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04-24-1989 - Special " '. ~ ...., CITY COUNCIL OF EDGEWATER SPECIAL MEETING APRIL 24, 1989 MINUTES Mayor Mitchum called the meeting to order at 7: 00 p. m. in the Library. He stated the items on the agenda were: 1) Adoption of resolution to accept financing proposal for computer systems, software, and associated peripherals; 2) Briefing by consulting engineers on investment banking services; and 3) Presentations by the four short listed investment bankers: A. G. Edwards & Sons, Inc. ; PaineWebber Incorporated; Southeastern Municipal Bonds, Inc.; and William R. Hough & Co. ROLL CALL Mayor David Mitchum Councilman Dan Hatfield Councilwoman Gigi Bennington Councilman Russell Gold Councilman Thomas Fish City Attorney Jose' Alvarez City Manager William Powers Acting City Clerk Susan Wadsworth Chief Lawrence Schumaker Present Present Present Present Present Present Present Present Present Also present was Mr. Gerald Hartman, Vice President, Dyer, Riddle, Mills & Precourt, Inc. Mayor Mitchum suggested Chief Schumaker be excused and no Council member expressed an objection. Chief Schumaker left the meeting at this time. Adootion of resolution to acceot financina orooosals for computer systems. software. and associated ~eri~herals - Mr. Powers stated that at the last meeting Council directed the City Attorney to review the agreement and put the resolution into our format and it is ready for adoption. City Attorney Alvarez read this reso- lution. Res. 89-R-25 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF EDGEWATER, FLORIDA, AUTHORIZING THE ISSUANCE OF A THREE-YEAR TERM NOTE OF THE CITY IN AN AMOUNT NOT TO EXCEED $66,000 FOR THE PURPOSE OF ACQUIRING CERTAIN COMPUTER EQUIPMENT AND SOFTWARE; PRO- VIDING FOR THE REPAYMENT OF SUCH NOTE; AUTHORIZING THE SALE OF SUCH NOTE TO SOUTHEAST BANK, N.A.; MAKING CERTAIN COVENANTS AND AGREE- MENTS IN CONNECTION THEREWITH; REPEALING ALL RESOLUTIONS IN CON- FLICT HEREWITH AND PROVIDING FOR AN EFFECTIVE DATE. He pointed out a computer equipment list is attached as Exhibit A and the note is attached as Exhibit B, and the documents were prepared by the financing institution. Councilman Fish moved they accept 89-R-25. Councilman Gold seconded the motion. Motion CARRIED 5-0. Briefina by consultina enaineers on investment bankina services - Mr. Hartman stated they had an excellent response to their Requests for Proposals, the Finance Committee met and opened the proposals and they prepared a ranking for Council's deliberations. He reviewed the criteria they looked for such as, listed in Bond Buyers, prior experience, the deals they managed or co-managed since 1986, face amount of the bond issue, and their role. He pointed out that innovation in governmental financing was very important, especially since January, 1986, in regard to the Tax Reform Bill. He noted that they all replied that they had no litigation and they provided a spread on a not to exceed basis. He stated that he's been involved in 37 transactions in the State and this was an excellent response. He stated the four short listed were not ranked. He distributed a sheet of questions for 1 ~ "WfII Briefina bv consulting enaineers on investment banking services (Continued) use by Council. He stated that the transactions require the firm's dedication to the City of Edgewater and there's an intangible of a general chemistry between the individuals who present their experience and the Council. He pointed out that it's not just pledging water and sewer rates on a bond issue but will include pledging stormwater utility revenues, involve assessments, rates and charges and capital charges and impact fees. Mr. Hartman stated there are two nationwide firms that have strong capabilities - paineWebber and A. G. Edwards, a very large and reputable firm, and two Florida oriented firms: Southeastern, the smallest of the four, and William R. Hough, which is a middle sized firm. He stated that in December he'd worked on a transaction with Southeastern Municipal and A. G. Edwards, and has worked with over 50 million with principals of paineWebber and 26.3 million with William R. Hough & Co. He suggested they may want to rank them or negotiate with the top I, 2, or 3, as it doesn't fall strictly under the CCNA, which is only for engineers. Councilman Fish stated they can't go too far wrong with any of the four. Mr. Hartman said it would be unfair to provide an opinion prior to the presentation and they'll provide it pro forma and will work closely with the investment bankers in these types of transactions. A gentleman in the audience asked if it was decided they'd have a bond. Mayor Mitchum suggested he talk with the City Manager. The gentleman asked if he'll be assessed a certain amount to support a new bond. Mayor Mitchum replied the calculations are not finished yet. The gentleman asked if Florida Shores will be assessed equally to the rest of the community or a separate one for Florida Shores. Mayor Mitchum replied that Florida Shores will provide for their own services. A. G. Edwards & Sons. Inc. Fred Pauzar and Burt Saunders represented this firm. Mr. Pauzar stated they're the largest investment banker with headquarters outside of New York and 90% of their business is with retail investors. He said the interest and debt service is the real issue, and the market place is the retail investors market, it's strongest, and the only way the City can achieve the lowest possible interest rate is to effectively sell to that market. He explained that in selecting a firm with a strong retail capability and putting them directly in the portfolios of the investors, you can achieve a lower rate. He stated their firm is 6th largest in the country and they have branches in many states and the longest established branch is in Florida. Mr. Pauzar stated they sold over 2 billion dollars in paper last year and their booklet shows a marketing plan on how they propose to sell the financing. He said a series of small financings rather than a major large capital financing would be of benefit to the communi ty because the City would have to bear the debt service before they have the facilities in place. He stated they have knowledge of the capital improvement needs and the ability to come up with solutions that can save money. Mr. Pauzar suggested an issue of $5 million or less be issued this year and it not be secured by special assessments or general obligations of the City, but a bond anticipation note be issued to have funds to use for the projects to allow proceeding in a timely manner to meet immediate need for engineering and planning and the kickoff of the ClP. He pointed out the small issue exemption in the Tax of 1986 with any of the proceeds not used to be invested at a higher rate and keeping the proceeds. He noted the arbitrage rebate comes into place, they'll be offering tax free bonds and you don't have to pay such high interest as taxable. He suggested investing in treasury bonds to earn higher rates and the City keep the interest, meeting debt service requirements. 2 Council Special Meeting Minutes April 24, 1989 " '-" ..."., A. G. Edwards & Sons, Inc. (Continued) Councilwoman Bennington asked who from the firm will handle the issue and Mr. Pauzar replied he and Burt Saunders. Mr. Pauzar stated that Mr. Saunders was a former County Attorney for Collier County and a former Assistant Attorney in Dade County and is an authority on solid waste issues and infrastructure projects. He added that others will be assigned for marketing. Councilman Fish asked if they'll plan to market the bonds as public or private. Mr. Pauzar replied that with private placement they're selling a bond to someone and requiring they hold the bonds for the duration and it doesn't have to meet all the regulatory criteria and the public sale market is the only way to go. Councilman Fish asked the basic take down cost for a $5 million issue. Mr. Pauzar replied a short term bond would be $5 per $1,000 commission or take down, and 5 to 10 years at $6.25 per $1,000 up to $7.50 per $1,000. He added that long term bonds with level payments would be about $10 per $1,000 and that's the type of rate on a State of Florida issue. Councilman Fish asked if they'd recommend pursuing funds from the State revolving loan fund. Mr. Pauzar replied yes, and to plan on a parallel course of action in the event it doesn't come through. Mayor Mitchum asked the net capital of the firm, if most of the debt or equity is capital, and if they could buy the City's bonds. Mr. Pauzar replied their total capital is just over $270 million in terms of free capital and they have no long term debt and never have had any so none represents debt capital. He stated they're the largest firm in the industry that's debt free. Mayor Mitchum asked if they could write a check for the $30 million and Mr. Pauzar replied yes. Mr. Pauzar added that their line of credit at Sun Bank is $2 million. He pointed out they bypass acting as a middle man and attract other firms to buy the retail bonds directly. Mayor Mitchum asked if they can distribute nationally and Mr. Pauzar replied they're a full service client-oriented brokerage firm and their business is doing financing for local governments in the United States. Councilman Hatfield asked if their organization analyzed the City's capital needs in preparing this presentation and what financing structure they tentatively recommend. Mr. Pauzar replied a lot of firms can do this and they want to come up with the lowest possible interest rate and it will be multiple financing with road projects, stormwater needs, pipe lines, and other projects. He pointed out the problem with doing it at one issue is how to secure it as all the revenue sources are placed in the one issue and there could be an emergency arise. He suggested they go with the bond antici- pation note for the first step with the intention of doing bond financing within the next three years. He pointed out this will start the projects and not overcommit the City up front. Mr. Saunders stated they're anxious to work with the City and rec- ognize the need for flexibility and don't want to put them in a position that will give them trouble down the road with financing done today. He guaranteed flexibility. paineWebber Incorporated Rick Fitzgerald, Vice President of the Orlando office, introduced representatives from their firm, Jay Olson, Vice President and Curt Bracey, First Vice-President, noting that others will be involved from the New York office. He stated the bonds will be sold in states other than Florida. He said that last year Paine-Webber was rated 6th in negotiated underwriting rankings, and their capital posi tion has increased every year over the last 5 years. He pointed out that for the last 3 years paineWebber was ranked #1 nationally with water and sewer and they understand the situations facing Edgewater. He reviewed their water and sewer clients. He 3 Council Special Meeting Minutes April 24, 1989 ~ ...." paineWebber Incorcorated (Continued) said they were 3rd in the State last year with negotiated under- writings with $740 million in bonds issued. He pointed out they have 25 branch offices and 331 account representatives to sell the bonds with 10 people assigned to the institutional market. He stated they can't rely on selling all the bonds in Florida and some have to be placed with institutions outside the State. He introduced Jay Olson, Vice President. Mr. Olson stated their goal is to achieve the lowest overall bond cost and issue as small an amount of bonds as possible. He briefly reviewed the zero coupon bond concept. He said they have a strong retail market in Florida and they foresee most going there. He suggested the debt service be structured on annual debt service ~ructure and use 30 year amortization of the bonds because they're in the flat yield curve and will require less than debt rate covenant. He said they'll procure municipal bond insurance that will enhance marketability. He noted that pledged revenues are equal to 125 to 150 times debt service and they're looking at net user charges and adding some non-ad valorem taxes, i . e . , utility taxes or assessment fees. He stated the insurers will look for a feasibility report and he'd suggest introductory meetings before presenting them with the full package. Mr. Bracey stated they try to insure the lowest interest cost and save the most money and that's the result of the broadest dis- tribution and to target who'll buy the bonds, whether it's an institution or paying a little more in marketing costs with retail buyers and individuals and trust departments. He reviewed their personnel available through the U. S. and the State of Florida. He pointed out that accelerated redemption has been very success- ful and certain bonds are redeemed prior to maturity with interest savings and market savings. He reviewed the zero coupon bonds, types of purchasers, and the time table for approaching the marketing plan. He pointed out they sell allover the country and get pre-sale indications of interest from their brokers and direct mail campaigns go out and they purchase media advertising. He stated they anticipate a flat interest rate for the rest of the year with a trend toward lower interest rates by the last quarter of the year. He pointed out there's volatility with 30 year issue but there's a flatness of the yield curve. Councilman Hatfield asked if the City should obtain funds from the State revolving loan fund. Mr. Fitzgerald replied they had less than a 30 year payback on that and to secure permanent financing he wouldn't suggest going to a shorter term. Mr. Hartman clari- fied that it's a 20 year term with a buy down of 3%. Councilwoman Bennington asked the special benefits and Mr. Fitz- gerald replied doing future financing will require documents that are correct the first time around and they'll give the most aggressive pricing of any firms. Councilman Gold asked the net capital, if most of it is debt or equity capital, and if the firm would be able to buy the City's bonds. Mr. Olson replied net capital is just under $1-1/2 billion. Mayor Mitchum asked if they'll buy the bonds at closing. Mr. Fitzgerald replied yes. Councilman Gold asked the take down amount paid to brokers and sellers. The reply was a total of $10.34, with $7.44 for under- writer's counsel, which is basically the selling commission. Councilman Fish asked what they'd done in analyzing the City's needs. Mr. Fitzgerald replied they only had one document that was a brief summary of the water and sewer with drainage needs. 4 Council Special Meeting Minutes April 24, 1989 ....... ."",., paineWebber Incorporated (Continued) Councilman Fish asked if they would market them as public or private. Mr. Bracey replied they'll save money with public and getting broadest distribution as he'd rather pay $7.44 and amor- tize that in low interest costs over the 30 year period. Mr. Fitzgerald pointed out that some firms will offer low spread and then they'll bump up the coupons. . Mayor Mitchum called a short recess at 8:25 p.m. recessed meeting back to order at 8:29 p.m. He called the Southeastern Kunici~al Bonds. Inc. Toby Wagner, Vice Chairman and Chief Executive Officer, Orlando, distributed copies of their booklet. Bill Weathers, Vice Presi- dent, was also present. Mr. Wagner stated that Mr. Akers was not able to be present because of another meeting in Orlando. He reviewed the team approach used and presented a brief summary of their experience. He stated they've been in business since 1956 and are one of the oldest domicile firms. He said they have offices in Mobile and Atlanta serving the southeast region. He briefly reviewed their water and sewer experience. He stated they have had some clients for 30 years. He pointed out they had a drop in 1987-88 due to the Tax Reform Act and changes in the municipal bond business. He stated that in the last several years they've had 161 issues in the State totalling about $1-1/2 billion. He pointed out they worked with Port Orange in developing the storm- water runoff pledge which could be useful here in financial planning. He reviewed the booklet. He stated that he'd assisted in drafting the special legislation for the State, Chapter 170. He encouraged contact of references. Bill Weathers stated he'd worked with bond issues in every state in a variety and types of financing and they have an experienced team. He said he'd worked with Edgewater through Farmers Home and it was refunded through the loan with Gulf Breeze. He said there is a water and wastewater project and that would be an issue where you pledge the user fees and special assessments. He reviewed some of his experience with assessment issues and general obligation bond issues. Councilman Hatfield asked if they recommend obtaining funds from the State revolving loan fund. Mr. Wagner replied they should look at it because the program's been in use in one form or another over the years and it depends on whether the State is ready to go to market when they are and if they can meet the City's needs at that time. He added they need to analyze if it's a cost benefit, as it takes longer to get in and out of the market. Councilwoman Bennington asked if the firm has the ability to distribute the bonds nationally and the strength of the brokerage system. Mr. Wagner replied yes, and most Florida issues can adequately be distributed in Florida as Florida out-trades the national market. He noted there's a demand in Florida for this type of project and they have the capability to tap the national markets. Councilwoman Bennington asked what buyers will have the biggest demand. Mr. Wagner replied Florida retails and institutional bond funds. Councilman Fish asked the basic take down on a $5 million issue. Mr. Wagner replied for 30 years in today's market will be $7.50 to $7.75, depending on where the bonds are marketed and they could do it at about $4 if it were an institution. Councilman Fish asked type of paper they recommend, general obligation or zero coupon, or what. Mr. Wagner replied general obligation are tax supported bonds that are supported by ad valorem which will require refer- endum versus water and sewer or stormwater which is a different issue than zero coupon where you structure the issue, then it's a marketing gimmick to drive interest rates down. He pointed out they have close to an inverted yield curve on the bond market and the treasury market is inverted, with short term yielding higher rates than long term. He suggested they structure the issue and figure out what they'll use as collateral and then if they need to 5 Council Special Meeting Minutes April 24,1989 ..,. ...."., Southeastern Municipal Bonds. Inc. (Continued) validate, determine what marketing technique to use and for what period of time. Mayor Mitchum asked the net capital of the firm and if most of it is debt or capital. Mr. Wagner replied $6-1/2 million in capital available which will support $65 to $70 million in buying power. He said they don't exceed in terms of general inventory $10 million in bonds so there's in excess of $50 million available for buying power toward the proprietary power when they underwrite a bond issue. Mayor Mitchum asked if it's in cash. Mr. Wagner replied it's net capital which is more, and ready capital would be infused to buying power and they can purchase 1500 times the buying power. He stated that no firm in Florida would solely take on an issue of $50 million or greater by themselves but may be the sole under- writer and have syndicated or group members. Mayor Mitchum asked if they can buy $30 million. Mr. Wagner replied yes. Mayor Mitchum asked if they would get a check when closed. Mr. Wagner replied yes. Mr. Hartman asked if they'd recommend the negotiated sale or competitive sale. Mr. Wagner replied negotiated sale because the type of transaction they're talking about lends itself to negotiated but a general obligation will lend itself more to public or competitive sale. Mr. Hartman asked if take down varies if it's negotiated. Mr. Wagner replied no, and in negotiated sale they'd have the option to have less take down because you can pre-sell the bonds and with competitive sale you submit a sealed bid. William R. Houah & Co. Mitchell Owens, Senior Vice President, and Craig Hunter, First Vice President, represented William R. Hough. Mr. Hunter stated they've been in business since 1962, and from 1983 to 1987 in Florida they were the leading managing underwriter. He stated the bonds will sell better in Florida than elsewhere because the State doesn' t have an income tax. He stated that Florida water and sewer experience has a total of about $2-1/2 billion. He stated that he was a City and County Manager and has practical experience in fin- ancing from both the private ad public sides. He said in a market like they have now with the 1986 Tax Law they're limited to the amount of times they can refinance in terms of redemption pro- visions on length of times to call in bonds. He added that special assessments have a special option redemption provision. He stated that right before they're ready to go to market, they'll see the cost for an insured rate compared to non-insured. Mr. Owens reviewed their 20 years experience. He noted that with the $5 million cap they could collect the arbitrage. He briefly reviewed the bank qualifying criteria for bank buy backs, noting the benefit is the bonds can be sold as bank qualified and will be in a secondary market for about 20 years. He stated they daily maintain portfolios of $50 to $100 millions of bonds in the second- ary market. He suggested they may want to split the financing and do one this year and next year do the remaining portion. He noted they can get discounts for paying off early. He pointed out they set aside bonds for the community to buy to become a part of the growth of their community. He said they have access to a large market and sell directly to every retail outlet such as Merrill Lynch and Dean Witter. He stated they'd like to be the senior manager and if not selected, they'd like to serve as co-manager. Councilman Fish asked the basic take down for a $5 or $10 million issue. Mr. Owens replied about $8.75 take down spread with a total of $5.00. Mr. Hunter pointed out that take down is a commission and if it's lower, than you usually have a higher interest rate. Councilman Fish asked if the net capital is in the form of debt or equity and if they could outright purchase the $30 million. Mr. Owens replied yes, they have $15 to $17 million for the firm in equity and their credit lines are with financial institutions in New York and their entire capital is dedicated to Florida municipal 6 Council Special Meeting Minutes April 24, 1989 'w' """'" William R. Houah & Co. (Continued) bonds. He added they could give a check for $30 million solely or with a co-manager. Councilman Fish asked if they'd recommend seeking funds from the State revolving loan funds. Mr. Hunter replied there are questions about how that fund will work, but depending on the timing, it would pay to investigate it. Mr. Owens stated they work for the City of Ocala and have investigated it for two years and timing is important plus terms of the loans and where they'll be in line to get it. Councilwoman Bennington asked who in the firm would handle the project. Mr. Owens replied that Mr. Hunter will be the main con- tact person and he'll be beside him and they have a full computer department and a specialist in water and sewer financing. Councilman Hatfield asked if the firm is capable of distributing nationally and if they'll do that. Mr. Owens replied yes, they're considered a regional firm, but most of these bonds will be sold in Florida but they'll try to sellon a national basis if they run into problems. He pointed out that Florida trades lower than other states. Councilman Hatfield asked if 20 or 30 years is better. Mr. Owens replied it depends on rate increases but with the curve there's little difference with 20 to 30 years and they can maximize the benefit by going with either. Mayor Mitchum asked if the type of sale has to be creative and Mr. Owens replied yes, they're going to need a story bond to sell these and tell about the growth. He added that if they set up a competi- tive sale, they may not hit the market and get the best rate but with a negotiated sale you can wait for the market to get better. He suggested they negotiate the sale. Mr. Hunter stated they'd like to be the senior manager on an issue of this type and have worked with all as a joint or co-manager. Mayor Mitchum asked Mr. Hartman his opinion. Mr. Hartman reviewed various points of each firm. He noted that William R. Hough has a lot of power in Florida and has done 400 issues in water and sewer. He added that it's important who is doing the deal and they committed a good staff but he doesn't think that's the 'A' team. He stated that A. G. Edwards has dedicated the 'A' team, and paine- Webber is very strong and has a full list of analysts. He said he just did a deal with Southeastern and their interest rate was lowest but they don't have the same track record for total pro- jects. He stated that because of the activity they have to see who they'd commit and he'd recommend two firms: A. G. Edwards, and paineWebber for their overall marketing capabilities. He pointed out that he knows Norman Pellegrini personally and he's not here and the two top people from A. G. Edwards were here. He added that the committal of A. G. Edwards would make them #l and Paine-Webber would be #2 and the other two would be a close #3. Mr. Hartman s ta ted that the Finance Commi t tee, Ci ty Manager, and Engineers worked hard for four good people and based on what he saw and the commitment, they need A. G. Edwards. He suggested they select one or two and negotiate to see the best terms and types of commitments they'll make. Mayor Mitchum requested the City Attorney's input. City Attorney Alvarez replied the key is negotiations and no one can give you today what the commissions will be. He added they'll negotiate and compare what they can get from the other firms. He suggested they select at least two firms for negotiations. Councilwoman Bennington moved they authorize negotiations with A.G. Edwards and paineWebber as the top two choices for the CIP Committee and bring back their recommendation. Councilman Gold seconded the motion. Motion CARRIED 5-0. 7 Council Special Meeting Minutes April 24, 1989 " \- 'w ......, Mayor Mitchum requested a motion to adjourn. Councilman Fish so moved. Councilman Hatfield seconded the motion. Meeting was adjourned at 9:36 p.m. Minutes submitted by: Lura Sue Koser OUNCI - ZO~~ 0 j~1~.d-fc?/';. .~~ COUNCILMAN - ZONE THREE ~~. Jl~dJ ( OUNCILMAN - ZONE FOUR 1P) ~. ATTEST: ~(}:Jf-~ A TING CIT{I CLERK AP~~~rp' dR 8 Council Special Meeting Minutes April 24, 1989