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HomeMy WebLinkAboutLetter - Finance Committee RecommendationFinance Committee City of Miami 3500 Pan American Drive Miami, FL 33133 Eli M. Feinberg PRESIDENT Mayor Tomas Regalado and City Commission City of Miami 3500 Pan American Drive Miami, FL 33133 October 24, 2012 Honorable Mayor and City Commissioners, The Finance Committee, established in 1998 as part of the Debt Management Policy and as amended in 2005, has met and discussed the City's bank loan with Wells Fargo Bank which is due in full on or before January 5, 2013. The loan is a two (2) year term loan that was approved by the City Commission on December 16, 2010 with execution on January 5, 2011. The original amount of the loan was $50 million with the current balance at $45 million plus accrued interest of $1,983,244. During the course of the committee's review for refinancing this bank loan, the members heard from the City's external financial and legal advisors about the solicitation for a direct loan as well as consideration for a limited public offering. While there are various ways to encourage various lenders into participating in a broad based solicitation, designing such is not a pure science. Further challenges to this refinancing were to acknowledge that the alternatives had to be time sensitive due to a fast approaching maturity date; we found it necessary to respect and uphold the dual path approach for securing viable options. In conclusion, we did find there to be rigorous review and evaluation that identified the financial impact and legal sufficiency of the pending transaction. On at least two (2) separate occasions, the committee recognized and heard from representatives of the Gates Group. While there may be some criticism of the process, we believe it to be defensible because it has brought forward to the Omni and City a projected cost savings on a nominal basis of approximately $4.3 million and a projected cost savings on a net present value basis of approximately $1.7 million. With respect to concerns about meeting the due date, the Gates Group proposes a final closing date of November 28, 2012 or sooner, whereas a limited public offering would have a final closing date of December 13, 2012 or sooner. Lastly, the documents for the limited public offering are close to final, and the Gates Group agreements would need considerable modification to customize specific requirements set forth by the Omni and the City. For your review, a copy of the PFM materials presented to the Finance Committee has been attached. Based upon the recommendation of the financial and legal advisors and the concurrence from the City and the Omni Community Redevelopment Agency respective staffs, we agree with the recommendation that the City should pursue the limited public offering as the lowest cost and best financing mechanism to refinance the bank loan. Best regards, Eli Feinberg, Chair Finance Committee Attachment R,a 'tj Lf RECORD 10-26-I'L• EMF & Associates, Inc. Government Affairs Consultants 6761 S.W. 89th Terrace, Miami, Florida 33156 Tel 305/670-5555 Fax 305/670-4842 E-mail: efeinb 1055@aol.com IL-C1132 - Le4er cinee.crr'Y1mrI I ee-reCumnierl act--iv1� • MIMI . • I▪ • .. ` City of Miami, Florida City Commission Meeting OMNI Tunnel Loan Refinancing October 25, 2012 PFM The PFM Group Public Financial Management, Inc. PFM Asset Management LLC PFM Advisors 255 Alhambra suite 404 Coral Gables, Florida 33134 Tel: 305-448-6992 Fax. 305-448-7131 www.pfm.com SuBFrTEu INiO THE PUBLIC RECORD FOR ITFM ON _,,.,_ C 2012 Public Financial Management, Inc. 1 Executive Summary • The City's $45 million short-term loan with Wells Fargo Bank is due on January 5th • The City had to make the decision to access the capital markets via a Limited Public Offering or a Private Placement through a private equity group • The Finance Team's recommendation to move forward with a Limited Public Offering. Submitted into the public record in connection with item RE.9 on 10-25-12 Dwight S. Danie City Clerk 2012 Public Financial Management, Inc. Executive Summary - Considerations The Finance Team's recommendation to move forward with a Limited Public Offering("LPO") is based on the following important considerations: — Cost Analysis: A Limited Public Offering is estimated to be a more cost effective option. • The gross difference is approximately $4.39 million, and Net Present Value difference is approximately $1.76 million. — CaII Option: The LPO would be structured with a 10 year par call, as opposed to the proposed 3 year make -whole call for the private equity proposal. Debt Service Reserve Fund (DSRF): While the LPO may require a cash -funded DSRF, a very conservative interest earning assumption (50 basis points) was used. • A higher earning rate over the next 18 years will provide the City with a lower Net Debt Service. — Legal Considerations' There are various legal considerations that the City's Bond Counsel and City Attorney will address. *All figures are estimates based on current market conditions and the resubmitted Private Equity proposal. Submitted into the public record in connection with item RE.9 on 10-25-12 Dwight 5. Danie City Clerk @ 2012 Public Financial Management, Inc. Comparison of Financing Alternatives • The cash flow is based on estimated debt service for each alternative, and the CRA's 2013 budget Limited Offering based on current market rates • 4.24% True Interest Cost • Three year interest only period • Cash funded Debt Service Reserve Fund • Normal Costs of Issuance and Underwriter's Discount of approximately $577,000 — Gates loan pronosal is based on $47.21U1 loan amount (per their proposal) • 4.75% Weighted Average Cost of Capital • Costs of Issuance of 2,250,000 (including City's professional fees) Ccl 2012 Public Financial Management, Inc. Submitted into the public record in connection with item RE.9 on 10-25-12 Dwight S. Danie City Clerk Comparison of Sources and Uses Sources. Limited Offering Private Capital (Wells Gates Par Amount Premium Paid by Investors Total Proceeds Wells Loan Payoff Interest Payoff Costs of Issuance Cash Funded DSR Total Uses Excess 46,210,000 3,574,684 47,283,244 $49,784,684 $47,283 244 45,000,000 1,983,244 45,000,000 1,983,244 46,983,244 46,983,244 577,315 300,000 2,224,125 $49,784,684 $47,283,244 0 0 Submitted into the public record in connection with item RE.9 on 10-25-12 Dwight S. Danie City Clerk Comparison of Financing Alternatives 3-Years Interest Only - Current Market Rates (Using Lease COST COMPARISON Payment Schedule from Gates Proposal • Exhibit B) DIFFERENCE 3-Years Interest Only Gates Proposal Par Amount $ 46,210,000 $ 47,283,244 True Interest Cost (TIC) 4.17% All -In TIC 4.24% Total Debt Service $ 73,485,550 $ 71,063,589 $ 75,455,000 Avg Annual Debt Service $ 4,082,531 $ 4,191,944 Cost of Issuance/UW's Discount $ 577,260 $ 2,250,000 Gates DS - Limited PO Premium bond structure 0.50% Proposal at 4.75% WACC Current Rates $ 2,224,125 Present Value of No DSRF Present Value of Debt Service Net Debt Service Net Debt Service Net Present Cash DSRF (1/2 MADS) Reserve @ 0.5% Net Debt Service @ 3.75% @ 3.75% Real Dollars Value @ 3.75% Estimated Annual Debt Service Schedules 10/1/2013 $ 2,266,050 $ 8,785 $ 2,257,265 $ 2,175,677 $ 2,085,000 $ 2,009,639 $ (172,265) $ (166,038) 10/1/2014 2,266,050 11,121 2,254,929 2,094,868 2,085,000 1,937,001 (169,929) (157,867) 10/1/2015 2,266,050 11,121 2,254,929 2,019,150 2,085,000 1,866,989 (169,929) (152,161) 10/1/2016 4,446,050 11,121 4,434,929 3,827,668 4,200,000 3,624,907 (234,929) (202,761) 10/1/2017 4,443,850 11,121 4,432,729 3,687,489 4,200,000 3,493,886 (232,729) (193,602) 10/1/2018 4,448,250 11,121 4,437,129 3,557,734 4,200.000 3,367,601 (237,129) (190,133) 10/1/2019 4,445,250 11,121 4,434,129 3,426,823 4,200,000 3,245,881 (234,129) (180,942) 10/1/2020 4,446,500 11,121 4,435,379 3,303,893 4,200.000 3,128,560 (235,379) (175,333) 10/1/2021 4,446,500 11,121 4,435,379 3,184,475 4,200,000 3,015,479 (235,379) (168,996) 10/1/2022 4,445,000 11,121 4,433,879 3,068,335 4,200,000 2,906,486 (233,879) (161,849) 10/1/2023 4,446,750 11,121 4,435,629 2,958,599 4,200,000 2,801,432 (235,629) (157,167) 10/1/2024 4,446,250 11,121 4,435,129 2,851,340 4,200,000 2,700,176 (235,129) (151,164) 10/1/2025 4,448,250 11,121 4,437,129 2,749,519 5,000,000 3,098,308 562,871 348,789 10/1/2026 4,447,250 11,121 4,436,129 2,649,542 5,000,000 2,986,321 563,871 336,780 10/1/2027 4,448,000 11,121 4,436,879 2,554,207 5,200,000 2,993,517 763,121 439,311 10/1/2028 4,445,000 11,121 4,433,879 2,460,221 5,200.000 2,885,318 766,121 425,096 10/1/2029 4,443,000 11,121 4,431,879 2,370,228 5,500,000 2,941,473 1,068,121 571,245 10/1/2030 4,441,500 2,235,246 2,206,254 1,137,286 5,500,000 2,835,155 3,293,746 1,697.869 $ 73,485,550 $ 2,421,961 $ 71,063,589 $ 50,077,053 $ 75,455,000 $ 51,838,129 $ 4,391,411 $ ,1,•761,076.. Q 2012 Public Financial Management, Inc. Submitted into the public record in connection with item RE.9 on 10-25-12 Dwight S. Danie City Clerk Recommendation Summary • Recommendation to move forward with Limited Public Offering (sold only to Qualified Institutional Buyers) based on the following: — Lower cost of capital — Rate Transparency — Upside potential • Par Call Option • DSRF Interest earnings — Other legal/structural factors © 2012 Public Financial Management, Inc. Submitted into the public record in connection with item RE.9 on 10-25-12 Dwight S. Danie City Clerk