Item 18 - Approval of Sr. Managing Underwriter for Water Revenue Bonds
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TO: Honorable Mayor and Members of the City Council ..
FROM: James L. Bowersox, City Ma~
INITIATED BY: John D. Fitch, Assistant City Manage~)1r
Peggy A. Stewart, Director of Administ ative serviC~
DATE: September 5, 1995
SUBJECT: Approval of Senior Managing Underwriter for the issuance of 1995 Water
Revenue Bonds
ABSTRAcr
The City desires to engage the services of a Senior Managing Underwriter for the
issuance of approximately $3.2 million dollars in water revenue bonds this fall. The
attached report recommends the appointment of Grigsby Brandford to provide underwriting
services to the City on this bond issue.
!.-Ji:NVIRONMENTAL REVIEW
This agenda item is not subject to CEQA review.
FISCAL IMPAcr
Fees for services would be paid as part of the cost of issuance for bonds.
ADDITIONAL PUBLIC NOTIFICATION AND CORRESPONDENCE
None
RECOMMENDATION
It is recommended that the City Council authorize entering into an agreement with
Grigsby Brandford for the provision of senior managing underwriter services to the City
for the issuance of the 1995 water revenue bonds.
ACTION
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AGENDA REPORT -
CITY OF POW A Y
This report is included on the Consent C~lend8r. There will be no 5epllrzrte discussion of the report prior to approvel by the
City Council unless members of the Council. staff or public request it to be removed from the Consent Celender and
discussed separmely.lf you wish to have this report pulled for discussion, please fill out 8 slip indic8ting the report number
8nd give it to the City Clerk prior to the beginning of the City Council meeting. , ,
TO: Honorable Mayor and Members of the City Council
FROM: James L. Bowersox, City Man~
INITIATED BY: John D. Fitch, Assistant City Manage~
Peggy A. Stewart, Director of Administr ive Services
DATE: September 5, 1995
SUBJECT: Approval of Senior Managing Underwriter for the issuance of 1995
Water Revenue Bonds
BACKGROUND
On January 17, 1995, the City Council approved the financing plan for the upgrade of
the water treatment plant. On April 18, 1995, the Council adopted resolution number
95-20, a reimbursement resolution stating its intent to issue up to $3.5 million
dollars worth of revenue bonds to fund the upgrades to the water treatment plant.
FINDINGS
In August the City issued a request for proposal from qualified firms to serve as
the senior managing underwriter for the water revenue bond issue. Five firms
responded to the RFP. The proposals were evaluated and two firms were selected for
follow up interviews. Paine Webber and Grigsby Brandford were identified as having
the most responsive and cost effective proposals. Interviews with both firms were
held on August 28, 1995.
Plan of financing and understanding of the credit
Both firms understood the sizing requirements of the financing and recommended a
workable structure for the financing. Paine Webber recommended a specific insured
structure which produced a lower interest cost when compared to the numbers in the
Grigsby Brandford proposal. Grigsby did allude to an insured financing in their
oral presentation and indicated they would solicit proposals from bond insurers and
perform a cost benefit analysis prior to final structuring.
Both proposers recommended innovative additional approaches, Paine Webber in
refunding old general obligation debt and Grigsby Brandford in restructuring the
City's pension obligations, which were recognized by the selection panel.
ACTION:
'age 2 of 4 SEP 5 1995 ITEM 18
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-'genda Report
~eptember 5, 1995
Page 3
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Cost and fees
Grigsby Brandford proposed a fee to underwrite the bonds equal to $4.99 per bond
($1,000) of the issue. This is an extremely aggressive bid as compared to each of
the other four firms who responded to the proposal. They have proposed no management
fee and a cap on underwriting expenses, exclusive of underwriter's counsel, which
are $3,000 to $4,000 below those of the other firms.
The Grigsby Brandford bid was based in part on the assumption that bond counsel
would also act in the role of Disclosure Counsel to prepare the Official Statement.
This assumption allowed Grigsby to exclude the cost of counsel from their bid. In
checking with Stradling Vocca, bond counsel to the City, it was subsequently
determined that the cost to the City to both roles would be an additional $18,000.
Grigsby has agreed to provide their own Underwriter's counsel for a not to exceed
cost of $10,000. This will increase their proposed fee to $8.32 per bond.
Paine Webber proposed a fee to underwrite the bonds equal to $13.00 per bond. In
the course of the presentations, Paine Webber did agree to reduce its takedown by
$2,10 per bond for all bonds sold to institutional accounts. It is not possible to
_ quantify that savings prior to the actual sale of the bonds.
The cost differential of the two bids as adjusted is $24,970 for Grigsby Brandford
and $41,600 for Paine Webber.
It should be noted that when debt structures as recommended in the written proposals
were compared and equalized for assumptions in non-underwriting cost issuance, Paine
Webber's proposal resulted in overall lower debt service of $72,800 over the twenty
year life of the financing or $2,000 per year less than Grigsby Brandford. This
reflects the interest rate difference in an insured bond sale.
Qualifications of assigned staff
Both firms assigned experienced staff to the engagement. The Paine Webber staff has
the benefit of previous experience with the City and greater knowledge of the credit
characteristics of Poway. Grigsby Brandford staff will need to spend more time
initially becoming familiar with the City and working with staff to become familiar
with Poway's financing history and characteristics.
Qualifications of the firm
Although Paine Webber has more experience in the marketing of Poway bonds, both
firms are leaders in California public finance and were deemed equally capable of
executing the financing.
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Agenda Report
September 5, 1995
Page 4
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Conclusion
As stated above, both firms are deemed equally capable of executing the financing.
and both presented cost effective proposals. Grigsby Brandford's fees are lower
than Paine Webber's. The final structuring of the bond issue, assuming bond
insurance is cost effective and obtainable, should eliminate the interest rate
different i a 1. It is recommended that Grigsby Brandford be selected as senior
managing underwriter for the 1995 water revenue bonds.
ENVIRONMENTAL REVIEW
This agenda item is not subject to CEQA review.
FISCAL IMPACT
Fees for services will be paid as part of the costs for issuance of bonds.
ADDITIONAL PUBLIC NOTIFICATION AND CORRESPONDENCE
None
RECOMMENDATION
It is recommended that the City Council authorize the selection of Grigsby Brandford
as senior managing underwriter to the City of Poway for the issuance of the 1995
water revenue bonds.
Attachment:
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SEP 5 1995 ITEM 18 I
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