April 26, 2022
Finance Department
DATE: April 26, 2022
TO: Mayor Butt and Members of the City Council
FROM:
Anil Comelo, Interim Deputy City Manager
Subject:
Contract with Charles River Associates
FINANCIAL IMPACT: $90,000 which will be funded as part of the refinancing of the bonds.
PREVIOUS COUNCIL
ACTION:
April 6, 2021; October 5, 2021; December 7, 2021; April 5, 2022
STATEMENT OF THE
ISSUE:
The City currently has approximately $130 million in
Pension Obligation Bonds (POBs) that need to be
refinanced. The City would like to engage a qualified firm to examine the history of its swap and bond program, and to assist with choices or questions for the refinance and disposition of the City’s POBs.
RECOMMENDED ACTION:
AUTHORIZE first amendment to the contract with
Charles River Associates in an amount not to exceed
$90,000 for a new total of $130,000 for expert financial advice and analysis as it relates to the City’s Pension Obligation Bonds (POBs), and an independent review of
its swaps, derivatives, and bonds - Finance Department. (Anil Comelo/Delmy Cuellar 510-620-6600).
AGENDA
REPORT
April 26, 2022
DISCUSSION:
The City currently has outstanding two series of pension obligation bonds ("POB's"), an approximately $18 million series maturing in 2023 (the "B-1 Bonds") and a $130 million series maturing in 2034 (the "B-2 Bonds"). The City needs to refinance the $130 million series now. The City is also party to two interest rate swaps (the “Swaps”) associated with the 2005 Bonds. However, the swap for the B-2 Bonds (the “B-2 Swap”) is subject to mandatory early termination on August 1, 2023, before which time the City will need to either (a) arrange financing to pay the market value of the B-2 Swap upon such early termination (currently ~$30 million) or (b) amend the B-2 Swap to remove or delay the mandatory early termination. Staff is clear that the goal is to refinance the POBs with minimal cost and risk (recognizing that there is an inverse relationship between cost and risk).
On October 5, 2021, the City Council considered the recommendation from its Municipal Advisor, PRAG, to negotiate with City National Bank (CNB) and Royal Bank of Canada (RBC) with respect to the refinance of the Bonds and Swaps and directed staff to identify a suitable firm to conduct a peer review of the recommendations. Staff conducted an RFP, interviewed three firms, and subsequently City Council approved a contract with Charles River Associates (CRA) to conduct a peer review of the recommendations and advise on the options that may be available to the City. The findings by CRA indicate that there is value in going to the market to refinance the POBs with a more conventional vehicle such as a municipal bond. CRA has also provided the City with other ideas that need to be explored further. These findings and ideas are described in separate staff report.
Given the significant amount of debt being refinanced, complexity of the existing instruments and potential options, and the consequence of error with regard to the analysis of the existing Swaps and determining the path forward, staff recommends the continued retention of CRA as advisors related to the POBs. In addition, CRA will perform an Independent Compliance and Regulatory Review of the City of Richmond’s swaps, derivatives, and bonds (“Derivative Transactions”) and proposals to date to understand how the city got to this position and whether there are any legal, regulatory or compliance failures.
DOCUMENTS ATTACHED:
Attachment 1 – CRA Fully Executed Contract
Attachment 2 – CRA Amendment Contract