AGENDA #4c

 

MEMORANDUM

 

 

TO:                  Mayor and Town Council

 

FROM:            W. Calvin Horton, Town Manager

 

SUBJECT:       Calling a Public Hearing on June 9, 2003 to Consider Refinancing 1994 Parking Certificates of Participation by Use of Installment Contract

 

DATE:             June 9, 2003

 

 

This memorandum provides information about an opportunity to refinance the existing Parking Certificates of Participation issued by the Town in 1994.   The refinancing would require that an application be submitted to and approved by the N. C. Local Government Commission (LGC).

 

The attached resolution would begin the necessary approval process with the Council making a preliminary determination to proceed with installment financing for this project and authorizing a public hearing on June 23 to consider the financing in an amount not to exceed $6.8 million.  The refinancing at lower interest rates is estimated to produce significant debt service savings as discussed below.

 

BACKGROUND

 

In 1994, the Town issued Parking Certificates of Participation (generally called COPS) to effect an advance refunding of Parking Revenue Bonds originally issued in 1991 to finance the construction of the James C. Wallace Parking Deck and to consolidate a small amount of outstanding debt on Parking Lots 2 and 5.   The advance refunding resulted in debt service savings of about $50,000 annually, reducing the debt service payments from $598,000 to about 548,000 annually.  The COPS were issued with a 30-year maturity running though 2023 at an average interest rate of about 6.5%, which reflected the prevailing market interest rates at that time.

 

These 1994 COPS will reach a 10-year maturity mark in December, 2003 making them eligible for a current refunding (refinancing) if current market rates generate debt service savings in future years.  Based on current market rates, we believe a good opportunity now exits to refinance the certificates that would result in substantial debt service savings.  Such refinancing could be accomplished by issuing another set of COPS at lower interest rates or by a private placement with interested financial institutions at lower interest rates.

 

 

 

 

DISCUSSION

 

To date, we have had preliminary discussions regarding the potential refinancing with staff of the Local Government Commission, with a financial adviser, and with special legal counsel with expertise in this area.  Based on the preliminary discussions, we believe a private placement with a financial institution offers the most cost effective approach that would result in significant debt service savings in future years and that would minimize the issuance cost involved in a potential refinancing. 

 

At this point, we recommend pursuing a private placement using an installment contract as authorized by General Statute 160A-20 as the best and simplest method to accomplish the refinancing.  We are continuing discussions with the LGC staff, and with financial and legal advisors to determine the best terms and maturity for the refinancing.  Preliminary analyses indicate that potential total actual dollar savings could be about $1.7 million over the next twenty years at current interest rates, and more than $2 million if refinanced for only a fifteen year period.  We will continue discussions with our advisors to make a final evaluation regarding a potential issuance of new COPS or a private placement as the best methods of refinancing.

 

Either method of refinancing would require approval by the Local Government Commission and would require a similar process as used in other installment contracts.   We would anticipate no problems in obtaining approval from the Local Government Commission of a proposed refinancing and believe that we should proceed as quickly as possible to take advantage of interest rates in the current market.

 

Below is information on a proposed schedule and approval process that would be required in order to pursue a refinancing through a private placement.  The first step in beginning this process would be to call a public hearing on June 23 to consider this matter and to authorize the filing of an application for the proposed financing with the Local Government Commission.

 

Dates                          Steps

 

June 9                          Council makes determination to proceed with financing, calls a public hearing to consider such financing, and publishes notice of hearing 10 days prior to the  hearing.              

 

June 23                        Council holds public hearing on June 23, adopts resolution authorizing the filing of an application for the financing with the Local Government Commission on June 24, and authorizes staff to solicit financing proposals.

                                   

June 24                        Town files application with Local Government Commission and solicits financing proposals.

                                               

August 25                     Council approves financing proposals with financial institution subject to Local Government Commission approval.

                       

September 2                 Local Government Commission approves financing.                                                                              

September 25               Closing and establishing escrow accounts for refunding COPS.

 

RECOMMENDATION

 

That the Council adopt the attached resolution expressing its intent to use an installment contract to refinance 1994 Parking Certificates of Participation, calling a public hearing on June 23 to consider such financing, and authorizing the publication of a notice regarding the hearing.

 

 

A RESOLUTION CALLING A PUBLIC HEARING TO CONSIDER REFINANCING THE TOWN’S 1994 PARKING CERTIFICATES OF PARTICIPATION USING INSTALLMENT CONTRACT FINANCING (2003-06-09/R-5)

 

WHEREAS, the Town Council wishes to consider refinancing the Town’s 1994 Parking Certificates of Participation using installment financing as authorized by General Statues 160A-20 and proposes to file an application with the N. C. Local Government Commission for approval of such financing;

 

NOW, THEREFORE, BE IT RESOLVED by the Council of the Town of Chapel Hill that the Council hereby calls a public hearing at 7:00 p.m. on June 23, 2003, to receive comments from citizens concerning such financing, and hereby authorizes the publication of a notice of this public hearing  at least 10 days prior to the hearing.

 

This the 9th^th day of June, 2003.