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HomeMy WebLinkAboutReg 2014-11-17 Item 6 - Update - Tukwila International Boulevard Redevelopment FinancingCOUNCIL AGENDA SYNOPSIS Meeting Dare Prepared by Ma nor' review Council review 11/17/14 PMc - of a e [ , 11/24/14 PMc 1i L+ MI ,i EirM1 12/01/14 PMc / k' • Resoluti ©n P+1 Ordinance • Bid ITEM INFORMATION ITEM No. 151 STAFF SPONSOR: PEGGY MCCARTHY ORIGINAL AGENDA DATE: 11/17/14 AGENDA ITEM Tr17.I•; A financing proposal $2.25M of short for the TIB term debt and Redevelopment approximately $3.85M Project comprised of approximately of long term debt. 11/17/14 ❑ Motion Attg Date Award ❑ Public Hearinn AN Date Other C,1'I•I iGORY 11 Discussion • Resoluti ©n P+1 Ordinance • Bid Aftg Date Alta Date Afrg Date 12/01/14 Mtg Date Mtg Date 11/17/14 SPONSOR ❑ Council ■ Major ❑ HR ❑ DCD /1 Finance • Fin ❑ IT ❑ P &R ■ Police ❑ Pr SPONSOR'S On September 2, 2014, the Council approved a financing plan for the TIB Redevelopment SUMMARY Project (Resolution #1841). A financing proposal with both a short and a long term component is being presented consistent with the approved plan. Ri ;.t•IIMI D BY ❑ COW Mtg. ❑ CA &P Crnte ❑ Utilities Crnte ❑ Arts Comm. DATE: D. F &S Cmte ❑ `Transportation Cmte Comm. ❑ Planning Comm. CHAIR: ❑ Parks COMMITTEE RECOMMENDATIONS: SPONsoR /ADMrN. COMMITTEE Finance Department N/A COST IMPACT 1 FUND SOURCE EXPENDI.1'URE RE{ }UMRI:I) AMOUNT BUDGETED APPROPRIATION REQUIRED $ $ $ Fund Source: MISCELLANEOUS FUNDING SOURCES, SEE DETAIL Comments: MTG. DATE RECORD OF COUNCIL ACTION 11/17/14 11/24/14 12/1/14 MTG. DATE ATTACHMENTS 11117/14 Informational Memorandum dated 11 -12 -14 Attachments: PFM Memorandum and Exhibits A - E, Resolution 1841 - TIB Redevelopment Project Financing Plan 11/24/14 151 City of Tukwila Jim Haggerton, Mayor INFORMATIONAL MEMORANDUM TO: Councilmembers Mayor Haggerton FROM: Peggy McCarthy, Finance Director DATE: November 12, 2014 SUBJECT: Tukwila International Boulevard (TIB) Redevelopment Project Financing Proposal ISSUE Consider the TIB Redevelopment Project financing proposal for approximately $2.25M in short term debt and approximately $3.85M in long terra debt; the ordinances supporting the proposal will be presented for consideration at the November 2491 Committee of the Whole Meeting and for approval at the December 1, 2014 Regular Council meeting, BACKGROUND Year -to -date, $3.75M has been spent on three motel purchases. Interim financing has been provided through a $1.9M General Fund interfund loan to the Facilities Fund 302. The financing proposal presented will provide permanent financing for the project; the structure and terms of the proposed debt is based on the TIB Redevelopment Project financing plan approved by Council at the September 2, 2014 Regular Council meeting. This is the next step in the financing plan process. DISCUSSION Upon plan approval, the City's financial advisor, PFM, obtained financing proposals from approximately ten banks. Attached are two documents prepared by PFM - a memorandum that summarizes the proposal process and results, and Exhibits A — E that compare proposal terms and provide other pertinent information, The proposals selected are as follows: • Short term component • Long term component 3 -year line of credit Bank of the West 20 -year bonds Zions First National Bank FINANCIAL IMPACT The estimated annual debt service for the proposed debt compares favorably with the projected debt service reflected In the 2015 -2020 Financial Planning Model and, in comparison, yields a small savings, as demonstrated below. Estimated Debt Service - in Thous $ 2015 2016 2017 2018 2019 2020 Total Financial Planning Model 201 5 -2020 $ 313 $ 313 $ 287 $ 287 $ 287 287 $ 1 ,774 Proposals: Bank of the West Zions National Bank Proposed debt total Estimated debt service savings 28 28 28 84 260 260 260 260 260 260 1,560 288 288 288 260 260 260 1,644 $ 25 $ 25 $ (1) $ 27 $ 27 $ 27 $ 130 RECOMMENDATION The Council is being asked to consider the financing proposal; the ordinances supporting the proposal will be presented for consideration at the November 24th Committee of the Whole Meeting and for approval at the December 1, 2014 Regular Council Meeting. ATTACHMENTS PFM Memorandum Update on Financing Plan for TIB Redevelopment Project PFM Exhibits A - E Resolution 1841 - TIB Redevelopment Project Financing Plan 153 54 PFM The PFM Group €Inanlal & Inveslmenl Advlsars City of Tukwila, Washington Update on Financing Plan for Tukwila International Boulevard Redevelopment Project As of November 11, 2014 Overview Upon approval of the Financing Plan by City Council on September 2 "d, PFM proceeded to seek financing proposals for the Tukwila International Boulevard Redevelopment project: specifically, a short term line of credit (approximately $2.25 million) and a long term 20 -year bond (approximately $3.85 million). PFM contacted approximately ten banks, on behalf of the City, and received five proposals for the short term line of credit and four proposals for the long term component. The Line of Credit Five banks provided proposals for the the line of credit component of the financing with interest rates ranging from 1.23% to over 3.0 %. The lowest interest cost proposal was provided by Bank of The West ( "BOTW "), with an indicative interest rate of 1.23% for a term of 3 years (interest only). A summary of competitive proposals and related terms is attached as Exhibit A. The indicative interest rate of 1.23% from BOTW is based on the current LIBOR rate (0.23 %) plus 1.00 %. This rate will be variable and reset every 1, 3, or 6 months, as determined by the City's Finance Director at the end of each reset period. A history of LIBOR rates is shown in Exhibit B. The City may prepay the line of credit at any time, except within the term of each 1, 3 or 6 month LIBOR commitment period. The rate provided by BOTW is in the same range as discussed previously with the Committee. The Financing Plan proposal assumed a rate of 1.25 %. PFM recommends that the City move forward with BOTW for the short term line of credit, subject to negotiation of final terms and covenants. The Long Term Component Four banks submitted proposals for the long term component of the financing. The indicative rates ranged from approximately 3.00% to 6.34 %. The lowest rate, estimated at approximately 3.00 %, was submitted by Zions First National Bank ( "Zions "). A summary of competitive proposals is attached as Exhibit C. The proposal submitted by Zions is made up of two components, with different rate modes. The first ten maturities would have fixed interest rates (similar to a fixed rate bond issue); these rates will not change for the duration of the financing. The second component is a term bond that matures in 20 years, with principal amortizing in years 11 through 20. The interest rate for the second component would be fixed for the first five years, and would reset every five years based on a specified index. The City may choose to view the financing as a Series A and a Series B. Series A is a 10 year fixed rate bond for approximately $1.6 million and Series B is a 20 year term bond for approximately $2.2 million that pays interest -only for the first 10 years, and amortizes over the last 10 years of the 20 year term. The Series B rate is variable, with the rate to be reset each 5 years based on the 5 -year Advanced Fixed Bullet Rate quoted by the Seattle Federal Home Loan Bank (currently 1.85 %), divided by 0.65. 1 155 PFM The PFM Group €Ina nolal & Inveslmenl Advlsars Annual debt service under this financing structure will be approximately $260,000 for the first 5 years. The first rate reset for Series B would occur in 2019. Exhibit E shows historical 5 -year Seattle Federal Home Loan Bank rates. We compared the Zions proposal to a publicly offered 20 -year fixed rate bond issue, which would have estimated annual debt service of $281,000, as compared to $260,000 for the Zions proposal, (based on current market rates.) If the rates were reset at a rate 0.70% higher in each of the three resets (i.e. the 5- year index at approximately 2.55% for each rate reset), debt service would be equal to the potential bond offering. Estimated debt service for a bond offering in the current market is substantially the same as the estimated debt service in proposed Financing Plan. Although the Zions proposal exposes $2.2 million of financing to interest rate risk after five years, it has the advantage of initial lower debt service costs, the ability to prepay after five years, and a simpler implementation process. The rate exposure is limited to the movement of the 5 -year Seattle Home Loan rate, correlated with the 5 -year Treasury rate (shown on Exhibit E), as compared to higher long term rates today. PFM recommends moving forward with Zions bank for the long term portion of this financing. We look forward to discussing these rate proposals and our recommendations on November 17th Susan Musselman, Director Duncan Brown, Senior Managing Consultant Marc Ragan, Analyst 156 2 157 158 Zions Bank Fixed rate 1.70% Q Z %OL' I• 100% drawn at closing Q Z Semiannual interest payments O N Lo ocT co 64 $5,625 30 days notice Require paying agent (est. $300 per year) 3 -years with built in 3 -year optional extension 3 -year optional extension Redemption provision language "Moneys received from the sale of the acquired project property to be used to redeem bonds" If Zions is used as paying agent the rates will be decreased by 5bps (difference of $1,125 annual interest) rBank of the West LIBOR plus credit spread o 9 1.23% (1.38% including fees) Draws may be made in increments of $250,000 0.50% ($210 interest cost per month on $500,000 undrawn) Quarterly interest payments r N 64 o co Lri E4 Prepay at any time. A breakage cost may be incurred if a LIBOR loan is prepaid mid - contract Not to exceed bank counsel of $10,000 3 -years with term out option 1 -year term out option The Base Rate is the higher of the Bank's prevailing Prime Rate or the Federal Funds Rate plus 0.5 %. The Prime Rate is currently 3.25% Cashmere Valley Bank 3 -month LIBOR plus credit spread 0 CD 0 CO Draws can be made on any business day up to the par amount until December 1, 2017 No undrawn fee Semiannual interest payments $36,225 $5,625 15 day notice, par plus accrued interest No fees 3 -years with term out option 10 -year term out option Rate Used for Finance Plan Fixed Rate of 1.25% Q z 1.25% Draws can be made on any business day up to the par amount until December 1, 2017 No undrawn fee Monthly interest payments $28,125 No fees 3 -years Interest Rate Credit Spread Indicative Rate Draw Feature Undrawn fee Payment Frequency Estimated Annual Debt Service Interest Cost per 0.25% Prepayment N co to LL Length of Term Term Out terms Additional Comments BOR Rate Trends Exhibit B -L BOTW $ 27,733 N co O • (0 O 28,251 177,047 27,514 27,886 28,631 Cashmere $ 36,272 103,612 36,801 185,597 36,064 36,436 37,181 Rates from 11/10/2014 Current 1 Avg. 1993 - Present 2 -yr Avg. x CR C Min Prior Year 5 Years Prior C C (0 0.33% 3.35% 0.38% 0 N- N- 0.32% 0 Ln ('') O 0 LC) O 3M 0.23% O N (.6 O N O O CO (O 0.22% 0.24% o f_ N O � 0 , O 0 N � (ri 0 o0 � O 0 N 00 CO 0 Ln , O 0 - � O 0 CN N O Rates from 11/10/14 Current Avg. 1993 - Present 2 -yr Avg. L Max (20 yrs.) Min (20 yrs.) Prior Year 5 Years Prior c `C) O cd CO M (6 BOA cn 4) 0 a) c6 6 Month LIBOR 0 0 L 0 0 0) 0 u) a) OA � CO W L 0 3 10,1, - 0 0 a) c c = ,- O, o °L N co N m Efl '6 `b, c c /Oh O c4 N N = N N C7 c -7O cz • E c _c N co .e cc -0 0 -1O w L -i ro O o t' E o wo 0� -70 Q Q �i N i0.,2, lo 159 160 Zions Bank First 10 maturities fixed at rates between 0.85% - 4.86% Last 10 maturities rate is reset every 5 years at Seattle Fed Home Loan 5 year advance rate /0.65 1st 10 maturities fixed rate last 10 maturities variable rate with 5- year resets — 20 -year total term • 1st 10 years — 0.85% - 4.86% • 2nd 10 years- 2.85% $260,000 If Zions is used as paying agent rates will be reduced by 5bps (approx. $2,000 debt service savings per year) O O o ai N oo 69 30 days notice commencing 2019 Require paying agent (est. $300 per year) N 0) 0 $3,596,446 Columbia Bank Fixed rate @ 4.34% 15 -year fixed rate with 15- year amortization 4.34% Q Z 0 O O Lo Lo co Prepayment available after 6/1/2018 No fees $5,401,857 0 CO cci in o Cashmere Valley Bank Resets every 5 years at 5 -Year Federal Reserve Swap Rate (1.91 %)+ Credit Spread 20 -year amortization, rate reset every 5 years • 1st5 years - 1.25% • 2nd 5 years - 1.50% • 3rd 5 years - 1.75% • 4th 5 years - 2.00% • 1st 5 years - 3.06% • 2nd 5 years - 3.31% • 3rd 5 years - 3.65% • 4th 5 years - 3.81% • 1st 5 years - $264,000 • 2nd 5 years - $267,000 • 3rd 5 years - $270,000 • 4th 5 years - $272,000 • 1st 5 years - $325,000 • 2nd 5 years - $332,000 • 3rd 5 years - $335,000 15 day notice, par plus accrued interest No fees $5,376,075 $3,891,667 Bond Offering All -in TIC of 3.82% 20 -year bond offering All -in TIC of 3.82% o o 0 00 N 64 o o 0 N co (0 64 10 -year par call Cost of issuance $73,500 $5,631,245 $3,891,703 Rate Used for Finance Plan 0 0 03 Oi U F- C Q 20 -year bond offering All -in TIC of 3.90% 0 0 (0 oo N 69- 0 0 0 (.6 co co d')- 10 -year par call Cost of issuance $73,500 $5,740,277 $3,955,026 Interest Rate Length of Term Credit Spread Indicative Rate Estimated Annual Debt Service 20 years Estimated Annual Debt Service 15 years Prepayment CO 0) 07 u- Total Gross Debt Service Total PV Debt Service v, w s CD 7 � t CI 0 0 0 0 0 In 00 00 In In * 00 DD 00 00 GD * * * * * * * * * * * * * * * N N N N N O O O O O O O O O O O O O O O O O O O O N N 00 O L0 m 01 u M 0) O O N N m m 10 c-I N N N N N N N N N (0 N 00 Ol O . -I N m 00 0l 0 . -I N CO Cr N N N N N N N N (-4 m m m m m O O O O O O O O O O O O O O O O O O O O N N N N N N N N N N N N N N N N N N N N \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ rl .--I c-1 rl r-I .—I rl rl c1 ri rl c1 c—I rl c1 a-1 %-1 \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ N N N N N N N N N N N N N N N N N N N N c-I rl c-I rl ci rl ci rl ci rl ci rl ci rl ci rl ci rl ci rl • 0 0 0 0 0 0 0 0 .D M N M lD 00 N CT, M 00 O --� N N M M 4 4 4 0 0 0 0 0 0 0 0 0 0 N CO- O M (O O C6 N 0) f. LO Cn LO CO CO r- � CO O r- 00 0) ON N N N N 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 N N N N N N N N N N O O O co ** Interest rate is reset every 5 years at the 5 -year Seattle Federal Home Loan Bank rate. The first reset is in 2019. 161 162 ► 0 0 0 O O O O O O O O O 00 N l0 L(1 4 M Ni r-I O 5 -Year Federal Home Loan Bank (Seattle) —5-Year Federal Reserve Swap 5 -Year Treasury Note City of Tukwila Washington r Resolution No. /i1 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, ADOPTING A FINANCING PLAN FOR THE URBAN RENEWAL TUKWILA INTERNATIONAL BOULEVARD (TIB) REDEVELOPMENT PROJECT. WHEREAS, the City of Tukwila plans to, and has, acquired certain improved property on Tukwila International Boulevard for the purpose of redevelopment; and WHEREAS, as part of the redevelopment plan, the City will demolish the improvements and offer the vacant and for sale, subject to certain development conditions; and WHEREAS, it is estimated that the property acquisitions will cost approximately $6,100,000; and WHEREAS, the City estimates it may take up to three years to sell the property, which is estimated to produce proceeds of $2,250,000; and WHEREAS, while the City expects the redevelopment to provide Tong term strategic benefit to the City, the transactions are expected to result in a net cost to the City of $3,850,000; and WHEREAS, the City wishes to finance the cost of the acquisition of property in order to amortize the cost over a period of 20 years; and WHEREAS, the City would like to have the ability to use proceeds from the sale of properties to redeem or prepay debt in order to reduce overall interest cost; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, HEREBY RESOLVES AS FOLLOWS: w.lword Processing \Resolutions\Financing Plan for Urban Renewal T1$ Project 8 -14 -14 PM:bjs Page 1 of 2 163 The City Council hereby adopts a financing plan for the Urban Renewal Tukwila International Boulevard (TIB) Redevelopment Project whereby the City of Tukwila will secure a 3- to 5 -year $2,250,000 taxable line of credit to finance acquisition costs estimated to be recoverable through future property sales, and whereby a 20 -year $3,850,000 taxable bond will be issued for the estimated net acquisition cost to the City. PASSED BY THE CITY COUNCIL F THE CITY OF TUKWILA, WASHINGTON, at a Regular Meeting thereof this day of cf2 -,- -,o /TS bQ/- , 2014. ATTEST /AUTHENTICATED: F �1 Christy O °Flake )4/0.11 , MMC, City Clerk De'Sean Quinn, Council President APPROVED AS TO FORM BY: r „fez Rachel Turpin, City Attorney Filed with the City Clerk: e -41-i Passed by the City Council: 01 - -I Resolution Number: ail 1 W:1Word ProcossinglResolutions \Financing Plan for Urban Renewal TIB Project 8 -14 -14 PM bjs 164 Page 2 of 2