AGENDA #4g

 

MEMORANDUM

 

TO:                  Mayor and Town Council

 

FROM:            W. Calvin Horton, Town Manager

 

SUBJECT:      Installment Financing Approval for the Town Operations Center

 

DATE:            April 5, 2005

 

The attached resolutions would declare findings by the Council that a proposed installment contract is necessary and preferable to a bond issue for financing up to $26,000,000 for the Town Operations Center.  The resolutions would also authorize and direct the Finance Director to proceed with the proper steps towards completing the financing, including proceeding with an application to the Local Government Commission for its approval, establishing that the financing period does not extend beyond December 31, 2025, approving draft versions of the official documents related to the financing and authorizing of the Finance Director and all other Town officers and employees to complete the closing of the financing of the Town Operations Center.

 

BACKGROUND

 

On November 10, 2003, when the Council adopted the reimbursement resolution for the Town Operations Center, we selected Certificates of Participation (COPs) as the best alternative financing method (see Attachment 1).  Investors now look at COPs much the same as general obligation bonds.  However, COPs are not backed by the full faith and credit of the government, so there still exists a low, but possible risk of non-appropriation of funds to pay the COPs debt.  For that risk, investors have required a premium.  Although the premium varies based on supply and credit support, we have seen that premium, or spread, from COPs to G.O. bonds decrease over the years.  In today's market, COPs rates are approximately 15 to 18 basis points above General Obligation bond rates.  For example, if a general bond issuance had an interest rate of 4.5%, the rate for the same issuance as COPs would be approximately 4.65% to 4.68%.

 

Many governments, including the State of North Carolina, have chosen to issue COPs for the most essential items in their capital programs, that is, items that are critical to providing services consistent with the mission of local governments in North Carolina.  Frequently, COPs are issued for essential government buildings like courthouses, police headquarters, schools, operations buildings, jail and justice facilities. 

 

On March 21, the Council held a Public Hearing on the proposal to use installment financing of up to approximately $26,000,000 for the Town Operations Center (see Attachment 2).  No financing was proposed for the Transit portion of the Town Operations Center. 

 

The proposed financing for the Public Works portion of the Town Operations Center would be secured by a lien on the new Town Operations Center (and the associated land) and the Town’s promise to repay the financing.  The Town may also use financing proceeds to provide any necessary reserves and to pay financing costs.

 

We estimate that up to $26,000,000 is needed to finance the project.  The borrowing would cover the costs of land already purchased ($840,000), potential purchase of additional land which may be purchased ($300,000), site work ($2,280,000 including a contingency of $250,000), the buildings ($22,000,000, including a contingency of $500,000), the costs of financing the project ($330,000), and the costs of demolition of the buildings currently being used and furnishings  ($200,000).  If bids come in as we believe they will, then the full $26,000,000 will not be borrowed.  If contingency amounts are not required, the extra borrowings could be used to make debt payments.

 

On June 30, 2004, the Council approved Legg Mason Wood Walker as the investment banker and lead underwriter for the Town Operations Center project (see Attachment 3).  Because of the size of the issuance, the Local Government Commission requires the Town to have a second underwriter.  Through Legg Mason Wood Walker we have selected Wachovia Bank, N.A.  Legg Mason Wood Walker also helped us select First Citizens Bank as the Trustee for the certificates of participation, through a competitive bidding process.

 

DISCUSSION

 

In order to proceed with financing the Town Operations Center with Certificates of Participation, the Council needs to declare certain findings.  The attached resolutions would declare findings by the Council that a proposed installment contract is necessary and preferable to a bond issue for financing up to $26,000,000 for the Town Operations Center.  The resolutions would also authorize and direct the Finance Director to proceed with the proper steps towards completing the financing, including proceeding with an application to the Local Government Commission for its approval, establishing that the financing period does not extend beyond December 31, 2025, approving draft versions of the official documents related to the financing and authorizing the Finance Director and all other Town officers and employees to complete the closing of the financing of the Town Operations Center.

 

The resolution providing approval of terms and documents for the Town Operations Center financing includes approval of the draft version of the following documents:

 

·         Installment Financing Contract (Attachment 4)

Provides the basis for the Town to receive the funds for the project.

 

·         Deed of Trust and Security Agreement (Attachment 5)

Establishes First Citizens Bank as the trustee for the proceeds of the certificates of participation, establishes a security interest in the Town Operations Center for the Town and secures the Town’s obligation to pay the trustee.

 

·         Trust Agreement (Attachment 6)

Establishes the Town’s obligation to repay the Trustee for the principal and interest.

 

·         Contract of Purchase (Attachment 7)

Establishes the underwriters’ responsibility to purchase the Certificates of Participation.

 

NEXT STEPS

 

April 6       Application for financing submitted to the Local Government Commission

 

May 3        Receive bids; receive Local Government Commission approval for financing

 

May 9        The Council considers the bid for construction of the Town Operations Center buildings

 

May 11      Sale of Certificates of Participation

 

May 26      Closing of Sale and receipt of funds

 

RECOMMENDATION

 

That the Council adopt the attached resolutions declaring findings that

 

·         Financing a proposed installment contract up to $26,000,000 for the Town Operations Center is necessary and preferable to a bond issue,

·         Authorizing and directing the Finance Director to proceed with the proper steps towards completing the financing including proceeding with an application to the Local Government Commission for its approval;

·         Establishing that the financing period does not extend beyond December 31, 2025,

·         Approving draft versions of the official documents related to the financing, and

·         Authorizing the Finance Director and all other Town officers and employees to complete the closing of the financing of the Town Operations Center.

 

 ATTACHMENTS


1.   Memorandum, November 10, 2003 (p. 8).

2.      Memorandum, March 21, 2005 (p. 11).

3.      Memorandum, June 30, 2004 (p. 14).

4.      March 17, 2005 Draft – Installment Financing Contract (p. 18).

5.      March 17, 2005 Draft – Deed of Trust and Security Agreement (p. 51).

6.      March 17, 2005 Draft – Trust Agreement (p. 67).

7.      March 12, 2005 Draft – Contact of Purchase (p. 118).

 

RESOLUTION A

 

A RESOLUTION AUTHORIZING FINANCING THE TOWN OPERATIONS CENTER FOR UP TO $26,000,000 AND SUPPORTING AN APPLICATION TO THE LOCAL GOVERNMENT COMMISSION FOR ITS APPROVAL OF THE TOWN OF CHAPEL HILL’S PROPOSED FINANCING (2005-04-05/R-6a)

 

WHEREAS, the Town Council of the Town of Chapel Hill, North Carolina, has previously determined to carry out a plan to finance the construction of a new Town Operations Center (the “Project”) through the use of an installment financing including certificates of participation.  The financing contract was the subject of a public hearing held by the Town Council on March 21, 2005; and

 

WHEREAS, under the guidelines of the North Carolina Local Government Commission (the “LGC”), this governing body must make certain findings of fact to support the Town’s application for the LGC’s approval of the Town’s proposed financing arrangements for the project;

 

NOW, THEREFORE, BE IT RESOLVED by the Council of the Town of Chapel Hill, North Carolina, as follows:

            

1.         The Town Council determines to finance the Project by the use of installment financing including certificates of participation. The Town estimates that the total amount to be financed will be up to a maximum amount of $26,000,000, including amounts that may be needed to provide required reserves, to pay financing costs and to pay other necessary and related costs.

 

2.         The Finance Director is authorized and directed to proceed with the proper steps toward completing the financing, including proceeding with an application to the LGC for its approval of such financing. The Town Council appoints the Finance Director as the Town’s authorized representative with respect to the LGC application process. 

 

3.         The Town requests that the LGC approve the Town’s application for such financing. The Town Council makes the following findings of fact in support of its application for approval and its determination to proceed with this financing:

 

                        (a)        The proposed projects are necessary and appropriate for the Town under all the circumstances. The new facility will replace a facility currently being leased from the University of North Carolina, and the University has advised the Town that the lease will not be renewed when it expires. The Town has determined that providing a new facility for these functions is the Town’s most cost-effective option.

 

(b)        The proposed installment financing is preferable to a bond issue for the same purpose. Using an installment financing for this Project allows the Town to address a series of needs as part of a flexible, long-term plan balanced between general obligation bonds (which the Town’s voters have recently approved for other purposes) and installment financings. The size of this project and its nature as a single building makes installment financing using certificates of participation a logical option.

 

                        (c)        The estimated sums to fall due under the proposed financing contract are adequate and not excessive for the proposed purpose.  The Town has, and will continue, to closely monitor construction budgets against available funds. The Town will closely review proposed financing rates against market rates with guidance from the LGC.

 

                        (d)       As confirmed to the Town Council at this meeting by the Finance Director, (i) the Town’s debt management procedures and policies are sound and in compliance with law, and (ii) the Town is not in default under any of its debt service obligations.

 

                        (e)        The Town Attorney is of the opinion that the Project is authorized by law and is a purpose for which public funds of the Town may be expended pursuant to the Constitution and laws of North Carolina. 

 

4.         The Town Council approves the selection of Legg Mason Wood Walker and Wachovia Bank, N.A. to provide investment banking and underwriting services to the Town in connection with this transaction.

 

5.                 All Town officers and employees are authorized and directed to take all such further action as they may consider necessary or desirable in connection with the furtherance of the purposes of this resolution. All such prior actions of Town officers and employees are ratified, approved and confirmed.  All other resolutions, or parts thereof, in conflict with this resolution are repealed, to the extent of the conflict.  This resolution takes effect immediately.

 

This the 5th day of April, 2005.

RESOLUTION B

 

A RESOLUTION PROVIDING FINAL APPROVAL OF TERMS AND DOCUMENTS FOR INSTALLMENT FINANCING OF THE TOWN OPERATIONS CENTER (2005-04-05/R-6b)

 

WHEREAS, the Town Council of the Town of Chapel Hill, North Carolina, has previously determined to carry out a plan to finance the construction of a new Town Operations Center (the “Project”) through the use of an installment financing including certificates of participation; and

 

WHEREAS, the Town’s Finance Director has presented to this meeting the draft documents listed as Attachment 3 (March 17, 2005 Draft – Installment Financing Contract, Attachment 4 (March 17, 2005 Draft – Deed of Trust and Security Agreement) and Attachment 5 (March 17, 2005 Draft – Trust Agreement).  Attachment 6 is a draft dated March 12, 2005, of an official statement providing for the disclosure of information to prospective investors in the Town’s financing obligations.  All of these items relate to the Town's carrying out the financing plan;

 

NOW, THEREFORE, BE IT RESOLVED by the Council of the Town of Chapel Hill, North Carolina, as follows:

 

1.       Determination To Proceed with Project -- The Town Council confirms its decision to carry out the financing plan for the Project.

 

2.       Approval of Documents; Direction To Execute Documents -- The Town Council approves the forms of the Documents submitted to this meeting. The Town Council authorizes and directs the Town’s Mayor and the Town Manager, or either of them, to execute and deliver those Documents to which the Town is a party. The Documents in their respective final forms must be in substantially the forms presented, with such changes as the Mayor or the Town Manager may approve. The execution and delivery of any Document by an authorized Town officer will be conclusive evidence of such officer’s approval of any such changes.  The Documents in final form, however, must provide for the amount financed by the Town not to exceed $26,000,000 and for a financing term not to extend beyond December 31, 2025.

 

3.      Approval of Official Statement – The Town Council approves the draft official statement submitted to this meeting as the form of the preliminary official statement pursuant to which the Certificates (as defined in Exhibit A) will be offered for sale.  The preliminary official statement as distributed to prospective investors must be in substantially the form presented, with such changes as the Finance Director may approve.

 

The Town Council directs the Finance Director, after the sale of the Certificates, to complete and otherwise prepare the preliminary official statement as an official statement in final form.  The Town Council authorizes and directs the Mayor to execute and deliver the final official statement in such form as he may approve upon the Finance Director’s recommendation.

 

The Town Council authorizes and approves the use of the preliminary official statement and final official statement by Legg Mason Wood Walker and Wachovia Bank, N.A. in connection with the sale of the Certificates.

 

The Town Council acknowledges that it is the Town’s responsibility to ensure that the Official Statement, in its final form, is correct and complete in all material respects. By the adoption of this resolution, the Town Council members acknowledge their responsibility for causing the Town to fulfill its responsibilities for the Official Statement. 

 

4.      Finance Director To Complete Closing – The Finance Director and all other Town officers and employees are authorized and directed to take all proper steps to complete the closing of the financing contemplated by this resolution.

 

The Finance Director is authorized and directed to hold any documents authorized or permitted by this resolution, once executed, in escrow on the Town’s behalf until the conditions for their delivery have been completed to the Finance Director’s satisfaction, and thereupon to release the executed documents for delivery to the appropriate persons or organizations. 

 

Without limiting the generality of the foregoing, this authorization and direction is specifically extended to authorize the Finance Director to approve changes to any documents or closing certifications previously signed by Town officers or employees, provided that the Documents will be in substantially the form approved by this resolution and that any such changes will not substantially alter the intent of such certificates from that expressed in the forms of such certificates as executed by such  officers or employees.  The Finance Director’s authorization of the release of any such document for delivery will constitute conclusive evidence of such director’s approval of any such changes.

 

5.      Miscellaneous Provisions – All Town officers and employees are authorized and directed to take all such further action as they may consider necessary or desirable in furtherance of the purposes of this resolution. All such prior actions of Town officers and employees are ratified, approved and confirmed.  In the Mayor’s absence, the Mayor Pro Tem or the Town Manager may assume any responsibility or carry out any function assigned to the Mayor in this resolution.  All other Council proceedings, or parts thereof, in conflict with this resolution are repealed, to the extent of the conflict.  This resolution takes effect immediately.

 

This the 5th day of April, 2005.