TITLE
Recommendation to adopt resolution approving the issuance from time to time by the Board of Water Commissioners, on behalf of the City of Long Beach, Subordinate Sewer Revenue Obligations issued pursuant to the terms of a credit agreement and related documents which provide for a Revolving Line of Credit in an amount not to exceed $20,000,000 outstanding at any time. (Citywide)
DISCUSSION
The City of Long Beach Water Department (LBWD) proposes to establish a Revolving Line of Credit (Line of Credit) in an amount not to exceed $20,000,000 for the purpose of replacing the 2009 Senior Sewer Revenue Commercial Paper Notes (CP Notes). The debt service for the Line of Credit will be secured by and payable from a subordinate lien on the revenues generated from charges to customers for sewer usage. The objective of replacing the CP Notes is to reduce debt service costs as a result of lower interest rates for the Line of Credit.
The CP Notes were approved by the City Council on June 2, 2009 in an amount not to exceed $20,000,000. The CP Notes were issued for the rehabilitation, replacement and improvement of deficient and aging sewer facilities, which is a major priority of the LBWD, in order to maintain sewer system reliability and to be in compliance with new California Waste Discharge Requirements.
Proceeds from the Line of Credit will be used to pay off $4,000,000 of outstanding principal on the CP Notes, to fund ongoing sewer capital improvement program costs and to pay costs of issuance associated with the Line of Credit. LBWD will suspend the issuance of commercial paper notes under the existing commercial paper program, but shall reserve the right to issue obligations in the future senior to its obligations created under the Line of Credit. Due to current market conditions, staff has been able to secure a three-year Line of Credit from Wells Fargo Bank, National Association. The cost of issuance for this new Line of Credit is approximately $85,000. In the current market conditions, the annual cost for the new Line of Credit will range from approximately $70,000 to $180,000 depending on the amount utilized with annual projected savings ranging from $150,000 to $210,000.
The Board of Water Commissioners approved Resolution WD-1282 on May 5, 2011, authorizing the establishment of the Line of Credit (Attachment A).
This item was reviewed by Principal Deputy City Attorney Charles Parkin on April 21, 2011 and Budget Management Officer Victoria Bell on April 25, 2011.
TIMING CONSIDERATIONS
City Council action is requested on May 24, 2011 in order to have the new Line of Credit in place as soon as possible in order to benefit from currently advantageous interest rates.
FISCAL IMPACT
There is no impact to the General Fund as this is an obligation of the Sewer Revenue Fund (EF 311) in the Water Department (WA) and will be repaid with revenues from charges to customers for sewer usage. There are no local jobs impacted by this action.
SUGGESTED ACTION
Approve recommendation.
BODY
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LONG BEACH APPROVING THE ISSUANCE FROM TIME TO TIME BY THE BOARD OF WATER COMMISSIONERS, ON BEHALF OF THE CITY OF LONG BEACH, SUBORDINATE SEWER OBLIGATIONS ISSUED PURSUANT TO THE TERMS OF A CREDIT AGREEMENT AND RELATED DOCUMENTS WHICH PROVIDE FOR A REVOLVING LINE OF CREDIT IN AN AMOUNT NOT TO EXCEED $20,000,000 OUTSTANDING AT ANY TIME
Respectfully Submitted,
DAVID S. NAKAMOTO
ACTING DIRECTOR OF FINANCIAL MANAGEMENT
KEVIN L. WATTIER
GENERAL MANAGER
WATER DEPARTMENT
APPROVED:
PATRICK H. WEST
CITY MANAGER