Floating Interest rate set at 2% plus the higher of:
i. Prime Rate plus 1%;
ii. Federal Funds Effective Rate plus 2%; or
iii. 30-Day LIBOR Rate plus 3%. Currently this rate would be 6.25%.
c, Principal repayment:
i. Years 1 through 4 - $5 Million annually
ii. Year 5 - $30 Million
d. Interest rates increase if ratings are downgrading pursuant to a schedule.
e. Bank can accelerate the payment of debt with 30-days written notice upon financial and non -financial
related defaults.
IOO(Lf5O_.
2) Salient terms of the 2-Year Direct Loan
a. Final Maturity two years from issuance
b. Floating Interest rate set at the SIFMA index (a national tax-exempt interest rate index of short term
obliutionsi plus 3.75%.
i. Currently this rate would be 4.01%.
c. Principal repayment:
i. Year 1 - 55 Million
ii. Year 2 - $45 Million
d. Interest rates increase if ratings are downgrading pursuant to a schedule.
e. Bank can accelerate the payment of debt with 30-days written notice upon financial defaults and 180-days
written notice for non -financial related defaults.
Many factors go into the determination of the City's credit rating and the above options have certain impacts as
follows:
Both options are variable rate obligations with the interest on the 5-Year Term Bond expected to be higher
of the two. The expected interest cost differential over two -years (the life of the Direct Loan) is about $1.89
Million, based on the current spread in rates between the options, in favor of the Direct Loan.
There would be a $250 cost to draw upon the LOC to convert it to the 5-Year Term Bond and no other
expected costs. For the 2-Year Direct Loan, costs of issuance are expected not to exceed $200,000.
• By virtue of having more debt service payable from Non -Ad Valorem Revenues both options lessen debt
service coverage i.e. Non -Ad Valorem Revenues divided by maximum debt service. The current coverage
based on FY 2009 audited numbers is 5.65 times. The acceptable coverage ratio for municipalities is 2.0
times coverage. The coverage after either option is exercised would be:
i. For the 5-Year Term Bond — 3.79%
ii. For the 2-Year Direct Loan — 3.22%.
The rating agencies are aware of the City's plans to take out the proposed debt with future long-tem' CRA
bonds, which will reinstate the current Non -Ad Valorem debt service coverage therefore we do not expect
any negative rating impact from either option.
• Based on several discussions that we had with our analyst, Standard & Poor's has a major issue with a
provision of 30-days written notice acceleration of bonds for non -financial defaults. The 5-Year Term Bond
contains this type of language built into its structure, however, the two year direct loan option does not.
Recommendation
It is recommended that the City Commission approve the Resolution(s) which will be presented at the December 16,
2010 Commission Meeting that authorizes the issuance of $50 Million of Bond Anticipation Notes, with a final
maturity of two -years from the date of issuance, to be directly purchased by Wells Fargo Bank, National Association
(the "Bank").
Conclusion
The 2-Year Direct Loan is the best option for the City to pursue. Our conclusion is based on the anticipated lower
differential interest costs, estimated at $ l .89 Million (based on current spreads between the two options) and
Standard and Poor's concerns dealing with possible non -financial default acceleration language built into the
structure of the 5-Year Term Bond.
Term Sheet
Direct Purchase of Tax Exempt Index Rate Bonds
City of Miami, Florida
THIS TERM SHEET REPLACES THE PREVIOUSLY ISSUED
TERM SHEET DATED NOVEMBER 9, 2010
DATE: December 9, 2010
This Term Sheet is for discussion purposes only and shall not be
construed as a commitment, offer or contract. It is intended to
summarize for discussion purposes the credit accommodations
which the Bank may be willing to consider. Any commitment
would be at the sole discretion of the Bank. If the Bank decides to
extend the credit accommodation described herein to Obligor, the
Bank expects to engage in further credit review and discussions
and to obtain additional information before deciding whether a
commitment will be issued. While this Term Sheet may form a
basis for a discussion of a credit accommodation, the Bank does not
intend to be committed to make credit available unless a written
commitment is provided.
TRANSACTION SUMMARY:
Obligor:
Issue:
Financing
Documentation:
Use of Proceeds:
Par Amount:
Purchaser/Bank:
Tax Treatment:
City of Miami("Obligor")
Series 2010 Revenue Bonds (the "Bonds")
The Bonds will be purchased by the Bank in accordance with and
subject to the provisions of a Loan Agreement between the Bank and the
Obligor containing standard closing conditions, representations and
warranties, covenants and remedies. The Bonds, the Resolution and the
Loan Agreement as executed and delivered by the Obligor in connection
with the Bonds, are herein collectively referred to (along with any
amendment, supplement or restatement of any or all of the foregoing) as
the "Financing Documents."
Provide the City of Miami proceeds to pay project costs related to the
Port Tunnel.
$50,000,000
Wells Fargo Bank, National Association (the "Bank").
Interest on the Bonds shall be excludable from gross income for federal
income tax purposes. The Obligor shall take all steps necessary to
Security:
INTEREST RATES
Index Interest Rate:
Mandatory
Tender Date:
Downgrade
maintain such tax exempt status for the Bonds. The Bank shall be
provided an opinion of tax counsel satisfactory to the Bank which
concludes that interest on the Bonds is excludable from Bross income for
federal income tax purposes.
The facility will be secured by a covenant to budget and appropriate
from all legally available non -ad valorem revenues of the City. The
Obligor shall agree to issue refunding bonds or other debt payable from
payments from the Omni Community Redevelopment Agency ("CRA
Debt") on or prior to the final maturity of the facility and shall
additionally secured the facility by a pledge of the first net proceeds of
the CRA Debt.
AND OTHER KEY PROVISIONS:
Should the City choose Option 1: One Year Maturity Date below:
The Bonds shall bear interest at a per annum rate of interest equal to the
sum of (i) the product of the Index times the Applicable Factor and (ii)
the Applicable Spread, subject to adjustment as provided below.
• Index — SIFMA
• Applicable Factor — initially 100`)/0
• Applicable Spread — initially 375 basis points subject to adjustment as
described below
Should the City choose Option 2: Two Year Maturity Date below:
The Bonds shall bear interest at a per annum rate of interest equal to the
sum of (i) the product of the Index times the Applicable Factor and (ii)
the Applicable Spread, subject to adjustment as provided below,
• Index — SIFMA
• Applicable Factor — initially 100%
• Applicable Spread — initially 400 basis points subject to adjustment as
described below
The Bonds shall bear interest at the Index Rate while no Event of Default
exists.
Option 1: One year from closing
Option 2: Two years from closing.
The Applicable Spread is subject to the maintenance of the current
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Pricing:
Computation
Basis:
Payment
of Principal
and Interest:
Optional
Redemption/
Conversion:
ratings assigned to the subject Bonds or other outstanding Bonds secured
by a Covenant to Budget and Appropriate from Non -Ad Valorem
Revenues. The Applicable Spread will be increased by 25 bps for each
one notch rating downgrade of any Bonds by any 2 Rating Agencies
below its current ratings of A2/1313B-:-/A- from Moody's, S&P or Fitch, as
applicable provided.
If one or more of the underlying ratings are withdrawn or suspended for
any reason, or an event of default occurs, the Bonds shall bear interest at
the Default Rate.
All of the foregoing pricing increases shall be cumulative.
References above are to rating categories as presently deteiiiiined by the
rating agencies, and in the event of the adoption of any new or changed
rating system or a "global" rating scale by any such rating agency, the
ratings categories shall be adjusted accordingly to a new rating which
most closely approximates the ratings currently in effect.
Computations of interest shall be calculated on an actual/actual basis.
All principal of and interest on the Bonds shall be due and payable at
maturity. In addition, should the City choose the Option 2: Two Year
Maturity Date, $5,000,000 in principal and accrued interest shall be
due and payable on the first anniversary date of the closing.
At the option of the Obligor, the Bonds may be optionally redeemed
prior to Maturity upon 30 days prior written notice to the Bank.
Base Rate The greatest of
(i) the Bank's Prime Rate plus 1.0%,
(ii) the Federal Funds Rate plus 2.0%; or
(iii) 7%
Default Rate: Base Rate plus 3.00%
Clawback Amounts: The Financing Agreement will include customary interest recapture
("clawback") language allowing Bank to recover interest in excess of
any maximum interest rate imposed by law.
DOCUMENTATION AND COVENANTS:
General:
The Financing Documents (other than the Loan Agreement) including
all necessary or desirable amendments, supplements andior
restatements will be prepared by Bond Counsel and/or Obligor Counsel
based upon forms and/or required language provided by Bank Counsel.
Bank Counsel will prepare the Loan Agreement. The Financing
Documents will include, but not be limited to, the terms and conditions
outlined herein as well as provisions that are customary and standard
with respect to conditions precedent, representations and warranties,
covenants, events of default and remedies (including acceleration of the
Obligor's obligations under the Financing Documents if applicable).
Disclosure Documents: The Obligor will not be required to prepare or deliver an Official
Statement in customary form, but will be required to prepare and deliver
to the Bank a document that summarizes the terms of the Bonds and
provides certain limited information regarding the Obligor and the project
to be financed or refinanced.
Conditions
precedent to
closing:
Should the Bank issue an Commitment Letter the following conditions
will apply, including, but not limited to:
1. The Obligor's unenhanced long term credit rating from the rating
agencies rating the transaction (the "Rating Agencies") shall be
not less than A2/BBB+/A- from Moody's, S&P and Fitch,
respectively;
2. Absence of any material adverse change in the business condition,
operations, performance of the Obligor since release of the
financial statements dated 9/30/2009;
3 Absence of any change in any law, rule or regulation (or their
interpretation or administration), that, in each case, may adversely
affect the consummation of the transaction, to be determined in
the Bank's sole discretion;
4. Disclosure of any pending or threatened litigation (with such
pending or threatened litigation acceptable to the Bank);
5. Payment of accrued fees and expenses;
6. Execution and delivery of the Financing Documents and all
certificates, authorizations and opinions requested in foini and
substance satisfactory to the Bank, with legal opinions to cover
such matters as the Bank may require;
7. Receipt of the ISDA documentation for any hedge transaction
hedging the Bonds;
8. Receipt of any necessary governmental and regulatory approvals
or consents;
9. A certificate of covenant compliance in form and substance
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Representations
and Warranties:
satisfactory to the Bank;
10. Receipt of Opinion of Bond Counsel acceptable to the Bank,
Bank Counsel;
11. Receipt of the Opinion of Obligor Counsel acceptable to the
Bank, Bank Counsel;
12. The Bank shall have reviewed to its satisfaction any additional
documentation and financial information it finds relevant.
As customary, including, but not limited to, the following: Financing
Documents valid, binding and enforceable against Obligor and not
violating laws or existing agreements or requiring governmental,
regulatory or other approvals; no litigation that may have a material
adverse effect; compliance with ERISA, no adverse agreements,
existing defaults or non -permitted liens; financial statements true and
correct.
Financial In addition to the financial covenants contained in Obligor's other debt
Covenants: instruments secured by a Covenant to Budget and Appropriate from
legally available Non -Ad Valorem Revenues, the following financial
covenants shall apply:
All legally available Non -Ad Valorem Revenues shall mean all revenues
of the City derived from any source whatsoever, other than Ad Valorem
taxation on real and personal property and are legally available to make
the loan repayments required under this proposal, but only after provision
has been made by the City for payment of services and programs which
are for essential public purpose affecting the health welfare and safety of
the inhabitants of the City or which are legally mandated by applicable
law. So long as there are legally available Non -Ad Valorem Revenues,
the City may not fail to budget and appropriate debt service in order to
balance its budget. The foregoing covenant to budget and appropriate
shall be deemed to require appropriation, in the manner set forth above,
of Non -Ad Valorem Revenues ratably to pay the obligations hereunder
and all other Additional Covenant Debt. The Obligor will not enter into
any covenant to budget and appropriate from Non -Ad Valorem revenues
which is in any mariner prior or senior to its obligations hereunder.
Additional Covenant Debt shall mean indebtedness of the Obligor
heretofore or hereafter issued which contains a covenant by the Obligor
to budget and appropriate from Non -Ad Valorem Revenues amount
sufficient to pay the principal, interest and premium, if any, on such debt
as same becomes due and payable, all in a form similar to the covenant
described herein.
For each fiscal year during the term of the facility and prior to the
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incurrence of Additional debt secured by a Covenant to Budget and
Appropriate from all Legally Available Non -Ad Valorem Revenues, the
average of the prior two years Legally Available Non Ad Valorem
Revenues as defined above, must cover existing and projected maximum
annual debt service on debt secured by and/or payable from such
Revenues by at least 1.5x. For purposes of calculating maximum annual
debt service, variable rate debt shall be assumed to bear interest at the
higher of 6% per annum or the actual interest rate borne by the loan for
the month preceding the date of calculation. Moreover the subject facility
shall be assumed to be amortized over a ten year period.
In addition to the financial covenants contained in the Obligor's other
debt instruments, the Bank shall receive the benefit of all existing and
subsequent covenants, defaults and remedies which are agreed to by the
Obligor with any other lender, liquidity provider or credit provider
supporting parity obligations of the Obligor or any such liquidity or other
covenants that are mutually agreeable.
Reporting Usual and customary for a transaction of this nature including but not
Requirements: limited to; delivery of audited annual financial statements, and
certificate of no default within 180 days of fiscal year-end, Operating
Budget (upon adoption), notices of default and material litigation
proceedings and a Anti -dilution Certificate in the form attached to the
existing Reimbursement Agreement as Exhibit B.
Taxability:
In the event a determination of taxability shall occur, in addition to the
amounts required to be paid with respect to the Bonds under the
Financing Documents, the Obligor shall be obligated to pay to the Bank
an amount equal to the positive difference, if any, between the amount of
interest that would have been paid during the period of taxability if the
Bonds had borne interest at the Taxable Rate (i.e., the product of the
Index Rate and 1.54) and the interest actually paid to the Bank as the
owner of the Bonds.
EVENTS OF DEFAULT:
Events of Default
Customary events of default (i.e. similar to a bank enhanced VRDB
transaction), including (without limitation) nonpayment, breach of
representations and covenants, cross-default/cross-acceleration
(including, without limitation, debt secured by or payable from a
Covenant to Budget and Appropriate), bankruptcy and insolvency
events with respect to Obligor, ERISA events, ratings downgrade
below investment grade, invalidity or contest of Obligor's obligations.
Remedies Upon Bank may declare all amounts owed under the Financing Documents to
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Event of Default:
the Bank due and payable immediately upon an event of default
constituting nonpa)ment, invalidity or contest of Obligor's obligations,
bankruptcy, insolvency and acceleration of like secured debt or on 180
days notice, upon any other event of default, exercise right of set off,
pursue rights with respect to any collateral, exercise any other rights or
remedies available at law or under contract. Interest accrues daily on
such amounts at the Default Rate and is payable on demand.
OTHER FEES AND EXPENSES:
Bank Counsel Fee:
Other
Fees and Expenses:
Estimated at $30,000.00 plus disbursements. Fees and expenses
payable to Bank Counsel may be increased if the security and/or
structure of the transaction changes materially, or if other complexities
develop once documentation has commenced.
Obligor shall pay to the Bank an amendment fee for each amendment
of the Financing Documents in a minimum amount of $2,500.00 plus
associated legal expenses.
Obligor shall be responsible for all out of pocket costs and expenses of
Bank (including, without limitation, counsel fees) incurred in
connection with the negotiation, execution, delivery, administration
and enforcement of the Financing Documents, whether or not the
financing closes.
CHOICE OF LAW/JURY TRIAL/VENUE:
Governing Law: This Term Sheet and the Financing Documents will be governed by the
laws of the State of Florida.
Jury Trial:
The Obligor agrees to binding arbitration and to waive a jury trial in
any proceeding involving the Bank.
Venue: Any litigation involving the Bank shall be brought in the appropriate
Florida court having jurisdiction over the matter.
MISCELLANEOUS:
Bank Contacts:
Name:
Address:
Lance Aylsworth
200 S. Biscayne Blvd.
7
Miami, FL 33131
Telephone: 305-789-4824
Facsimile: 305-789-4809
Email: Lance.Aylsworth@Wachovia.com
Bank Counsel: Peter Dane — Akeiinan Senterfitt
Indemnification: Whether or not the financing is closed, Obligor will indemnify the Bank
and its respective directors, officers employees agents and affiliates
against all claims asserted and losses, liabilities and expenses incurred in
connection with the Financing Documents (excluding acts of gross
negligence or willful misconduct of an indemnified party as determined
by a court of competent jurisdiction).
Transfers:
While the Bank is purchasing the Bonds for its own account without a
current intention to transfer them, the Bank reserves the right in its sole
discretion to assign, sell, pledge or participate interests in the Bonds
without the consent of the Obligor.
Future The temis, conditions and interest rates herein reference the financing
Modifications: and the Par Amount indicated herein and are subject to revision in the
discretion of the Bank, including, without limitation, in the event that (i)
the Par Amount changes, (ii) the transaction deviates materially from
what was initially described in conjunction therewith, (iii) the proposed
financing does not close (other than as a result of action/inaction by the
Bank) within 60 days of the execution and delivery by the Obligor of
the Term Sheet or (iv) events occur resulting in a material disruption of
the market.
Confidentiality: This Term Sheet is confidential and proprietary, and terms herein may
not be disclosed without our prior written consent, except to your
professional advisors in connection with this Financing who agree to be
bound by such confidentiality requirements, or as may be required by
law.
AGREEMENT BY THE OBLIGOR:
Unless this term sheet is earlier rescinded, it shall expire automatically
without further action or notice by Bank on 15 days from the date
hereof unless a signed counterpart of this Term Sheet shall have been
delivered to the Bank.
Accepted and Agreed to:
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By:
Title:
Date:
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