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HomeMy WebLinkAboutAgenda - 06-29-2000-7aORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: June 29, 2000 Action Agenda Item No. _ 7 Q SUBJECT: Certificates of Participation (COPS) for New Orange County High School DEPARTMENT: Finance PUBLIC HEARING: (Y/N) Yes ATTACHMENT(S): Resolution Summary of Underwriting Proposals Bond Counsel Memorandum INFORMATION CONTACT: Ken Chavious, ext 2453 TELEPHONE NUMBERS: Hillsborough 732-8181 Chapel Hill 968-4501 Durham 688-7331 Mebane 336-227-2031 PURPOSE: To conduct a public hearing on matters related to the financing of a New High School in the Orange County School District, and to take action on items to facilitate the acquisition of funds needed for the project. BACKGROUND: At the June 6, 2000 meeting, the Board of Commissioners authorized staff to pursue the financing needed for a new high school in the Orange County School District. The total approved budget for the project is just under $28 million, with $12.5 million financed by bands approved for the purpose by Orange County voters in November 1997. Staff recommended, and the Baard approved, Certificates of Participation (COPS) as the financing mechanism to be pursued for the balance of the project funding. The Board approved $13.5 million from COPS for project construction. Issuance costs associated with COPS will be added to the amount for construction and included in the total amount to be financed. Similar to the County's other installment purchase projects, this financing approach requires the Board to receive public comment prior to seeking the approval of the North Carolina Local Government Commission. June 29, 2000 was the date established by the Board for the public hearing. In accordance with the timetable provided by bond counsel, staff has pursued the required RFP process for underwriting services needed for the issuance of COPS. Competitive proposals from 3 of the most recognized firms in the State were submitted and staff recommends that the County contract with BB~T Capital Markets. In addition to providing the lowest cost estimates ($72,920), BB&T had the most experience in financing school projects and working with first time issuers of COPS. BB&T has recently worked with the County in obtaining an upgrade in bond rating and their familiarity with the County is a definite plus. A summary of the proposals is attached. An additional item referred to on the timetable was the need for the County to create a non- profit corporation to play a role in the financing. As mentioned in the attached memorandum from bond counsel, the legal structure most commonly used in a COPS financing requires that a non-profit corporation serve as the counter party to the County's primary financing contract. Creating the corporation requires two major steps: (1) preparing the articles of incorporation and (2) identifying people to serve as directors of.the corporation. Bond Counsel has recommended a similar approach to the one used in the formation of the nonprofit for Orange County's Small Business Loan program. As far as the Directors are concerned, the County Finance Director and the Finance Directors for both school systems could be the initial members, or the Board could select other members. The School Finance Directors have been contacted and are willing to serve. Bond Counsel will be available at the June 29 meeting to discuss in further detail the issues related to the non-profit corporation. FINANCIAL IMPACT: As mentioned above the amount approved for the project construction is $13.5 million. Underwriting and other issuance costs are estimated to be in the range of $108,000 to $115,000. These costs will be included in the total amount to be financed. Once the amount is determined, the annual debt service will be paid from Orange County Schools pay-as-you go revenues in accordance with the CIP and Capital Policy. In addition, costs associated with the creation of the nonprofit ,estimated at $5,000, will be paid from school capital fund balance. RECOMMENDATION(S): The Manager recommends that the Board take the following actions: 1. Receive public comment on the financing proposal. 2. Adopt the Resolution retaining BB8~T Capital Markets as Underwriters and authorizing staff to proceed with the formation of a non-profit corporation: i 3 Resolution concerning the proposed installment financing for the planned new Orange County high school WHEREAS, Orange County has previously approved in principle a plan to finance a portion of the construction costs for a new high school for the Orange County school district through an installment financing contract, as authorized under Section 160A-20 of the North Carolina General Statutes; WHEREAS, by resolution adopted June 6, 2000, the Board of Commissioners made certain findings of fact and tentative determinations to proceed with such an installment financing, WHEREAS, those findings and determinations were made subject to the Board's further consideration in light of any public comment received at the public hearing that is required by law prior to such an installment financing; WHEREAS, the Board has now conducted the required public hearing; NOW, THEREFORE, BE IT RESOLVED that the Board of Commissioners of Orange County, North Carolina, confirms its determination to proceed with an installment financing for the new Orange County high school project, and confirms the findings of fact contained in the resolution of June 6; BE IT FURTHER RESOLVED that BB&T Capital Markets shall be retained as the County's senior managing underwriter for the installment financing; BE IT FURTHER RESOLVED that Finance Officer, the County's bond counsel and all other County officers and employees are authorized and directed to proceed with the formation of the nonprofit financing corporation necessary for the contemplated plan of financing; and BE IT FURTHER RESOLVED that the Finance Officer and all other County officers and employees are authorized and directed to proceed with all such further action as they may consider necessary or desirable to complete the installment financing contemplated by this resolution. COST SUMMARY UNDERWRITING PROPOSALS NEW, HIGH SCHOOL PROJECT Wachovia Bank of America BB&T Capital Management Fees $13,500 $13,500 $9,926 Expenses $21,905 $23,694 $23,289 Underwriting Risk 0 0 0 Average Takedown $57,375 $40,500 $39,705 Total Estimated Coy $92,780 $77,694 $72,920 4 S Robert M. Jessup Jr. Memorandum To: Kenneth T. Chavious Finance Director, Orange County Date: Apri119, 2000 Regarding: Issues related to forming a nonprofit financing corporation in connection with a COPS public offering If the County proceeds with a COPS public offering for the proposed high school financing, we will need to establish a nonprofit corporation to play a role in the financing. This is because the legal structure most commonly used for these financings requires that such a corporation serve as the counterparty to the County's primary financing contract. The County needs to enter into its financing contract with some entity, and it helps keep the lines of authority and responsibility clear if we do not have any of the other substantive participants in the process play that role. Creating the corporation requires (1) prepazing articles of incorporation and bylaws, and (2) identifying people to serve as directors of the corporation. None of this requires formal action by the County Commissioners. I would suggest we handle matters related to this nonprofit as we handled the formation of the nonprofit for the small business loan program -- we would (a) tell the Commissioners up front, in connection with the informal approval to proceed with a public offering, that we would be farming the nonprofit, (b) proceed to put the nonprofit in place, and (c) have the County Board approve the formation as part of that Boazd's final approval of the financing. Other counties have usually had three- or five-member boards of directors for these financing nonprofits. We want to avoid having a majority of Board members be County Board members or officers -perhaps two of five, or one of three, would be County folks. The other board members can come from anywhere. One county appointed three former county board chairmen as the nonprofit Boazd. I would expect there to be informal consultation with the Commissioners about the members of the nonprofit's board. Toward the end of the financing process, I would expect there to be one meeting of the nonprofit's board to adopt the bylaws, elect officers (we should avoid having the County folks as officers) and approve the financing documents. 6 Most counties do not use the f nancing nonprofits for anything other than serving in these financings. There are some issues with the rating agencies that discourage you from having a financing nonprofit carry out any other substantive function, but we can work around those concerns if we have to. The County can certainly use the same financing nonprofit to serve the same role in future COPS public offerings for other projects with no trouble (but there can be a problem, again related to rating agency concerns, once you get beyond five or six outstanding financings). The corporation needs to have legal counsel for the financing. Counsel will prepaze the organizing documents, review the financing documents on the corporation's behalf, organize and carry out, the corporation's board meeting and deliver certain opinions at closing concerning the corporation. Because the Board members will need to approve the financing documents without having much incentive to review them independently, and generally without having played an active role in negotiating the documents, it is important to have an effective counsel. Other lawyers in the transaction can play this role; but in my experience the process works better if the nonprofit has at least a particulaz individual designated to serve as its counsel. I have worked with a lawyer in Durham who has effectively represented financing nonprofits for several other counties, but we can certainly look at some options if that's the County's pleasure. I have discussed this matter briefly with Kai, and we agree that it would be fair to estimate the total expense to the County for forming the corporation and taking it through the financing, including legal fees, at $5,000. There would also be annual expenses for legal fees and filing fees necessary to keep the corporation in good legal working order, but it would be unlikely for those expenses to exceed $1,000 a year. The County would probably have to pick up this expense, but otherwise the County would need to have no on-going involvement with the nonprofit. The required steps related to this corporation's participation in your COPS financing should not add to the timetable at all, and I certainly do not think that the need for such a corporation is any reason not to proceed with a COPS financing. We would want to get the nonprofit formed fairly eazly in the financing process, at least so that we could get the nonprofit's lawyer in place to. review the financing documents. I hope this memorandum ,provides you with some helpful information. Please let me know if you want to talk in more detail about the nonprofit's role, or if you have any further questions or comments about the COPS financing process. - ~J cc: Geoffrey E. Gledhill, Esq. Kai Nelson/David Fischer, BB&T Capital Markets