HomeMy WebLinkAboutContract 27446 ciT'Y SECRETARY .
"ONTRACT NO.
AMENDMENT NO.6
TERMS AND RENEWAL AGREEMENT
AMENDMENT AGREEMENT (the "Agreement"), dated November 30, 2001, among
Morgan Stanley & Co. Incorporated ("Morgan Stanley"), the City of Fort Worth, Texas (the
Customer"), and The Bank of New York(the"Custodian").
WHEREAS, Morgan Stanley and the Customer entered into a Master Repurchase
Agreement, dated October 30, 1989 (the "Master Repurchase Agreement"), as amended on
November 9, 1989 (the "Amendment Agreement") for the purpose of engaging in Paired
Transactions (as defined in the Amendment Agreement), and such Amendment Agreement was
amended on November 9, 1990 and November 12, 1991 for the purpose of setting the Price
Differential for each Repurchase Transaction thereunder and to extend the termination date of the
Amendment Agreement to November 9, 1991 and November 12, 1992, respectively;
WHEREAS, Morgan Stanley, the Customer and the Custodian entered into a Paired
Repurchase Transactions Custody Agreement dated November 9, 1989 (the "Custody
Agreement") as amended by the amendments dated November 9, 1990, and November 12, 1991
for the sole purpose of extending the termination date of the Custody Agreement to November 9,
1991 and November 12, 1992,respectively;
WHEREAS, Morgan Stanley, the Customer and the Custodian entered into a Terms and
Renewal Agreement (the "Renewal Agreement") governing a Current Paired Transaction (as
defined in the Renewal Agreement) which commenced on November 12, 1993 and will end on
November 14, 1994 and extending the termination date of the Amendment Agreement and the
Custody Agreement to November 14, 1994;
WHEREAS, Morgan Stanley, the Customer, and the Custodian entered into a series of five
(5) amendments (each, an "Amendment") to the Renewal Agreement governing a Current Paired
Transaction (as defined in the Renewal Agreement) commencing on November 14, 1994,
November 16, 1995, November 30, 1996, November 30, 1997 and November 30, 1999,
respectively, that, in each case, extended the termination date of the Amendment Agreement and
the Custody Agreement to coincide with the termination date of each respective Amendment;
WHEREAS, Morgan Stanley, the Customer, and the Custodian intend to extend the
termination date of the Current Paired Transaction, the Amendment Agreement, and the Custody
Agreement, as contemplated by this Agreement, and to set the Price Differential for each
Repurchase Transaction hereunder;
NOW, THEREFORE, in consideration of the mutual promises set forth hereafter, the
parties agree as follows:
1. Any term used in this Agreement and not defined shall have the meaning set forth in the
Renewal Agreement.
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2. Morgan Stanley, the Customer and the Custodian agree to extend the term of the Current
Paired Transaction to November 30, 2004 and that the obligations of each party under the
Current Paired Transaction shall continue to be governed by the provisions of the Renewal
Agreement.
3. Paragraph 2 under "Amendments to Amendment Agreement" of the Renewal Agreement
shall be deleted in its entirety and the following provision shall be added in its place:
662. Paragraph 7(g) of the Amendment Agreement, Miscellaneous, shall be
replaced in its entirety with the following:
'g. This Amendment Agreement shall terminate on
November 30, 2004, provided, however, the Customer and
Morgan Stanley may, not less than thirty (30) days prior to
each anniversary date of this Agreement, give notice to the
other party to request a renegotiation of the Price Differential
for each Repurchase Transaction."
4. Paragraph 1 under "Amendments to Custody Agreement" of the Renewal Agreement shall
be deleted in its entirety and the following provision shall be added in its place:
411. The first sentence of paragraph 1 of Article VI of the Custody Agreement,
Termination, shall be replaced in its entirety with the following:
'This agreement shall terminate on November 30, 2004,
provided, however, the Customer and Morgan Stanley may,
not less than thirty (30) days prior to each anniversary date of
this Agreement, give notice to the other party to request a
renegotiation of the Price Differential for each Repurchase
Transaction."
5. Paragraph 6 of the Amendment Agreement, Price Differentials and Renewals, as amended
in the Terms and Renewal Agreement dated as of November 2, 1993, shall be replaced in its
entirety with the following:
"a. During the term hereof, for all Paired Transactions, the Price Differential
applicable to each repurchase transaction in which Customer is acting as Seller of United
States Treasury Securities shall, in all cases, be nine (9) basis points less than the Price
Differential applicable to the corresponding repurchase transaction in which Morgan
Stanley is acting as Seller. The Price Differential applicable to each repurchase transaction
involving Eligible Securities which represent the most current U.S. Treasury securities
issued with an original maturity of two, five, and ten years in which Customer is acting as
Seller shall in all cases be thirty-five (35) basis points less than the Price Differential
applicable to the corresponding repurchase transaction in which Morgan Stanley is acting as
Seller. The Price Differential applicable to each repurchase transaction involving Eligible
Securities which represent Federal National Mortgage Association Bullet Benchmark Bills,
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Notes, and Bonds and Federal Home Loan Mortgage Corporation Reference Bills, Notes,
and Bonds in which Customer is acting as Seller shall in all cases be seven (7)basis points
less than the Price Differential applicable to the corresponding repurchase transaction in
which Morgan Stanley is acting as Seller. Such Price Differential(s) shall be effective from
November 30, 2001 until renegotiated as contemplated by Paragraph 7(g) of the
Amendment Agreement. All payments of net Price Differential from Morgan Stanley to
Customer shall be paid on the last Business Day of each month during the term hereof or in
the event such day is not a Business Day, on the next succeeding Business Day.
7. This Agreement may be executed in any number of counterparts and all such counterparts
taken together shall be deemed to constitute but one and the same instrument.
8. This Agreement shall be governed and construed in accordance with the laws of the State of
New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by a duly authorized officer or official, as of the date and year first written above.
CITY OF FORT WORTH,TEXAS MORGAN STANLEY&CO.INCORPORATED
B}' �r By:
Name: C h a r I e s R. o s w e l 4 Name:
Title: 4—C Title:
/ �� �� cI acQh 4G t!C '
Approved as to Form and Legality:
THE BANK OF NEW YORK,as Custodian
--Eit t rney
By: %I
City Secretary Fort Worth, Texas Name:/% '`(o
C' - /_1 L T O Title:
Contract Authorization
Date
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City of Fort Worth, Texas
Mayor and Council Communication
DATE REFERENCE NUMBER LOG NAME PAGE
1/29/02 **C-18940 1 13LENDING 1 of 2
SUBJECT CONTRACTS WITH MORGAN STANLEY AND BANK OF NEW YORK FOR SECURITIES
LENDING PROGRAM
RECOMMENDATION:
It is recommended that the City Council authorize the City Manager to execute the necessary contracts to
continue the City's securities lending program for three years with Morgan Stanley and Bank of New York.
DISCUSSION:
Securities lending is a cash management strategy involving the lending of the City's securities to a
primary dealer with the substitution of securities of greater market value being safe-kept by a third party
custodial bank in an account in the City's name. The program is designed so the City earns supplemental
income on the portfolio without losing ownership or interest payments on the loaned securities. The
safety of the City's securities is guaranteed. All revenues are deposited in the General Fund.
The primary dealer will use the borrowed securities in several ways. With these high quality securities,
the dealer can borrow money at a lower interest rate. The dealer can use the funds to finance its own
investment positions or to invest in short-term, higher yielding investments. The borrowed bond can
also be used to correct "fails." When any investor buys a bond from a primary dealer, the primary
dealer often is buying it from another institution, which is also buying it from someone, etc. Any
breakdown in this chain causes "fails" down the line. If a primary dealer has access to bonds through
security lending, it can avoid fails and any associated costs.
The City Council first approved a contract for a securities lending program with Morgan Stanley and
with the Bank of New York (Morgan Stanley) as custodian on October 17, 1989. Those agreements
were last extended on December 21, 1999, (M&C C-17781). During the past two years, Morgan
Stanley has used the City's portfolio of U.S. Treasury securities and benchmark securities of the
Federal National Mortgage Association and of the Federal Home Loan Mortgage Corporation. The City
was compensated at a rate of 9 basis points (0.09%) times the market value and accrued interest
earnings of the portfolio for Treasuries and 10 basis points (0.10%) for the agency securities. The City
receives this fee monthly regardless of lending activity. Recently issued Treasuries, referred to as "on-
the-run," are compensated at a rate of 35 basis points. Morgan Stanley pays all custodial fees.
Under the current agreement, which expires November 30, 2002, the City and Morgan Stanley may
renegotiate terms and fees annually. Due to changes in the interest rate environment, Morgan Stanley
has reduced the fee paid on the agency securities to 7 basis points. City staff contacted Paine Webber
and Bank One Securities to ascertain their interest in the program. Paine Webber offered a fee of 4
basis points on all securities in the portfolio. Bank One reviewed the portfolio and the structure of the
program and declined to offer a proposal. Assuming an average portfolio of $110 million in Treasuries
and $195 million in agency securities, Morgan Stanley's proposal will generate $240,000 in fees for this
fiscal year versus $118,000 in fees from the Paine Webber proposal. This agreement puts the new fee
structure officially into place and extends the term of the arrangement with Morgan Stanley through
November 30, 2004. As before, there is a provision for both parties to annually review and re-negotiate
the fee structure, depending on prevailing market conditions.
City of Fort Worth, Texas
Mayor and Council Communication
DATE REFERENCE NUMBER LOG NAME PAGE
1/29/02 **C-18940 13LENDTkm
2 of 2
SUBJECT CONTRACTS WITH MORGAN STANLEY AND BANK W YORK FOR SECURITIES
LENDING PROGRAM
Morgan Stanley paid $259,000 in fees to the'City in the previous fiscal year. Since its inception, the
program has generated $2,259,000 for the General Fund.
FISCAL INFORMATION/CERTIFICATION:
The Finance Director will be responsible for the collection of fees due to the City under this program.
All fees will be deposited in the General Fund.
CB*
Submitted for City Manager's FUND ACCOUNT CENTER AMOUNT CITY SECRETARY
Office by: (to)
Charles Boswell 8511
Originating Department Head:
Jim Keyes 8517 (from) APPROVED 01/29/02
Additional Information Contact:
Skipper Shook 8519