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3.1.

Brentwood City Commission Agenda

Meeting Date:	11/13/2017
APPROVAL OF PAYMENT OF CREDIT RATING FEE TO S&P GLOBAL RATINGS
Submitted by:	Holly Earls, Administration
Department:	Administration

Information

Subject

APPROVAL OF PAYMENT OF CREDIT RATING FEE TO S&P GLOBAL RATINGS

Background

As discussed with the Commission recently, the proposed federal tax reform plan under consideration in Congress includes a provision that, if approved, would prohibit local government advance refunding bond issues beginning in 2018. An advance refunding bond issue is a tool used by local governments to take advantage of lower interest rate markets to refund existing bonds that are not yet callable. The proceeds of such a bond issue are used to fund an escrow account managed by an independent third party that pays off the original bonds as they become callable in the future.

Prior to the release of the proposed tax plan, staff had been in early discussions with our financial advisor about a potential advance refunding opportunity, and had tentatively scheduled early 2018 to proceed with the transaction. This transaction would refund a portion of a 2010 Water and Sewer bond issue and a portion of a 2011 G.O. bond issue with an estimated net present value savings (net of all costs) of approximately $261,000 based on current market trends (see attached).

Given the proposed tax plan provisions, we are proposing to expedite this transaction and plan to have the refunding bond issue authorization on your November 27, 2017 agenda with a bond sale date tentatively scheduled for November 30, 2017. A complicating factor in the timing of this transaction is the fact the federal debt limit is scheduled to expire on December 15 and there is uncertainty around whether the U.S. Treasury will issue any State and Local Government Securities (SLGS) after December 8. The SLGS are the instruments used to fund the escrow account for an advance refunding.

Normally, the process starts with the City Commission approval of the bond resolution, which includes a detailed list of issuance costs including the rating agency fees for Moody’s and S&P’s. However, to meet this expedited schedule for this advance refunding, the City needs to begin the rating agency review process prior to adoption of the bond resolution by the City Commission. Part of the process for the S&P rating review is an engagement letter acknowledging that the City agrees to pay S&P a rating fee of $14,000. Since this fee exceeds $10,000, approval of the City Commission is required before the City Manager can authorize S&P to begin the rating process. Note that Moody’s does not have the same requirement for a formal engagement letter prior to the rating process, so no additional approval is necessary for the Moody’s rating.

Staff Recommendation

Staff recommends City Commission approval of payment of the $14,000 fee to S&P Global Ratings.

Fiscal Impact

Amount :	14000
Source of Funds:	Bond Proceeds
Account Number:

Fiscal Impact:

The rating agency fees for both S&P and Moody’s are a cost of issuance for bond issues paid from the bond proceeds. Such costs are factored into the net present value calculation referenced above.

Attachments
Nov 17 Refunding Financial Estimate
S&P Global Rating Engagement Ltr