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Item 18 - Approval of Sr. Managing Underwriter for Water Revenue Bonds -\GENDA REPORT SUMMARY - - 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 ~ . SEP 5 1995 ITEM III I 1ge 1 of 4 .. 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 - -'genda Report ~eptember 5, 1995 Page 3 " 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. - " 'age 3 of 4 SEP 5 1995 ITEM 18 . Agenda Report September 5, 1995 Page 4 . 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: I I I SEP 5 1995 ITEM 18 I 'age 4 of 4 , ' .