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HomeMy WebLinkAboutCC 19 SUPP INDENT TRST 2-2-87 Inter- Corn DATE: JANUARY 30, 1987 CONSENT CALENDAR TO: FROM: SUBJECT: ,IL'Ira CITER RONALD A. ~CE DIRECTOR RESOLUTION 87-18, SUPPLEMENTAL INDENTURE OF TRUST, ASSESSMENT DISTRICT 85-1 RECO~IENDATION Adopt Resoslution 87-18, executing a supplement to the Indenture of Trust for Assessment District 85-1. DISCUSSION The original Assessment District bond issue was structured as a variable rate in the beginning with a provision to allow for a conversion to a fixed rate as parcels become available for owner occupants. From a marketing standpoint it is more desirable to potential buyers to know that they can expect a fixed assessment level during the life of the bonds. The City also gains from not having to impose severe assessment changes on the property owner over the life of the bonds. In the remarketing agents opinion, Merrill Lynch Capital Markets and Stone & Youngberg, at least one rating, in this case from Standard & Poors, would be desirable in marketing these converted bonds. The attachment interoffice memorandum from Merrill Lynch goes into great detail regarding S&P's concerns. I will attempt to suninarize in the following: me e o Provides for a new letter of credit to be issued in the event that unit priced bond, variable rate, where to extend out for a period of one year. Cleans up language regarding a reinstatement of interest reserves after a letter of credit draw down. Changes the notice time between the tender agent and the trustee from 1:00 p.m. NYC time to 12:45 p.m. NYC time. Changes permitted investments to "direct obligations of the United States of. America with maturity periods not exceeding thrity (30 days." Requires written notice from the trustee when the Letter of Credit has been fully reinstated. Requests the trustee to notify in writing S~ at the expiration of the Letter of Credit. · William A. Huston January 30, 1987 Page 2 7. Deletes the word "if" in section 10.01 (c) (4), page 70, of the indenture. RAN:skr attachment Merrill Lynch Capital Markets Municipal Markets At: From: At: Tel: Date: Interoffice Memorandum Attached Distribution Nathan Brostrom ~/"~ PFG-WR (213)683-4639 November 10, 1986 Subject: $50,650,000 City of Tustin Assessment District No. 85-1 Improvement Bonds Merrill Lynch is currently pursuing a rating with Standard & Poor's Corporation ("S&P") on the above-referenced issue. Barry Wood, the assigned analyst on this matter, has raised a number of concerns which we must address and resolve before the issue can receive a rating. ' The concerns are, for the most part, clarifications of the language in the documents and impose no additional burden to any party in the transaction. The sole point which imposes an economic cost is point (4), because of the foregone investment opportunity. While it is the policy of Merrill Lynch to pursue ratings from both rating agencies for our UPDATES issues, in this issue we do not feel a second rating merits the additional cost, particularly since S&P will only give us a short-term rating and a sizable portion of this issue will be converting to a fixed-rate fairly quickly. Furthermore, having only a single rating on these Bonds should not hamper our remarketing efforts or affect the rates. If we decide to proceed with an S&P rating, a supplement to the Indenture would be prepared and signed by the City and the Trustee. No other document would be altered. The concerns of S&P on this issue are as follows: The premium portion of the Letter of Credit is funded to cover 1% of the par amount of Bonds. However, the table which sets forth redemption prices (p. 31 of the Trust Indenture) stipulates premiums ranging from par to 102 1/2% for Unit Pricing periods longer than one year. Because of the unlikelihood of extending a Unit Pricing period longer than one year, it had been decided that, if such an extension should occur, a new increased LOC would be issued. This provision is not stated in the documents and needs to be in order to receive an S&P rating. ~ Merrill Lynch 2. As was decided in the negotiations on the Letter of Credit, there is to be automatic reinstatement of the Interest Portion after a draw on the LOC. Unfortunately, this is ambiguously stated in the LOC language. In particular, S&P would like the LOC to be amended as follows: on page 4, the fourth line of the final paragraph should read "be increased automatically by the close of business on the date of such draw" (underlined portion represents inserted language) and the balance of that paragraph can be dropped. This represents no substantive change, but merely a clarification of the terms of the LOC. 3. In Section 4.04 (B) of the Trust Indenture (p. 39), the notice time from the Tender Agent to the Trustee, the Bank, and the City should be changed from "1:00 p.m. New York City time" to "12:45 p.m. New York City time". Otherwise the latest time by which the Tender Agent must advise the Trustee is the same time by which the Trustee must draw on the LOC. At this point in time, the Trustee and Tender Agent are the same party, but if there should be a substitution of either party during the life of the issue this change becomes meaningful. ' S&P objects to the list of permitted investments for the Interest Reserve Fund found in Section 5.07 of the Trust Indenture (p. 55). Specifically, they oppose investments in repurchase agreements and would like to l/mit investment of the Interest Reserve Fund to "direct obligations of the United States of America with maturity periods not exceeding thirty (30) days'*. On a practical level, such maturities w~uld be difficult to acquire on a consistent basis with such small amounts of money, so the fund could remain uninvested. At present market rates, if this fund were not invested, the economic cost would be roughly $2,750 monthly, if the full par amount of Bonds were in the Unit Pricing or Demand mode. Section 4.04 (c) of the Indenture is slightly ambivalent as .to the reinstatement of the Letter of Credit. To remedy this ambivalence, the last line should be changed from "receives the remarketing proceeds therefore'* to "receives written notice from the Bank that the Letter of Credit ha~ been fully reinstated,, e S&P would like a letter from the Trustee, confirming that they would be notified in the event of expiration or termination of the Letter of Credit, the redemption or purchase of outstanding Bonds, or any material changes in the documents. 7. In Section 10.0! (c)(4) of the Indenture (p. 70), the word "if" is redundant and should be deleted. If you have any questions, please contact either me or Sam Corliss ' at (213) 683-4635. We will contact you by Friday, November 14 to determine how you would like to proceed with this matter. Thank you for your time and effort. Distribution: Barry Wood, Standard & Poor's Corporation Ron Nault, City of Tustin Doug Brown, Mudge Rose Guthrie Alexander & Ferdon David Tan, Mudge Rose Guthrie Alexander. & Ferdon Richard E. Moran, The Irvine Company Dan Tonini, The Irvine Company John Murphy, Stradling, Yocca, Carlson & Rauth Takeo Ishimaru, Mitsubishi Trust & BankinE Linda Newman, Graham & James Ornie Thoresen, Citibank N.A. Lora Stovall, Battle Wells & Associates James Rourke, Rourke & Woodruff 1 3 4 5 6 7 8 9 10 11 13 15 16 17 18 19 20 21 '23 2~ 25 26 27 28 RESOLUTION NO. 87-18 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUSTIN, AUTHO- RIZING THE EXECUTION AND DELIVERY OF A SUPPLEMENTAL INDENTURE OF TRUST; MAKING CERTAIN FINDINGS WITH REGARD THERETO; ACCEPTING AN OPINION OF BOND COUNSEL AND AUTHORIZING CERTAIN RELATED MATTERS WHEREAS, the City Council of the City of Tustin has previously authorized the execution and delivery of an Indenture of Trust, dated as of August 1, 1986, by and between the City and Citibank, N.A., as Trustee, (the "Original Indenture") with respect to the issuance of $50,650,000 aggregate principal amount of the City's Assessment District No. 85-1 Improvement Bonds {the "Bonds"); and WHEREAS, Standard and Poor's Corporation ("S&P") in connection with the rendering of a rating to the Bonds has requested that certain amendments be made to the Original Indenture; and WHEREAS, the City Council has received from Merrill Lynch Capital Markets, a memorandum dated November 10, 1986, explaining certain of the amendments requested by S&P, said memorandum which is attached as Exhibit A hereto (the "Memorandum"); and WHEREAS, in connection with the automatic conversion of a portion of the Bonds from a variable interest rate to a fixed interest rate certain amendments to the Original Indenture are desirable and in the best interests of the City; and WHEREAS, the City intends to enter into a First Supplemental Indenture of Trust, dated as of February 1, 1986, by and between the City and Citibank, N.A. (the "First Supplemental Indenture") the proposed form of which is attached as Exhibit B hereto, to amend the Original Indenture as described above; and WHEREAS, the City has received an unqualified opinion of its Bond Counsel which opinion is attached hereto as Exhibit C relating to the First Supplemental Indenture. BE IT RESOLVED, DETERMINED AND ORDERED BY THE CITY COUNCIL OF THE CITY OF TUSTIN AS FOLLOWS: SECTION 1. The City hereby accepts the Memorandum received by the City from Merrill Lynch Capital Markets relating to the requirements of S&P. SECTION 2. The City hereby approves and accepts the attached opinion of Bond Counsel relating to certain amendments contained in the First Supplemental Indenture. SECTION 3. The City hereby approves the First Supplemental Inden- ture, amending the Original Indenture, and the Mayor or Mayor Pro-Tem and City Clerk are hereby authorized on behalf of the City to execute the First Supplemental Indenture with such additions, deletions and clarifications as approved by the City, such execution being approval by the City of such additions, deletions or clarifications. -1- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 26 27 28 SECTION 4. The City Manager is hereby authorized and directed to review and approve, in his discretion any and all disclosure documents or offering circulars used by the remarketing agents in connection with the conversion of the Bonds from a variable interest rate to a fixed interest rate and to review the terms of the conversions, including the compensation of the various parties thereto. SECTION 5. The Mayor or Mayor Pro-Tem, City Manager, Finance Director, Treasurer, City Clerk and other appropriate officers of the City are hereby further authorized and directed to execute and deliver any and all documents and instruments and to do and cause to be done any and all acts necessary and proper to carry out the transactions contemplated by this Resolution. PASSED AND ADOPTED by the City Council of the City of Tustin at a regular meeting held on the 2nd day of February, 1987. ATTEST: DONALD J."'SALTARELLI MAYOR OF THE CITY OF TUSTIN ~UkRY E. WYNN CITY CLERK OF THE CITY OF TUSTIN -2-