HomeMy WebLinkAbout05/07/2013 14 Limited Tax General Obligation Bond for Street Improvements FinancingBUSINESS OF THE CITY COUNCIL
YAKIMA, WASHINGTON
AGENDA STATEMENT
Item No.
For Meeting of: 5/7/2013
ITEM TITLE: Ordinance authorizing the issuance and sale of a Limited Tax
General Obligation Bond of the City in the principal amount of
not to exceed $5,000,000 for the purpose of financing costs
of street improvements in the City; providing the form of the
bond; and authorizing the sale of the bond to U.S. Bank
National Association
SUBMITTED BY: Cindy Epperson, Director of Finance and Budget
Tara Lewis, Financial Services Manager
SUMMARY EXPLANATION:
The City Council adopted 2013 budget includes a $5 million commitment to repair and resurface
28 lane miles of roads. Prior to issuing bonded debt on the City's behalf it is necessary, per
section 12 of the City Charter, that the Council approve the terms and form of the bond by
Ordinance.
Historically, the City has issued municipal bonds to accomplish a project like this. However, in
current market conditions, bank financing is a better option for us, and the City was able to •
obtain favorable debt terms. Bank financing has much lower "up front" costs, as there is not
an Official Statement to prepare and there is no underwriting fee. Bond Counsel is still
necessary, but since there is considerably less risk and fewer disclosure requirements, the fee
will be 40% less than a traditional bond issue. Another cost usually imposed is a loan
origination fee, which the bank has waived for the City. Overall the cost of bank financing will
save the City at least $40,000 in direct costs and uses fewer staff resources.
The enclosed Bond Ordinance will authorize staff to take .all necessary steps to secure bank
financing in the form of a Limited Tax General Obligation bond (i.e. councilmanic, not voted) in
an amount not to exceed $5M, for up to three 5 -year terms (for a total amortization of 15- years),
at an initial interest rate of 1.67 %, with an annual debt service of approximately $380,000.
City engineering staff has put the construction project out to bid - -Note: the bid opening was
held on April 30, and low bid was well under the $5 M threshold. It is likely that we can add
several lane miles to the project and stay within budget. Staff will evaluate options for the
additional funding availability and will award the bid within the next 30 days. The bond issuance
team is requesting approval of the Bond Ordinance at this time in order to be able to fully
execute the financing transaction before the commencement of construction and to take
advantage of a dip in the interest rate market not expected to continue into the next calendar
month. Attached is a Memo summarizing the process leading to the Bond Ordinance
contained herein.
Resolution:
Other (Specify):
Contract:
Start Date:
Item Budgeted: Yes
Funding Source/Fiscal
Impact:
Strategic Priority:
Insurance Required? No
Mail to:
Phone:
APPROVED FOR
SUBMITTAL:
RECOMMENDATION:
Pass Ordinance
ATTACHMENTS:
Name:
Ordinance: X
Contract Term:
End Date:
Amount: $5,000,000
General Fund Revenues - Limited General Tax
Obligation
Improve the Built Environment
❑ Memo to Street Financing Cirdinance.docx
City Manager
F-1 Bond Ordinance -LTGO Bond 2013 (Private Placement - US Bank) - City of Yakima 5-7-
13 Mtg.doo
❑ Q S Bank Proposal 04252013 rl.docx
L-1 CERTIFICATE.docx
Description:
Memo-details of
financing
902088811MM
Bank Proposal
Clerk Certification
Memorandum
To: The Honorable Mayor and Members of City Council
From: Cindy Epperson, Director of Finance and Budget
Tara Lewis, Financial Services Manager
Date: 5/1/2013
Re: Street Project Financing
In addressing the strategic priority Built Environment, the 2013 budget includes a Street
Improvement Project. This Project will resurface approximately 28 lane miles of arterial streets
at an approximate cost of $5 million and be funded by debt. Debt service of $300,000 was
budgeted for 2013 with the anticipation of budgeting approximately $350,000 per year over a 20
year amortization.
Several types of financing tools are available for Washington cities. Whenever the City needs to
finance a project, an analysis is done to determine the most effective method to use. Cost of the
financing, risk and repayment terms are key factors that affect the debt - vehicle best suited to the
City's needs.
Generally, the City can self -fund a project through reserves and /or interfund loans, issue bonds
on the market or privately, participate in a State bond issue or obtain a loan from a banking
institution. For equipment, capital leases and /or corporate financing are also used from time to
time, although these tend to be more costly.
The repayment terms anticipated in the Budget exclude interfund loans as state law requires such
loans to be fairly short in duration (recommendation of 3 years or less). Participation in a State
bond issue as was done for our recent purchases of new fire apparatus is also not an option in this
case because the State will not finance infrastructure (they require an asset they can foreclose
and sell in the event of default).
The remaining options are bond issue or bank financing. A bond issue is very expensive by
nature. The City must employ an underwriter as well as bond counsel to work through the
complex process of offering bonds for sale on the public bond market. SEC regulation drives
much of that cost. For our $5 million, the cost of underwriter and bond counsel are estimated to
be between $40,000 and $50,000. Interest rates on a public long term issue are likely to be fairly
high -- in the neighborhood of 5 %. These costs combine to make bond financing unattractive for
this sort of project where other alternatives are available to us.
Bank financing is available with a bit of a twist. The bank offers a loan for which the City issues
a single bond at a much more desirable interest rate for a short (5 or 7 year) term. At the end of
that term, the bank is allowed to reset the rate to accommodate market changes that have
occurred. The reset is based on the U.S. Treasury bill rates using a predetermined formula. The
May 1, 2013
bank also has the option to "put" the loan back to the City at any reset date if it wishes to
discontinue the financing or if the bank and the City cannot agree on terms for future extensions.
Although the resets and potential for the bank to put the loan back to the City adds some risk to
the equation, the reset risk is primarily limited to market factors and the put risk is considered
substantially mitigated by the City's good credit rating, healthy reserve balances and access to
other forms of credit. The more substantial risk factor is that at the time of extension (reset date)
the extension of the debt for the next term is legally a form of debt reissuance or refinancing.
Therefore any legal or regulatory changes in municipal financing will come to bear on the
extension term. The reissuance will also count toward the $10 million annual debt issuance limit
for tax exemption on bond interest. To mitigate these risks the bank is offering a full 180 days
notice to the City of its intent to extend the loan another term or not. This will give the City
adequate time to pursue other options in the unlikely event that it should become necessary.
Another step taken to mitigate this risk was the restructuring the original proposal of a 20 year
amortization to only 15 years. Due to the current dip in the interest rate market along with the
bank's willingness to lock the rate, accompanied by a modest increase in the proposed annual
debt service amount (from $350,000 to $380,000), the City will be exposed to only two reset
dates over the entire life of the debt instead of three exposure dates in a 20 year amortization.
Bank financing is generally much less expensive than issuing bonds for sale. The bank treats the
financing as a loan and the City issues a single bond to be held by the bank for the duration of
the financing term. While bond counsel is still a necessary component, due to the substantially
lower risk of a bank financing the fee for bond counsel is approximately 40% lower. The use of
an underwriter is not necessary. We estimate that the City will save about $40,000 in direct costs,
as well as use fewer staff resources, as preparation of an official statement is time - consuming.
In the process we approached several banks about our financing needs. Their initial proposals
were reviewed by the Built Environment Committee. Our two main banks, U.S. Bank and Key
Bank were the most flexible and willing to work with our Bond Counsel to revise language and
terms to meet the City's needs. The U.S. Bank proposal was most attractive, both in terms of cost
and risk for several reasons. The Bank has waived their standard loan origination fee. It has
waived the bank counsel fees in that the bank is willing to rely on City's Bond Counsel for legal
issues. The Bank has already locked the interest rate as a courtesy to take advantage of a recent
dip in rates pending Council approval of the Bond Ordinance. And the Bank has committed to
notify the City a full 180 days in advance of reset dates whether they wish to extend for another
5 year term or terminate the agreement. These factors, along with the history of our excellent
working relationship with them distinguished U.S. Bank as the clear choice for this Project
financing.
City engineering staff has put the construction project out to bid - -Note: the bid opening was held
on April 30, and low bid was well under the $5 M threshold. It is likely that we can add several
lane miles to the project and stay within budget. Staff will evaluate options for the additional
funding availability and will award the bid within the next 30 days. Bids are being received at
this time for a scheduled summer construction phase.
CITY OF YAKIMA, WASHINGTON
ORDINANCE NO.
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF
YAKIMA, WASHINGTON, AUTHORIZING THE ISSUANCE
AND SALE OF A LIMITED TAX GENERAL OBLIGATION
BOND OF THE CITY IN THE PRINCIPAL AMOUNT OF NOT
TO EXCEED $5,000,000 FOR THE PURPOSE OF FINANCING
COSTS OF STREET IMPROVEMENTS IN THE CITY;
PROVIDING THE FORM OF THE BOND; AND
AUTHORIZING THE SALE OF THE BOND TO U.S. BANK
NATIONAL ASSOCIATION.
Passed May 7, 2013
PREPARED BY:
PACIFICA LAW GROUP LLP
Seattle, Washington
CITY OF YAKIMA
ORDINANCE NO.
TABLE OF CONTENTS*
Page
Section 1.
Definitions and Interpretation of Terms ..................................... ..............................2
Section 2.
Authorization of the Project ....................................................... ..............................4
Section 3.
Authorization of the Bond ......................................................... ..............................4
Section 4.
Registration, Exchange and Payments ....................................... ..............................5
Section5.
Form of Bond ............................................................................. ..............................7
Section6.
Execution of Bond ..................................................................... ..............................9
Section 7.
Application of Bond Proceeds .................................................. .............................10
Section8.
Tax Covenants .......................................................................... .............................10
Section 9.
Pledge of Funds and Credit; General Obligation ...................... .............................11
Section 10.
Right of Prepayment ................................................................. .............................12
Section11.
Sale of the Bond ........................................................................ .............................14
Section 12.
Ongoing Disclosure; Covenants ................................................ .............................15
Section 13.
Lost, Stolen or Destroyed Bond ................................................ .............................15
Section 14.
Severability; Ratification .......................................................... .............................16
Section 15.
Effective Date of Ordinance ..................................................... .............................17
Exhibit A:
Proposal
* This Table of Contents is provided for convenience only and is not a part of this ordinance.
CITY OF YAKIMA, WASHINGTON
ORDINANCE NO.
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF
YAKIMA, WASHINGTON, AUTHORIZING THE ISSUANCE
AND SALE OF A LIMITED TAX GENERAL OBLIGATION
BOND OF THE CITY IN THE PRINCIPAL AMOUNT OF NOT
TO EXCEED $5,000,000 FOR THE PURPOSE OF FINANCING
COSTS OF STREET IMPROVEMENTS IN THE CITY;
PROVIDING THE FORM OF THE BOND; AND
AUTHORIZING THE SALE OF THE BOND TO U.S. BANK
NATIONAL ASSOCIATION.
WHEREAS, the City Council (the "Council ") of the City of Yakima, Washington (the
"City "), has deemed it in the best interest of the City and its citizens that the City make certain
street improvements in the City (the "Project "); and
WHEREAS, the City is authorized by chapters 35.22 and 39.46 RCW to issue limited tax
general obligation bonds to pay costs of the Project; and
WHEREAS, the City has received the offer of U.S. Bank National Association (the
"Bank ") set forth in Exhibit A attached hereto (the "Proposal "), to purchase a limited tax general
obligation bond of the City in the principal amount of not to exceed $5,000,000 (the "Bond ") for
the purpose of financing the Project; and
WHEREAS, it is deemed necessary and advisable that the City accept the Bank's offer
and issue the Bond as set forth herein;
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF YAKIMA,
WASHINGTON, DOES ORDAIN AS FOLLOWS:
Section 1. Definitions and Interpretation of Terms.
(a) Definitions. As used in this ordinance, the following words shall have the
following meanings:
Bank means U.S. Bank National Association.
Bond means the Limited Tax General Obligation Bond, 2013 authorized to be issued by
the City pursuant to this ordinance.
Bond Counsel means Pacifica Law Group LLP, Seattle, Washington.
Bond Fund means the "Bond Redemption Fund" authorized to be created pursuant to
Section 9 of this ordinance.
Bond Register means the registration records for the Bond maintained by the Bond
Registrar.
Bond Registrar means the Director of Finance and Budget of the City, whose duties
include registering and authenticating the Bond, maintaining the Bond Register, transferring
ownership of the Bond, and paying the principal of and interest on the Bond.
City means the City of Yakima, Washington, a municipal corporation duly organized and
existing under the laws of the State of Washington.
City Council or Council means the City Council of the City as the general legislative
authority of the City, as the same shall be duly and regularly constituted from time to time.
City Manager means the City Manager, or the successor of such office.
Code means the Internal Revenue Code of 1986, as amended, and shall include all
applicable regulations and rulings relating thereto.
Default Interest Rate means the Interest Rate plus 2 %.
-2- 04/26/13
Director of Finance and Budget means the Director of Finance and Budget of the City,
or the successor of such office.
Interest Rate means a fixed rate of interest determined pursuant to Section 11 of this
ordinance as the same may be adjusted pursuant to the Proposal and set forth herein.
Prepayment Fee means the fee determined pursuant to Section 10 of this ordinance.
Project means the project described in Section 2 of this ordinance.
Project Fund means the "Project Fund" authorized to be created pursuant to Section 7 of
this ordinance.
Proposal means the proposal letter submitted by the Bank substantially in the form
attached hereto as Exhibit A.
Registered Owner means the person in whose name the Bond is registered on the Bond
Register.
Reset Date means each five year anniversary from the dated date of the Bond.
Rule means the Securities and Exchange Commission's Rule 15c2 -12 under the
Securities Exchange Act of 1934, as the same may be amended from time to time.
(b) Interpretation. In this ordinance, unless the context otherwise requires:
(1) The terms "hereby," "hereof," "hereto," "herein," "hereunder" and any
similar terms, as used in this ordinance, refer to this ordinance as a whole and not to any
particular article, section, subdivision or clause hereof, and the term "hereafter" shall mean after,
and the term "heretofore" shall mean before, the date of this ordinance;
(2) Words of the masculine gender shall mean and include correlative words
of the feminine and neutral genders and words importing the singular number shall mean and
include the plural number and vice versa;
-3- 04/26/13
(3) Words importing persons shall include firms, associations, partnerships
(including limited partnerships), trusts, corporations and other legal entities, including public
bodies, as well as natural persons;
(4) Any headings preceding the text of the several articles and sections of this
ordinance, and any table of contents or marginal notes appended to copies hereof, shall be solely
for convenience of reference and shall not constitute a part of this ordinance, nor shall they affect
its meaning, construction or effect; and
(5) All references herein to "articles," "sections" and other subdivisions or
clauses are to the corresponding articles, sections, subdivisions or clauses hereof.
Section 2. Authorization of the Project. The Bond is being issued to finance the costs
of certain street and road improvements in the City (the "Project ")
Section 3. Authorization of the Bond. For the purpose of financing costs of the
Project and paying costs of issuance for the Bond, the City hereby authorizes the issuance and
sale of its limited tax general obligation bond in the principal amount of not to exceed
$5,000,000. The bond shall be designated the "City of Yakima, Washington, Limited Tax
General Obligation Bond, 2013," or other such designation as set forth in the Bond and approved
by the Director of Finance and Budget.
The Bond shall be dated as of its date of delivery, shall be fully registered as to both
principal and interest, shall be in one denomination, and shall mature five years from its dated
date; provided, however, principal shall be amortized over a period not to exceed 15 years, as set
forth in the Bond. The Bond shall bear interest from its dated date or the most recent date to
which interest has been paid at the Interest Rate, as the same may be adjusted pursuant to the
Proposal and set forth herein. Interest on the principal amount of the Bond shall be calculated
-4- 04/26/13
per annum on a 30/360 basis, or as otherwise provided in the Bond. Principal of and interest on
the Bond shall be payable monthly as set forth in the payment schedule attached to the Bond.
At the option of the Bank and with the consent of the City Council, the term of the Bond
may be extended on each five year anniversary of its dated date (each, a "Reset Date ") for up to
two additional five year terms, resulting in a final maturity of no later than fifteen years from the
dated date of the Bond. Under the terms of the Proposal, the Bank is required to provide the City
at least 180 days' notice of its intent to extend the term of the Bond. If the Bank offers to extend
the term of the Bond, and the City Council determines that it is in the best interest of the City to
approve such extension, the City Council shall authorize the extension by the adoption of a new
ordinance or an amendatory ordinance establishing the terms and conditions, including any
adjustment to the Interest Rate, for such extension. If the Bank has not offered to extend the
term of the Bond, or if the City has determined that it is in the best interest of the City to prepay
and redeem the Bond as provided in Section 10 hereof, all principal on the Bond, plus accrued
interest, shall become due and payable on the Reset Date.
Section 4. Registration, Exchange and Payments.
(a) Registrar /Bond Registrar. The Director of Finance and Budget shall act as Bond
Registrar. The Bond Registrar is authorized, on behalf of the City, to authenticate and deliver the
Bond if transferred or exchanged in accordance with the provisions of the Bond and this
ordinance and to carry out all of the Bond Registrar's powers and duties under this ordinance.
(b) Registered Ownership. The City and the Bond Registrar may deem and treat the
Registered Owner of the Bond as the absolute owner for all purposes, and neither the City nor the
Bond Registrar shall be affected by any notice to the contrary. Payment of the Bond shall be
made only as described in subsection (e) below
All such payments made as described in
-5- 04/26/13
subsection (e) below shall be valid and shall satisfy the liability of the City upon the Bond to the
extent of the amount so paid.
(c) No Transfer or Exchange of Registered Ownership. The Bond shall not be
transferrable without the consent of the City unless (i) the Bank's corporate name is changed and
the transfer is necessary to reflect such change; or (ii) the transferee is a successor in interest of
the Bank by means of a corporate merger, an exchange of stock, or a sale of assets.
(d) Registration Covenant. The City covenants that, until the Bond has been
surrendered and canceled, it will maintain a system for recording the ownership of the Bond that
complies with the provisions of Section 149 of the Code.
(e) Place and Medium of Payment. Both principal of and interest on the Bond shall
be payable in lawful money of the United States of America. Principal and interest on the Bond
shall be payable by check, warrant, ACH transfer or by other means mutually acceptable to the
Bank and the City. Upon final payment of principal and interest of the Bond, the Registered
Owner shall surrender the Bond for cancellation at the office of the Bond Registrar in accordance
with this Section 4 and Section 13.
-6- 04/26/13
Section 5. Form of Bond. The Bond shall be in substantially the following form:
NO. R -1
UNITED STATES OF AMERICA
STATE OF WASHINGTON
CITY OF YAKIMA
LIMITED TAX GENERAL OBLIGATION BOND, 2013
INTEREST RATE: %
MATURITY DATE: , 2018
REGISTERED OWNER: U.S. BANK NATIONAL ASSOCIATION
PRINCIPAL AMOUNT: MILLION AND NO /100 DOLLARS
The City of Yakima, Washington, a municipal corporation organized and existing under
and by virtue of the laws of the State of Washington (the "City "), hereby acknowledges itself to
owe and for value received promises to pay to the Registered Owner identified above, on or
before the Maturity Date identified above, the Principal Amount identified above. This bond
shall bear interest at the fixed rate stated above (the "Interest Rate "). Interest on this bond shall
accrue from its dated date until paid and shall be computed per annum on the principal amount
outstanding on a 30/360 basis. Principal of and accrued interest on this bond shall be payable
monthly on the dates set forth in the payment schedule attached hereto. The Maturity Date of
this bond may be extended at the option of U.S. Bank National Association and with the consent
of the City, as provided in the hereinafter defined Bond Ordinance.
Both principal of and interest on this bond shall be payable in lawful money of the United
States of America. Principal and interest on this bond shall be payable by check or warrant or by
other means mutually acceptable to the Registered Owner and the City. Upon final payment of
principal and interest of this bond, the Registered Owner shall surrender this bond for
cancellation at the office of the Bond Registrar in accordance with Ordinance No. of the
City (the "Bond Ordinance ").
This bond is issued pursuant to the Bond Ordinance, to finance the costs of certain street
improvements and to pay costs of issuance. Capitalized terms used in this bond have the
meanings given such terms in the Bond Ordinance.
The City may prepay this bond as provided in the Bond Ordinance. Any such prepayment
may be subject to a Prepayment Fee.
This bond has been designated by the City as a "qualified tax - exempt obligation" within
the meaning of Section 265(b) of the Code.
The City has in the Bond Ordinance authorized the creation of a fund to be used for the
payment of debt service on this bond, designated as the "Bond Redemption Fund" (the "Bond
-7- - 04/26/13
Fund "). The Bond Fund shall be drawn upon for the sole purpose of paying the principal of and
interest on this bond.
The City hereby irrevocably covenants and agrees with the owner of this bond that it will
include in its annual budget and levy taxes annually, within and as a part of the tax levy
permitted to the City without a vote of the electorate, upon all the property subject to taxation in
amounts sufficient, together with other money legally available therefor, to pay the principal of
and interest on this bond as the same shall become due. The full faith, credit and resources of the
City are hereby irrevocably pledged for the annual levy and collection of such taxes and the
prompt payment of such principal and interest. Any proceeds of this bond not expended on the
Project or costs of issuance shall be pledged to payment of this bond and deposited in the Bond
Fund for such purpose.
This bond shall not be valid or become obligatory for any purpose or be entitled to any
security or benefit under the Bond Ordinance until the Certificate of Authentication hereon shall
have been manually signed by or on behalf of the Bond Registrar or its duly designated agent.
This bond is issued pursuant to the Constitution and laws of the State of Washington, and
duly adopted ordinances of the City. This bond is transferable upon compliance with the
conditions set forth in the Bond Ordinance.
It is hereby certified that all acts, conditions and things required by the Constitution and
statutes of the State of Washington to exist, to have happened, been done and performed
precedent to and in the issuance of this bond exist, have happened, been done and performed and
that the issuance of this bond does not violate any constitutional, statutory or other limitation
upon the amount of bonded indebtedness that the City may incur.
IN WITNESS WHEREOF, the City of Yakima, Washington, has caused this bond to be
executed by the manual or facsimile signature of the Mayor of the City Council and attested by
the manual or facsimile signature of the Clerk, as of this day of , 2013.
[SEAL]
ATTEST:
/s/
City Clerk
CITY OF YAKIMA, WASHINGTON
LM
Mayor
-8- 04/26/13
REGISTRATION CERTIFICATE
This bond is registered in the name of the Registered Owner on the books of the City, in
the office of the Director of Finance and Budget of the City (the "Bond Registrar "), as to both
principal and interest, as noted in the registration blank below. All payments of principal of and
interest on this bond shall be made by the City from the Bond Fund.
Date of Name and Address of Signature of
Registration Registered Owner Bond Registrar
, 2013 U.S. Bank National Association
Government Banking Division Director of Finance and
9th Floor (EP- MN -S9GB) Budget
101 East 5th Street
St. Paul, MN 55101 -1860
PAYMENT SCHEDULE
Principal and interest on this bond shall be payable as set forth in the following schedule:
Date
Principal
Interest
Total Payment
Section 6. Execution of Bond. The Bond shall be executed on behalf of the City with
the manual or facsimile signature of the Mayor, and shall be attested by the manual or facsimile
signature of the Clerk.
Only such Bond as shall bear thereon a Certificate of Authentication in the form earlier
recited, manually executed by the Bond Registrar, shall be valid or obligatory for any purpose or
entitled to the benefits of this ordinance. Such Certificate of Authentication shall be conclusive
-9- 04/26/13
evidence that the Bond so authenticated has been duly executed, authenticated and delivered
hereunder and is entitled to the benefits of this ordinance.
In case either of the officers who shall have executed the Bond shall cease to be an officer
or officers of the City before the Bond so signed shall have been authenticated or delivered by the
Bond Registrar, or issued by the City, such Bond may nevertheless be authenticated, delivered
and issued and upon such authentication, delivery and issuance, shall be as binding upon the City
as though those who signed the same had continued to be such officers of the City. The Bond
may also be signed and attested on behalf of the City by such persons who at the date of the
actual execution of the Bond, are the proper officers of the City, although at the original date of
such Bond any such person shall not have been such officer of the City.
Section 7. Application of Bond Proceeds. The City shall establish a fund designated
the "Project Fund" (the "Project Fund ") into which the proceeds of the Bond shall be deposited.
Money in the Project Fund shall be used to pay the costs of the Project and costs of issuance for
the Bond. The Director of Finance and Budget may invest money in the Project Fund in legal
investments for City funds. Earnings on such investments shall accrue to the benefit of the
Project Fund. Money remaining in the Project Fund after all costs of the Project and costs of
issuance for the Bond have been paid shall be pledged to payment of the Bond and deposited in
the Bond Fund for such purpose.
Section 8. Tax Covenants. The City shall comply with the provisions of this section
unless, in the written opinion of Bond Counsel to the City, such compliance is not required to
maintain the exemption of the interest on the Bond from federal income taxation.
The City hereby covenants that it will not make any use of the proceeds of sale of the
Bond or any other funds of the City which may be deemed to be proceeds of such Bond pursuant
-10- 04/26/13
to Section 148 of the Code and the applicable regulations thereunder that will cause the Bond to
be an "arbitrage bond" within the meaning of such Section and regulations. The City will
comply with the requirements of Section 148 of the Code (or any successor provision thereof
applicable to the Bond) and the applicable regulations thereunder throughout the term of the
I: • eI
The City further covenants that it will not take any action or permit any action to be taken
that would cause the Bond to constitute a "private activity bond" under Section 141 of the Code.
The City hereby designates the Bond as a "qualified tax - exempt obligation" within the
meaning of Section 265(b) of the Code. The City reasonably does not expect to issue more than
$10,000,000 in qualifying tax - exempt debt during calendar year 2013.
Section 9. Pledge of Funds and Credit; General Obligation. The City hereby
authorizes the creation of a fund to be used for the payment of debt service on the Bond,
designated as the "Bond Redemption Fund" (the "Bond Fund "). No later than the date each
payment of principal of or interest on the Bond becomes due, the City shall transmit sufficient
funds, from the Bond Fund or from other legally available sources, to the Bond Registrar for the
payment of such principal or interest. Money in the Bond Fund may be invested in legal
investments for City funds.
The City hereby irrevocably covenants and agrees for as long as the Bond is outstanding
and unpaid that each year it will include in its budget and levy an ad valorem tax upon all the
property within the City subject to taxation in an amount that will be sufficient, together with
other revenues and money of the City legally available for such purposes, to pay the principal of
and interest on the Bond when due.
-11- 04/26/13
The City hereby irrevocably pledges that the annual tax provided for herein to be levied
for the payment of such principal and interest shall be within and as a part of the tax levy
permitted to cities without a vote of the people, and that a sufficient portion of each annual levy
to be levied and collected by the City prior to the full payment of the principal of and interest on
the Bond will be and is hereby irrevocably set aside, pledged and appropriated for the payment of
the principal of and interest on the Bond. The full faith, credit and resources of the City are
hereby irrevocably pledged for the annual levy and collection of said taxes and for the prompt
payment of the principal of and interest on the Bond when due.
Section 10. Right of Prepayment. If the Bond is prepaid in accordance with this
Section 10, interest shall cease to accrue on the date the Bank receives such prepayment.
(a) Prepayment on any Reset Date. The Bond may be prepaid, in whole or in part, on
any Reset Date without prepayment penalty or fee.
(b) Prepayment not on a Reset Date. Except as provided for in Section (a) above,
there shall be no prepayments of the Bond, provided that the Bank may consider requests for its
consent with respect to prepayment of the Bond, without incurring an obligation to do so, and the
City hereby acknowledges that in the event that such consent is granted, the City shall be
required to pay the Bank, upon prepayment of all or part of the principal amount before final
maturity, a fee (the "Prepayment Fee ") equal to the maximum of: (1) zero, or (2) that amount,
calculated on any prepayment date, which is derived by subtracting: (i) the principal amount of
the Bond or portion of the Bond to be prepaid, from (ii) the Net Present Value of the Bond or
portion of the Bond to be prepaid on such date of prepayment.
For purposes of this section, the following definitions shall apply:
-12- 04/26/13
"Net Present Value" means the amount which is derived by summing the present values
of each prospective payment of principal and interest which, without such full or partial
prepayment, could otherwise have been received by the Bank over the shorter of the remaining
contractual life of the Bond or next repricing date if the Bank had instead initially invested the
Bond proceeds at the Initial Money Market Rate. The individual discount rate used to present
value each prospective payment of interest and /or principal shall be the Money Market Rate at
Prepayment for the maturity matching that of each specific payment of principal and /or interest.
"Initial Money Market Rate" means the rate per annum, determined solely by the Bank,
on the first day of the term of the Bond or as mutually agreed upon by the City and the Bank, as
the rate at which the Bank would be able to borrow funds in Money Markets for the amount of
the Bond and with an interest payment frequency and principal repayment schedule equal to the
Bond and for a term as may be arranged and agreed upon by the City and the Bank. Such a rate
shall include FDIC insurance, reserve requirements and other explicit or implicit costs levied by
any regulatory agency. The City hereby acknowledges that the Bank is under no obligation to
actually purchase and /or match funds for the Initial Money Market Rate of the Bond.
"Money Market Rate at Prepayment" means that zero - coupon rate, calculated on the date
of prepayment, and determined solely by the Bank, as the rate in which the Bank would be able
to borrow funds in Money Markets for the prepayment amount matching the maturity of a
specific prospective Bond payment or repricing date. Such a rate shall include FDIC insurance,
reserve requirements and other explicit or implicit costs levied by any regulatory agency. A
separate Money Market Rate at Prepayment will be calculated for each prospective interest
and /or principal payment date.
-13- 04/26/13
"Money Markets" means one or more wholesale funding mechanisms available to the
Bank, including negotiable certificates of deposit, eurodollar deposits, bank notes, fed funds,
interest rate swaps, or others.
In calculating the amount of such a prepayment fee, the City hereby authorizes the Bank
to make such assumptions regarding the source of funding, redeployment of funds and other
related matters, as the Bank may deem appropriate. If the City fails to pay any Prepayment Fee
when due, the amount of such Prepayment Fee shall thereafter bear interest until paid at the
Default Interest Rate (computed on the basis of a 360 -day year, actual days elapsed). Any
prepayment of principal shall be accompanied by a payment of interest accrued to date thereon;
and said prepayment shall be applied to the principal installments in the inverse order of their
maturities. All prepayments shall be in an amount of at least $100,000 or if less, the remaining
entire principal balance of the Bond.
Section 11. Sale of the Bond. The Bond shall be sold to the Bank pursuant to the
terms of this ordinance and the Bank's Proposal. The City hereby accepts the Bank's Proposal,
which is attached as Exhibit A. The City Manager is hereby authorized to approve the Interest
Rate and the principal amount of the Bond and to agree to any other terms, conditions and
covenants that are in the best interest of the City and in accordance with the Bank's Proposal so
long as (a) the principal amount of the Bond does not exceed $5,000,000, and (b) the Interest
Rate for the Bond does not exceed 2.25 %.
The appropriate City officials, including but not limited to the City Manager and the
Director of Finance and Budget, are hereby authorized and directed to do everything necessary
for the prompt issuance, execution and delivery of the Bond and for the proper application and
use of the proceeds thereof.
-14- 04/26/13
Section 12. Ongoing Disclosure, Covenants.
(a) Ongoing Disclosure. The Bond is exempt from ongoing disclosure requirements
of the Rule.
(b) Covenants. So long as the Bond is outstanding, the City hereby covenants and
agrees as follows:
(1) To maintain rates, fees and revenues of the City at least equal to 1.00 times
the annual debt service on all limited tax general obligation debt of the City, including the Bond.
Failure to maintain such ratio for two consecutive years will result in an automatic adjustment of
the Interest Rate to the Default Interest Rate;
(2) To provide the Bank copies of the City's audited financial statements
within 330 days of the end of each fiscal year; and
time.
(3) financial or other information as may be reasonably requested from time to
Section 13. Lost, Stolen or Destroyed Bond. In case the Bond shall be lost, stolen or
destroyed while in the Registered Owner's possession, the Bond Registrar may at the request of
the Registered Owner execute and deliver a new Bond of like date, number and tenor to the
Registered Owner thereof upon the Registered Owner's paying the expenses and charges of the
City and the Bond Registrar in connection therewith and upon its filing with the City written
certification that such Bond was actually lost, stolen or destroyed and of its ownership thereof.
In the case the Bond shall be lost, stolen, or destroyed while in the Registered Owner's
possession, the Registered Owner may elect upon final payment of principal and interest of the
Bond to surrender a photocopy of the Bond for cancellation at the office of the Bond Registrar
-15- 04/26/13
together with written certification that such Bond was actually lost, stolen or destroyed and of its
ownership thereof.
Section 14. Severability; Ratification. If any one or more of the covenants or
agreements provided in this ordinance to be performed on the part of the City shall be declared
by any court of competent jurisdiction to be contrary to law, then such covenant or covenants,
agreement or agreements, shall be null and void and shall be deemed separable from the
remaining covenants and agreements of this ordinance and shall in no way affect the validity of
the other provisions of this ordinance or of the Bond. All acts taken pursuant to the authority
granted in this ordinance but prior to its effective date are hereby ratified and confirmed.
-16- 04/26/13
Section 15. Effective Date of Ordinance. This ordinance shall be effective after its
passage as provided by law.
ADOPTED by the City Council of the City of Yakima, Washington, at a regular meeting
thereof held this 7th day of May, 2013.
ATTEST /AUTHENTICATED:
Sonya Claar Tee, City Clerk
Approved as to form:
Deanna Gregory, Pacifica Law Group LLP
Filed with the City Clerk: _
Passed by the City Council:
Ordinance No.
Date of Publication:
CITY OF YAKIMA, WASHINGTON
Micah Cawley, Mayor
-17- 04/26/13
Exhibit A
Bank's Proposal
(attached)
04/26/13
embank.
Herbert F. Neufeld
Vice President & Community Banking Credit Liaison
U.S. Bank National Association
Government Banking Division
9th Floor (EP- MN -S9GB)
101 East 5th Street
St. Paul, MN 55101 -1860
April 26, 2013
Tara Lewis, CPA
Financial Services Manager
City of Yakima
129 N. Second St.
Yakima, WA 98901
Re: $5 million paving financing
U.S. Bank National Association ( "U.S. Bank ") is pleased to consider your request to provide
financing to the City of Yakima, Washington ( "City "). A summary of some of the terms U.S. Bank is
considering for this financing package is as follows:
Re: $5 Million
City of Yakima, Washington
Non -voted General Obligation Bond ( "Bond ")
The Bond financing to the City, is for the permanent financing for City pavement improvements.
Fixed Rate Bond:
Amount: $5 Million
Length: 5 years (15 -year amortization)
Rate Reset: Each 5th year anniversary (not less than 180 days notice to the City).
Put Option: U.S. Bank retains the right to put the loan back to City each 5th year.
There can be no automatic extension.
Interest Rate Features: All rates are subject to change with market conditions until
formally locked by an agreement between the City and U.S. Bank. All rates assume a 30 /360 -day
interest accrual basis. All rates assume that the City and legal counsel will designate the Bond as
tax - exempt (bank qualified) under existing federal tax regulations.
Interest Rates: A fixed rate, based upon an indicative rate of 1.67% per annum as of
April 26, 2013, such rate to be adjusted as of the date of funding so as to maintain the same margin
over U.S. Bank's cost of funds as that which is included in the above indicative rate. The rate will be
reset each 5th anniversary for the duration of the Bond.
Payments: Rate, above, assumes monthly interest and monthly principal payments that
result in, essentially, level annual debt service requirements over the 15 -year amortization period.
Prepayments: Prepayment is allowed, in whole or in part, on any rate reset date without
prepayment fee. Otherwise, prepayment of the Bond is not expected. However, prepayments may
be allowed by U.S. Bank on other than a rate reset date but will be subject to U.S. Bank's standard
breakfunding prepayment provisions. Prepayments allowed by U.S. Bank may, therefore, incur a
prepayment fee if the future market (at the time of prepayment) is one of lower interest rates than the
market was at the original closing date. U.S. Bank's standard "breakfunding" prepayment language
will be provided to legal counsel for inclusion in the documents.
Put Option: U.S. Bank has the option to "put" the loan back to the City should it decide
not to offer a 5 -year maturity extension or if the City and U.S. Bank cannot agree on a new interest
rate or other bond provisions for the next 5 year period. U.S. Bank will provide 180 days notice
should it decide to not extend the loan for an additional 5 year term. Should U.S. Bank and the City
not mutually agree on a new interest rate and /or changes to the payment or structure provisions or if
the Bank fails to reset the rate, the loan will mature in the 5th year.
Default Interest Rate: The default interest rate will be the stated rate plus 2%
Security: The Bond will be a non -voted general obligation of the City. U.S. Bank will not take
a subordinate lien position or be in a less than senior level position to any other financing.
Bond Counsel: The loan documents and an unqualified legal opinion must be provided by
a nationally recognized bond counsel that is currently listed in the "Red Book" more formally known
as the Bond Buyer's Municipal Marketplace ( "Bond Counsel "). The Pacifica Law Group is
acceptable to U.S. Bank to perform as Bond Counsel.
Costs: Various costs, expenses and fees relating to due diligence and Bond documentation,
including all legal fees and expenses are the responsibility of the City. U.S. Bank will not charge its
customary $5,000 set -up fee. U.S. Bank does not expect to require separate Bank Counsel for this
financing and will be permitted to rely on the documents and legal opinion of the City's Bond
Counsel.
Covenants: The City will covenant to maintain rates, fees, and revenues to result in a
minimum debt service coverage (funds available for debt service divided by the amount of debt
service) of 1.00 times. Failure to maintain this coverage ratio for 2 consecutive years will result in an
automatic adjustment of the interest rate to the Default Interest Rate.
The City will covenant to automatically provide the Government Banking Division of U.S.
Bank with copies of its annual, audited financial statements within 330 days of the end of each fiscal
year for the duration of the Bond.
Other: U.S. Bank's continued involvement with this financing is predicated upon U.S. Bank
obtaining credit approval of the various terms, conditions, and creditworthiness of the City. The
credit approval process includes the mandatory analysis of the City's most recent three years of
audited financial statements. We hereby acknowledge our possession of those audited financial
statements.
Documentation will include standard covenants regarding maintenance of business operations,
adequate insurance coverage, agreement to take all actions necessary to preserve tax - exempt
status of the obligation, and to collect fees, taxes and other revenues in an amount sufficient to
meet all City obligations, including debt service on this Bond.
All funds transfers must be directly deposited to a U.S. Bank account
Documentation for the transaction will be prepared by Bond Counsel and will include an appropriate
authorizing resolution or ordinance, 8038 filing, and Bond Counsel opinion that the Bond is a legal,
valid, binding, enforceable and properly authorized obligation of the City. The City will designate the
Bond as a "tax- exempt, bank qualified obligation" under section 265(b) of the Internal Revenue Code
of 1986, as amended, for investment by financial institutions.
As we obtain more information, additional substantive conditions will be required and terms may be
changed or be supplemented. In addition, upon completion of our analysis and due diligence and if
we obtain credit approval of this proposal, Bond Counsel will prepare loan documentation which will
include terms and conditions customary to U.S. Bank, as well as warranties and covenants specific
to this transaction.
To that end, this letter is an expression of interest only, and it is not a contract, commitment
nor intent to be bound. U.S. Bank does not intend that this letter or discussions relative to
the terms of this letter create any legal rights or obligations, implicit or explicit, in favor of or
against the other party. Also, no oral discussions and /or written agreements shall be in place
of or supersede written loan agreements executed by your business and accepted by U.S.
Bank.
Thank you for discussing your financing needs with U.S. Bank. Should you wish us to continue to
consider your credit request, you will be responsible for all of U.S. Bank's out -of- pocket expenses
related to this financing request. We look forward to the opportunity to consider your credit request.
If you have any questions regarding this letter, please contact me at (651) 466 -8605.
Very truly yours,
Xlcn :1_\►1:4►I_AI N 0 /_\ F—A I N 0
Herb Neufeld
Vice President & Senior Lender
Government Banking Division
Direct: 651.466.8605 Mobile: 651.233.0589 Fax: s
NeufeldgUSBank.com
CERTIFICATE
I, the undersigned, the Clerk of the City Council (the "City Council ") of City of Yakima,
Washington (herein called the "City "), DO HEREBY CERTIFY:
1. That the attached ordinance numbered (herein called the "Ordinance ")
is a true and correct copy of an ordinance of the City, as finally adopted at a regular meeting of
the City Council held on the 7th day of May, 2013, and duly recorded in my office.
2. That the meeting was duly convened and held in all respects in accordance with
law, and to the extent required by law, due and proper notice of such meeting was given; that a
quorum of the City Council was present throughout the meeting and a legally sufficient number
of members of the City Council voted in the proper manner for the passage of said Ordinance;
that all other requirements and proceedings incident to the proper adoption of said Ordinance
have been duly fulfilled, carried out and otherwise observed, and that I am authorized to execute
this certificate.
IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of May, 2013.
City Clerk
04/26/13