Fort Walton Beach Council agenda — 02-09-2010 Regular — reading text

Financing Notes Taxable Notes and Bonds Lease -Appropriation Obligations / Certificates of Participation ( COP' s) Variable Rate Demand Notes /Bonds ( VRDBs) Tax -Exempt Commercial Paper Capital Appreciation or Zero Coupon Bonds Bond Banks and Pooled Program Derivative Financing Products DEBT MANAGEMENT SERVICES 1. Develop and Monitor Financing Schedule. To facilitate the timely completion of all tasks, PFM will prepare a bond sale calendar that clearly identifies the responsibilities of each participant in the transaction. The schedule will be designed to permit sufficient time for review of all disclosure materials by CITY officials prior to final printing and distribution. PFM will utilize its extensive experience to prepare a schedule that allows for the orderly completion of each component of the transaction. Moreover, we will work closely with all external participants ( e.g., bond counsel, rating analysts, etc.) to ensure that their tasks are coordinated with the activities of the CITY' s staff. Finally, we will keep the proper officials informed about the progress of the financing and, if necessary, remind team members of deadlines. 2. Analve Debt Structure Alternatives The determination of an efficient issue structure will be a function of three elements: ( i is the proposed amortization schedule well coordinated with the CITY ' s existing debt obligations and projected revenues? ( ii) are the resources pledged to debt redemption sufficient to meet total debt service requirements plus operating and maintenance 80- expenses, renewal and replacement reserves, etc.? ( iii) is the proposed maturity schedule designed to attract maximurn interest from underwriters and potential investors in the current market? Working with other members of the financing team and the CITY 's staff, PFM will use the information it has gathered from the policy review and development phase of the engagement to facilitate the formulation of the issue structure and the terms under which the bonds are to be offered in order to answer the aforementioned questions in the best possible manner, given the current market. PFM' s experience with the structuring and sale of over $ 98 billion of debt has given us an appreciation for this task and an awareness of how to design terms and conditions of sale that are compatible with underwriter and investor interests under varying market conditions while consistent with the CITY 's fiscal policy objectives. Some of the key issues to be addressed are: Maturity Schedule and Pattern of Debt Service Security Structure Call Features Credit Enhancement Book Entry vs. Certificates Reserve Requirements Premium or Discount Restrictions 3. Recommend a Negotiated or Competitive Sale. One of the most important decisions in the bond sale process will be choosing between a competitive or a negotiated sale. This decision will be essential in determining what financial services will be needed for any financing and will be instrumental in determining the ultimate cost of any financing to the CITY. In making the choice between the two approaches, the CITY should specifically consider the costs of the sale process, the type of security being sold, the marketability of the security and market volatility at the time of the sale. PFM, as an independent financial advisory firm, places considerable corporate emphasis on the professional and skillful conduct of competitive issues. The public finance departments of investment banks generate the vast majority of their revenues from negotiated bond issues and therefore have a natural bias, both in attitude and experience, to negotiated issues. PFM works on numerous competitive issues each year and, in fact, prides itself on successfully bringing non - general obligation as well as general obligation issuers to the competitive markets. The following describes the general attributes that argue for a competitive versus a negotiated sale. The decision is made depending primarily upon the attributes of the issue and market conditions at the time of sale. 81_  Attributes that argue Attributes that argue for a competitive sale for a negotiated sale The Issue The Issue Well known issuer New issuer Rating of A or higher Rating lower than A Conventional issue structure Innovative debt structure Standard security provisions Unusual security pledge Good credit quality Concern about credit quality Few or no tax law concerns Potential tax law concerns Tax -exempt issue Taxable issue Credit enhanced The Market The Market Strong market with high demand Weak market with low demand or high supply Stable, predictable market Volatile market with At the outset of the engagement, we will evaluate existing and expected credit market conditions, features of the credit, and the financing time schedule associated with the proposed bond sale. These and other factors will be used to develop a recommended method of sale. PFM' s competitive sale experience is one of the most extensive in the industry. Once the CITY has adopted a financing plan, and a competitive sale has been identified as the optimal method, the financing team will be responsible for drafting, printing, adopting, and distributing all legal and disclosure documents. PFM will coordinate with local officials, bond counsel, underwriters, banks, and other team members in the preparation, review, and finalization of all bond document preparation activities, including the preparation and review of trust indentures, if any, official statements, and other contracts that may be necessary for a bond issue. For a competitive method of sale, the CITY and the Financial Advisor are responsible for preparing the Preliminary Official Statement ( POS). The importance of the Official Statement cannot be overstated. It not only serves as the primary marketing and promotional tool for the issue, but also serves as the vehicle for disclosure. The clarity of both the summary and technical explanations, as well as the comprehensive nature of the documentation, must be assured. It becomes the public document of record for the financing, will receive widespread distribution and scrutiny during the financing, and will be referenced in future years as not only a vehicle of credit but also as a " sales tool" in the remarketing of the underlying securities. In a competitive sale, the issuer must also prepare a Notice of Sale, advertise the notice of sale, and prepare and mail the bid forms. PFM has extensive experience with these logistical issues and can assist the CITY in their preparation. One of the most important aspects of a competitive sale is the pre - marketing. PFM' s experience with over $2. 5 billion in competitive sales since 1992 can be of great assistance to the CITY. In general, our approach to negotiated transactions is to work with you to decide the broad parameters of the transaction, help select the bankers, to present and to analyze specific structuring ideas, to establish pricing benchmarks, and oversee the pricing process. For a 82_ negotiated financing, PFM will assist the CITY in determining the appropriate level of pricing for its debt obligations. In order to assist the CITY, PFM will conduct historical pricing analyses and analyses of the market to determine the appropriate pricing goals of the CITY. PFM also does a significant amount of analysis comparing one issue against another, attempting to establish clear pricing benchmarks or targets. 4. Assist Issuer in Selecting Working Group Members and Procuring Services. a. Underwriter Selection. When it is determined that a negotiated sale is appropriate, PFM will work with CITY officials to develop a detailed request for underwriting proposals. This approach to the selection of its underwriting group gives the CITY an opportunity to control all components of the underwriting spread and identify those firms which are most experienced with marketing securities of the type being offered. In addition, through our in 82 billion in debt to market for our clients, PFM experience bringing over $ professionals have worked with a wide variety of underwriting firms and investment bankers and will use this experience to the CITY's benefit. Once the underwriting group has been chosen, PFM will negotiate on the CITY' s behalf to ensure that the issue is aggressively priced relative to current market conditions. b. Procurement of Financial Services. PFM will assist the CITY, as needed, in identifying and procuring special financial related services that may be needed over the course of its financing program. Some of these services are generic to any financing alternative while others may or may not be required depending on the financing vehicle chosen. Services needed for many financings include: Special Tax Counsel Trustee Selection Paying Agent Selection Special Credit Facilities ( includes such items as letters of credit or bond insurance) Printing Services 5. Vork with Members o,f Workiag Group to Develop Financing Terms Once the working group has been selected, PFM assumes the role of coordinator and catalyst. PFM, in conjunction with the CITY ' s staff, will analyze each component of the structure and make recommendations. Each member of the financing team will have a different perspective on each point, and it is important that each team member be given an opportunity to express their views and incorporate them into the final structure. The objective of this process is to create a package of terms that creates broad - based interest in the debt among investors while ensuring the lowest possible cost and future flexibility. After assisting the CITY in developing its financing priorities, it will be PFM' s job to represent the CITY's point of view to the other team members during all discussions about the structure of the financing. 83-  6. Develop Financing Documents. Once a financial plan has been adopted, the financing team will be responsible for drafting, printing, adopting, and distributing all legal and disclosure documents. PFM's project team members have experience assisting municipal issuers across the nation to prepare the necessary ordinances, legal documents and other disclosure documents for the issuance of taxable and tax -exempt securities. On complex projects, this phase of the project can be extremely time- consuming. PFM will coordinate with local officials, bond counsel, underwriters, banks, and other team members in the preparation, review, and finalization of all bond document preparation activities,