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Resolution No. 78781 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 RESOLUTION NO. 7878 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF VERNON APPROVING AND AUTHORIZING THE EXECUTION OF A LETTER AGREEMENT BY AND BETWEEN THE CITY OF VERNON AND BANC OF AMERICA SECURITIES LLC REGARDING THE MALBURG GENERATING STATION PROJECT WHEREAS, the City of Vernon (the "City") is considering the institution of proceedings to finance the development of a 134 MW Combined Cycle Power Plant officially named the Malburg Generating Station (the "Malburg Project") for the purpose of installing additional generating capacity that will yield an efficient, cost- effective, and reliable tource of electric generation to the City of Vernon; and WHEREAS, City staff have determined that, in order to commence the formulation of financing plans to determine the most feasible and economical method of financing the Malburg Project, the City needs to retain the professional services of an institution specializing in structuring, underwriting and/or remarketing tax- exempt securities; and WHEREAS, City staff have proposed entering into a preliminary understanding with Banc of America Securities LLC ("Banc of America"), a subsidiary of Bank of America Corporation, for the purpose of evaluating financing alternatives and the cost to be incurred by the City in obtaining funding for the Malburg Project; and WHEREAS, by letter dated November 19, 2001, Bruce V. Malkenhorst, City Administrator/City Clerk, has recommended that the City enter into a. Letter Agreement with Banc of America in connection with the Malburg Project financing; and 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 WHEREAS, the City Council of the City of Vernon has determined that, pursuant to the provisions of subsection (a) of Section 2.27 of the Vernon City Code, it is in the public interest and necessity to enter into a Letter Agreement with Banc of America for the Malburg Project financing. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF VERNON AS FOLLOWS: SECTION 1: The City Council of the City of Vernon hereby finds and determines that the recitals contained hereinabove are true and correct. SECTION 2: The City Council of the City of Vernon hereby approves the Letter Agreement with Banc of America, a copy of which is attached hereto as Exhibit "A" and made a part hereof. SECTION 3: The City Council of the City of Vernon hereby authorizes the Mayor and the City Clerk to execute said Letter Agreement for, and on behalf of, the City of Vernon. SECTION 4: The City Council of the City of Vernon hereby directs the City Clerk, or his designee, to send one fully executed Letter Agreement to: Banc of America Securities LLC Attn. David L. Johnson, Managing Director, Municipal Finance Department CA9-704-19-19 300 South Grand Avenue, 19th Floor Los Angeles, CA 90071-3157 - 2 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SECTION 5: The City Clerk of the City of Vernon shall certify to the passage of this resolution, and thereupon and thereafter the same shall be in full force and effect. APPROVED AND ADOPTED this 13th day of December, 2001. IATTEST: BRUCE V. MALKENHORST, City Clerk i EONIS C. URG, Mayor - 3 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 STATE OF CALIFORNIA ) ) ss COUNTY OF LOS ANGELES ) I, BRUCE V. MALKENHORST, City Clerk of the City of Vernon, do hereby certify that the foregoing Resolution, being Resolution No. 7878, was duly adopted by the City Council of the City of Vernon at an adjourned regular meeting of the City Council duly held on Thursday, December 13, 2001, and thereafter was duly signed by the Mayor of the City of Vernon. (SEAL) f4-"� BRUCE V. MALKENHORST, City Clerk'. - 4 - EXHIBIT 0 David L. Johnson Managing Director Municipal Securities Department December 1, 2001 Mr. Bruce V. Malkenhorst City Administrator City of Vernon 4305 Santa Fe Ave. Vernon, CA 90058 Dear Mr. Malkenhorst: Banc of America Securities��� Banc of America Securities LLC CA9-704-19-19 300 South Grand Avenue Los Angeles, CA 90071-3157 Tel 213.229.3431 Fax 213.489.5872 david.johnson0 bankofamerica.com We are delighted that the City of Vernon consider the selection of Banc of America Securities LLC ("BAS"), as Senior Managing Underwriter, to (1) evaluate financing alternatives for the City's Light and Power Department acquisition of two simple cycle combustion turbines and plant upgrades; and (2) structure, underwrite and/or remarket tax-exempt securities. This letter sets forth our understanding of the agreement between Banc of America Securities ("BAS") and the City of Vernon ("City"). BOND UNDERWRITING AND REMARKETING BAS sets forth fees as shown in Exhibit A of this agreement. BAS' fee compensates our firm for: (i) all aspects of structuring the bond financing, including legal and debt repayment provisions; (ii) arranging credit and/or liquidity enhancement from a commercial bank or bond insurance firm, and assisting with negotiating the terms and conditions of such credit enhancement; (iii) managing the rating process; (iv) marketing and selling the City's bonds to institutional and retail investors; (v) making a firm commitment to underwrite the securities offering, including unsold bonds, on the day of sale; (vi) advising the City on the alternatives for reinvesting net bond proceeds during the construction period and means to hedge interest rate risk; and (vii) delivering the bond proceeds to the City and coordinating all aspects of the bond closing. Should the City decide to issue variable rate bonds, the City agrees to name Banc of America Securities LCC as the initial sole Remarketing Agent. Indicative remarketing fees are set forth in Exhibit A. The remarketing fee compensates BAS for the periodic, likely weekly or daily, resetting of the interest rate on the bonds and reselling any tendered bonds to investors. The City also agrees to pay BAS' direct expenses associated with the financing. This includes underwriter's counsel fees, state and federal regulatory fees, and out-of-pocket expenses. In addition to the above fees and expenses paid to BAS, the Center agrees to pay all other costs of issuance associated with the bond financing as discussed below. The proposed bond transaction(s) may involve the use of derivative products including, but not limited to, swaps and caps. Should such derivative products be used, the City agrees that BAS will be given the opportunity to provide such products on either a competitive or negotiated basis. COSTS OF ISSUANCE We will negotiate with third parties to keep all additional issuance costs associated with the bond financing at a minimum. All front-end fees are payable at closing and will be financed with bond proceeds to the extent allowable under the law. In addition, all issuance costs relating to credit enhancement may be financed and paid for with bond proceeds. Any issuance costs not paid from bond proceeds will be the responsibility of the City and due and payable at closing. Cost of issuance will likely include, but not be limited to, bond counsel fees, City attorney fees, engineering study costs, credit enhancement costs, rating agency fees, trustee fees, accountant and appraisal fees, if any, as well as the costs of printing and distributing the preliminary and final official statements to potential investors. In addition to front-end fees and expenses, the City will also be responsible for all annual fees related to the bond issue including, but not limited to, credit enhancement, trustee, and rating agency, if any. All structuring features of the proposed bond issue will, of course, be subject to the City's approval and the City may elect to terminate the financing or BAS' involvement at any time. Should the bond issue fail to close for any reason after the bonds have been priced and sold to investors, the City shall be responsible for reimbursing all direct out-of-pocket expenses incurred by BAS with respect to the bond issue, but shall not be liable for any portion of the underwriting or remarketing fees. OTHER In performing services under this Agreement, BAS will be acting as an independent contractor and not as an agent or employee of the City. BAS will have no authority to contract in the name of City and BAS will be responsible for its own acts and those of our agents and employees. In connection with the performance of services provided for under this Agreement, BAS agrees that it will not, on the grounds of race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, marital status, sex, sexual orientation, or age, discriminate or permit discrimination against any person or group of persons in any manner prohibited by Federal, State or local laws. This Agreement may be terminated by the City without cause on ten (10) days written notice. In the event of such termination by the City, BAS shall be entitled to only the compensation earned, and out- of-pocket costs incurred, by BAS prior to the date of the termination notice, plus compensation for necessary work performed during the ten (10) days notice period and authorized in the termination notice. , We are very excited by the opportunity to assist the City of Vernon in obtaining funding for its acquisition of combustion turbines by providing access to the capital markets, and we look forward to working together as partners on this important financing. Please indicate your acceptance of the above terms and conditions by signing below. Sincerely, David Johnson Managing Director TERMS AND CONDITIONS ACCEPTED BY: CITY OF VERNON NAME: TITLE: DATE: Exhibit A The following fees are for an issue size ranging from $75 million to $100 million. Annual remarketing agent fees would be 0.07% paid on a quarterly basis in arrears based upon the outstanding principal amount. Expenses break down as follows: Underwriter's Counsel $70,000 CDIAC 4,000 Dalnet 6,000 PSA 3,000 Cal PSA 1,000 Presentation Materials 4,000 Fed Ex, Messenger, Et 500 DTC 800 CUSIP 400 Total $89,700 To the extent travel to rating agencies and bond insurers is required, out-of-pocket expenses will be adjusted accordingly. SUPPORTING DOCUMENTS i s , January 13, 2003 Mr. Eric Fresch Legal Counsel City of Vernon 4305 Santa Fe Avenue Vernon, CA 90058 Dear Mr. Fresch: On behalf of Bank of America N.A. ("Bank"), we are pleased to provide the attached Summary of Terms and Conditions to the City of Vernon (the "City") for a $50,000,000 Letter of Credit. We believe that the proposed credit facility incorporates all of the terms we discussed at our recent meeting. We appreciate this opportunity to work with you on this important transaction for the City. Our understanding is that the City would like to have the credit facility in place as soon as possible. We will endeavor to work with you to meet the time frame you have outlined. We are currently working with our counsel to prepare draft documentation and will forward a copy to you as soon as it is available. Please sign and return a copy of this letter to acknowledge your agreement that the Bank should begin preparation of loan documentation. Your signature indicates your understanding that you will reimburse the Bank for the expenses that it incurs in preparing documents. Regards, Bank of America N.A. George V. Hausler Senior Vice President Michael C. Jones Vice President Acknowledged and accepted this 14th day of January, 2003. The City of Vernon By: /..iF � Title: City Administrator THE CITY OF VERNON MALBURG GENERATING STATION PROJECT $50,000,000 LETTER OF CREDIT FACILITY SUMMARY OF TERMS AND CONDITIONS JANUARY 2003 Borrower: The City of Vernon Electric System (`Borrower") Letter of Credit Provider: Bank of America, N.A. (the "Bank"), as sole provider, in a principal amount up to $50,000,000, plus applicable interest coverage. Bank reserves the right to sell participations of its commitment. Ratings Bank of America Standard & Poor's Moody's Long -Term AA- Aa l Short -Term A-l+ P-1 Letter of Credit Facility Up to $50,000,000 plus interest component calculated on the basis of 40 days ("Facility") interest at the maximum rate of 12%, using a 365-day year ($657,534.25). The final amount of the Facility will be determined by the final amount of the Borrower's 2002 Series A Electric System Revenue Bonds issued on a variable rate basis (the "Variable Rate Bonds"). The Facility will be reduced to reflect any conversion, redemption, repayment or other payment on all or any portion of the Variable Rate Bonds. The Variable Rate Bonds supported by the Facility are to amortize pro-rata with the Fixed Rate Bonds to be issued by the Borrower concurrent with the issuance of the Variable Rate Bonds. Purpose To provide credit enhancement and liquidity to support the Variable Rate Bonds to be issued by Borrower. Such Facility will provide funds to purchase Variable Rate Bonds tendered by holders that cannot be remarketed by the Remarketing Agent. Maturity: Up to 3 years from closing. Renewal Option: 90 days prior to the annual anniversary date of the Facility, Borrower may request a one-year extension of the Facility. Any renewal offer will be based on Bank's standard due diligence of various factors including but not limited to the financial condition of the Borrower, with final terms to be agreed upon at that time. Repayment on Advances: Advances under the Facility will be repaid on the same day. Interest Rate: Draws between 1 to 30 days: 30-day LIBOR+ 1.25% or Bank's Prime Rate. The default rate on bank owned Variable Rate Bonds will be the Bank's Prime Rate + 3.00%. Fees: 1. 10 basis point one-time Upfront Fee payable at closing, and 2. An Annual Facility Fee based on the Borrower's S&P rating and Moody's ratings as follows: This Summary of Terms and Conditions does not constitute any kind of commitment on the part of the Bank or their affiliates or subsidiaries, but is intended solely to facilitate discussions on the materials contained herein. The examples used are provided for illustration only and are not necessarily representative of the material terms which are, or may be, obtainable in connection with the credit facility contemplated herein. The terms described herein are subject to all approval processes of the Bank. The existence of, and the information contained in, this proposal is strictly confidential. Neither its existence nor any of the examples contained herein may be disclosed to any other person or entity without the prior written consent of the Bank. Bank of America, N.A. Page 1 of 4 THE CITY OF VERNON MALBURG GENERATING STATION PROJECT Reporting Requirements Covenants: J l� $50,000,000 LETTER OF CREDIT FACILITY SUMMARY OF TERMS AND CONDITIONS JANUARY 2003 Moody's S&P Facility Fee (per annum) A 1 or better A+ or better 80 bps A3 or better A- or better 95 bps Baal BBB+ 110 bps In the case of a split rating, the Facility Fee will'be calculated based on the lower of the ratings. The first annual Facility Fee will be payable at closing. Thereafter the Facility Fee will be paid quarterly in arrears. Including but not limited to the following: 1. Borrower's annual audited financial statements with an unqualified opinion by a nationally -recognized certified public accountant acceptable to the Bank within 180 days of year-end, and; 2. Concurrent with the delivery of (1) above, a compliance certificate by an authorized financial officer setting forth in sufficient detail that the Borrower is in compliance with all terms and conditions of the Facility. 3. During the construction period, monthly progress reports on the percentage of completion and construction cost versus budget on the project. 4. Semi-annual reporting on days cash -on -hand covenant (outlined below). Compliance with covenants to include but not be limited to the following: 1. A minimum S&P rating of BBB+ and a minimum Moody's rating of Baa 1 for the Borrower at all times; 2. Borrower to maintain at all times cash or cash equivalent reserves equal for 270 days of Operating Expenses, measured semi-annually on June 30 and December 31. For purposes of the calculation of the 270 days Operating Expenses the actual Operating Expenses for the immediately preceding 270-day period from the measurement date shall be used. 3. Reimbursement of Borrower's out-of-pocket expenditures related to the Malburg Generating Station Project ("Project") from the Bond Proceeds Account restricted until final California Energy Commission approval and commencement of work; 4. Borrower not to issue any additional debt, with the exception of the Fixed Rate Bonds to be issued concurrent with the Variable Rate Bonds, without prior Bank approval. 5. The Borrower shall at all times fix, prescribe and collect rates and charges for its services during each fiscal year to yield electric system revenues equal to at least l.lx the sum of (1) the electric system operating and maintenance expenses and (2) debt service on, the bonds and related bank fees and charges. 6. The City shall not transfer Net Revenues for any Fiscal Year to the City's This Summary of Terms and Conditions does not constitute any kind of commitment on the part of the Bank or their affiliates or subsidiaries, but is intended solely to facilitate discussions on the materials contained herein. The examples used are provided for illustration only and are not necessarily representative of the material terms which are, or may be, obtainable in connection with the credit facility contemplated herein. The terms described herein are subject to all approval processes of the Bank. The existence of, and the information contained in, this proposal is strictly confidential. Neither its existence not any of the examples contained herein may be disclosed to any other person or entity without the prior written consent of the Bank. Bank of America, N.A. Page 2 of 4 THE CITY OF VERNON MALBURG GENERATING STATION PROJECT $50,000,000 LETTER OF CREDIT FACILITY SUMMARY OF TERMS AND CONDITIONS JANUARY 2003 General Fund in an amount exceeding the Net Transferable Income for such Fiscal Year. "Net Transferable Income" means, with respect to any Fiscal Year, the Net Revenues for such Fiscal Year less the Debt Service for such Fiscal Year. Events of Default: Events of Default to include but not be limited to the following: 1. Non-payment of any portion of any fees of the Facility; 2. Non-payment of principal or interest on the Bonds; 3. Non-compliance with any of the covenants of the Facility; 4. Occurrence of any Event of Default under any bond agreement to which the Borrower is a party subject to applicable cure periods. Conditions Precedent to Closing of the Facility will be subject to satisfaction of all conditions precedent Closing: reasonably deemed appropriate by the Bank and its counsel for financings of this type generally, and for this transaction in particular, including but not limited to the following: 1. Completion of all due diligence with respect to the Borrower, the Project, and related bond agreements, including, but not limited to, the updated Navigant Consulting Malburg Generating Station Project Consulting Engineer's Report, the Project related construction contracts and contractors, the construction budget, and the construction schedule; 2. A written confirmation from Moody's and S&P supporting their respective ratings; 3. The negotiation, execution and delivery of definitive documentation with respect to the Facility reasonably satisfactory to the Bank. Such documentation shall include all consents, conditions and covenants deemed necessary by the Bank for transactions of this nature. Such documentation may contain covenants and conditions that are different from or in addition to those listed herein; and, 4. The absence of any action, suit, investigation or proceeding, pending or threatened, in any court or before any arbitrator of governmental authority that purports to affect the Borrower or its affiliates that could have a material adverse effect on the Borrower or its affiliates to perform its obligations under the documents to be executed in connection with the Facility or related bond agreements. Representation and Those representations and warranties customarily found in agreements for Warranties: similar transactions and such additional representations and warranties as are reasonably appropriate under the circumstances, including, but not limited to, Borrower's representation that it has the authority to enter into an agreement for the Facility and that it will not violate or conflict with any of the provisions of its constituent documents or any other agreements or undertaking to which it is a party or to which it is bound. This Summary of Terms and Conditions does not constitute any kind of commitment on the part of the Bank or their affiliates or subsidiaries, but is intended solely to facilitate discussions on the materials contained herein. The examples used are provided for illustration only and are not necessarily representative of the material terms which are, or may be, obtainable in connection with the credit facility contemplated herein. The terms described herein are subject to all approval processes of the Bank. The existence of, and the information contained in, this proposal is strictly confidential. Neither its existence nor any of the examples contained herein may be disclosed to any other person or entity without the prior written consent of the Bank. Bank of America, N.A. Page 3 of 4 THE CITY OF VERNON MALBURG GENERATING STATION PROJECT $50,000,000 LETTER OF CREDIT FACILITY SUMMARY OF TERMS AND CONDITIONS JANUARY 2003 Indemnification: Borrower shall indemnify Bank and any officer, employee, agent, attorney or controlling person thereof, or any holding company thereof, from and against all losses, liability, claims, damages or expenses relating to the Facility, including but not limited to, reasonable attorney's fees and settlement costs. Borrower shall not indemnify for any losses caused by Bank's gross negligence or willful misconduct. Expenses: The Borrower shall pay all reasonable costs and expenses incurred in connection with preparation, due diligence, administration and enforcement of all documents executed in connection with the Facility and modifications to any current agreements between Bank and Borrower, including without limitation; the reasonable legal fees of Bank's counsel regardless of whether or not the Facility closes. Bank counsel fees are estimated to be in the $40,000 to $50,000 range. Proposed Bank Counsel is: Neil W. Rust White & Case 633 West Fifth Street Los Angeles, CA 90071 Phone: 213-620-7748 Fax: 213-687-0758 Email: must@whitecase.com Confidentiality: This Summary of Terms and Conditions is delivered with the understanding that neither this Summary of Terms and Conditions nor any of its terms and conditions shall be disclosed, directly or indirectly, to any other person except: 1. The Borrower's employees, agents and advisors who are directly involved in the consideration of this matter; or, 2. As disclosure may be compelled in a judicial or administrative proceeding or as otherwise required by law (subject to reasonable approval by Bank). Non-refundable portion of The Upfront Fee is considered earned upon Bank's delivery of a commitment Upfront Fee letter or documents for the Facility contemplated herein. Such fee will be paid upon the earlier of (1) closing of the Facility and (2) an event whereby Borrower effectively terminates Bank's efforts to provide this Facility after acceptance of the Term Sheet and receipt of a commitment Ietter or documents for a Facility contemplated herein. Expiration Date Unless otherwise extended in writing by Bank, this proposal will expire on January 31, 2003. . This Summary of Terms and Conditions does not constitute any kind of commitment on the part of the Bank or their affiliates or subsidiaries, but is intended solely to facilitate discussions on the materials contained herein. The examples used are provided for illustration only and are not necessarily representative of the material terms which are, or may be, obtainable in connection with the credit facility contemplated herein. The terms described herein are subject to all approval processes of the Bank. The existence of, and the information contained in, this proposal is strictly confidential. Neither its existence nor any of the examples contained herein may be disclosed to any other person or entity without the prior written consent of the Bank. Bank of America, N.A. Page 4 of 4 e Exhibit A The following fees are for an issue size ranging from $75 million to $100 million. Annual remarketing agent fees would be 0.07% paid on a quarterly basis in arrears based upon the outstanding principal amount. Expenses break down as follows: Underwriter's Counsel $70,000 CDIAC 4,000 Dalnet ,000 PSA 3 ,000 Cal PSA 1,000 Presentation Materials 4,000 Fed Ex, Messenger, Et 500 DTC 800 CUSIP 400 Total $89,700 To the extent travel to rating agencies and bond insurers is required, out-of-pocket expenses will be adjusted accordingly. Exhibit A Annual remarketing agent fees would be 0.08% paid on a quarterly basis in arrears based upon the outstanding principal amount. Expenses break down as follows: Underwriter's Counsel $70,000 CDIAC 4,000 I ,000 PSA PSA 3 ,000 Cal PSA 1,000 Presentation Materials 4,000 Fed Ex, Messenger, Et 500 DTC 800 CUSIP 400 Total $89,700 To the extent travel to rating agencies and bond insurers is required, out-of-pocket expenses will be adjusted accordingly.