TITLE
Recommendation to adopt resolution authorizing City Manager to execute documents in connection with the replacement of the letter of credit that provides support for the City of Long Beach Gas and Oil (LBGO) Department’s Subordinate Revenue Commercial Paper Notes Series A and Series B (Taxable) at an annual cost not to exceed $85,000. (Citywide)
DISCUSSION
On July 12, 2005, the City Council adopted a Resolution authorizing the issuance of the Gas Utility commercial paper program up to $35,000,000 and authorizing the City Manager to execute all necessary documents (attached). A letter of credit is a bank credit guarantee that supports the commercial paper program.
The purpose of the commercial paper program is to provide LBGO short-term financing for certain capital improvements. These improvements include selective removal and replacement of aging gas pipeline, meters, and valves; upgrade from six pressure districts to one uniform pressure district; upgrade or removal of district regulating stations; and upgrades to the cathodic protection system. Upgrading the overall gas infrastructure system will increase safety and lower operating costs.
Improvement costs are proposed to be partially financed utilizing the short-term commercial paper program. Currently, $3,000,000 of commercial paper is outstanding. To achieve the lowest overall cost of borrowing, it is common industry practice to use short-term variable-rate commercial paper financing to accumulate a sufficient amount of project debt that will then be economically refinanced with a long-term bond financing. To meet its current short-term infrastructure funding needs, LBGO plans to replace the expiring letter of credit with a new two-year letter of credit, at a level sufficient to guarantee up to $15,000,000 of outstanding commercial paper. Though immediate additional infrastructure financing is not contemplated, this action preserves future infrastructure flexibility at a reduced level. ...
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