February 27, 2024
Patrick M. Dobbins
Public Works Director/City Engineer
City of Gonzales, California
Delivered Electronically
Re: City of Gonzales, Certificate Anticipation Notes – USDA Interim Financing Letter of Intent – Hilltop Securities
Mr. Dobbins:
On behalf of HilltopSecurities, we are pleased to provide the following terms for the proposed City of Gonzales (the “City” or the “Borrower”) 2024 Certificate Anticipation Notes (the “Notes”). The purpose of the Notes is to fund, in part, the construction of new city facilities (Community Center Project). The following terms for the proposed financing are preliminary and non-binding to any party. This letter should not be construed as a formal offer to purchase the Notes by HilltopSecurities. This letter will be replaced with either a Note Purchase Agreement or Note Placement Agreement between HilltopSecurities and the Borrower at such time as the underwriting or placement process is completed.
HilltopSecurities has preliminarily reviewed the City’s annual financial reports and understands it has received the USDA commitment (Letter of Conditions) for the take-out financing. HilltopSecurities is confident that the City can secure the interim financing with a public offering or using a private placement of the Notes. Current market rates and conditions demonstrate the most efficient financing is to do a publicly offered underwriting which is in part based upon our preliminary credit analysis and discussions with you on the City and the likely rating outcome.
The proposed terms are preliminary in nature and are subject to change based upon negotiations between the underwriter or lender and the Borrower. This letter is being provided solely to you for the purpose described herein and may not be disclosed to, or relied upon by, any other party other than the USDA and the Borrower’s advisors and consultants without prior written consent of HilltopSecurities.
We are pleased that you have asked us to consider your request and look forward to assisting you with the proposed transaction. If you have any questions, please contact Todd Smith at (760) 632-1347 or Josh Lentz at (602) 224-7112.
Regards,
Todd Smith Josh Lentz
Managing Director Senior Vice President
Proposed Notes of Participation Terms
Borrower: The City of Gonzales
Method of Sale: Public Sale
Underwriter: Hilltop Securities Inc.
Municipal Advisor: NHA Advisors
Bond Counsel: Kutak Rock
Disclosure Counsel: TBD
Notes Amount: Not-to-Exceed $9,825,000.00
Purpose: Construction of city owned facilities (Community Center Project).
Tax Status: Interest on the Notes will be exempt from gross income for Federal and State tax purposes.
Final Maturity: 3.0 years - Date: TBD.
Interest Payments: Semi-annual.
Principal Payments: Full principal is due upon the final maturity date. No principal amortization ahead of the stated maturity date unless Notes are redeemed prior to maturity.
Interest Rate: Rate is determined based on a public offering, or negotiation with a financial institution or a sophisticated market participant on the pricing date.:
MIG 1 Rated - 2.75%
MIG 2 Rated – 2.95%
Private Placement – 3.9% to 4% (Drawdown Option)
*preliminary and subject to change based upon market conditions and credit rating outcome.
Reserve Requirement: No DSR Required for the Notes.
Capitalized Interest: Interest will be capitalized and funded from the Borrower contribution through maturity of the Notes to the extent permitted under the Letter of Conditions anticipated to be issued by the USDA for permanent take-out financing.
Prepayment Provisions: Notes are callable in part or in whole on any date on or after 2 years at par plus accrued interest to the date of redemption, without premium.
Security: The Notes will be payable from Pledged Revenues. Pledged Revenues are defined as the proceeds of the sale of the Notes and any required Borrower contribution, representing capitalized interest and costs associated with this financing not covered under the USDA take-out. The proceeds of the sale of bonds or other obligations issued by the Borrower to refund the Notes and earnings derived from the investment of any of the foregoing. To the extent that capitalized interest, or the amount of take-out financing proceeds received by the Borrower, as applicable, are insufficient to pay in full the Notes, then the Notes will be payable from legally available sources of the City’s General Fund.
1. HilltopSecurities, as underwriter or placement agent have financial and other interests that differ from those of the Borrower.
2. The Borrower has consulted with its own financial, legal, accounting, tax and other advisors as applicable to the extend deemed appropriate.
Reporting Requirements: Subject to normal 15c2-12 reporting requirements.
Estimated Funding Date: May 2024
Fee Proposal:
Public Offering (Underwriting Discount) $5/1,000 or .5% of the par amount of bonds.
Private Placement $25,000 USD flat fee.
Hilltop Securities Inc.
777 S. Coast Highway 101
Suite104
Solana Beach, California 92075
Phone: 760.632.1347
[email protected]
HilltopSecurities.com
February 27, 2024
Patrick M. Dobbins
Public Works Director/City Engineer
City of Gonzales, California
Delivered Electronically
Re: Hilltop Securities Engagement Letter – Certificate Anticipation Notes Series 2024 (Community Center Project)
Dear Mr. Dobbins:
On behalf of Hilltop Securities Inc. (“we” or “HilltopSecurities”), we wish to thank you for the opportunity to serve as underwriter or placement agent for the planned financing (the “Securities”), in connection with proposed issuance of the $9,825,000 Certificate Anticipation Notes Series 2024 (Community Center Project). This letter will confirm the terms of our engagement; however, it is anticipated that this letter will be replaced by a Bond Purchase Agreement or Placement Agent Agreement with the City or City JPA as the issuer, to be entered into by the parties (the “Agreement”) if and when the Securities are priced following the successful completion of the offering or bond placement process.
1. Services to be Provided by HilltopSecurities. The City of Gonzales (“the “Issuer”) hereby engages HilltopSecurities to serve as the sole managing underwriter or placement agent of the proposed offering and issuance of the Securities, and in such capacity HilltopSecurities agrees to provide customary services, including but not limited to:
a. Review and evaluate of the proposed terms of the offering and the Securities b. Coordinate with the Issuer for the offering of the Securities c. Develop a marketing plan for the offering, including identification of potential investors
d. Assist in the preparation of offering documents and validation documents e. Contact potential investors, provide them with offering-related information, respond to their inquiries and, if requested, coordinate due diligence sessions f. Consult with Bond Counsel and other service providers about the offering and the terms of the Securities
g. Relay information regarding the offering process to the Issuer h. Negotiate the pricing, including the interest rate, and other terms of the Securities
2 i. Manage the rating and credit enhancement process for the Securities j. Obtain CUSIP number(s) for the Securities and arrange for their DTC bookentry eligibility k. Plan and arrange for the closing and settlement of the issuance and the delivery of securities
l. Such other usual and customary underwriting services as may be requested As an underwriter, HilltopSecurities will not be required to purchase the Securities except pursuant to the terms of the bond purchase agreement, which will not be signed until successful completion of the pre-sale and offering period. This letter does not obligate HilltopSecurities to purchase any of the Securities. Any commitment to purchase Securities is subject to future credit, legal and business approvals by HilltopSecurities.
As a placement agent, HilltopSecurities will not be required to place the Securities except pursuant to the terms of the placement agent agreement. Under the placement agent agreement HilltopSecurities will place the securities in an arms-length commercial transaction with a qualified long-term investor or financial institution.
2. No Advisory or Fiduciary Role. Issuer acknowledges and agrees that: (i) the primary role of HilltopSecurities, as an underwriter, is to purchase Securities for resale to investors in an arm’s length commercial transaction between the Issuer, and HilltopSecurities and that HilltopSecurities has financial and other interests that may differ from those of the Issuer; (ii) HilltopSecurities is not acting as a municipal advisor, financial advisor, or fiduciary to the Issuer and has not assumed any advisory or fiduciary responsibility to the Issuer with respect to the transaction contemplated hereby and the discussions, undertakings and procedures leading thereto (irrespective of whether HilltopSecurities has provided other services or is currently providing other services to the Issuer on other matters): (iii) the only obligation HilltopSecurities has to the Issuer with respect to the transaction contemplated hereby expressly are set forth in this agreement; and (iv) the Issuer has consulted or will consult its own financial and/or municipal, legal, accounting, tax and other advisors, as applicable, to the extent it deems appropriate.
Issuer further acknowledges it is aware of the “Municipal Advisor Rule” of the Securities and Exchange Commission (effective July 1, 2014) and the underwriter exclusion from the definition of “municipal advisor” for a firm serving as an underwriter for a particular issuance of municipal securities. Issuer expects that HilltopSecurities will provide advice on the structure, timing, terms, and other matters concerning the Securities.
3. Fees and Expenses. HilltopSecurities’ underwriting fee/spread will not exceed $5.00/$1,000 of the principal amount of the Securities issued. The underwriting fee/spread will represent the difference between the price that HilltopSecurities pays for the Securities and the public offering price stated on the cover of the final offering document. The Issuer 3 will be responsible for paying all other costs of issuance, including without limitation, bond counsel, disclosure counsel, rating agency, and all other expenses incident to the performance of the Issuer’s obligations under the proposed offering.
HilltopSecurities’ Placement Agent Fee will not exceed a $25,000.00 flat fee and HilltopSecurities will cover their costs for its counsel, travel and related placement agent expenses. The Issuer will be responsible for paying all other costs of issuance and all other expenses incident to the performance of the Issuer’s obligations under the proposed offering.
4. Term and Termination. The term of this engagement shall extend from the date of this letter to the closing of the offering of the Securities. Notwithstanding the forgoing, either party may terminate HilltopSecurities’ engagement at any time upon at least 30 days’ prior written notice to the other party.
5. Miscellaneous. This letter shall be governed and construed in accordance with the laws of the State of California. This Agreement may not be amended or modified except by means of a written instrument executed by both parties hereto. This Agreement may not be assigned by either party without the prior written consent of the other party. This Agreement may be executed in counterparts.
If there is any aspect of this Agreement that you believe requires further clarification, please do not hesitate to contact us. If the foregoing is consistent with your understanding of our engagement, please sign and return the enclosed copy of this letter.
Again, we thank you for the opportunity to assist you with your proposed financing and the confidence you have placed in us.
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4 Very truly yours,
Hilltop Securities Inc.
By:
Todd Smith
Managing Director
Hilltop Securities, Inc.
This Letter and Agreement is hereby accepted for and on behalf of Issuer on this ____ day of _____, 2024.
By: ________________________
Title: _______________________
[Signature Page to HilltopSecurities Engagement Letter – City of Gonzales Certificate Anticipation Notes Series 2024]