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RESOLUTION NO. 2015-093 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA WAIVING THE COMPETITIVE FORMAL BID REQUIREMENT, APPROVING AN AGREEMENT WITH THE INVESTMENT BANKING FIRM OF STIFEL NICOLAUS & CO., INC. TO PROVIDE BOND UNDERWRITING SERVICES FOR REFUNDING OF COMMUNITY FACILITIES DISTRICT BONDED DEBT AND CERTIFICATES OF PARTICIPATION BONDED DEBT, IF DEEMED ECONOMICALLY FEASIBLE
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RECOMMENDED ACTION
Recommended Action
Council adopt the resolution.
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SUMMARY
Stifel, Nicolaus and Company was selected via a competitive RFP process in 2013 and is currently under contract to refund Community Facilities District 2001-I (San Miguel Ranch). In 2013, a refunding occurred for 5 other CFDs but San Miguel Ranch was not included in the refunding at the time due to not meeting the minimum savings threshold of 5%. San Miguel Ranch is now above the savings threshold and Stifel has identified other potential candidates for refunding. The refunding candidates include Community Facility District debt and the 2004 and 2006 Certificates of Participation issued for the construction of Phase 1 and 2 of the City's Civic Center. City staff is requesting to waive the competitive formal bid requirement and authorize an agreement for bond underwriting services with Stifel.
ENVIRONMENTAL REVIEW
The Environmental Review Coordinator has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that entering into an agreement is not a "Project" as defined under Section 15378 of the State CEQA Guidelines because it will not result in a physical change to the environment; therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines the actions proposed are not subject to CEQA.
BOARD/COMMISSION RECOMMENDATION
Not Applicable
DISCUSSION
The City issued an RFP for bond underwriting services in 2013 in which Stifel, Nicolaus and Company (Stifel) were the successful bidder. The contract for bond underwriting services identified six Community Facility Districts (CFDs) for potential refunding; however, due to market conditions San Miguel Ranch did not meet the City's Debt Policy (Council Policy 220-05) minimum savings threshold of 5%. The total principal amount refunded in 2013 was $72 million. The savings generated by the refunding amounted to approximately $8.5 million (11.8%) for the homeowners that resided in the CFDs.
In order for Stifel to expand its presence in California, the firm has acquired two investment banking firms that the City has had a long history with. Stifel acquired Stone and Youngberg and De La Rosa and Company. Stone and Youngberg were part of the land-secured financing team that issued a majority of the City's CFDs. De La Rosa and Company has assisted the City with most of the COPS the City has issued. Thus the Stifel team assigned to the City has excellent working knowledge of the City's finances and bright future and is better able to sell the bonds with excellent pricing that benefits the City by reducing the interest rate spreads. Stifel's prior working knowledge of the City's development plans in the east and City finances benefitted the successful 2013 CFD refunding.
The Finance department wants to continue the relationship with Stifel and waive the formal bid process by amending the contract in order to act quickly to take advantage of the historically low interest rate environment that currently exists. Interest rates could rise as soon as June if the federal government starts to increase the federal funds rate. The agreement would be amended to include other refunding candidates that are divided into two different types of financings; Community Facility Bonds and Certificates of Participation. The refunding candidates are specifically:
· City of Chula Vista Community Facilities District 2001-1 (San Miguel Ranch) 2005 Improvement Area B Special Tax Bonds (currently under contract with Stifel)
· City of Chula Vista Community Facilities District 07-I (Otay Ranch Village Eleven) 2006 Special Tax Bonds;
· City of Chula Vista Community Facilities District 12-I (McMillin Otay Ranch Village Seven) 2005 Special Tax Bonds;
· City of Chula Vista Community Facilities District 13-I (Otay Ranch Village Seven) 2006 Special Tax Bonds
· Chula Vista Public Financing Authority Revenue Refunding Bonds, Series 2005A.
· 2004 Certificates of Participation (Civic Center Phase 1)
· 2006 Certificates of Participation (Civic Center Phase 2)
The Finance Department will bring any contemplated bond refundings for City Council consideration and approval prior to issuing bonds.
The underwriting fee will be below $5 per bond issued. Fees charged will be competitive and below average fees charged for similar sized issuances since 2014. Fees will only be paid if the bonds are actually issued.
A bond underwriter is a securities dealer who helps government entities bring bond issues to market. The key role it plays is to assist the City in structuring the refunding, securing ratings, if appropriate, and possibly bond insurance, and premarketing and underwriting the refunding bonds. As an underwriter, Stifel will buy the bonds from the City and then resell them to investors.
Additional information follows about Stifel.
Stifel, Nicolaus & Company
Since January 2010, the firm has underwritten as senior or sole manager 109 of the 188 land secured bond issues that have come to market. By par amount underwritten, the figures are $1.5 billion out of $3 billion. Stifel is the one of the few underwriters with a national retail sales force.
Since 2001, Stifel's bankers, underwriters and sales professionals have structured, brought to market and found investors for over $1.4 billion of land secured bond issues in San Diego County.
DECISION-MAKER CONFLICT
Staff has reviewed the decision contemplated by this action and has determined that it is not site specific and consequently, the 500-foot rule found in California Code of Regulations section 18704.2(a)(1) is not applicable to this decision. Staff is not independently aware, nor has staff been informed by any City Councilmember, of any other fact that may constitute a basis for a decision maker conflict of interest in this matter.
LINK TO STRATEGIC GOALS
The City's Strategic Plan has five major goals: Operational Excellence, Economic Vitality, Healthy Community, Strong and Secure Neighborhoods and a Connected Community. Hiring an investment banking firm supports the goal of economic vitality because the investment bankers will evaluate the city's debt and identify potential candidates for refunding therefore saving the City and the citizens of the community on interest paid on outstanding debt. In addition, hiring an investment banking firm supports the goal of operational excellence because the City is proactively managing the City's debt.
CURRENT YEAR FISCAL IMPACT
There is no direct fiscal impact to the General Fund as a result of the recommended action. Any fees are contingent upon the bonds getting issued. All fees to be incurred will be paid solely from the proceeds of each particular transaction and therefore become part of the cost of issuing the bonds.
ONGOING FISCAL IMPACT
There is no direct fiscal impact to the General Fund as a result of the recommended action. There are no on-going fiscal impacts.
ATTACHMENTS
Stifel, Nicolaus & Company Agreement
Staff Contact: Phillip Davis, Assistant Director, Finance Department