Okaloosa County BOCC — September 16, 2014 — Okaloosa County Capital Improvement Revenue Note (Bank Loan Recommendation) 9-9-2014 — reading text

Memorandum 450 South Orange Ave, Suite 460 Mark P. Galvin Orlando, FL 32801 Senior Vice President 407.426.9611 Direct mark.galvin@firstsw.com 407.426.7835 Fax Date: September 9, 2014 To: Ernie Padgett, County Administrator Cc: Donald Turner, Facilities Administration Subject: Okaloosa County, FL – Capital Improvement Revenue Note , Series 2014 (Bank Loan Quotes Recommendation) Overview FirstSouthwest, in our role as Financial Advisor, assisted Okaloosa County, Florida (the “County”), in issuing a Request for Quotes (“RFQ”) for a 20 year fixed rate bank loan for an amount not to exceed $25, 000,000. The County on August 20, 2014, under their purchasing guidelines, advertised the RFQ, and made it available to bidders on www.floridabidsystem.com (BidNet). The County also contacted approximately 41 local and national banks to inform them of the RFQ. The purpose of this Request for Quote (RFQ) is to identify the institution that can provide Okaloosa County, Florida (the “County”) with a 20 year tax-exempt loan financing, in the principal amount not exceeding an aggregate of $25,000,000 at the lowest overall borrowing cost, pursuant to certain conditions. The proceeds of the loan will be used to finance the construction, renovations and additions to the Crestview Courthouse, the former Shalimar Annex and the Sheriff’s Shalimar Compound as well as refund the County’s $6 million bond anticipation note, provide for one year of capitalized interest, and to pay cost of issuance associated with the financing. RFP Responses On September 5th, the County received a total of two (2) responses by the stated 4:00 PM Central deadline. Proposals were received from BBVA Compass and SunTrust’s STI Institutional and Government Inc. subsidiary. The proposals are summarized below and on the attached tables. Neither BBVA Compass nor SunTrust proposals were willing to provide a fixed rate loan for the full 20 years. BBVA Compass Bank: Their proposal provides for a 15 year fixed rate with a final maturity on October 1, 2029. The interest rate for this 15 year fixed rate option is an indicative rate of a 3.33% (Subject to Change). This rate is based on interest rates as of 9/5/2014 and includes a 10 year Make-Whole Prepayment Provision. The actual rate will not be locked in until three days prior to closing. The County has the option to lock in the rate for 60 days prior closing for an additional 6 basis points (3.39% indicative rate). Since the loan has not received final bank approval, the County will need to wait approximately 2 weeks after selection to exercise the rate lock option. Until that time the County will be subject to interest rate risk. The prepayment provision includes “Make-whole provision” during the first 10 years and callable at par thereafter. A Make Whole provision, while it allows for prepayment at any time it could subject the County to a significant prepayment penalty if interest rates are lower at the time of prepayment. STI Institutional & Government Inc. (SunTrust): Their proposal provides for a 20 year amortization with the Bank having the option to “Put” or tender the loan back to the County after 10 years. The interest rate under their proposal is 3.48% however, this rate would only be locked in for the first 10 years subjecting the County to both termination risk and interest rate risk. Under the “Put” following the initial 10 year period, the bank would have the option to continue the loan at the same rate, renegotiate a new rate with the County based upon market conditions, or terminate/tender the loan back to the County. The 3.48% rate assumes a locked in rate through October 5 th and includes a Make-Whole Prepayment Provision. The County may purchase the ability to prepay the loan at any time after 3 years without any penalty for an additional 25 basis points (3.73%). A make whole provision could subject the County to a significant prepayment penalty if interest rates are lower at the time of prepayment. The SunTrust proposal requires a cash funded debt service reserve (DSR) account equal to the maximum annual debt service on the loan (approximately $1,822,000). Funding a debt service reserve will significantly lower the amount of funds available for projects. The proposal also includes significant covenant restrictions such as acceleration that could be problematic with the existing bond insurer and the rating agencies. Recommendation Under the BBVA Compass proposal assuming a 3.39% interest rate the County would receive approximately $24,082,000 in construction proceeds and have an estimated annual debt service of $2,272,000. Under the SunTrust proposal assuming 3.48% interest rate, the County would receive approximately $22,238,000 in construction proceeds and have an estimated annual debt service assuming the interest rate remains the same for the full 20 years of $1,820,000. As part of our analysis we also compared the bank loan proposals to a 20, 25, and 30 year bond issue. In sizing the bond issues we assumed a construction project fund of $24,082,000 (same as the BBVA proposal project fund). Based upon a preliminary analysis and the current market conditions, the annual debt service on a 20 year bond issue, net of all costs would be approximately be $1,816,000, $1,614,000 on a 25 year bond issue, and $1,487,000 on a 30 year bond issue. Based on this analysis, First Southwest Company would recommend the County finance the Crestview Courthouse, the former Shalimar Annex and the Sheriff’s Shalimar Compound Shalimar through the issuance of fixed rate bond issue. Also to provide for more future financing flexibility, we would suggest the County consider either a 25 year or 30 year bond issue. Attach is the Summary of Proposals on the following pages 2 Okaloosa County, Florida Capital Improvement Revenue Note, Series 2014 Summary Proposal Responses September 5, 2014 Bank: BBVA Compass STI Institutional & Government, Inc. Size $25,000,000 $25,000,000 Final Maturity October 1, 2029 (15 Years) October 1, 2034 (Put After 10 Years) Tax Status Non-Bank Qualified Non-Bank Qualified Option 1: Make Whole Option 1: Make Whole up to and including tenth (10th) Call Feature / Penalty Option 2: No Prepayment Penalty in whole after 3 years anniversary and par thereafter. (additional 25bps) 3.33%* (Indicative Rate) Option 1: 3.48% (10 Year Put) Fixed Rate Option 2: 3.73% (10 Year Put) Indicative Rates as of 9/5/2014 Once formally accepted the rate can be held for 30 days Date Rate held until Held for 30 days for an additional 3 basis points or held for 60 days for additional 6 basis points. Determination of Taxability Determination of Taxability Tax Language Subject to final credit approval -- The Note will be secured by a senior lien upon and pledge of sales tax revenues -- Audited financial statements within 270 day of FYE and annual budget within 30 days of adoption -- Subject to final credit approval A payment of covenant default shall be subject to a default rate of -- the lesser of 18% or the maximum rate allowed by law 30 / 360 Interest Day Count Method -- Additional info -- Rate Covenant: Loan will be callable if DSC falls below 1.20x Audited financial statements within 180 days of FYE -- -- On Parity with 2009 Bonds and a Debt Service Reserve of 10% par Additional bonds test - 1.35x or 125% of MADS -- Events of default include acceleration upon payment default and other default provisions Interest payments collected via ACH Direct Debit from a SunTrust Bank Account -- Additional bonds test - 1.35x Legal Expense / Bank Fees $7,500 $6,000 Main Contact Katie Sharon Michael Diehl City President / Market Executive Vice President (850) 796-4107 (850) 435-1286 3 Okaloosa County, Florida RFP Response Analysis Summary for: