TO: Honorable Mayor & Members of the North Port Commission
FROM: Peter D. Lear, CPA, CGMA, City Manager
TITLE: Resolution No. 2020-R-16 Accepting a Proposal of Truist Bank to Provide the City with a Loan in Order to Refund a Portion of the City's Outstanding Transportation Improvement Assessment Bonds, Series 2013.
Recommended Action
Approve Resolution No. 2020-R-16 accepting a proposal of Truist Bank to provide the City with a loan in order to refund a portion of the City's outstanding Transportation Improvement Assessment Bonds, Series 2013.
Background Information
As financial advisor for the City of North Port, Florida (the City), PFM Financial Advisors LLC., (PFM) is assisting the City in refunding the outstanding Transportation Improvement Assessment Bonds, Series 2013. A bank loan proposal (2020 Note) is being recommended by City staff for City Commission approval. The 2020 Note will be issued to advance refund the callable portion of the City’s outstanding Transportation Improvement Assessment Bonds, Series 2013 for debt service savings.
Under current tax law, tax-exempt advance refundings are no longer permitted. However, interest rates have declined to historic low levels, which provides the City with an opportunity to undertake an advance refunding of the 2013 Bonds via the issuance of a taxable note. The taxable interest rate on the 2020 Note may be converted to its tax-exempt equivalent within 90 days of the optional call date of the 2013 Bonds, which is July 1, 2023. Based on the desire to proceed in an expedited manner, reduced costs of issuance, and recent aggressive bids received from banks for comparable transactions, PFM recommended the City pursue a privately placed direct bank loan, which was expected to be an efficient and cost-effective method of financing.
At the City’s direction, PFM issued a request for proposals (RFP) on February 27, 2020 to a list of local, regional and national financial institutions to identify a potential lender which could provide the City with a fixed rate, taxable term loan at the lowest overall borrowing cost, pursuant to certain conditions as determined by the City. Prior to the submittal deadline (2:00PM March 26, 2020) the City received four (4) proposals from the following institutions: Capital One Public Funding, LLC; Key Government Finance, Inc.; Sterling National Bank; and SunTrust Bank (now Truist Bank).
Based on PFM’s review and discussions with City staff and Bond Counsel, it was determined that SunTrust Bank (Truist) provided the best combination of interest rate options and terms most favorable to the City. Truist offered an option for a fixed, taxable interest rate of 2.91% that would be held through a closing date on or before May 7, 2020. This rate provides a par call option on or after July 1, 2030 which allows the City to refund the 2020 Note in the future without penalty.
If approved, the issuance of the 2020 Note will result in an approximate $1,570,000 in net present value debt service savings, or 5.4% of the refunded bond’s par amount. If the City enters into an agreement that converts the taxable interest rate on the 2020 Note to its tax-exempt equivalent of 2.30%, then the net present value debt service savings will increase to approximately $3,000,000, or 10.5% of the refunded bond’s par amount.
Aggregate cash flow savings allow for an acceleration of the principal repayment, that when combined with the release of any accumulated excess assessment collections, will shorten the final maturity of the 2020 Note. The preliminary structure for the 2020 Note has a final maturity of July 1, 2037, which is two (2) years earlier than the stated final maturity on the 2013 Bonds. The shorter term will allow the City to discontinue the levy of assessments pledged for the 2013 Bonds earlier than otherwise anticipated.
The associated agreements with this issue have been reviewed by Legal as to form and correctness.
Strategic Plan
Affordability, Growth and Development
Financial Impact
If the Resolution is approved, the citizens of North Port will realize approximately $1,570,000 in net present value debt service savings over the term of the note. If the City enters into an agreement to convert the taxable interest rate on the 2020 Note to its tax-exempt equivalent of 2.30%, then the net present value debt service savings will increase to approximately $3,000,000 over the term of the note.
Procurement
N/A
Attachments:
1. Resolution
2. Exhibit A - Bank Proposal
3. Exhibit B - Form of Loan Agreement
4. Exhibit C - Form of Forward Delivery Agreement
5. Exhibit D - Form of Escrow Deposit Agreement
Prepared by: Kimberly Ferrell, CPA, CGFO, CPM, Finance Director
Department Director: Kimberly Ferrell, CPA, CGFO, CPM, Finance Director