HomeMy WebLinkAboutContract 45387 Form No., 148(t); Rev'd 1/10/03
AGREEMENTFOR CJTY SECM.MY
ARBITRAGE REBATE COMPLIANCE SERVIC"
13ETWEEN
CITY OF FORT WORTH', TEX-AS
(Hereinafter Referred to as the"Issuer")
AND
FIRST SOUTHWEST ASSET MANAGEMENT, INC.
(Berelinafter Referred, to as"First Southwest")
It is understood and agreed, that the Issuer, in connection with the sale and delivery of certain bond,s, notes, certificates, or
other tax-exempt obligations (the"Ohligations"), will have the need to determine to what extent, if any, ]twill be required to
rebate certain investment earnings (the amount of such rebate being referred to herein as the "Arbilragre Amount') from the
proceeds of the Obligations to the United States of America pursuant to the provisions of Section 148(f)(2) of the Internal
Revenue Code of 1986, as amended (the "Codev"). For purposes of this Agreement, 'the to "Arbitrage Amount"' includes
payments made under the election to pay penalty in lieu of rebate for a qualified construction issue tinder Section 148(f)(4) of
the Code.
The terms and conditions contained herein represent the agreement(the"Agreement')between the Issuer and,First Southwest
effective at the date of its acceptance as provided for herein below.
I This Agreement shall apply to all issues of tax-exempt Obligations delivered subsequent to the effective date of the
rebate requirements under the Code, except for (i) issues which qualify for exceptions,to the rebate requirements in
accordance with Section 148 of the Code and related Treasury regulations,, or (ii) issues excluded by the Issuer in
writing in accordance with the further provisions ons hereof, (iii)l new issues effected in a fashion whereby First
Southwest is unaware of the existence of such issue, (iv) issues in which, for reasons outside the control of First
Southwest, First Southwest is unable to procure the necessary in-fori-nation required to perform such services.
Covenants of First Southwest
2. First Southwest agrees to provide our professional services in determining the Arbitrage Amount with regard to the
Obligations. The Issuer will assure and pay the fee of First Southwest as such fee is set out in Appendix A attached
hereto. First Southwest shall not be responsible for any expenses that the parties mutually agree on a case-ley-case
basis are extraordinary in nature and that are incurred on behalf of Issuer in corinection with providing such
professional services, including any costs incident to litigation, mandamus action, test case or other similar legal
actions.
3. First Southwest agrees to perform the following duties, in connection with providing arbitrage rebate compliance
services-.
a. To cooperate fully with the Issuer in reviewing the schedule of investments rnade by the Issuer with (i)
proceeds from the Obligations, and (ii) proceeds of other funds of the Issuer which, under Treasury
Regulations Section 1.148, or any successor regulations thereto, are subject to the rebate requiremients, of
the Code,
b. Tol perform,or cause to be performed,consistent with the Code and the regulations promulgated thereunder,
calculations to determine the Arbitrage Amount Linder Section 148(t)(2)of the Code; and
C. To provide a report to the Issuer specifying the Arbitrage Amount based upon the investment schedule, the
calculations of bond yield and investment yield, and other information deemed relevant by First Southwest.
In 'Undertaking to provide the services, set forth in paragraph 2 and this paragraph 3, First Southwest does
not assume any responsibility for any record retention requirements which the Issuer may have under the
Code or other applicable laws, it being understood that the Issuer shall remain responsible for compliance
with any such record retention requirements.
OFFICIAL RECORD
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OF' s0RECORD
CITY SECRETARY
Pa I o
,ge f 6 27 1014 752864
F";w WORTH, TX RECEIV�Di rE
Coa versants of the Issuer
4. In connection with the performance of the aforesaid duties,the Issuer agrees to the followLing:
a. The fees due to First Southwest in providing arbitrage rebate compliance services shall be calculated in
accordance with Appendix A attached'hereto. The fees associated with services relating to Obligations will
be payable upon delivery of the report prepared by First Southwest for each issue of Obligations during the
term of this Agreement. The fees associated with services relating to other funds of the Issuer that, under
Treasury Regulations Section 1.148, or any successor regulations thereto, are subjject to the rebate
requirements will be payable within thirty (301) days of delivery of a report prepared by First Southwest
regarding such other funds during the term of this Agreement.
b. The Issuer will provide First Southwest all information regarding the issuance of the Obligations and the
investment of the proceeds therefi-orn, and any other information necessary in connection with calculating
the Arbitrage Amount., First Southwest will rely on the information supplied by the Issuer without inquiry, it
being understood that First, Southwest will not conduct an audit or take any other steps to verify the
accuracy or authenticity of the information 'provided by the Issuer.
C. The Issuer will notify First Southwest in writing of the retirement, prior to the scheduled maturity, of any
Obligations included under the scope of this Agreement within 30 days of such retirement. This notification
is required to provide sufficient time to comply with Treasury Regulations Section 1.148-3(g) which,
requires-final payment of any Arbitrage Amount within 60 days of the final retirement of the Obligations. In
the event the Issuer fails to notify First Southwest in a, timely manner as provided hereinabove, First
Southwest shall have no further obligation or responsibility to provide any services under this Agreement
with respect to such retired Obligations.
5. In providing the services set forth in this Agreement,, it is agreed that First Southwest shall not incur any liability for
any error of judgment made in good I"alth by a,responsible officer or officers,thereof and,except to the [Limited extent
set forth in this paragraph, shall not incur any liability for any other errors or omissions,, unless it shall be proved that
such error or omission was a result of the negligence, gross negligence or willf-ul, misconduct of said officer or
officers. In the event a payment is assessed by the Internal Revenue Service due to an error by First Southwest, the
Issuer will be responsible for paying the correct Arbitrage Amount and First Southwest's liability shall not exceed
the amount of any penalty or interest imposed on the Arbitrage Amount as a result of such error.
Obligations Issued Subsequent to Initial Contract
6. The services contracted for under this Agreement will automatically extend to any additional Obligations (including
fi.nancing lease obligations) issued during the term of this Agreement, if such Obligations are sub V ect tote rebate
requirements, under Section 1480(2) of the Code. In connection with the issuance of additional Obligations, the
,Issuer agrees to the following:
a. The Issuer will notify or cause the notification, in writing to First Southwest of any tax-exempt fi-nancilor
(IncludIng,financing lease obligations) issued by the Issuer during any calendar year of this Agreement, and
will provide First Southwest with such information regarding such Obligations as First Southwest may
I
request in connection with its performance of the arbitrage rebate services contracted for hereunder. If such
notice is not provided to First Southwest with regard to a particular issue, First Southwest shall have no
obligation to provide any services hereunder with respect to such issue.
b. At the option of the Issuer, any additional. Obligations to be issued subsequent to the execution of this
Agreement may be excluded from the services provided for herein. In order to exclude an issue, the Issuer
must notify First Southwest in writing of their intent to exclude any specific Obligatiolls, from the scope of
this Agreement, which exclusion shall be permanent for the full life of the Obligations; and after receipt of
such notice, First Southwest shall have no obligation to provide any services under this Agreement with
respect to such excluded Obligations.
Page 2,of 6 75286-14
I
5
Effective Date of Agreement
7. This Agreement shall, remain in effect for a period of one (1) year, effective August 1, 2011'3 and ending
July 31,2014, with two (2) options to renew for a period Of One (1) year, provided, however,, that this Agreement
may be terminated with or without cause by the Issuer or First Southwest upon thirty(30)days prior written notice to
the other party. In the event of such termination, it is understood and agreed that only the amounts due to First
Southwest for services provided and extraordinary expenses incurred to and including the date of termination will be
due and payable. No penalty will be assessed for termination of this,Agreement. In the event this Agreement expires
or is terminated prior to the completion of its stated: term, all records provided to First Southwest with respect to the
,investment of monies by the Issuer shall be returned to the Issuer as soon as practicable following written request by
Issuer. I n a ddition, the parties hereto agree that, upon term ination of this Agreem,ent, ',First Southwest shall have no
continuing obligation to the 'Issuer regarding any arbitrage rebate related services conternplated herein, regardless of
whether such services have previously been undertaken,completed or perfori-ned-
Acceptance of Agreement
8. Thls Agreement is submitted in duplicate originals. When accepted by the Issuer in accordance with the terms
hereof`, it, together with Appendix A attached hereto, will constitute the entire Agreement between the Issuer and
First Southwest for the purposes, and the consideration herein specified. In order for this Agreement to become
effective, it must be accepted by the Issuer within sixty (60) days of the date appearing below the signature of First
Southwest's authorized representative hereon. After the expiration of such 60-day period, acceptance by the Issuer
shall only become effective upon delivery of written acluiowledgenient and reaffirmation by First Southwest that the
terms and conditions set forth in this agreement remain acceptable to First Southwest.
Governing Law
9, This Agreement will be governed by and construed in accordance with the laws of the State of Texas, without regard
to its principles of conflicts of laws.
Acceptance will be in on both c�iesand the return,of one executed cop to First Southwest.
Respectfully submitted,
FIRST SOUTHWEST ASSETMANAGEMENT,, INC.
ORD
By-
1rAW
31
IM
f-fill A. Feinberg,Chairman&CO f eCUtive Officer
Wolff
Date
ISSUER'S ACCEPTANCE CLAUSE
The above and foregoirig is hereby in all things accepted and approved,by
day of
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By —---—-------
Authorized Representative
A P P R�C.)WED!NWMW
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Page 3 of 6
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APPENDIX FEES
The Obligations to be co vered rruutrall °u1ndeu this contract include all issues of t x—exeu u t obtigations delivered suvubse ueuat t tl e
effective dates of the rebate requirements',eats',under the "ode,except as suit in Section I off"the Agreenient.
The fee for any Obligations e this contract shall on,ly,be payable if a coniputation is required d undeu.. Section 148(t)(2)o th..0
Code. In the event that any of the Obligations fall within an exchlSuoru to the computation reqUirement as deloused by Section 14
of the Code or related regulations rations quad no,calculations were req uur d by First t Southwest to masks that determination,mination,a ere will be
charged for such issue. For example, certain obligations ire excluded tr gyms the rafts computation reqUiLrement if the proceeds
spent are within specific tune periods.In the oat a particular issue ft,Obligations fulfills the xclrusuo'u re uirements ofthe Code
or related regulations, the specified�� will � ��u � �� First S uhwes. if no calculations, were required to u .e the
First Southwest's fee for arbitrage rebate services is, based upon a fixed annual fee per a LIC". 17 he annual fee is charged based
upon the ritunber of years,tla ut piroceeds e Est subject to rebuts from the delivery date otthe issue the computation date.
First Southwest's fees,are payable upon e e y of the report,u , 'Te ii-st report will be unade following one year frarru the date of
delivery of the Obligations,and on each computation date thereafter during the term of the Agreement. The fees for computations
of the Arbitrage Amount which encompass more, or less, 'than one Computation Year shall be prorated to reflect lect the longer, or
door ,er,period of work rf rr ied during that period.
°.l"lae fee for each of the Obligations inclusuded lug this,contract sh ill be bused on,the table below.
Additionally, due to significant time SaVing efficiencies urealized when linvestnie t information is sup imitted *in an
electronic format, First Southwest passes the savings, to lts clients by offering a 1 0% reduction ini its fees if
information is provided in spreadsheet or electronic text ells forinat.
DescripitioD Annual Fee
1 N �L FEE PER TST N LNG EBB O L TI N
e .Var ll,e/ lu sting Route Bond;Issues
Comm.0 led Funds An,a,lysis&Calculations
Parity deserve Fund allocations
Debt,Service Fund Calculations itaClu.udiung earnings test when required)
'Fransferred Proceeds Calculations
Universal Cap Cal uul .t runs
Yield Restriction,A.analysis& Calculations
(f(,,)r yield restricted Project ect Funds Reserve Funds, Escrow Fund tc.w INCLUDED
Spend ing lExc tir a n lysis& Calcul tiouls
Preparation of all Required ire d IRS Paperwork or,Making a Rebate Payment Yield Reduction
Payment
t
Retention of Records Provided for Arbitrage C0111PLItations
IRS Audit Assistance
Delivery f l Year That Meets,ttie'l1ning Requirements ofthe Audit
Sup~ edUlle
On-Site Meetitiligs, as l ru rii 'to Discuss Calict l ution Results Subsequent.Planning Items
OTHER SERVICE ILA
IRS Reifund Request— Update calculation,
prepare refund regUest package,and assist iss e.u-as necessary $750
in responding to su sequent l S
lino loruraation Requests
Page 4 of 6 752,861-:4
r-,.,XPLANATION OF TERMS.-
a. Computation Year-, A"'Computation Year"represents a one year period fi-ors the delivery date of the issue to the date
that is one calendar year after the delivery date, and each sublsequent one-year period thereafter. Therefore, if a
calculation is required that covers more than one "computation year,'"" the annual fee is multiplied by the number of
computation years contained in the calculation being performed. If a calculation includes a portion of a computation
year,i.e.,if the calculation includes, I '/-.)computation years,then,the base fee will be multiplied by 1.5.
'b. Electronic Data Submission: The data should be provided electronically in NS Excel or ASCII text file (comma
delimited text preferred) with the date, description,, dollar amount, and an activity code if not in debit and credit
format)on the same line in the file.
c. Variable Floating Rate Bond Issues: Special services are also required to perform the arbitrage rebate calculations
R)r variable rate -bonds. A bond is a variable rate bond if the interest rate paid on the bond is dependent upon an
index, which is subject to changes subsequent to the issuance of the bonds. The computational requirements of a
variable rate issue are more complex than those olf a fixed rate issue and,accordingly, require significantly more time
to calculate. The additional complexity is primarily related to the computation of the bond yield, which must be
calculated on a "bond year" basis. Additionally, the regulations provide certain flexibility in computing the bond
yield and determining the arbitrage amount over the first IRS reporting period; consequently, increased calculations
are required to determine w1lich bond yield calculation produces the lowest,arbitrage amount.
d. Commingled Fund Allocations-, By definition, a commingled fund is one that contains either proceeds of more
than one bond issue or proceeds of a bond issue and non-bond proceeds (i.e., revenues) of S25,000 or more. The
arbitrage regulations, while permitting the conu-ningling of funds, require that the proceeds of the blond issue(s) be
"carved out" for purposes of determining the arbitrage amount. Additionally, interest earnings must be allocated to
the portion of the commingled fund that represents proceeds of the issues) in question. Permitted "safe-harbor"
methods (that is, methods that are outlined in the arbitrage regulations and, accordirigly, cannot be questioned by the
IRS under audit), exist for allocating expenditures and interest earnings to issues in a commingled fund. First
Southwest,uses one of the applicable safe-harbor methods when doing these calculations.
e. Debt Service Reserve Funds: The authorizing documents for, many revenue bond issues require that a separate
fund be established (the "Reserve Fund") into which, either bond proceeds or revenues are deposited in an amount
equal to some designated level, such as average annual debt service on all parity bonds. 'J"his Reserve Fund is
established for the benefit of the bondholders as additional, security for payment on the debt. In most cases, the
balance in the Reserve, Fund remains stable t1iroughout the life of the bond issue. Reserve Funds, whether funded
with bond proceeds or revenues,must be included in all rebate calculations.
f. Debt Service Fund Calculations,-,, Issuers are required under the regulations to analyze the invested balances in their
debt service funds annually to determine whether the fund depletes as required during the year and is therefore,
"bona fide" (i.e., potentially exempt from rebate in that year). It is not uncommon for surplus balances to develop in
the debt service fund that services, an issuer's tax supported debt, particularly due to tirning differences of when the
funds were due to be collected versus when the funds were actually collected. First Southwest performs this formal
analysis of the debt service fund and, should it be deterniined that a surplus, balance exists 41 the fund during a given
year, allocates the surplus balance among the various issues serviced by the fund in a marmer that is acceptable under
IRS review.
g. Earnings Test for Debt Service "Funds: Certain types of bond issues,require an additional level of analysis for the
debt service fund, even if the fund depletes as required under the regulations and is "bona fide." For short-term,
fixed rate issues, private activity issues, and variable rate issues, the regulations, require that an "earnings test" be
performed on a bona fide debt service fund to determine if the interest earnings reached $100,000 during the year. In
cases where! the earnings reach or exceed the $100,000 threshold, the entire fund (not just the surplus or residual
portion) is subject to rebate.
h. Transferred Proceeds,Calculations: When a bond issue is refinanced(refunded) by another issue, special, services,
relating to"transferred proceeds" calculations may need to be performed. Under the regulations, when proceeds of a
refunding issue are used to retire principal of a prior issue,, a plro-rata portion of the unspent proceeds of the prior
issue becomes subject to rebate and/or yield restriction as transferred proceeds of the refUD.ding issue. The refunding
issue essentially "adoplts" the unspent proceeds of the prior issue for purposes of the arbitrage calculations. These
Page 5 of 6 752863
calculations are required under the regulations to ensure that issuers continue to exercise due diligence to complete
the project(s)for which the prior bonds were issued.
i. Universal Cap-, Current, regulations, provide an overall limitation on the amount of gross proceeds allocable to an
issue. Simply,stated,, the value of investments,allocated to an issue cannot exceed the value of all outstanding bonds
of the issue. For example, this situation can occur if an issuer encounters significant, construction delays or enters,
into titigation with a contractor. It may take months or even years to resolve the problems, and begin or resume
spending the bond proceeds; ho�wever, during this time the debt service payments are still being paid, including ally
scheduled principal payments. Thus, it"s possible for the value of the investments purchased with bond proceeds to
exceed the value of the bonds outstanding. In such cases, a`ode-allocation's of proceeds may be requi red to comply
with the limitation rules outlined in the regulations.
j. Yield Restriction Analysis/Yield Reduction Computations,.- The IRS strongly encourages issuers to spend the
proceeds of each bond issue as quickly, as possible to achieve the governinental purpose for which the bonds were
issued. Certain types of proceeds can qualify for a "ternporary period," during which tune the proceeds may be
invested at a yield higher than the yield on the bonds without jeopardizing the tax-exempt status of the issue. The
most common temporary period is the three-year temporary period for capital project proceeds. After the end of the
temporary period, the proceeds mUst be yield restricted or the issuer must remit the appropriate yield reduction
payment when due. First Southwest performs a comprehensive yield restriction analysis when appropriate for all
issues having proceeds remaining at the end of the applicable temporary period and also calculates the amount of the
Meld reduction payment due to the IRS.
Pacre 6 of 752863
Council Agenda Page I of
City of Fort Worth, Tex s
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COUNCIL ACTION: Approved on 7/23/2013
DATE: Tuesday, ,July 23, 2013 REFERENCE Flo.: **C` 26350
LOiG NAME.- 131131 FA CONTRACT
SUBJECT
Authorize Necessary and belated Agreements with First Southwest Company, First Southwest Asset
Management Inc., and Estrada Hino osa & Company, Inc., for the Provision of Financial Advisory,
Arbitrage Rebate and Continuing disclosure Serve ices (ALL COUNCIL DISTRICTS)
RECOMMENDATION:
It is recommended that the City Council.
1. Authorize the execution of necessary and related Agreements with First Southwest Company, First
Southwest Asset Management, Inc,, and Estrada Hi:nojosa & Company,, Inc., for the provision of financial
advisory, arbitrage rebate and continuing disclosure services; and
2. Authorize a commencement datel of August" 1, 20113 and expiration date of July 31, 2014 with two one-
year renewal options for each Agreement.
DISCUSSION:
First Southwest Company and Estrada Hinojosa & Company, Inc. (Estrada Hino osa), have satisfactorily
served as the City's co-financial advisors for over a decade. luring this sane period, First Southwest
Asset Management, Inc. and Fiirst Southwest Company's FSC Disclosure Services Division have
provided arbitrage rebate compliance services and continuing disclosure services to-the City..
Staff is recommending that the City continue these- relationships with First ,southwest Company serving as
lead financial advisor and Estrada Hinojosa, a minority-owned firm, acting as co financial advisor.
Approval of the Agreements will ensure contiinuity as the City eaters its traditional debt-issuance season.
The fee structure for financial advisory services will, be a base fee in the amount of$35,000.001 plus$g.
per$1,0010.oO denomination for each series of bond issues. As in the current contract, the fee will he split
65/35 between the two firms, respectively.
First Southwest Company, the Teed financial advisor, and Estrada Hinojosa, a certified minority-owned firm
and the co-financial advisor,, are in, compliance with the City's E Ordinance by committing to,the wort
fees on bond transactions being split 65/35 between the two firms respectively on this project.
Typically, no charges for financial advisory services related) to bond transactions are incurred unless
bonds are actually sold. The Agreements will also provide for the financial advisors to provide special
financial consulting work not directly related to a bond sale with compensation paid based on an hourly
rate ranging from the amount of'$75.00 for work performed by administrative assistants to the amount of
$250.00 per hour for work performed by managing directors, executive vice presidents or senior vice
presidents. An individual engagement letter will he executed for each special project compensated on an
hourly basis.
Arhlitrage, rebate compliance services will he provided by First Southwest Asset Management, Inc., and
FSC Disclosure Services, a Division of Furst Southwest Company, will provide continuing disclosure
services. Disclosure services will be compensated at a rate of$2,500.00 per year for assistance in
http-,//apps.cfwnet.org/ecouncil/printmc.asp'.?id=I 870 "&print=trLle oo pe=Pr r 1/30/2014
M&C - Council Agenda Page 2 of 2
preparation and distribution: of each annual report and the amount of$3,500.00 per year for distribution of
audited financial statements. Arbitrage rebate compliance services will be compensated at a rate of
$1,400.00 per,computation year. Additional fees would apply for specialized arbitrage-related services, if
needed, in connection with an IRS refund request of commercial paper caluil!laition:s. The costs for those
services are reflected in the fee schedule, which is attached.
EISCAL INFORMATION / CEIRTIFICATIONI-S
The Filnan,ciall Management Services Director certifies that funds req�u�ired to pay financial advisory fees
will be available from proceeds of bond sales,, appropriate debt service funds, and/or appropriate
operating funds.
FUND CIENTERS,ow
TO Fund/Account/Centers FROM Fund/Account"Con teirs
PE47 554010 01132000 $0.00
GD06 554010 013201001 $0.00
CERTIFICATIONS:
Submitted for Ci!y Manager's, Offic Susan Alapis (8180)
Originating--Department Head-.. Jay, Chapa (8517)
Additolonal Information Contact: Lisa Parks (6630)
ATTACHMENTS
1. CFW 201 Fee Schedule.pdf (Public)
2. examp le.oldf (CF W Internal)
h,ttpl-,//apps.cfwnet.org,/ecounc'll/printmc.asp?'I'd=I 8709&print=true&DocTYPe=.rrint 1/30/2014