DATE: October 29, 2014
TO: Board of Mayor and Aldermen
FROM: Eric Stuckey, City Administrator
SUBJECT:
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Consideration of Resolution 2014-66, A Resolution Approving The (A) Amendment And Restatement Of The City Of Franklin's Series 101-A-1 Loan Agreement With The Public Building Authority Of The City Of Franklin, Tennessee (B) Directing The Conversion Of The Interest Rate On The Related Local Government Public Improvement Bonds, Series 101-A-1 To An Index Or Bank Rate; (C) Authorizing The Execution And Delivery Of Agreements In Connection Therewith; And (D) Authorizing The Novation Of An Interest Rate Swap Agreement Relating To The Series 101-A-1 Bonds And Loan Agreement And The Execution And Delivery Of All Documents Relating To Such Novated Swap Agreement. (9/23/14 ws)
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Purpose
The purpose of this memorandum is to consider Resolution 2014-66, which provides authority for the Mayor, City Administrator and City Attorney to complete documents necessary to replace Depfa Bank as a standby credit provider and authorize the novation of an interest rate swap from Depfa Bank.
Background
The Board of Mayor & Aldermen have been provided information about the current status of Depfa Bank and the possibility of its demise by the end of 2014. It is necessary for the City to find another credit provider as part of the 2007 Building Authority bond issue. It is also necessary to replace Depfa as the counterparty in an interest rate swap agreement.
Our independent financial advisor, Public Financial Management (PFM), in conjunction with City staff, has conducted a procurement process to determine the best available pricing of a substitute provider. In total, ten banks submitted proposals varying in length of term and conditions. After a thorough analysis, including stress testing different interest rate levels over the next ten years, the recommendation is to enter a direct purchase agreement with PNC Bank for a term of five years. This agreement will eliminate the remarketing of the bonds, providing stability.
The City has received a letter from the Comptroller approving the swap under the prevailing state guidelines. Our financial advisor and our bond counsel strongly recommend approval of this resolution.
Financial Impact
The immediate financial impact will be a small increase in the amount previously paid for the Standby Credit portion of the 2007 bond issue. The swap agreement will remain in place with another counterparty but under the same terms.
Recommendation
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Staff recommends adoption of the Resolution.