12-21-2010 - Award of Bid for Financial AdvisorCity of West Covina
Memorandum
To: Andrew G. Pasmant, Executive Director
and the Community Development Commission,
From: Thomas Bachman, Director
Finance Department
SUBJECT: AWARD OF BID FOR FINANCIAL ADVISOR
RECOMMENDATION:
AGENDA
Item No.: 5
Date: December 21.2010
It is recommended that the Community Development Commission (CDC) award the bid for
financial advisory services on the issuance of bonds to finance the tax increment deferral owing
to Los Angeles County to Harrell & Company Advisors.
BACKGROUND:
In 1990, the CDC established the Eastland Amendment #1 Project Area (BBK landfill area).
When the project area was established, the CDC entered into an agreement with the County of
Los Angeles, in which the county was to receive 58 percent of tax increment from the area. As
part of that agreement, the County agreed to defer 50 percent of their amount and allow the CDC
to instead receive it over the first 20 years of the project's life. This deferral would constitute a
loan from the County to the CDC. The deferral period ended June 30, 2010, and the loan amount
is now payable from future tax increment generated in that project area. The amount deferred
over the last twenty years is approximately $10.1 million. Staff has identified a couple of issues
related to the calculation of the amount deferred and is working with the County to resolve these
issues.
Once the CDC and County agree on the final amount due, the CDC will issue bonds to repay this
amount to the County in an effort to extend the repayment period, lower the interest rate, and
provide for a more positive cash flow for the CDC. The. CDC staff has also requested that the
County identify capital expenditures on which to spend the bond proceeds, thereby allowing the
bonds to be issued on a tax-exempt basis. Otherwise, these bonds will need to be issued on a
taxable basis, which would result in higher borrowing costs. Depending on the determination of
whether this bond is taxable or not, and what the final deferral amount is, the total bond issue
will be between $10 million and $13.5 million. It is the CDC's intent to issue the bond in the
first half of 2011.
Staff recently identified and solicited proposals from the firms that serve as Financial Advisor on
the type of bond issue described above. As an essential member of the City of West Covina
CDC's bond financing team, the Financial Advisor will be responsible to make
recommendations on bond structure, prepare financial projections, prepare the official statement
and fiscal consultant's report, interface with the rating agencies, assist in the selection of the
underwriter, negotiate fees and bond prices with them, and generally coordinate all members of
the financing team to ensure smooth process in issuing the bonds.
DISCUSSION:
Request for proposals inviting bids were prepared and sent out to seven firms on October 21,
2010. Bidding closed at 5 p.m. on November 15, 2010. Bid packages were received from six
firms.
Staff then reviewed the submittals in detail considering each firm's ability to develop the best
strategy for structuring this debt issue and their ability to get the best pricing from underwriters.
Three firms, PFM, Harrell & Company Advisors, and Urban Futures, were selected to be
interviewed based on their experience, understanding of the CDC's financial situation, and the
perceived ability to get the best pricing on the bonds. Staff conducted one on one interviews and
received more detailed presentations from each of these firms and clarified the cost structure
from each firm, 'taking into consideration what services would be provided in their role as
financial advisor. The City will be expecting the selected firm to provide financial advisory
services and preparation of both the Official Statement and the Fiscal Consultant's Report.
In addition to cost, staff focused a large part of the discussion on the firms' understanding of the
current tax allocation bond market, their methods of working with underwriters on structuring
and pricing the bonds and negotiating fees, and their approach to presenting the CDC to rating
agencies and the investor community. - The goal of this was to determine which of the firms we
felt could ultimately obtain the best pricing on the bonds for the CDC.
After considering the price and qualifications of each firm, staff recommends Harrell &
Company Advisors be selected to serve as financial advisor on this bond issue, including
preparation of the Fiscal Consultant's Report and the Official Statement, for a fee of $40,000. In
staff s opinion Harrell & Company Advisors is best qualified to provide the services based on
their extensive experience in tax allocation bond financing, their comprehensive knowledge of
redevelopment law, tax law, similar tax -sharing agreements with the, county, and the various
market and credit factors that affect tax allocation bonds issues. Harrell & Company Advisors
has served the City and CDC in the past and staff has found their work to be responsive, creative,
and of the highest caliber. Harrell & Company Advisors has a proven track record of providing
comprehensive knowledge and advice that always takes into consideration all of the CDC's
financial goals and challenges when developing a financial plan.
The following is a summary of the results of the selection process:
Harrell & Company Advisors
$40,000
Urban Futures
$40,000
Gardner Underwood & Bacon
$40,000
Fieldman Rolapp & Associates
$43,500
PFM (Public Financial Mangement)
$45,000
KNN (Former Kelly Northcroft, now subsidiary of Zion National Bank)
$80,000 to $115,000
Capital Public Finance Group
No Response
FISCAL IMPACT:
These and other costs of issuance will be part of the financing and paid off over the life of the
bonds. Staff expects that the debt service will be paid with tax increment revenues available
from cash flow savings from the merged project area debt service fund.
Prepared by: Dennis Swink eve wed y: mas achman
City Controller 'Finance Director