AGENDA #4d
MEMORANDUM
TO: Mayor and Town Council
FROM: W. Calvin Horton, Town Manager
SUBJECT: Bid Award for Installment Contract for Refinancing 1994 Parking Certificates of Participation
DATE: August 25, 2003
The attached resolution prepared by special legal Council would authorize the Manager to accept the low bid installment purchase contract with Bank of America for refinancing the Town’s 1994 Parking Certificates of Participation. The bid offers to replace the Parking Certificates with an installment contract over the next twenty years at a fixed interest rate of 3.7%, the lowest and best bid received from five financial institutions.
The refinancing would result in a reduction in debt service payments of approximately $90,000 annually in each of the next twenty years (from about $548,000 to $458,000 annually), with total savings over the twenty year period of more than $1.9 million. The debt would be secured by a deed of trust on the James C. Wallace Parking Deck.
After a public hearing on June 23, 2003, the Council adopted a resolution authorizing the Manager, Finance Director and Town Attorney to complete steps necessary to obtain approval of an installment contract for refinancing the Town’s outstanding Parking Certificates of Participation issued in 1994. The resolution authorized the filing of an application with the Local Government Commission for approval of the proposed refinancing and the issuance of requests for financing proposals from financial institutions.
The Town’s application for the financing was submitted to the Commission in July. The Request for Financing Proposals was distributed to financial institutions on July 11, 2003 and proposals were returned to the Town on June 25, 2003.
The proposals for financing requested fixed interest rates for both a 15-year and 20-year maturity, but with a strong preference for a 20-year maturity in order to realize significant annual debt service savings over the entire 20-year period of maturity.
On July 25, 2003, three responsive proposals were received from financial institutions as follows:
|
Financial Institution |
Interest Rate 15 years |
Interest Rate 20 years |
|
3.45% |
3.7% |
|
|
Wachovia |
3.84% |
4.36% |
|
Ashford Capital, Inc. |
4.5% |
4.9% |
(BB&T Capital Finance and RBC Centura submitted bids considered non-responsive because they did not offer a 20 year fixed rate as specified in the request for proposals. They proposed a 10 year or 12 year fixed rate, with either a balloon payment or required repricing after 12 years.)
Based on the above responsive proposals, we believe the Bank of America’s 20-year fixed maturity at 3.7% offers the lowest rate and best proposal suited for the Town’s needs over the next twenty years. Under the twenty year proposal, the annual debt service savings would be about $90,000 annually for a total cumulative savings of $1,917,000. (Please see savings analyses in Attachments I and II prepared by Ferris, Baker Watts, Inc., financial advisors.
In evaluating the proposals, we considered the 15-year rates and resulting savings. However, the debt service savings under a 15-year maturity would occur largely in the last five years of the 15-year period, with savings of only $2000 to $3,000 annually in the first ten years. We also believe it is more desirable to have the greater reduction in debt service payments beginning in the next several years, because of the desire of the Council to consider redevelopment proposals for Parking Lot 2 in the near future. This annual reduction in total debt service would enhance the Council’s ability to consider redevelopment proposals that might reduce parking revenue available for debt service payments in the short run.
The attached Resolution would authorize the Manager and Finance Director to enter into an installment purchase contract with Bank of America to complete this refinancing, subject to approval by the Local Government Commission. The Commission is scheduled to consider the proposed refinancing on September 2, 2003. The resolution confirms that the Town does not expect to issue more than $10 million in tax-exempt debt during the calendar year. This confirmation allows financial institutions to bid lower rates for governmental installment purchase contracts.
Upon approval by the Council and Local Government Commission, we anticipate completing the refinancing in September, 2003.
That the Council adopt the attached resolution authorizing the Manager and Finance Director to execute an installment purchase agreement with Bank of America for the refinancing the Town’s 1994 Parking Certificates of Participation to realize annual debt service savings.
ATTACHMENT
1. Debt Service Comparison- Private Placement Refunding Series 2003 (20-year) (p. 5).
2. Debt Service Comparison- Private Placement Refunding Series 2003 (15-year) (p. 6).