HomeMy WebLinkAboutEDB 1. PFM Recommendation for Financing and Overview of Sample Debt Management Policy FDfr11 May 25, 2023
Recommendation Memorandum
To: Jeff Wesselman, Chief Financial Officer
From: PFM Financial Advisors LLC
Re: Utility System Revenue Note, Series 2023—Recommendation Memorandum
PFM Financial Advisors LLC ("PFM")was engaged by Clay County Utility Authority ("CCUA"
or the "Authority")to serve as financial advisor for CCUA's proposed issuance of a privately
placed Utility System Revenue Note, Series 2023 (the "2023 Note")to be issued to provide
funds to finance the cost of capital improvements and pay costs of issuance. The 2023 Note
is payable solely from and secured solely by a pledge of the net revenues of CCUA's Utility
System and will be issued on parity with CCUA's Series 2012, 2015 and 2019 Notes under
and pursuant to CCUA's Bond Resolution. The size of the 2023 Note is a not-to-exceed par
amount of$75 million. Based on recent aggressive bids received from financial institutions for
similar financings, PFM recommended CCUA pursue a privately placed direct bank loan (or
line of credit), which in today's market was expected to be an efficient and cost-effective
c method of financing. All Authority debt currently outstanding is privately placed with a bank or
issued as a State Revolving Fund loan.
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° At CCUA's direction, following the board's direction to proceed, PFM distributed a request for
proposals ("RFP")on April 26, 2023. The RFP was sent to a list of local, regional and national
financial institutions to identify the institution that could provide CCUA with a fixed rate, non-
bank qualified term loan at the lowest overall borrowing cost, pursuant to certain conditions
as determined by CCUA. Prior to the submittal deadline (2:00 pm on May 25, 2023) CCUA
received three (3) proposals from the following firms: Bank of America, JPMorgan &Truist. A
summary of each proposal is included as Exhibit A.
The proposals received from Bank of America &JPMorgan were traditional line of credit
proposals. Of the two, Bank of America provided the more competitive interest rate at 4.63%
for drawn proceeds and 23 bps for undrawn proceeds (up to 50% of the facility).
Comparatively, Truist proposed a traditional loan, fully drawn at close, at an interest rate of
3.56%. Assuming the Authority has fully drawn on the $75 million facility, this equates to
annual interest savings of$802,500 in favor of Truist.
Bank of America: $75 million x 4.63% = $3,472,500
Truist: $75 million x 3.56% = $2,670,000
$802,500
Prior to a full draw on the loan, Truist provides an investment return on unutilized funds held
in escrow. CCUA can choose between a guaranteed rate of 3.55% or a managed portfolio
with the bank at an underlying yield of 4.05%.
Based on PFM's review and discussions with CCUA's staff and Bond Counsel, it was
determined that Truist provided the most cost-effective financing alternatives along with
favorable conditions. The proposed interest rate, 3.56%, is locked through the anticipated
closing date of June 29, 2023, which eliminates the risk of rising interest rates between the
proposal submittal date and closing date.
Based on the competitive bid offered by Truist, included as Exhibit B, we recommend
moving forward with the Truist proposal and negotiating final deal terms with the bank. We
look forward to discussing this recommendation at the CCUA Board meeting on June 20tn
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Exhibit A
Summary of Proposals
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pfm
Clay County Utility Authority
Utility System Revenue Note,Series 2023
RFP Summary
Bank of America JPMorgan Truist
Holly Kuhlman Tim Bittel Lisa Hayes
Contact Information Senior Vice President Executive Director Senior Vice President
239-598-8805 212-270-2169 904-632-2599
holly.kuhlman@bofa.com timothy.j.bittel@jpmorgan.com lisa.c.hayes@truist.com
$50mm Yes Yes Yes
Funding Amount Offered
$75mm Yes Yes Yes
Initial Put Date - a)5/1/2025 5/1/2026
b)5/1/2026
Maturity 30 months from date of close soft put maturity plus term out 96 months from date of close(5/1/2031)
Term-out Option May be converted to a term loan,10 equal semi-annual principal 10 equal semi-annual principal pa
yments q p p p yments 10 equal semi-annual principal payments
payments beginning 6 months from conversion
Term-out Tax-Exempt Interest Rate Bank Rate(see below) Base Rate 3.56%
Commitment Fee(Undrawn Fee) 23 bps a)0.625% -
Only due if the unfunded portion of the LOC is 50%or greater b)0.650%
Tax-Exempt Interest Rate(Drawn Fee) 4.63% a)5.543% 3.56%
b)5.593%
Rate Set Calculation 80%of Daily SOFR plus 0.59%.(If the maturity is shortened to 24 a)80%of 1 month SOFR plus 1.375% Fixed
months from closing the spread shall be 0.54%) b)80%of 1 month SOFR plus 1.425%
Rate Locked to Closing,or Date to be Set Formula Formula 6/29/2023
Draw Flexibility Draws of$100,000 Facility may initially be sized at$50mm and then increased to Single draw at close
4 draws per month $75mm when/if needed,reducing cost of undrawn fee
Project Fund Options - - Three year fixed rate:3.55%;collateralized funds
Managed Rate:4.05%;funds not collateralized
Prepayable in whole or in part anytime,within 3 business days
Prepayment Provisions notice,without penalty.The unutilized portion of the Bank's Prepayable anytime,without penalty,on any interest payment date Make whole call;no prepayment penalty for repayment on a Put
commitment under the facility may be irrevocably reduced or Date
terminated by CCUA in whole or in part without penalty
Legal/Other Fees $25,000 $35,000 $25,000
Base Rate The greatest of(i)Bank of America's Prime Rate plus 1.0%,(ii) The greatest of(i)JPMorgan Prime plus 1.5%,(ii)Fed Funds plus
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the Federal funds Rate plus 2.0%,(iii)7.00% 2.0%,(iii)7.5%
Bank Rate Days 1-90:Base Rate - 3.56%
Days 91+:Base Rate plus 1.00%
Default Rate Base Rate+6.00% Base Rate+3.00% lesser of(i)18%per annum and(ii)the maximum lawful rate
Term Sheet Expiration 7/3/2023 6/8/2023 6/20/2023
a)Gross-up language in the event of taxability a)Gross-up language in the event of taxability a)Gross-up language in the event of taxability
Other Conditions&Notes b)AFR due within 270 days of fiscal year end b)AFR due within 270 days of fiscal year end
c)Late Fee(15 days overdue):4%of the late payment c)Budget due within 30 days of adoption
Prepared by PFM Financial Advisors LLC 1 of 1 5/25/2023
Exhibit B
Truist Proposal
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TRUIST
Clay County Utility Authority
Term Sheet
May 25, 2023
Truist Bank ("Bank"), on behalf of itself and its designated affiliate (the "Lender"), is pleased to submit
the following summary of terms and conditions for discussion purposes only.The term sheet is
non-binding and does not represent a commitment to lend. The term sheet is intended only as an
outline of certain material terms of the requested financing and does not purport to summarize all
the conditions, covenants, representations, warranties, and other provisions that would be contained in
any definitive documentation for the requested financing.
Borrower: Clay County Utility Authority("CCUA")
Lender: Truist Commercial Equity, Inc.
Facility/Purpose/
Tax-Exempt Loan (the "Loan")
Description:
The Loan will be funded in a single drawdown on the date of closing. Loan proceeds shall
be deposited to an eligible escrow project account (the "Escrow Account"),to be held at
Truist Corporate Trust Services. It is anticipated that the Loan shall be repaid from
proceeds of a long-term bond to be arranged following project funding and construction.
to Proceeds of the Loan to be held in the Escrow Account will be used to (i)fund costs related
to capital improvements; and (ii) pay issuance costs related to the transaction, as outlined
in the RFP.
Amount: Up to $75,000,000
The RFP requested an option for$50 million and $75 million. The proposed terms shall
apply to the option selected by CCUA.
Maturity: Approximately 96 months from date of closing.The initial put date shall be May 1, 2026.
Repayment: Interest shall be payable semi-annually due each May 1 and November 1, beginning
November 1, 2023.
Put Date: Initially May 1, 2026 and upon each put date Lender, in its sole discretion, has
the right to "put" the Loan to CCUA; provided, that Lender may provide written notice to
Borrower no later than 90 days prior to such put date that it will, in its sole discretion,
extend the term for an additional 6-month period; provided further that the failure to
give any notice shall meant that the term has not been extended and CCUA shall be
obligated to pay or purchase the Loan in full on such put date.
Term-out Provision: Should Lender exercise the put option and Borrower be unable to
pay or purchase the Series 2023 Loan in full, principal shall be payable semi-annually on
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May 1 and November 1 as 9 equal installments at 1/10th of the outstanding principal at
the time of the term-out with final payment due in month 60 of the term-out period.
Interest Rate: Fixed Rate:
Maturity Date/Put Date Tax-Exempt Interest Rate
96 months/May 1, 2026 Tax-Exempt 3.56
Accrual basis: Act/360
CCUA will pay to the Lender prepayment compensation in connection with any
prepayment of the Loan based on the Lender's standard break-funding terms for fixed
rate loans.There shall be no prepayment penalty for repayment on a Put Date.
This rate is available through June 29, 2023. CCUA understands that the market interest
rates are subject to change. CCUA also understand that in the event the Loan is funding
during the Rate Lock Period, the interest will become the effective interest rate for the
Loan even if market interest rates are lower than the rate at the time the Loan is funded.
"Default Rate" shall mean the lesser of(i) 18% per annum and (ii)the maximum lawful
rate.
The interest rate for tax-exempt Loan will be subject to increase in the event of a
Determination of Taxability including retroactive interest, penalties and other fees and
costs associated therewith.Taxable Event does not include and is not triggered by a
change in law by Congress that causes the interest to be includable under Lender's gross
income.
to Documentation: All documentation shall appropriately structure the financing according to Federal and
State statutes, subject to acceptable review by Lender and its counsel. The note will not
be presented for payment unless required by documentation.
Covenants: Pursuant to the resolutions, usual and customary covenants, reporting requirements,
representations and warranties and events of default, Bond Service Requirements for all
series of bonds, for transactions of this type, including, without limitation, the following
financial covenants and reporting requirements:
• Annual Financial Statements within 270 days of fiscal year end.
• Annual budget within 30 days of adoption
• Rate Covenant of 1.05x as outlined in the Master Resolution
• Additional debt allowed subject to terms of Master Resolution
• Such covenants shall not be amended without the written consent Lender
Security The loan will be secured solely by a senior lien pledge of the net revenues of CCUA's Utility
System and will be issued on parity with CCUA's Series 2012, 2015 and 2019 Notes under
and pursuant to the Master Resolution.
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Governing Law& State of Florida
Jurisdiction
Conditions 1. Borrower's Counsel Opinion: An opinion of CCUA's counsel covering matters
Precedent and customary to transactions such as this and in all respects acceptable to the Lender
Other Terms and its counsel.
2. Bond Counsel Opinion: An approving opinion of bond counsel related to the Loan in
form and substance satisfactory to the Lender.
3. Other Items: The Lender shall have received such other documents, instruments,
approvals,or opinions as may be reasonably required.
Lender's Legal Our proposed Lender's counsel is Michael Wiener at Holland & Knight. Fees for Lender's
Counsel counsel will be$25,000 for the Loan.
Estimated fees for the closing of the Loan are to be determined and shall be paid by the
Borrower,whether or not the Loan described herein is closed.
Municipal
Advisor The Bank is a regulated bank and makes direct purchase loans to Municipal Entities
Disclosure: and Obligated Persons as defined under the Municipal Advisor Rule, and in this term
sheet is solely providing information regarding the terms under which it would make
such a purchasefor its own account. The Bank is not recommending an action or
providing any advice to theBorrower and is not acting as a municipal advisor or financial
advisor.The Bank is not servingin a fiduciary capacity pursuant to Section 15B of the
Securities Exchange Act of 1934 with respect to the information and material contained
to in this communication.The Bank is acting hits own interest. Before acting on the
information or material contained herein,the Borrower should seek the advice of an
IRMA and any other professional advisors which it deems appropriate for the Loan
described herein, especially with respect to any legal, regulatory,tax or accounting
treatment.
Patriot Act:
Pursuant to the requirements of the Patriot Act, the Bank and its affiliates are required
to obtain,verify, and record information that identifies loan obligors, which
information includes the name, address,tax identification number and other
information regarding obligors that will allow Lender to identify obligors in accordance
with the Patriot Act, and Lender is hereby so authorized. This notice is given in
accordance with the requirements of the Patriot Act and is effective for the Bank and
its affiliates.
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Truist Corporate CCUA will have an opportunity to review various Project Fund options through Truist
Trust Project Fund Corporate Trust Services. For information, analysis and review two options available as of
Options: May 25, 2023 have been outlined below:
Three year Fixed Rate: 3.55%
Collateralized funds, released at any time without penalty
Managed Rate: 4.05%
Funds not collateralized, released at any time without penalty
Expiration Date: This Term Sheet shall expire on June 20, 2023, unless a formal commitment letter has
been issued prior to such date or CCUA has sent Lender a notice of intent to recommend
Lender's Proposal for award.
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Debt Management Policy
DEPARTMENT: Chief Financial Officer
DATE ADOPTED: [TBD]
Authority: Clay County Utility Authority Board of Supervisors
Purpose: The purpose of this policy is to establish guidelines for the issuance
and management of the Authority's debt.
Scope and Applicability: This policy applies to all debt issued by the Authority.
Goals
The Authority shall seek to achieve the following objectives:
1. Establish and/or Maintain sufficiently high bond ratings to assure access to
affordable credit and low borrowing costs.
2. Ensure intergenerational equity by amortizing debt within the expected useful
life of a project or asset.
to 3. Coordinate the Authority's capital improvement plan with the Authority's Debt
Management Policy to develop a coherent long-term financing plan for the
Authority's capital funding needs.
4. Maintain flexibility for future financial needs of the Authority.
5. Mitigate portfolio risks and limit budget uncertainty through the use of traditional
debt instruments, without incorporation of derivative products.
6. Measure and track financial ratios, and adjust over time as needed with a
periodic review of this Debt Policy (every 5-years).
Definitions
1. Average Life—The average number of years remaining on the principal amount
of outstanding debt.
2. Advance Refunding — Refunding of Debt which is callable more than 90-days
from the new loan's closing date.
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3. Bond Anticipation Notes — Debt instruments issued by the Authority to obtain
interim financing for projects expected to be funded through the issuance of
long-term debt. Maturities must be five years or less by Florida law.
4. Bond Reserve —A reserve required by bond covenant to be set aside solely for
the payment of principal and interest on the bonds when pledged revenues are
not otherwise available or sufficient.
5. Capital Assets — The value of land and fixed assets, net of depreciation.
6. Capital Improvements — The acquisition, construction or renovation of assets
with an estimated useful life of more than one year.
7. Capitalized Interest— Interest expense on bonds or notes that is paid from bond
proceeds.
8. Current Refunding— Refunding of Debt which is callable less than 90-days from
the new loan's closing date.
9. Debt—An obligation resulting from the borrowing of money. Debt shall include
bonds, notes, loans and capital leases.
10.Debt Service — The amount of money required to pay or to be set aside for the
payment of principal and interest on Debt.
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a. Net Debt Service — The annual amount of money required to pay or to
be set aside for the payment of principal and interest on the outstanding
Debt less 100% of the Debt Service paid by funds not included as
pledged revenues.
11.General Fund Expenditures — Funds expended or proposed for expenditures
from the General Fund.
12.Long-Term Fixed-Rate Bonds — Debt that has a fixed rate of interest, with a
maturity of between 10 and 30 years.
13.Medium Term Notes — Debt that has a fixed rate of interest, with a maturity of
1 to 10 years.
14.Rolling Medium Term Notes — Medium Term Notes that are designed to be
rolled periodically and result in an ultimate maturity of between 10 and 30 years.
15.Variable Rate Obligations — Debt that has a floating rate of interest (or fixed
rate with a maturity less than 1-year) and may have a final maturity of up to 30
years.
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Debt Structure
1. The Authority seeks to minimize the cost of servicing its debt, and may issue
variable rate obligations, draw-down lines of credit, bond anticipation notes,
medium term notes and long-term fixed-rate bonds in its effort to achieve this
goal and diversify its debt portfolio.
a. Variable rate obligations allow the Authority to access interest rates for the
shortest maturities. These maturities typically have lower interest rates than
longer-dated maturities given a normal sloping yield curve. While there is
interest rate risk with variable rate obligations, historically variable rate debt
has cost less than fixed rate debt.
b. Medium term notes provide for a fixed rate of interest for a period of one
to ten years. As with variable rate debt, medium term notes are used to
lower the Authority's debt service costs by issuing debt that has a shorter
maturity than long-term fixed rate debt. Medium term notes may be re-
issued or "rolled" upon initial maturity to amortize debt over a longer period
of time (20 to 30 years in total), or they may be used for projects that would
have a shorter repayment term (10 years or less).
c. Long-term fixed-rate bonds are used to lock in interest rates for periods of
more than 10 years and are the most commonly used structure for municipal
debt.
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2. The Authority is authorized to utilize Bond Anticipation Notes to provide interim
funding prior to the permanent financing being put in place.
3. The Authority may establish and maintain a Bond Reserve Fund equal to an
amount deemed prudent. Bond Reserve Funds may be funded in cash or
through a surety bond. Bond Reserves funded in cash necessitated by the sale
of bonds will be provided from bond proceeds.
4. The Authority may utilize a variety of credit enhancements that are designed to
improve the credit rating or marketability of the bonds to be issued. These
credit enhancements may include bond insurance, letters of credit, and
additional supporting revenue pledges.
5. The Authority may employ the use of hedging instruments and interest rate swap
agreements. These instruments may include, but are not limited to, interest
rate caps, interest rate floors and interest rate collars. The Authority will not
utilize any hedging instruments or enter into any interest rate swap transaction
without adopting a separate policy governing their use.
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Debt Issuance
1. The Authority will issue debt for the purposes of acquiring or constructing
Capital Improvements or for refunding prior debt issued.
2. All Capital Improvements financed through the issuance of bonds will be
financed for a period not to exceed the useful life of the projects, but in no event
beyond 30 years.
3. The Authority will seek to issue debt in the most cost-effective manner, whether
that be by competitive or negotiated sale or through a private placement.
4. The Chief Financial Officer will engage bond market professionals to assist in
the issuance of debt, including, but not limited to, a financial advisor, bond
counsel and disclosure counsel.
Debt Refunding
1. The targeted savings for an Advance Refunding of fixed-rate Debt shall be 5%
of the net present value of the refunded bonds.
2. The targeted savings for a Current Refunding of fixed-rate Debt shall be 3% of
the net present value of the refunded bonds.
tO 2. Lower than 5% (Advance Refunding) or 3% (Current Refunding) will not be
considered unless there is a compelling public policy or legal objective.
3. Refundings that involve a variable rate to fixed-rate refunding or fixed-rate
refunding to a variable rate will be evaluated on the economic merits that are
available. Refundings that involve a variable rate component do not lend
themselves to a net present value savings analysis.
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Debt Targets
The Authority will monitor and report debt ratios annually through the budget
process and at the time of each debt issuance with a goal to structure debt to meet
the following targets.
1. The following targets are measures for liquidity, operating margins and debt
burden.
Debt Service as%of Net
Policy Targets Liquidity Revenue/Coverage Ratio Debt Burden
Greater than 300 days Debt Service Coverage of Debt as a %of
Clay County Utility Authority Capital Assets
cash on hand 1.50x or higher o
less than 50/
2. The following maximums are measures for the structure of the Authority's debt
portfolio at the time of issuance.
Variable Medium Term Combined
Structuring Criteria Average Life Rate (VR) Notes(MTN) VR/MTN*
to Clay County Utility Authority 20 years 25% 50% 50%
*The Authority shall not exceed the greater of these percentages or$100 million combined for Variable Rate
and Medium Term Notes at the time of issuance.
Capitalized Interest
1. Capitalized interest on new Debt may be paid from bond proceeds for the period
from the time of issuance through when the new asset is expected to be
operational.
Post Debt Issuance Policies
1. Disclosure of material events shall be made in compliance with regulatory
bodies, including the Securities and Exchange (SEC) and the Municipal
Securities Rulemaking Board (MSRB). The Authority shall ensure that
appropriate documents are provided to the Electronic Municipal Market Access
(EMMA) system in a timely manner.
2. The Authority shall maintain and follow post-compliance procedures to aid in
compliance efforts with regulatory bodies.
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3. Unless otherwise indicated in governing ordinances or resolutions, bond
proceeds will be invested in accordance with the Authority's Investment Policy.
4. The Authority will promote positive investor relations by providing various
materials to holders of Authority debt, including but not limited to an Authority
managed investor relations website or third-party agreement to provide the
Authority with this support.
Taxable Bonds
The Authority may issue taxable bonds for a variety of purposes. Taxable bonds
may or may not be subsidized by the federal government.
Direct Subsidy Bonds The Authority may participate in any debt program that
provides for a subsidy from the federal government for the interest costs
associated with the debt issuance. The Chief Financial Officer shall develop
procedures for complying with the regulations in order that the Authority receives
the subsidy offered by the federal government.
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