HomeMy WebLinkAboutIR 10068 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 10068
To the Mayor and Members of the City Council November 14, 2017
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*a SUBJECT: WATER & SEWER UTILITY DIRECT PURCHASE NOTE PROGRAM
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This informal report is intended to provide the Mayor and City Council with background
information on the transition from the Water and Sewer Direct Purchase Note (hereinafter
referred to as "DPN") program to the Callable Commercial Paper program (hereinafter referred to
as "CP").
Background
For the last five years, the City's Water and Sewer Utility System has employed a financing tool
known as the DPN Program. The DPN program has provided appropriation authority for capital
projects identified within the Water and Sewer Capital Improvement Program. Expenses from
these projects are subsequently reimbursed through the annual issuance of long-term debt. The
existing program was authorized on March 26, 2013, with a five year term that is set to expire on
March 31, 2018. City staff and our financial consultants are recommending the authorization of a
new program that will replace the current DPN program. The new program, a callable
commercial paper program, is offered through J.P. Morgan Securities LLC (hereinafter referred to
as "J.P. Morgan") and provides additional benefits at lower cost to the City while still achieving the
utility's intended use. The following table provides a side-by-side comparison of the programs:
Summary DPN Callable Commercial Paper
Dealer Wells Fargo J.P. Morgan
Term 5 Years 20 Years
Maximum Outstanding $100,000,000 $150,000,000
Annual Fees $354,861 $20,500
Ratings AA- private rating (Fitch) A- (S&P)
Legal Vetted by bond counsel; Master Ordinance contemplates CP;
subordinate to Sub Lien Bonds subordinate to Sub Lien Bonds
Est. Costs of Issuance $329,000 $386,500
Note: Fees do not contemplate bonds/notes ever being issued
Product Overview
The commercial paper program offers considerable benefits, including an additional $50 million of
appropriation authority at a significantly reduced annual cost. The callable CP may be issued
without the need for bank liquidity support and is structured in a manner that upon initial issuance,
the callable CP will have an original call date between 3 and 120 business days. As is customary
for commercial paper products, the maturity date will not be greater than 270 days from the date
of issuance. Under this structure, the city has several options: a). to call the commercial paper
when it reaches the original call date; b). to replace the CP with new CP notes similarly
structured; c). to issue long-term debt; or d). to allow the paper to continue to the maturity date,
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 10068
To the Mayor and Members of the City Council November 14, 2017
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*a SUBJECT: WATER & SEWER UTILITY DIRECT PURCHASE NOTE PROGRAM
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and pay the maturing CP by one of the previously identified methods. CP notes may be issued
from time to time in an aggregate principal amount at any one time outstanding not to exceed
$150,000,000. The current intent is to utilize the CP program as appropriation authority only.
Next Steps
On October 30, 2017, City staff and consultants held a call with S&P Global Ratings to discuss
the mechanics of the replacement CP program in order to establish an investment grade rating,
as is required by Chapter 1371 , Government Code, the statutory authority for establishing the CP
program. The utility system's strong financial performance and strong market access resulted in
S&P's highest short-term rating of A-1+.
On December 5, 2017, City staff will recommend the Mayor and City Council authorize and
approve the ordinance and related agreements which will allow the implementation of the callable
commercial paper program with J.P. Morgan. The M&C package will include the thirty-second
supplemental ordinance authorizing the sale of water and sewer revenue refunding bonds up to
the $150,000,000 authorized under the CP program. This supplemental ordinance will allow the
City to refund the appropriations drawn against the CP program with revenue bonds. Subsequent
supplemental ordinances are anticipated for adoption at the end of each calendar year which will
grant the city flexibility to restore the full appropriation authority with the program upon the
issuance of long term refunding bonds, and enhance the credit rating for the CP program.
The City reserves a termination right under the existing DPN agreement enabling the City to
terminate at any time with written notice of no fewer than five business days prior to the effective
termination date. As such, upon adoption of the CP Program, the existing DPN agreement will be
rescinded at no cost to the City and the new program will take effect upon the approval by the
Office of the Attorney General of Texas.
If you have any questions, please call Aaron Bovos, Chief Financial Officer, at 817-392-8517.
David Cooke
City Manager
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS