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HomeMy WebLinkAboutResolution 2012-36 First Amendment - Reimbrsmnt Agreement with Palm Desert Financing Authority's Energy Independence Program - Series 2009CITY OF PALM DESERT FINANCE DEPARTMENT STAFF REPORT REQUEST: ADOPT CITY COUNCIL RESOLUTION Nd..012-36APPROVING AND AUTHORIZING THE EXECUTION AND DELIVERY OF A FIRST AMENDMENT TO REIMBURSEMENT AGREEMENT WITH RESPECT TO THE PALM DESERT FINANCING AUTHORITY'S ENERGY INDEPENDENCE PROGRAM, VARIABLE RATE DEMAND LEASE REVENUE BONDS, SERIES 2009 (FEDERALLY TAXABLE) SUBMITTED BY: PAUL S. GIBSON, FINANCE DIRECTOR DATE: JUNE 14, 2012 CONTENTS: RESOLUTION NO. 2012-36 FORM OF FIRST AMENDMENT TO REIMBURSEMENT AGREEMENT Recommendation: Waive further reading and adopt Resolution No 2012-36 Approving and Authorizing the Execution and Delivery of a First Amendment to Reimbursement Agreement With Respect to the Palm Desert Financing Authority's Energy Independence Program, Variable Rate Demand Lease Revenue Bonds, Series 2009 (Federally Taxable). Executive Summa On August 31, 2009, the Palm Desert Financing Authority (the "Authority") issued and delivered its Energy Independence Program, Variable Rate Demand Lease Revenue Bonds, Series 2009 (Federally Taxable) (the "Bonds"). In connection with the issuance of the Bonds, to provide for additional liquidity for the payment of debt service on the Bonds and to enhance the credit quality of the Bonds, Wells Fargo Bank, National Association, provided an irrevocable letter of credit (the "Letter of Credit") with respect to the Bonds, which expires on August 30, 2012. Approval of the attached Resolution is required to extend the Letter of Credit to August 30, 2015. Background: As noted above, the Authority issued and delivered the Bonds on August 31, 2009, in order to (i) reimburse the City for the entire amount of its $2.5 million advance, authorized by Resolution No. 08-89 of the City Council of the City, adopted on August 28, 2008, to initially fund the Energy Independence Fund; (ii) finance the acquisition and construction or installation of distributed generation renewable energy sources and energy efficiency improvements on or in properties in the City pursuant to the City's Energy Independence Program (EIP); and (iii) pay certain costs related to the issuance of the Bonds. Staff Report Adopt Resolution executing First Amendment to Reimbursement Agreement — EIP June 14, 2012 Page 2 of 3 As lease revenue bonds, the Bonds are secured by base rental payments from the City to the Authority, equal to the principal and interest coming due on the Bonds. The City's base rental payments, in turn, are a general fund obligation as to each year's base rental, equivalent to annual debt service requirements under the bond documents. There is no lien upon or pledge of any particular revenues received by the City for the payment of this debt service. The City's debt service payments with respect to the Bonds were modeled to be an amount less than the amounts of projected contractual assessments to be received by the City, in accordance with the assessment contracts entered into by the EIP participants. Each EIP assessment earns interest at a rate of 7%, which is included in the amounts levied for the assessments. The Bonds were issued at a weekly variable interest rate, on account of the fixed interest rate market in 2009 being too high for an economically desirable fixed-rate bond issuance. In connection with the issuance of the Bonds, Wells Fargo Bank provided the Letter of Credit, which expires on August 30, 2012. Such a letter of credit is typically required by investors as a component of the financing structure for variable interest rate bonds. Pursuant to the Letter of Credit, the City's remarketing agent with respect to the Bonds (currently Wells Fargo Brokerage Services, LLC) will purchase any variable rate bonds in the event no investors purchase the Bonds in a remarketing, and will pay debt service with respect to the Bonds in weekly variable mode in the event the City is not able to. A Reimbursement Agreement, dated as of August 1, 2009, was entered into by the City and Wells Fargo Bank, N.A., which governs the terms upon which the City will repay Wells Fargo for any draws on the Letter of Credit. To date, there have been no draws on the Letter of Credit. To mitigate interest rate risk typically associated with variable rate interest rates and to preserve a spread between the anticipated contractual assessment revenues and the City's debt service payments on the Bonds, Wells Fargo provided an interest rate collar ("Interest Rate Collar"), which is a minimum and maximum interest rate, as part of the financing structure. The Interest Rate Collar essentially allocates to Wells Fargo Bank the obligation to pay the actual variable interest rate on the Bonds, determined in accordance with the attached Indenture, while during the 5-year term of the Interest Rate Collar, the City pays to Wells Fargo Bank an interest rate on the Bonds ranging from a low interest rate (to be established at the time of the sale of the Bonds) of approximately 2.25% to a maximum interest rate of 5.25% per annum. If the Interest Rate Collar is terminated prior to the 5-year term, a breakage fee is payable to Wells Fargo. Subject to the breakage fee for the Interest Rate Collar prior to its September 1, 2014 termination date, the bond documents provide for the Authority's ability to convert the Bonds to a fixed interest rate at any time, upon the provision of 60 days prior notice. Currently, it is not economically beneficial to break the Interest Rate Collar in order to accomplish a refunding of the Bonds at a fixed interest rate. The Indenture governing the Bonds provides that an extension of the Letter of Credit or an alternate credit facility must be provided in order to avoid a mandatory tender (i.e., mandatory repurchase by the City) of the variable rate Bonds on August 1, 2009. Wells Fargo Bank has approved an extension of the Letter of Credit for another three years, to August 30, 2015. The Staff Report Adopt Resolution executing First Amendment to Reimbursement Agreement — EIP June 14, 2012 Page 3 of 3 extension of the Letter of Credit would be accomplished by execution and delivery of the First Amendment to Reimbursement Agreement, on file with the City Clerk and attached hereto. Wells Fargo Bank has agreed to lower its Letter of Credit Fees by 0.25% for the extension of the Letter of Credit. Pursuant to the First Amendment to Reimbursement Agreement, no termination fees are payable by the City in the event the City terminates the Letter of Credit on or after August 30, 2013 (which is prior to the extended expiration date of August 30, 2015). This will enable the City to refinance the Bonds at a fixed interest rate on or after the expiration of the 5-year term of the Interest Rate Collar (i.e., September 1, 2014) without any termination fees, if fixed interest rates are attractive at such time. Future Actions: Evaluate refunding opportunities to refinance the Bonds at a fixed interest rate on or after the expiration of the 5-year term of the Interest Rate Collar (i.e., September 1, 2014). Submitted by: Paul S. Gibso City Treasurer / Director of Finance Approval: 5hn M. Wohimuth ity Manager CITY COUNCILAMON APPROVED ✓✓ DEN, RECEIVED OTHER MEETING DATF—LaL AYES: '0' NOES: AftW A13SF,NT: ABSTAIN: VERIFIED BY: Original on File with rk's Office RESOLUTION NO. 2012-36 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM DESERT APPROVING AND AUTHORIZING THE EXECUTION AND DELIVERY OF A FIRST AMENDMENT TO REIMBURSEMENT AGREEMENT WITH RESPECT TO THE PALM DESERT FINANCING AUTHORITY'S ENERGY INDEPENDENCE PROGRAM, VARIABLE RATE DEMAND LEASE REVENUE BONDS, SERIES 2009 (FEDERALLY TAXABLE) RECITALS: WHEREAS, on August 31, 2009, the Palm Desert Financing Authority (the "Authority") issued and delivered its Energy Independence Program, Variable Rate Demand Lease Revenue Bonds, Series 2009 (Federally Taxable) (the "Bonds") in order to (i) reimburse the City for the entire amount of its $2.5 million advance, authorized by Resolution No. 08-89 of the City Council of the City, adopted on August 28, 2008, to initially fund the Energy Independence Fund; (ii) finance the acquisition and construction or installation of distributed generation renewable energy sources and energy efficiency improvements on or in properties in the City pursuant to the City's Energy Independence Program; and (iii) pay certain costs related to the issuance of the Bonds; and WHEREAS, in connection with the issuance of the Bonds, to provide for additional liquidity for the payment of debt service on the Bonds and to enhance the credit quality of the Bonds, Wells Fargo Bank, National Association (the "Bank"), provided an irrevocable letter of credit (the "Letter of Credit") with respect to the Bonds, which expires on August 30, 2012; and WHEREAS, as part of the documentation for the Letter of Credit, the City and the Bank entered into a Reimbursement Agreement, dated as of August 1, 2009 (the "Reimbursement Agreement"); and WHEREAS, pursuant to Section 4.12 of the Indenture, dated as of August 1, 2009, governing the Bonds, the Bonds are subject to mandatory tender on August 1, 2012 in the event the Letter of Credit will not be extended, or an alternate credit facility will not be provided; and WHEREAS, the City desires to extend, and the Bank has approved an extension of, the Letter of Credit for another three years, to August 30, 2015, upon the terms and conditions set forth in a First Amendment to Reimbursement Agreement, by and between the City and the Bank (the "First Amendment to Reimbursement Agreement"); and WHEREAS, in order to effect the extension of the Letter of Credit to support the Bonds, the City Council desires to approve the form of, and authorize the execution and delivery of, the First Amendment to Reimbursement Agreement, the form of which is on file with the City Clerk. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF PALM DESERT DOES HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS: Section 1. Recitals; Findings. The above recitals, and each of them, are true and correct. Page 2 of 2 Resolution No.2012-36 Section 2. First Amendment to Reimbursement Agreement. The First Amendment to Reimbursement Agreement, proposed to be entered into by and between the City and the Bank, in the form presented and on file in the office of the City Clerk, is hereby approved. Each of the Mayor (or in his absence, the Mayor Pro Tem) and the City Manager of the City (each an "Authorized Officer"), acting singly, is hereby authorized and directed, for and in the name and on behalf of the City, to execute and deliver the First Amendment to Reimbursement Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Authorized Officer's execution and delivery thereof). Section 3. Other Acts. The Authorized Officers and all other officers of the City are hereby authorized and directed, jointly and severally, to do any and all things, to execute and deliver any and all documents that they may deem necessary or advisable in order to consummate the extension of the Letter of Credit, or otherwise to effectuate the purposes of this Resolution and the First Amendment to Reimbursement Agreement, and any such actions previously taken by such officers, are hereby ratified and confirmed. Section 4. Effective Date. This Resolution shall take effect immediately upon adoption. PASSED AND ADOPTED by the City Council of the City of Palm Desert at a meeting held on the 14th day of June, 2012, by the following vote to wit: AYES: NOES: ABSENT: ABSTAIN: ROBERT A. SPIEGEL, MAYOR ATTEST: RACHELLE D. KLASSEN, CITY CLERK CITY OF PALM DESERT, CALIFORNIA First Amendment to Reimbursement Agreement Page 1 of 6 FIRST AMENDMENT TO REIMBURSEMENT AGREEMENT This FIRST AMENDMENT TO REIMBURSEMENT AGREEMENT (the "Amendment") is made as of the day of , 2012, by and between the CITY OF PALM DESERT ("the City") and WELLS FARGO BANK, NATIONAL ASSOCIATION, as Bank ("Bank"). RECITALS A. Bank and the City entered into a Reimbursement Agreement dated as of August 1, 2009 (the "Original Reimbursement Agreement"), pursuant to which Bank issued its Letter of Credit No. NZS643515 (the "Letter of Credit") to support payment of the Palm Desert Financing Authority Energy Independence Program, Variable Rate Demand Lease Revenue Bonds, Series 2009 (Federally Taxable) (the "Bonds"), which were issued pursuant to Indenture dated as of August 1, 2009 between the Palm Desert Financing Authority (the "Authority"), and Wells Fargo Bank, National Association (the "Trustee") (as amended and supplemented from time to time, the "Indenture"). All capitalized terms not otherwise defined herein shall have the meanings assigned to them in the Original Reimbursement Agreement. C. The Letter of Credit is scheduled to expire on August 30, 2012. The City has requested that Bank extend the term of the Letter of Credit for an additional 3-year period. Bank has agreed to extend the term of the Letter of Credit on the terms and conditions set forth in this Amendment. NOW, THEREFORE, in consideration of the foregoing premises, and for other consideration, the receipt and sufficiency of which are hereby acknowledged, The City and Bank hereby agree as follows: EXTENSION OF LETTER OF CREDIT Provided that the conditions to the Effective Date have been satisfied in full, Bank shall extend the Expiration Date of the Letter of Credit to August 30, 2015 by issuance of an amendment to the Letter of Credit, which will be delivered to the Trustee. AMENDMENT TO THE AGREEMENT As of the Effective Date hereof, the Original Reimbursement Agreement shall be deemed amended as follows: -1- First Amendment to Reimbursement Agreement Page 2 of 6 A. Amendment to Continuing Letter of Credit Fee. The first paragraph of Section 2(d) is hereby amendment to read as follows: (d) Continuing Letter of Credit Fees. The City agrees to pay to the Bank continuing nonrefundable letter of credit fees (the "Continuing Fees") in an amount equal to at least one and one -quarter percent (1.25%) per annum of the Stated Amount then in effect pursuant to the Letter of Credit plus any unreimbursed drawings due within 90 days of the date of determination. Such fee shall be based on the City's Liquidity Ratio as provided below: B follows: Liquidity Ratio Continuing Fee 3.Ox or above 1.25% 2.5x 1.50% 2.Ox 1.75% Below 2.Ox Default Section 2(e). Section 2(e) is hereby amended in its entirety to read as (e) Termination, Reduction or Substitution of Letter of Credit. The Letter of Credit may be terminated or reduced by the City upon sixty (60) days written notice to the Bank at any time. In the event the City terminates the Letter of Credit prior to August 30, 2013, the City shall pay the Bank a fee (the "Termination Fee") in an amount equal to the Continuing Fees that would have accrued had the full amount of Letter of Credit remained outstanding until August 30, 2013 (less any amounts already paid pursuant to Section 2(d) above). Notwithstanding the foregoing, the Termination Fee shall be payable only to the date of termination with no Continuing Fees due following such termination date in the event the Letter of Credit is terminated due to a downgrading of the Bank's short-term ratings to below "P-1 "/"A-1." In the event the City reduces the Stated Amount of the Letter of Credit prior to August 30, 2013 (except as a result of payment of regularly scheduled sinking fund redemptions), the City shall pay the Bank a reduction fee in an amount equal to the Continuing Fees that would have accrued had the full amount of Letter of Credit (less any regularly scheduled sinking fund redemptions paid) remained outstanding until August 30, 2013 (less any amounts already paid pursuant to Section 2(d) above). C. Additional Covenants. The following covenants are hereby added to the Original Reimbursement Agreement: 1. Section 7(q). Rating of Credit Facility Bonds. Within sixty (60) days following the Bank's written request and at the Bank's sole cost, the Bank Bonds (and related CUSIP number) shall be assigned a long-term rating of at least investment grade by either Moody's or S&P. -2- First Amendment to Reimbursement Agreement Page 3 of 6 2. Section 7(r). Remarketing Agent. The City shall immediately notify the Bank of any resignation of the Remarketing Agent, and, promptly after the City's receipt of written notice from the Bank that the Remarketing Agent is failing to perform its respective duties in the manner contemplated by the Indenture or the Remarketing Agreement, replace the Remarketing Agent, as the case may be, with a successor acceptable to the Bank (which acceptance shall not be unreasonably withheld). The City shall at all times cause a Remarketing Agent to be in place, which Remarketing Agent shall be acceptable to the Bank. Any Remarketing Agreement entered into with a successor Remarketing Agent shall provide that (i) the Remarketing Agent may not resign without at least 60 days prior written notice and such resignation shall not be effective until a successor remarketing agent has been appointed and accepted its appointment, (ii) the Remarketing Agent shall use its best efforts to remarket the Bonds, and (iii) the Remarketing Agent shall remarket the Bonds at interest rates without regard to the rate paid to the Bank but in any event subject to the maximum rate permitted under the Indenture. If at any time the Remarketing Agent shall fail to perform its duties or shall fail to remarket the Bonds for a period of 30 successive days, the City shall, at the direction of the Bank, appoint a successor remarketing agent acceptable to the Bank (which acceptance shall not be unreasonably withheld). D. Events of Default. The following Sections 8(i) and 80) are hereby added to the Original Reimbursement Agreement: (i) Rating Event. Subsequent to the date of this Amendment, the City receives a credit rating from Moody's or S&P on any of its general obligations, and any such rating assigned by Moody's and/or S&P to the general obligations of the City shall, in any such case, be withdrawn, suspended, issued or reduced below "BaaX and "BBB-", respectively, or revoked, other than by reason of maturity, redemption or defeasance of such debt, by reason of the rating being based on credit enhancement (such as bond insurance or the Letter of Credit) rather than on the City's underlying credit, or by solely other reasons not relating to the City's credit quality.' 0) Abandonment of Leased Property. The City shall abandon the Leased Property. E. Increased Costs. Section 18(b) is hereby amended in its entirety to read as follows: (b) Increased Costs Due to Changes to Laws. The City agrees that if because of any new law or regulation, Risk -Based Capital Guidelines, policy, guideline, interpretation, or directive, or because of any change in any existing 1 Currently, there are no general obligations of the City to which a rating agency has assigned a rating based on the City's underlying credit, rather than based on credit enhancement such as the Letter of Credit. -3- First Amendment to Reimbursement Agreement Page 4 of 6 law, regulation, Risk -Based Capital Guidelines, policy, guideline, interpretation, or directive or in the interpretation thereof by any official authority, if having the force of law or in any other respect obligatory upon the Bank), including specifically but without limitation all requests, rules, guidelines or directives in connection with the Dodd -Frank Wall Street Reform and Consumer Protection Act and all rules, guidelines or directives promulgated by the Bank of International Settlements, or the Basel Committee on Banking Regulations and Supervisory Practices (or any successor or similar authority), regardless of the date enacted, adopted, issued, promulgated or implemented, which comes into effect after the date of this Reimbursement Agreement, (a) the Bank should, with respect to this Reimbursement Agreement, the Letter of Credit or any transactions hereunder or thereunder, be subject to any tax, charge, fee, deduction or withholding of any kind whatsoever, or (b) increased insurance premiums, reserve requirements, or changes in levels of reserves, deposits, insurance or capital (including any allocation of capital requirements or conditions), should be imposed on the Bank with respect to this Reimbursement Agreement, the Letter of Credit or any transactions hereunder or thereunder, and if any of the above -mentioned measures, should result in (i) any increase in the cost to the Bank of issuing and maintaining the Letter of Credit pursuant to this Reimbursement Agreement or of any transaction under the Letter of Credit or this Reimbursement Agreement, or (ii) any reduction in the amount of principal, interest or any fee receivable by the Bank in respect of the Letter of Credit or this Reimbursement Agreement or of any transaction under the Letter of Credit or this Reimbursement Agreement or (iii) any reduction in the yield or rate of return of the Bank on the Letter of Credit hereunder, to a level below that which the Bank could have achieved but for the adoption or modification of any such requirements, then the City agrees to pay to the Bank upon demand such increased cost or reduction in yield or rate of return. In determining any such amounts, the Bank will act reasonably and in good faith, using averaging and attribution methods which are reasonable, and will notify the City within a reasonable period after it becomes aware of any such change. "Risk -Based Capital Guidelines" means (i) the risk -based capital guidelines in effect in the United States on the date of the Letter of Credit, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States including transition rules, and any amendments to such regulations adopted prior to the date of the Letter of Credit. F. Waiver of Jury Trial. The following Section 33 is hereby added to the Original Reimbursement Agreement: Section 33. Waiver of Jury Trial. To the extent permitted by law, the City hereby waives the right to a jury trial with respect to any dispute or claim that arises under this Agreement. M First Amendment to Reimbursement Agreement Page 5 of 6 EFFECTIVE DATE A. Effective Date. The Effective Date of this Amendment shall be 30, 2012; provided that at such time as all of the following conditions have been satisfied: 1. Delivery of Documents. This Amendment shall have been fully executed and delivered to the Bank. 2. Evidence of Authorization. A copy of the resolution of the City Council approving the execution, delivery and performance of this Amendment, and a closing certificate, including incumbency certificate, of the City. 3. No Default. No Event of Default or any event, which, with the passing of time or giving of notice, shall become an Event of Default, shall have occurred under the Original Reimbursement Agreement or any other document executed in connection therewith. 4. Representations and Warranties. Except as otherwise disclosed to the Bank in writing, the representations and warranties of the City set forth in the Original Reimbursement Agreement remain true and correct in all material respects, and the City hereby certifies that such representations and warranties remain true and correct in all material respects as of the date hereof. 5. Payment of Fees. The City shall have paid an amendment fee equal to $250.00 (the Bank having waived the payment in full of the $2,500 amendment fee described in Section 2(d) of the Original Reimbursement Agreement) and all attorneys' and other fees incurred by Bank (to include outside counsel fees and allocated costs of Bank's in-house counsel) in connection with the execution of this Amendment. IW MISCELLANEOUS A. Effect of Amendment. The City and Bank hereby agree that except as set forth herein, all provisions of the Original Reimbursement Agreement shall continue in full force and effect. From and after the Effective Date, all references to the "Reimbursement Agreement" shall mean the Original Reimbursement Agreement, as amended by this Amendment. B. Successors. This Amendment shall inure to the benefit of the parties hereto and their respective successors and assigns. -5- First Amendment to Reimbursement Agreement Page 6of6 C. Severability. Any provision in this Amendment that is inoperative, unenforceable, or invalid in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such in operation, unenforceability, or invalidity without affecting the remaining provisions hereof or affecting the operation, enforceability, or validity of such provision in any other jurisdiction. D. Counterparts. This Amendment may be simultaneously executed in several counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument. IN WITNESS WHEREOF, the City and Bank have executed this First Amendment to Reimbursement Agreement as of the day and year first above written. WELLS FARGO BANK, NATIONAL ASSOCIATION in Lynn Love Vice President CITY OF PALM DESERT in Robert A. Spiegel Mayor