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HomeMy WebLinkAbout08.a EDB Series 2025 Recommendation Memo pfm August 27, 2025 Recommendation Memorandum To: Karen Osborne, Chief Financial Officer From: PFM Financial Advisors LLC Re: Utility System Revenue and Refunding Bond, Series 2025— Recommendation Memorandum PFM Financial Advisors LLC ("PFM")was engaged by Clay County Utility Authority ("CCUA" or the"Authority")to serve as municipal advisor for CCUA's proposed issuance of a privately placed Utility System Revenue and Refunding Bond, Series 2025 (the"2025 Bond") in an amount not to exceed $110,500,000 to provide the Authority with funding for capital improvements, refund the Series 2023 Bond, and pay for costs of issuance. The 2025 Bond 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, 2019 and 2024 Notes under and pursuant to CCUA's Bond Resolution. Based on current market conditions, desire to move in an expedited manner, and reduced cost of issuance, PFM recommended the Authority pursue a privately placed direct bank loan, which in today's market was expected to be an efficient and cost-effective method of financing. All Authority debt currently outstanding is privately placed with a bank or issued as a State Revolving Fund loan. At CCUA's direction, following the board's direction to proceed, PFM distributed a request for proposals ("RFP") on July 22, 2025. 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 term loan at the lowest overall borrowing cost, pursuant to certain conditions as determined by CCUA. Prior to the submittal deadline (1:00 pm on August 21, 2025) CCUA received three (3) proposals from the following firms: Capital One Public Funding ("Capital One"), JPMorgan Chase, and Truist Commercial Equity, Inc. ("Truist"). A summary of each proposal is included as Exhibit A. Upon initial review and discussion with CCUA Staff, Bond Counsel, and General Counsel, it was determined that Truist provided interest rates and terms favorable to CCUA. Capital One offered a fully amortizing 30-year loan with call flexibility starting in year 7, at an interest rate of 4.98%. Truist proposed a traditional 30-year loan with a 10-year put option to be exercised at the discretion of the lender, at a fixed interest rate of 4.22%. Truist also offered prepayment flexibility on or after May 1, 2032 at a fixed interest rate of 4.35%, and on or after May 1, 2030 at a fixed interest rate of 4.43%. JP Morgan Chase proposed a 30-year loan with a 10-year put and make-whole prepayment provision, at an indicative interest rate of 4.36% (14 bps higher than the Truist rate). The savings between Capital One and the Truist options are shown in a table below: PV Rate 4.22% PV Rate 4.35% PV Rate 4.43% Capital One Capital One Capital One vs Truist vs Truist 7- vs Truist 5- Period Make Whole YR Call YR Call Ending Difference Present Value Difference Present Value Difference Present Value 5/1/2026 489,883 489,883 406,088 406,088 354,521 354,521 5/1/2027 839,040 805,066 695,520 666,526 607,200 581,442 5/1/2028 838,189 771,684 694,814 638,093 606,584 556,212 5/1/2029 837,292 739,646 694,071 610,839 605,935 532,047 5/1/2030 836,342 708,891 693,284 584,711 605,248 508,899 5/1/2031 835,270 679,316 692,395 559,618 604,472 486,687 5/1/2032 825,307 644,034 684,136 529,892 597,262 460,482 5/1/2033 807,249 604,436 669,167 496,692 584,194 431,300 5/1/2034 782,169 561,943 648,377 461,199 566,044 400,173 5/1/2035 755,926 521,099 626,623 427,144 547,052 370,340 Total 7,846,668 6,525,998 6,504,475 5,380,801 5,678,510 4,682,104 Based on PFM's analysis and final review and discussion with CCUA Staff, Bond Counsel, and General Counsel, it was determined that Truist's proposed interest rate of 4.43%with optional redemption on or after May 1, 2030 offered flexibility most favorable to the CCUA. The fixed interest rate will be held until closing date no later than October 11, 2025, 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 Truist's proposal and negotiating final deal terms with the bank. We look forward to discussing this recommendation at the CCUA Board meeting on August 28tn Exhibit A Summary of Proposals Clay County Utility Authority,FL pfm Utility System Revenue and Refunding Bond,Series 2025 Capital One P J.P.Morgan Chase Truist Amount $110,500,000 $110,500,000 $54,257,000 Series 2025A $56,243,000 Series 2025B Final Maturity May 1,2055 May 1,2055 Series 2025A:though 2045, put on May 1,2036 Series 2025B:through 2055,put on May 1,2036.Not Amortized. Put Date Not Provided 10-Year Put May 1,2036 Tax-Exempt Interest Option(i):4.22%(Fixed) Rate(s) 4.98%(Indicative) 4.36%(Indicative) Option(ii):4.35%(Fixed) Option(Hi):4.43/(Fixed) Rate Set Calculation Based on 20-year SOFR collar Not Provided N/A Collar has 20-year SOFR between 4.08%and 4.18% Rate Locked to Term Sheet expires August 26,2025 Rates held through October 11,2025 Closing,or Date to Closing by September 24,2025 Proposal expires September 4,2025 Term Sheet expires September 4,2025 be Set Prepayment Before May 1,2032,annual possible prepayment up to 75%of outstanding principal. Option(i):Make Whole Provisions Aggregate prepayment not to exceed 75%of starting principal balance Make Whole Option(ii):May 1,2032 On or after May 1,2032,loan callable in whole or in part at par Option(iii):May 1,2030 Additional Fees $7,500 Legal Fees $25,000-$30,000 Legal Fees $15,000 Legal Fees (i)Rate lock when bank is COPF is provided final debt service or firm closing date (i)Determination of taxability:Interest rate would increase to taxable equivalent rate+ (i)Series 2025A will be amortized through 2045.Series 2025E will be payable May 1, (ii)Audited financial to be provided upon request,as soon as possible any difference 2036 (iii)Additional information may be requested (ii)Reporting: (ii)Default Rate is Prime plus 3% -Annual audited financials (ii)Annual Financial Statements within 270 days of Fiscal Year End -Unaudited quarterly financials (iii)Annual budget within 30 days of adoption Notes&Other -Certificate of no event of default (iv)Rate Covenants and ADT Per Master Resolution Conditions -Additional Information as reasonably requested by Bank (v)If acceleration is not a remedy the restated default rate shall be increased to the (iii)Loan Agreement between JPMorgan and CCUA to include JPMorgan's standard lesser of 18%or the maximum allowed rate by law provisions (vi)Borrower's Counsel and Bond Counsel Opinion required Prepared by PFM Financial Advisors LLC 1 of 1 8/27/2025 Exhibit B Truist Proposal TRUIST Clay County Utility Authority Term Sheet August 21, 2025 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 of the conditions, covenants, representations, warranties and other provisions that would be contained in any definitive documentation for the requested financing. Borrower/Issuer: Clay County Utility Authority, Florida ("CCUA" or the "Authority") Lender: Truist Commercial Equity, Inc. Facility/Purpose/ Fixed Rate, Tax-Exempt bank loan (the "Loan" or "Bond") to provide CCUA with Description: funding for$35,000,000 in capital improvements, $75,000,000 to refund the Series 2023 Bond and pay costs of issuance. Amount: Up to$110,500,000 Funding: The Loan will be fully funded at closing. Repayment: Interest will be due and payable semiannually on May 1 and November 1, beginning May 1, 2026. Principal on the Series 2025A Bond ($54,257,000)will be due and payable annually, beginning May 1, 2026. Principal on the Series 2025B Bond ($56,243,000) will be due and payable annually, beginning May 1, 2046. Please see attached debt service schedules. Fees: N/a Interest Rate: Put Date* Prepayment Option Tax-Exempt Interest Rate for 2025A& 2025B May 1, 2036 Make-Whole 4.22% May 1, 2036 May 1, 2032** 4.35% May 1, 2036 May 1, 2030** 4.43% Accrual basis: 30/360 The fixed interest rate for the Loan will be subject to increase in the event of a Determination of Taxability. *Upon these Put Dates,the Lender, in its sole discretion, has the right to "put" the Bond to Borrower.The Lender may give written notice to Borrower not later than 120 days prior to such put date that it will, in its sole discretion, extend the term for an additional period; provided further,that the failure to give any notice shall mean that the term has not been extended and Borrower shall be obligated to pay or purchase the Loan in full on such put date. **On or after the applicable "Call Date", the Bonds is callable at par. The Borrower will pay to the Lender prepayment compensation in connection with any prepayment of the Bonds based on the Lender's standard break-funding terms for prepayments of fixed rate loans. This rate is available through October 11, 2025. The Borrower understands that the market interest rates are subject to change. The Borrower also understands that in the event the is funded during the Rate Lock Period,the Rate 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. Security: The Loan 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 2015&2019 Notes under and pursuant to Master Resolution No.93/94-27, as amended and supplemented (collectively,the "Master Resolution"). Documentation: All documentation shall appropriately structure the financing according to Federal and State statutes,subject to acceptable review by Lender and its counsel.The bond will not be presented for payment unless required by documentation. Covenants: Usual and customary covenants, reporting requirements, representations and warranties and events of default, for transactions of this type, including, without limitation, the following financial covenants and reporting requirements: • Rate Covenants; Pursuant to the Master Resolution, as described in section 5.04 therein. • Additional Bonds Test; Pursuant to the Master Resolution, as described in section 6.02 therein • Annual Financial Statements within 270 days of fiscal year end. • Annual Budget within 30 days of adoption. • If acceleration is not a remedy the restated default rate shall be increased to the lesser of 18% or the maximum allowed rate by law, and the documents shall contain a covenant assuring Lender that if other bondholders have acceleration rights Lender will have the same acceleration rights. • Lender to have the option to transfer or sell the Bonds, or participations in the Bonds, at its discretion. • The default rate shall be Prime+3%. Conditions 1. Borrower's Counsel Opinion: An opinion of Borrower's counsel covering matters Precedent and customary to transactions such as this and in all respects acceptable to the Bank, Other Terms: the Lender and its counsel. 2. Bond Counsel Opinion: An approving opinion of bond counsel in form and substance satisfactory to the Lender, which shall include, without limitation, an opinion that the interest on the Loan is excludable from gross income for Federal income tax purposes. 3. Other Items: The Bank and the Lender shall have received such other documents, instruments,approvals or opinions as may be reasonably requested. Lender's Legal The Lender's legal counsel will be Michael Wiener at Holland & Knight. Counsel: Estimated fees for the closing of the Loan(s)will be $15,000 and shall be paid by the Borrower,whether or not the Loan described herein is closed. Governing Law & State of Florida Jurisdiction: Municipal The Bank is a regulated bank and makes direct purchase loans to Municipal Entities Advisor and Obligated Persons as defined under the Municipal Advisor Rule, and in this Disclosure: term sheet is solely providing information regarding the terms under which it would make such a purchase for its own account. The Bank is not recommending an action or providing any advice to the Borrower and is not acting as a municipal advisor or financial advisor.The Bank is not serving in a fiduciary capacity pursuant to Section 15B of the Securities Exchange Act of 1934 with respect to the information and material contained in this communication. The Bank is acting in its 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. Expiration Date: This Term Sheet shall expire on September 4, 2025, unless the terms herein have been accepted prior to such date.