DATE: October 29, 2014
TO: Board of Mayor and Aldermen
FROM: Eric Stuckey, City Administrator
Russ Truell, Assistant City Administrator
SUBJECT:
title
Consideration of Replacement of Depfa Bank as Credit Provider for the 2007 Building Authority bond issue and Approval of Contract 2014-0271, an Index Rate Agreement with PNC Bank, N.A. (09-23-14 WS)
body
Purpose
The purpose of this agenda item is to approve an agreement with PNC Bank in order to replace Depfa Bank as the credit provider for the 2007 Building Authority bond issue.
Background
The Board of Mayor and Aldermen has been presented a series of options regarding the 2007 bond issue. The pending demise of Depfa Bank, announced in May by its ownership, creates a circumstance that requires the City to replace Depfa as credit provider or consider refunding the entire issue. Outright refunding of the issue has been eliminated as a possibility, due to the economics of the interest rate swap.
On behalf of the City, Public Financial Management (PFM) has conducted a procurement process in which financial institutions were allowed to make proposals to substitute for Depfa Bank. After a detailed review of the proposals, PFM is recommending that we consider the proposal from PNC Bank in one of two forms. One form of their proposal offers a Standby Credit Facility, a direct substitution for Depfa, for a three-year period. A second form of their proposal provides, at a slightly higher interest rate, a direct purchase agreement for a period of five years. In the direct purchase arrangement, PNC would buy the bonds for their own account during the term of the agreement. The direct purchase agreement is a more stable option for the City because it eliminates the daily remarketing of the bonds.
Financial Impact
It is the opinion of PFM and City staff that, with the exception of transaction costs (legal, financial advisory, etc.), there will be little impact on debt service from this transaction.
Recommendationec
Staff recommends approval of the Index Rate Agreement with PNC Bank.