TO:                  Mayor and Town Council


FROM:            W. Calvin Horton, Town Manager


SUBJECT:      Selection of Underwriters for Town Operations Center


DATE:                        June 30, 2004



That attached resolution would approve Legg Mason Wood Walker, Inc. as the Town’s underwriter for financings related to the Town Operations Center.




The Town is proposing to build a Town Operations Center costing approximately $25 million and a Transit Operations Center costing approximately $19 million.  The Town will need to borrow funds to complete these two projects.  We could borrow funds using General Obligation bonds, based on the full faith and credit of the Town, or we could borrow by using a broker and underwriter to package and offer the Town Operations Center debt to potential investors.  Because potential investors would consider the Town Operations Center to be essential to the Town, investors are willing to lend funds at a cost to the Town that is almost the same as if the Town had used General Obligation debt and the lead time and paperwork is reduced. 


We believe that the most efficient way to borrow for the Town Operations Center is by using a firm that provides brokerage and underwriting services.  Such a firm, often called “the underwriter”, provides valuable service by determining the best strategy for selling the debt, determines the pricing, and finds the investors.  In the case of a large borrowing, such as for the Town Operations Center, the firm will seek multiple investors in order to get the lowest possible interest rate for the Town to repay the debt.  When a public finance firm places the debt with multiple borrowers, the debt instrument is called “Certificates of Participation” or COPS. 


Since the selection of a good firm for brokerage and underwriting services is essential to getting the lowest possible interest rates for repaying the debt, the Town has requested proposals from several firms that offer these public finance services.  On Monday, May 21, 2004, we received four proposals in response to six Requests for Proposals for underwriters from the Town.  The four responding firms were:


·         Citigroup Global Markets, Inc.

·         Ferris, Baker, Watts, Inc.

·         Legg Mason Wood Walker, Inc.

·         Banc of America Securities, LLC


We reviewed the proposals first for services and then reviewed pricing data, using standard procedures and the standard Request for Proposal questions recommended by the Local Government Commission.  The firms responded to questions in the following areas:


·         Overview of the firm and its municipal finance department.

·         Commitment to continuing service in the area of public finance.

·         Experience and ranking in municipal finance in general and Certificates of Participation, in particular.

·         Discussion of any regulatory proceeding with respect to municipal securities.

·         Background of the individuals who would be working directly with the Town.

·         Proposals and schedule for meeting the Town’s financing needs for the Town Operations Center, including subsequent reporting.

·         Proposals for underwriter’s council and co-manager, if recommended.

·         Discussion of sales distribution capabilities.




All four firms are active in North Carolina municipal finance and have increased their business in municipal finance over recent years.  All four firms have access to many of the same markets for investors, with the larger firms potentially offering the greatest access.  Three of the firms rank in the top five underwriters (by number of transactions) for Certificates of Participation in North Carolina the last four years. 


All had reasonable proposals for the Town’s financing needs.  Banc of America Securities and Legg, Mason offered a fuller understanding of the details of Chapel Hill’s needs and opportunities than the other firms.  Legg Mason offered the fullest explanation of the benefits and costs associated with their alternative proposals.


The firms’ fee structures offered different pricing for various services.  The total costs varied by approximately $30,000 from the lowest calculation to the highest.  However, the total cost to the Town is determined by the combination of the actual fees charged together with the interest rate paid over the years.  The total costs for services are subject to change, because of changing interest rates and because of changes in services that the Town may need.  However, the firms’ estimated total costs based on similar assumptions are shown below:




Banc of America Securities




Ferris, Baker, Watts


Legg Mason






Of the firms in the top five ranking for Certificates of Participation in North Carolina, Legg Mason offered the lowest price structure.  Legg Mason also offered the most in-depth explanation of alternative financing proposals and services for the Town, including:


·         Combining meetings with rating agencies for General Obligation bonds and for the Certificates of Participation;

·         Providing several alternative proposals to meet our cash needs during the site work phase;

·         Providing four different proposals with the benefits and risks associated with them for financing the Transit Operations Center: and

·         Preparing a series of graphs comparing the Town’s financial borrowing position with other North Carolina municipalities. 


We recommend that the Council appoint Legg Mason as the Town’s underwriter for the Town Operations Center. 




BE IT RESOLVED by the Council of the Town of Chapel Hill that the Council hereby authorizes the Town to enter into a contract for underwriting services for the Town Operations Center with Legg Mason Wood Walker, Inc.


This the 30th day of June, 2004.