MEMORANDUM
TO: Mayor and Town Council
FROM: W. Calvin Horton, Town Manager
SUBJECT: Public Hearing to Consider Bond Order and Resolution Authorizing the Issuance of $3,800,000 in General Obligation Refunding Bonds
DATE: March 4, 2002
The purpose of this public hearing is to receive comments from citizens on a proposed Bond Order and Resolution authorizing the issuance of up to $3,800,000 in General Obligation bonds to refinance outstanding General Obligations issued in 1992.
The attached Bond Order, prepared by the Town’s bond counsel, was introduced at the Council’s meeting on February 25, 2002, and declares findings by the Council that the proposed refunding bonds are necessary and expedient to refinance outstanding 1992 bonds to achieve lower debt service costs.
The attached resolution would authorize the issuance of up to $3,800,000 in refunding bonds, and set forth the various terms, conditions, and maturities of the bonds.
BACKGROUND
On January 28, the Council adopted a resolution authorizing the Manager to file an application with the N. C. Local Government Commission requesting approval to issue up to $3,800,000 in General Obligation bonds to refund bonds issued in 1992, and to issue $2,935,000 in new bonds approved by the voters in 1996.
On February 25, 2002, the Council adopted a resolution calling for a public hearing on March 4, 2002, to consider the proposed refunding bonds. The Council also approved the Manager’s recommendation to postpone the issuance of new bonds in order to delay new debt service cost for the 2002-03 budget year.
DISCUSSION
After receiving comments from citizens at tonight’ public hearing, the next step to proceed with the proposed refunding bonds would to adopt the attached Bond Order introduced at the Council’s meeting of February 25. The Bond Order declares that the Council find that it is in the best interest of the Town to issue the refunding bonds in order to obtain lower interest costs and savings in the debt service costs.
The latest savings report prepared by our financial advisor indicates total savings for the refunding, net of issuance costs, would be about $160,000 over the next eight years, or about $20,000 in annual savings. The analysis and savings meet all the requirements for refunding bonds to be approved by the Local Government Commission.
The attached resolution, prepared by the Town’s bond counsel, would authorize the issuance of up to $3,800,000 in General Obligation bonds for the refunding. Based on the latest analysis, about $3,380,000 would need to be issued to achieve the estimated savings. The proposed resolution sets forth the various terms, conditions, and maturities of the refunding bonds. The proposed term is for eight years from 2003-2010. The resolution would authorize the Manager, Finance Director and Town Attorney to proceed with all steps necessary to sell and deliver the bonds at closing, including publishing a notice of the proposed sale on March 5, 2002.
The Local Government Commission is scheduled to consider approval of the issue on March 5, followed by the sale of the bonds on March 12. The Town has the right and authority to reject all bids if deemed appropriate, but we anticipate good bids with an interest rate of about 3.7% based on the current advice of our financial advisor. After the sale on March 12 and before closing on the bonds, the Council would need to adopt a resolution on March 25 approving the final terms and interest rates, and awarding the bonds to the lowest bidder as determined by the Local Government Commission.
RECOMMENDATION
We recommend that the Council adopt the attached Bond Order and the attached resolution authorizing the issuance of proposed refunding bonds to obtain lower interest costs and achieve annual debt service savings.
BOND ORDER AUTHORIZING THE ISSUANCE OF UP TO $3,800,000 REFUNDING BONDS, SERIES 2002 OF THE TOWN OF CHAPEL HILL, NORTH CAROLINA (2002-03-04/R-1)
WHEREAS, in August of 1992 the Town issued its Public Improvement Bonds, Series 1992 (the “Series 1992 Bonds”) in an aggregate principal amount of $5,000,000, of which approximately $3,200,000 in aggregate principal amount is outstanding on the date hereof; and
WHEREAS, the Town Council of the Town of Chapel Hill, North Carolina deems it advisable to refund the Series 1992 Bonds by issuing its refunding bonds in an aggregate principal amount of up to $3,800,000; and
WHEREAS, an application has been filed with the Secretary of the Local Government Commission of North Carolina requesting Local Government Commission approval of the bonds hereinafter described as required by The Local Government Bond Act, and the Secretary of the Local Government Commission has acknowledged that the application has been filed and accepted for submission to the Local Government Commission;
NOW THEREFORE, BE IT ORDERED by the Town Council of the Town of Chapel Hill, North Carolina as follows:
Section 1. The Town Council of the Town of Chapel Hill, North Carolina has ascertained and hereby determines that it is in the best interests of the Town of Chapel Hill, North Carolina to refund the Series 1992 Bonds.
Section 2. In order to raise the money required to refund the Series 1992 Bonds, in addition to any funds which may be made available for such purpose from any other source, general obligation refunding bonds of the Town of Chapel Hill, North Carolina are hereby authorized and shall be issued pursuant to The Local Government Bond Act. The maximum aggregate principal amount of the bonds authorized by this bond order shall be $3,800,000.
Section 3. A tax sufficient to pay the principal of and interest on said bonds when due will be annually levied and collected.
Section 4. A sworn statement of the debt of the Town of Chapel Hill, North Carolina has been filed with the Clerk to the Town Council of the Town of Chapel Hill, North Carolina and is open to public inspection.
Section 5. This bond order shall take effect upon its adoption.
This the 4th day of March, 2002.
RESOLUTION PROVIDING FOR THE ISSUANCE OF UP TO $3,800,000 GENERAL OBLIGATION REFUNDING BONDS, SERIES 2002 OF THE TOWN OF CHAPEL HILL, NORTH CAROLINA (2002-03-04/R-2)
WHEREAS, the Bond Order described in Section 1 below has taken effect; and
WHEREAS, in August of 1992, the Town of Chapel Hill, North Carolina (the “Town”) issued $5,000,000 in aggregate principal amount of its General Obligation Public Improvement Bonds, Series 1992 (the “Series 1992 Bonds”); and
WHEREAS, the Town Council of the Town of Chapel Hill, North Carolina (the “Town Council”) has determined pursuant to a resolution adopted by the Town Council on February 25, 2002 that it is in the best interests of the Town to refund the Series 1992 Bonds by issuing up to $3,800,000 in aggregate principal amount of its general obligation refunding bonds authorized by said Bond Order;
NOW, THEREFORE, BE IT RESOLVED by the Town Council of the Town of Chapel Hill, North Carolina (the “Town”), as follows:
Section 1. Bond Order. The Town shall issue its General Obligation Refunding Bonds, Series 2002 in the aggregate principal amount of up to $3,800,000 (collectively the “Bonds”) pursuant to and in accordance with the Bond Order described below, which was adopted by the Town Council on March 4, 2002:
The Bond Order described above is hereinafter referred to as the “Bond Order”.
Section 2. Designation; Period of Usefulness; Maturity. The Bonds to be issued pursuant to the Bond Order shall be designated “General Obligation Refunding Bonds, Series 2002. The Town Council of the Town has ascertained and hereby determines that the average period of usefulness of the capital projects to be refinanced by the issuance of the Bonds does not end prior to the final maturity date of the Bonds. The Bonds shall be stated to mature annually, on February 1 of each of the years 2003 to 2010, inclusive, as follows:
Year of Principal
Maturity Amount
2003 $260,000
2004 235,000
2005 230,000
2006 250,000
2007 245,000
2008 815,000
2009 805,000
2010 540,000
Section 3. Date of Bonds; Interest Payment Dates. The Bonds shall be dated April 1, 2002 and shall bear interest from their date at a rate or rates which shall be hereafter determined upon the public sale thereof. Interest on the Bonds shall be payable semiannually on each February 1 and August 1, beginning August 1, 2002.
Section 4. Registered Bonds; Execution. The Bonds shall be registered as to principal and interest and shall bear the original or facsimile signatures of the Mayor or Town Manager and the Clerk of the Town. An original or facsimile of the corporate seal of the Town shall be imprinted upon each of the Bonds.
Section 5. Book-Entry System. The Bonds will be issued in fully registered form by means of a book-entry system with no physical distribution of bond certificates made to the public. One fully-registered bond certificate for each stated maturity of the Bonds will be issued to The Depository Trust Company, New York, New York (“DTC”), and immobilized in its custody. A book-entry system will be employed, evidencing ownership of the Bonds in principal amounts of $5,000 or any multiple thereof, with transfers of ownership effected on the records of DTC and its participants pursuant to rules and procedures established by DTC and its participants. Interest on the Bonds will be payable in clearinghouse funds to DTC or its nominee or any other person appearing as registered owner of the Bonds. The principal of and interest on the Bonds will be payable to owners of Bonds shown on the records of DTC at the close of business on the day preceding an interest payment date or a bond payment date. The Town will not be responsible or liable for such transfers of payments or for maintaining, supervising or reviewing the records maintained by DTC, its participants or persons acting through such participants.
In the event that (a) DTC determines not to continue to act as securities depository for the Bonds or (b) the Town determines that the continuation of the book-entry system of evidence and transfer of ownership of the Bonds would adversely affect the interests of the beneficial owners of the Bonds, the Town will discontinue the book-entry system with DTC. If the Town fails to identify another qualified securities depository to replace DTC, the Town will deliver replacement bonds in the form of fully-registered certificates.
Section 6. Redemption. The Bonds will not be subject to redemption prior to maturity.
Section 7. Form of Bonds. The Bonds and the provisions for the registration of Bonds and for the approval of the Bonds by the Secretary of the Local Government Commission shall be in substantially the following form:
(Form of Bond)
NO. R-__________ $____________
UNITED STATES OF AMERICA
STATE OF NORTH CAROLINA
TOWN OF CHAPEL HILL, NORTH CAROLINA
GENERAL OBLIGATION REFUNDING
BOND, SERIES 2002
ORIGINAL
INTEREST RATE MATURITY DATE ISSUE DATE CUSIP
_______________ February 1, ____ April 1, 2002 ____________
REGISTERED OWNER: CEDE & CO.
PRINCIPAL AMOUNT: Dollars
The Town of Chapel Hill, North Carolina (hereinafter referred to as the “Town”), a municipal corporation of the State of North Carolina, is justly indebted and for value received hereby promises to pay in the manner hereinafter provided, to the registered owner named above or registered assigns or legal representative on the Maturity Date specified above, the principal amount shown above and to pay to the registered owner hereof interest thereon from the date of this Bond until this Bond is paid in full at the interest rate per annum specified above, payable on August 1, 2002 and semi-annually thereafter on February 1 and August 1 of each year. Principal of and interest on this Bond are payable in clearinghouse funds to The Depository Trust Company (“DTC”) or its nominee as registered owner of the Bonds and are payable to the owner of the Bonds shown on the records of DTC at the close of business on the day preceding an interest payment date or a principal payment date. The Town is not responsible or liable for maintaining, supervising or reviewing the records maintained by DTC, its participants or persons acting through such participants.
This Bond is issued in accordance with the Registered Public Obligations Act, Chapter 159E of the North Carolina General Statutes, as amended, and pursuant to The Local Government Finance Act, the bond order adopted by the Town Council of the Town on March 4, 2002 and a bond resolution adopted by the Town Council on March 4, 2002. This Bond is one of a series of Bonds designated as “Town of Chapel Hill, North Carolina General Obligation Refunding Bonds, Series 2002” initially issued in the aggregate principal amount of $_________ (the “Bonds”). The Bonds are being issued to refund the Town’s outstanding General Obligation Public Improvement Bonds, Series 1992 originally issued in the aggregate principal amount of $5,000,000.
The Bonds will not be subject to redemption prior to maturity.
It is hereby certified and recited that all conditions, acts and things required by the Constitution or laws of the State of North Carolina to exist, be performed or happen precedent to and in the issuance of this Bond, exist, have been performed and have happened, and that the amount of this Bond, together with all other indebtedness of the Town, is within every debt and other limit prescribed by said Constitution or statutes. The faith and credit of the Town are hereby pledged to the punctual payment of the principal of and interest on this Bond in accordance with its terms.
This Bond shall not be valid or become obligatory for any purpose until this Bond has been authenticated by the Director of Finance of the Town and the certifications hereon shall have been signed by authorized representatives of the Local Government Commission of North Carolina.
IN WITNESS WHEREOF, the Town of Chapel Hill, North Carolina has caused this Bond to be manually signed by its Mayor and its Clerk and its official seal to be imprinted hereon, all as of the 1st day of April, 2002.
(SEAL)
_____________________________ ____________________________________
Town Clerk Mayor
Town of Chapel Hill, North Carolina Town of Chapel Hill, North Carolina
CERTIFICATE OF LOCAL GOVERNMENT COMMISSION
The issuance of the within Bond has been approved under the provisions of The Local Government Bond Act, of North Carolina as amended.
( signature )
ROBERT M. HIGH
Secretary of the Local Government Commission
CERTIFICATE OF AUTHENTICATION
This Bond is one of the Series of Bonds designated herein and issued under the provisions of the Bond Resolution referenced herein.
By:______________________________________
James M. Baker
Director of Finance
Town of Chapel Hill, North Carolina
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto __________________________, the within Bond and irrevocably appoints _______________________________, attorney-in-fact, to transfer the within Bond on the books kept for registration thereof, with full power of substitution in the premises.
Dated:________________________ ______________________________
NOTICE: The signature to this
assignment must correspond with
the name as it appears upon the
face of the within Bond in every particular, without any
alteration whatsoever.
Signature Guaranteed:
______________________________
(Bank, Trust Company or Firm)
______________________________
(Authorized Officer)
Section 8. Covenants. The Town covenants to comply with the provisions of the Internal Revenue Code of 1986, as amended (the “Code”) to the extent required to preserve the exclusion from gross income of interest on the Bonds for federal income tax purposes. The Town also covenants to take such action as may be required in the opinion of nationally recognized bond counsel to cause the Bonds and all actions of the Town with respect to the proceeds thereof to comply with the Code. In particular, the Town covenants as follows:
(a) At least one of the following two conditions will be satisfied: (i) less than 10% of the proceeds of the Bonds reduced by costs of issuance will be used directly or indirectly in the business of a person other than a state or local governmental unit or (ii) less than 10% of the principal or interest on the Bonds is (under the terms of such issue or any underlying arrangement) directly or indirectly (A) secured by an interest in property used or to be used in a private business or any interest in payments made with respect to such property or (B) to be derived from payments made with respect to property, or borrowed money, used or to be used in a private business;
(b) Less than 5% of the proceeds of the Bonds reduced by costs of issuance will be used by nongovernmental persons for a use unrelated to the purposes for which the Bonds are issued;
(c) It will not loan directly or indirectly more than 5% or $5 million (whichever is less) of the Bond proceeds to nongovernmental persons;
(d) It will not enter into any management contract with respect to the project financed with the proceeds of the Bonds unless it obtains an opinion of nationally recognized bond counsel that such management contract will not impair the exclusion from a recipient’s gross income for federal income tax purposes of the interest on the Bonds;
(e) The Town acknowledges that the continued exclusion of interest on the Bonds from a recipient’s gross income for federal income tax purposes depends, in part, upon compliance with the arbitrage limitations imposed by Section 148 of the Code. The Town covenants to comply with all the requirements of Section 148 of the Code, including the rebate requirements, and it shall not permit at any time any of the proceeds of the Bonds or other funds of the Town to be used, directly or indirectly, to acquire any asset or obligation, the acquisition of which would cause the Bonds to be “arbitrage bonds” for purposes of Section 148 of the Code;
(f) The Bonds are not and shall not be “federally guaranteed” as defined in Section 149(b) of the Code; and
(g) The Town covenants to file or cause to be filed Form 8038G in accordance with Section 149(e) of the Code.
Section 9. Continuing Disclosure Requirement. The Town hereby undertakes, for the benefit of the beneficial owners of the Bonds, to provide:
(a) by not later than seven months from the end of each fiscal year of the Town, to each nationally recognized municipal securities information repository (“NRMSIR”) and to the state information depository for the State of North Carolina (“SID”), if any, audited financial statements of the Town for such fiscal year, if available, prepared in accordance with Section 159-34 of the General Statutes of North Carolina, as it may be amended from time to time, or any successor statute, or, if such audited financial statements of the Town are not available by seven months from the end of such fiscal year, unaudited financial statements of the Town for such fiscal year to be replaced subsequently by audited financial statements of the Town to be delivered within 15 days after such audited financial statements become available for distribution;
(b) by not later than seven months from the end of each fiscal year of the Town, to each NRMSIR, and to the SID, if any, (i) the financial and statistical data as of a date not earlier than the end of the preceding fiscal year for the type of information included under heading “The Town - Debt Information and - Tax Information” in the Official Statement relating to the Bonds and (ii) the combined budget of the Town for the current fiscal year, to the extent such items are not included in the audited financial statements referred to in (a) above;
(c) in a timely manner, to each NRMSIR or to the Municipal Securities Rulemaking Board (“MSRB”), and to the SID, if any, notice of any of the following events with respect to the Bonds, if material:
(1) principal and interest payment delinquencies;
(2) non-payment related defaults;
(3) unscheduled draws on debt service reserves reflecting financial difficulties;
(4) unscheduled draws on any credit enhancements reflecting financial difficulties;
(5) substitution of credit or liquidity providers, or their failure to perform;
(6) adverse tax opinions or events affecting the tax-exempt status of the Bonds;
(7) modification to the rights of the beneficial owners of the Bonds;
(8) bond calls;
(9) defeasances;
(10) release, substitution or sale of any property securing repayment of the Bonds;
(11) rating changes; and
(d) in a timely manner, to each NRMSIR or to the MSRB, and to the SID, if any, notice of a failure of the Town to provide required annual financial information described in (a) or (b) above on or before the date specified.
If the Town fails to comply with the undertaking described above, any beneficial owner of the Bonds may take action to protect and enforce the rights of all beneficial owners with respect to such undertaking, including an action for specific performance; provided, however, that failure to comply with such undertaking shall not be an event of default under the Bonds and shall not result in any acceleration of payment of the Bonds. All actions shall be instituted, had and maintained in the manner provided in this paragraph for the benefit of all beneficial owners of the Bonds.
The Town reserves the right to modify from time to time the information to be provided to the extent necessary or appropriate in the judgment of the Town, provided that any such modification will be done in a manner consistent with Rule 15c2-12 issued under the Securities Exchange Act of 1934, as it may be amended from time to time (“Rule 15c2-12), and provided further that:
(a) any such modification may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of the Town;
(b) the information to be provided, as modified, would have complied with the requirements of Rule 15c2-12 as of the date of the Official Statement relating to the Bonds, after taking into account any amendments or interpretations of Rule 15c2-12, as well as any changes in circumstances; and
(c) any such modification does not materially impair the interests of the beneficial owners, as determined either by parties unaffiliated with the Town (such as bond counsel), or by the approving vote of the registered owners of a majority in principal amount of the Bonds pursuant to the terms of this bond resolution, as it may be amended from time to time, at the time of the amendment.
Any annual financial information containing modified operating data or financial information shall explain, in narrative form, the reasons for the modification and the impact of the change in the type of operating data or financial information being provided.
The provisions of this Section shall terminate upon payment, or provision having been made for payment in a manner consistent with Rule 15c2-12, in full of the principal of and interest on all of the Bonds.
Section 10. Escrow Fund. The Director of Finance is hereby directed to create and establish with the Escrow Agent (as hereinafter defined) a special fund to be designated “Town of Chapel Hill, North Carolina General Obligation Refunding Bonds, Series 2002 Escrow Fund” (the “Escrow Fund”) in accordance with the terms of an Escrow Agreement to be dated as of April 1, 2002 between the Town and First-Citizens Bank & Trust Company, as escrow agent (the “Escrow Agent”). The proceeds from the sale of the Bonds shall be deposited in the Escrow Fund. Any moneys held in the Escrow Fund shall be invested and reinvested by the Director of Finance as permitted by the law of the State of North Carolina, and the income therefrom to the extent permitted by the Code shall be retained in the Escrow Fund and used to refund the Series 1992 Bonds. The Director of Finance and the Escrow Agent shall keep and maintain adequate records pertaining to the Escrow Fund and all disbursements therefrom.
Section 11. Other Agents. Actions taken by officials of the Town to select paying and transfer agents, and a bond registrar, or alternate or successor agents and registrars pursuant to Section 159E-8 of the Registered Public Obligations Act, Chapter 159E of the General Statutes of North Carolina, are hereby authorized and approved.
Section 12. Purchase of Bonds. The Local Government Commission of North Carolina is hereby requested to (1) sell the Bonds, and (2) state in the Notice of Sale for the Bonds that bidders may name one rate of interest for part of the Bonds and another rate or rates for the balance of the Bonds. The Bonds shall bear interest at such rates as may be named in the proposal to purchase the Bonds that shall be accepted by said Local Government Commission.
Section 13. Qualified Tax-Exempt Obligation. The Town hereby represents that it reasonably expects that the Town, together with all subordinate entities thereof and any other entities which issue obligations on behalf of the Town, will not issue more than $10,000,000 of tax-exempt obligations (other than private activity bonds, except for qualified 501(c)(3) bonds) during calendar year 2002. The Town hereby designates the Bonds as “qualified tax-exempt obligations” with the meaning of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended. The Town further represents that it will take no action which will directly or indirectly adversely affect the tax-exempt character of the Bonds, including, but not limited to, the issuance of more than $10 million of tax-exempt obligations during calendar year 2002.
Section 14. Execution and Delivery of Bonds. The Mayor, the Town Manager, the Director of Finance and the Clerk of the Town are hereby authorized and directed to cause the Bonds to be prepared and, when they shall have been duly sold by said Local Government Commission, to execute the Bonds and to turn the Bonds over to the registrar and transfer agent of the Town for delivery to the purchaser or purchasers to whom they may be sold by said Local Government Commission.
Section 15. Actions Ratified; Official Statement Approved. The actions of the Mayor, the Town Manager and the Director of Finance of the Town in applying to the Local Government Commission (the “Commission”) to advertise and sell the Bonds and the action of the Commission in asking for sealed bids for such Bonds by publishing notices and printing and distributing an Official Statement and a Supplement to such Official Statement relating to the sale of the Bonds are hereby ratified and approved. Such Official Statement, to be dated March ____, 2002 and substantially in the form presented at this meeting, is hereby approved, and the Mayor, the Town Manager, and the Director of Finance of the Town are each hereby authorized to approve changes in such Official Statement, to approve such Supplement thereto, and to execute such Official Statement and such Supplement for and on behalf of the Town.
Section 16. Other Actions Authorized. The Mayor, the Town Manager, the Director of Finance, the Town Clerk and the Town Attorney of the Town and such other officers or employees of the Town as are designed by any of them are hereby authorized to do all acts and things required of them by or in connection with this Resolution and all other agreements or documents entered into or executed by the Town in connection with the issuance of the Bonds for the full, punctual and complete performance of all of the terms, covenants and agreements contained in the Bonds and the documents.
Section 17. Amendments and Supplements. This Resolution may be amended or supplemented, from time to time, if in the opinion of nationally recognized bond counsel, such amendment or supplement would not adversely affect the interests of the Bondholders or would not cause the interest on the Bonds to be included in the gross income of a recipient thereof for federal tax purposes.
Section 18. Governing Law. This Resolution shall be construed and governed in accordance with the laws of the State. Jurisdiction for the resolution of any conflict arising from this Resolution shall lie with the General Court of Justice of the State of North Carolina with venue in Orange County, North Carolina.
Section 19. Severability of Invalid Provisions. In case any one or more of the provisions contained in this Resolution or in the Bonds shall be held to be invalid, illegal or unenforceable in any respect and for any reason, then such invalidity, illegality or unenforceability shall not effect any other provision of this Resolution, and this Resolution shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein.
Section 20. Resolution Effective Immediately. This Resolution shall take effect immediately upon its passage.
This the 4th day of March, 2002.