THE FINANCE AND ADMINISTRATIVE SERVICES DEPARTMENT AND THE PORT EVERGLADES DEPARTMENT RECOMMEND APPROVAL OF THE ABOVE MOTION.
The Resolution attached as Exhibit 1 approves an Alternate Letter of Credit (LOC) from Royal Bank of Canada (RBC) on the Subordinate Port Facilities Refunding Revenue Bonds, Series 2008 as well as other associated documents including an Alternate Reimbursement Agreement and related Fee Agreement which are attached as Exhibits A and B to the Resolution. The Resolution also appoints RBC Capital Markets, LLC as successor Remarketing Agent for the Bonds, approves the associated Remarketing Agreement, and approves the form, execution, and distribution of the Remarketing Circular associated with the transaction. These documents are attached as Exhibits C and D to the Resolution. Additionally, the Resolution delegates to the CFO/Director of the Finance and Administrative Services Department the authority to select a printer for the Remarketing Circular due to the timing of the receipt of the printer bids and Board approval of the transaction documents.
In 2008, the County issued its Subordinate Port Facilities Refunding Revenue Bonds in the par amount of $46,145,000 for the purpose of refunding the Series 1998 Bonds. The 2008 Bonds were issued in weekly variable rate mode with a floating-to-fixed swap whereby the Port pays to a counterparty a synthetic fixed interest rate of 3.642%, and receives from the counterparty a variable rate. This financing structure requires the use of an LOC, which serves two purposes: First, the LOC provides liquidity, whereby the issuing bank will purchase the bonds in the event of a failed remarketing, and second, the LOC provides a credit enhancement to the investor. In this case, the underlying bonds do not currently have a published rating, so they are viewed by investors as having the same credit rating as that of the bank issuing the LOC. RBC has long-term ratings of Aa3, AA-, AA- from Moody’s, Standard & Poor’s and Fitch, respectively.
The County’s Series 2008 Bonds are currently outstanding in the principal amount of $35,735,000 with final maturity on September 1, 2027. The current LOC with the Bank of Nova Scotia (BNS), originally issued in 2008 and renewed in 2011, was for a three-year period with an annual facility fee of 135 basis points, or 1.35% of the outstanding principal amount. This LOC is set to expire on July 8, 2014. Shortly after the 2011 renewal, the County received notice from BNS that the Bank planned to exit the public finance business, and had no intention to renew LOC's beyond existing expiration dates (Exhibit 2). If an Alternate Letter of Credit is not secured in advance of this expiration date, the Trustee on these bonds is compelled to give notice of Mandatory Tender which would require the County to pay all outstanding principal and interest in full, refund the bonds and terminate the swap, or allow the Bonds to become Bank Bonds subject to the Term Loan provisions of the existing LOC. The Term Loan provisions would require the County to repay the principal balance on the loan in quarterly installments over a three-year period.
As the expiration date for the LOC approached, staff reviewed a variety of options in consultation with the County's financial advisor, Stifel, Nicolaus, & Company, Inc. Some of these options did not require a LOC such as refunding the bonds or changing the mode of the bonds to floating or fixed rate as permitted under the current documents; however, these options would necessitate the termination of the swap that is in place, requiring a termination payment of nearly $3.5 million. These options were all determined to be more expensive than replacement of the LOC, which allows the swap to stay in place, avoiding a termination payment.
In evaluating replacement of the LOC, the County solicited proposals from the firms in the Underwriter Library which was approved by the Board on June 11, 2013 (Item No. 55). The lowest fee and most beneficial terms for the replacement LOC were provided by RBC and include a longer term (five-years versus three-years) at a lower fee (92 basis points versus 135 basis points) than is currently being paid to BNS. This results in savings to the Port of $658,441 over the five year term of the LOC.
In addition to the LOC, the County requested proposals from the Underwriter Library for Remarketing Agent services. RBC also provided the lowest bid for these services of 4.5 basis points which results in additional annual savings to the Port of $22,696 over the five year term when compared to the fees paid to the current provider of six basis points. |