CITY OF MENIFEE
SUBJECT: Creation of an Underwriters Pool for Land-Secured Community Facility District Bond Issuance
MEETING DATE: July 9, 2024
TO: Finance Committee
PREPARED BY: Lauri Lockwood, Financial Analyst
REVIEWED BY: Travis Hickey, Chief Financial Officer
APPROVED BY: Armando G. Villa, City Manager
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RECOMMENDED ACTION
1. Receive report on CFD Underwriters Pool and intended selection for two upcoming bond issuance and;
2. Recommend using established CFD Underwriter’s Pool on rotating basis.
DISCUSSION
At the March 26, 2024, Finance Committee meeting, the committee requested that the Finance Department incorporate a Request for Proposals (RFP) process for underwriting services related to Community Facilities Districts (CFDs) bond issuances, with the intent of establishing a pool of firms to support future CFD related transactions. In the overall financing team of bonded CFD proceedings, the role of the selected underwriter is to structure and market the bond issuance.
As the City’s current municipal financial advisor in bonded CFD items, Urban Futures, Inc. (UFI), acts as the City’s fiduciary consultant and is required to act in the City’s best interests when advising staff and the City Council on municipal securities-related issues. To facilitate the RFP process, staff requested UFI’s assistance with the RFP development, underwriter solicitation and evaluation process.
UFI drafted the RFP document and compiled a list of qualified underwriting firms. After consultation with staff, the RFP was sent to those qualified firms who had worked directly with public agencies in California and had underwritten more than one California land-secured CFD transaction over the last five years. According to publicly available data on Bloomberg and with the California Debt and Investment Advisory Commission (CDIAC), six firms met the criteria
City of Menifee Staff Report
Underwriters RFP
July 9, 2024
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(Hilltop Securities, Oppenheimer, Piper Sandler, Ramirez & Co., Raymond James, and Stifel) and each of the six submitted a proposal.
Over the past month, a panel composed of City Finance staff members and UFI representatives independently evaluated the proposals. The responding firms were rated on their experience with CFD bonds issued in California, their assigned coverage team, their marketing plan and distribution capabilities for CFD bonds, their previous pricing performance on recent deals and their knowledge about and analysis of City-specific information. While we believe all the firms are qualified to perform the CFD underwriting services, three (3) firms stood out from the others; Stifel, Raymond James and Ramirez & Company. The scoring results are summarized in Table 1.
TABLE 1 - RFP Scoring
Firm Score Out of Possible 82.5
Stifel 77.5
Raymond James 74.5
Ramirez & Co. 67.5
Piper Sandler 59.0
Oppenheimer 57.5
Hilltop Securities 49.0
Rotating CFD Underwriters Pool
Based on the firms’ ratings, the City’s annual bond cycle, current and near future CFD activity volume, staff proposes to create a pool of the three highest-scoring firms that could be utilized to underwrite bond issuances over the next two to three years. The City expects to go to market with at least two bond issuances this fiscal year. A pool of three firms would allow the City to work with each of the underwriters within the next 18 months, assessing the fees charged, the service provided, and interest rates achieved. Staff recommends using the CFD Underwriters Pool for an initial period of 3 years.
As an alternative to rotating between the firms, the City could individually solicit short proposals per CFD from each of them. While an underwriter’s cost is a factor in selecting a firm for a CFD issuance, other important factors include the underwriter’s experience with CFD municipal bond issuance activity and strategy in marketing and selling the bonds within the municipal market.
Ultimately, the larger the pool of interested bond buyers an underwriter can attract, the lower the potential interest rates for the debt issuance. Therefore, staff’s initial recommendation to rotate between the firms will afford an opportunity to see each firm’s overall strengths.
CFD 2022-1 (Quartz Ranch) Bond Issuance & Upcoming CFD Bond Issuance Parity bonds are on track to be issued for CFD 2022-1 (Quartz Ranch) in August. Staff is recommending using Stifel for this bond issuance due to the firm’s familiarity with the development plans and will be able to get up to speed on the transaction quickly. Stifel served as the underwriter for last year’s initial Quartz Ranch issuance and was able to generate very significant investor interest leading to $38 million in orders for a par amount of $13 million. As a result of that strong demand, particularly from individual retail investors, yields were reduced across various City of Menifee Staff Report
Underwriters RFP
July 9, 2024
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maturities, lowering true interest costs 0.33% below the estimates presented to the City Council, resulting in $487,000 in additional proceeds. Additionally, Stifel ranked highest among underwriting firms who responded to the RFP, having completed more transactions than any other firm, and has historically provided the City with a high level of service on prior CFD transactions.
An initial issuance of bonds for CFD 2023-1 (Rockport Ranch) is on track to occur by the end of the year. Staff proposes to solicit Raymond James to underwrite that transaction. Raymond James has completed 23 California land secured financings since 2020 and is highly qualified to serve as underwriter on the transaction.
Dates for future issuances have not been established, but staff would incorporate rotation of the three recommended underwriter firms (i.e. the bond issuance after CFD 2023-1 (Rockport Ranch) would utilize Ramirez & Co.).
Lastly, the proposed Underwriter Pool is specific to CFD bond issuances. Should the City need support for future bond issuance proceedings beyond CFD transactions, the City would utilize a separate solicitation process.
FISCAL IMPACT
There is no additional fiscal impact to the City’s General Fund. The underwriter’s fee is paid for with bond proceeds directly.
ATTACHMENTS
1. Presentation for CFD Underwriters Pool