City of Palm Coast, FL State Road 100 Community Redevelopment Agency Redevelopment Refunding Note, Series 2012 Bank Loan RFP

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1 Memorandum 450 South Orange Ave, Suite 460 Orlando, FL Direct Fax Mark P. Galvin Senior Vice President Date: December 5, 2012 To: Subject: Chris Quinn City of Palm Coast, FL State Road 100 Community Redevelopment Agency Redevelopment Refunding Note, Series 2012 Bank Loan RFP FirstSouthwest, in our role as Financial Advisor, assisted the City of Palm Coast (the City ), Florida in issuing a Request for Proposals ( RFP ) for a bank loan in an amount not to exceed $5,600,000. The City, under purchasing guidelines, posted the RFP on its web site and made it available to bidders on November 15, The purpose of the RFP is to provide Bank Qualified financing to current refund, for debt service savings, the outstanding State Road 100 Community Redevelopment Agency, Redevelopment Revenue Note, Series 2009 (the Series 2009 Note ) and to fund approximately $2,000,000 in improvements to Bulldog Road located within the State Road 100 Corridor Community Redevelopment Agency (the CRA ) while providing maximum flexibility to the City. The RFP asked for proposals that would provide the CRA with a fixed rate loan with the option to prepay the loan at anytime with or without a prepayment penalty. The Series 2009 Note was originally issued as a bank qualified bank loan with Branch Bank & Trust ( BB&T ) in the amount of $4 million with principal amortizing annually on each October 1 st through The loan has an interest rate of 4.34%. The Series 2009 Note is currently outstanding in the aggregate principal amount of $3,360,000 and is callable on any scheduled payment date (April 1 st and October 1 st ) with a 1% call premium and was issued to finance capital improvement projects within the State Road 100 Community Redevelopment Area. The Series 2009 Note is secured by and payable solely from tax increment revenues received by the CRA from properties in the CRA. On November 30, 2012 the City received a total of three (3) responses by the stated deadline. Proposals were received from the entities listed below and summarized in the attached table: BB&T Prosperity Bank Wells Fargo Bank, National Association This communication is for information only, not an offer, solicitation or recommendation, nor an official confirmation of any financial transaction. It is not to be considered research. The information is considered to be reliable, but First Southwest Company does not warrant its completeness or accuracy, prices and availability are subject to change without notice. Clients should consult their own advisors regarding any accounting, legal or tax aspects. Investors are instructed to read the entire Official Statement to obtain information essential to the making of an informed investment decision.

2 BB&T Proposal The proposal provides a locked in rate of 2.29%. This rate is locked in for 45 days and can be prepaid in whole on any interest payment date with a 1% prepayment penalty. As part of BB&T s proposal and as the holder of the Series 2009 Note, BB&T if selected will waive both the prepayment penalty on the Series 2009 Note ($33,600) and the requirement to fund an escrow until the April 1, 2013 call date. This will reduce the size of the loan by approximately $75,000. The Proposal also requires the City to deposit the new money proceeds into a BB&T interest baring account. The Proposal includes the standard Gross Up tax language all banks require relating to an increase in the interest rate if the Federal corporate tax rate changes or the financing loses it Bank Qualified status. The proposal does not include any Capital Adequacy / Yield Maintenance language. This language could increase the City s interest rate in the future due to a change in law, rule or regulation imposed upon the bank including but not limited to changes in reserve requirements, tax code, capital adequacy and other requirements of law or governmental authority that decrease the banks after tax yield. Prosperity Bank Proposal The proposal provides a locked in rate of 2.509%. The rate is locked in till December 28, 2012 if the City sends an acceptance letter to the bank by December 18, The loan can be prepaid at anytime without penalty. The proposal also allows for the ability to draw down the $2 million in funds over a 15 month period. This will save the City additional funds in reduced negative arbitrage (borrowing at 2.509% investing in lower rates). The proposal requires the City to setup deposits equal to 20% of the outstanding loan balance with the bank for the life of the financing (2024). The Proposal does not include Capital Adequacy / Yield Maintenance language. Wells Fargo Bank Proposal The proposal provides an indicative rate as of November 30, 2012 (not locked in) of 2.20%. This rate is subject to change and will not be locked in until 3 days prior to closing. The loan is subject to a Make Whole Prepayment Penalty provision. A make whole prepayment provision requires the City to pay the bank the present value difference between current market rate at the time of prepayment and the interest rate on the loan. This penalty could be significant depending on how much interest rates have declined and the remaining life of the loan. If interest rates are higher than the loan rate there would be no prepayment penalty. The Wells Fargo proposal, in addition to the standard Gross Up tax language, does includes the Capital Adequacy / Yield Maintenance provision which could increase the City s interest rate due to a change in law, rule or regulation imposed upon the bank including but not limited to changes in reserve requirements, tax code, capital adequacy and other requirements of law or governmental authority that decrease the banks after tax yield. The Wells Fargo proposal also includes an annual rate covenant that could require the City to increase its overall millage rate if the tax increment revenues to annual debt service ratio is below 1.50 times. The proposal also prohibits the City from issuing additional debt in the future secured by the State Road 100 CRA Tax Increment Revenues. This communication is for information only, not an offer, solicitation or recommendation, nor an official confirmation of any financial transaction. It is not to be considered research. The information is considered to be reliable, but First Southwest Company does not warrant its completeness or accuracy, prices and availability are subject to change without notice. We may trade, have long or short positions, or act as a market maker in any financial instrument discussed herein. Clients should consult their own advisors regarding any accounting, legal or tax aspects. Investors are instructed to read the entire Official Statement to obtain information essential to the making of an informed investment decision. 2

3 Recommendation After reviewing the RFP responses and discussing these proposals with City Staff, it is FirstSouthwest s opinion that the BB&T proposal meets the objective of this RFP for the following reasons: 1. Their proposal includes the lowest lock in fixed interest rate. This rate is locked in for 45 days eliminating any interest rate risk prior to closing. 2. Their proposal provides the flexibility to refinance the loan for possible debt service savings in the future, and gives the City the ability to pay off the loan or restructure it with a quantifiable 1% prepayment penalty. 3. The proposal does not include Capital Adequacy / Yield Maintenance language that could increase the interest rate in the future. 4. Does not prohibit the CRA from issuing additional debt on parity with this loan or require a rate covenant which could impact the City s future operating millage if debt service coverage falls below Does not require the City to maintain a banking depository relationship for the life of the loan (only until the construction funds are spent). 6. Under the BB&T proposal the City would save approximately $37,001 annually, $444,015 over the life of the issue and $384,277 on a present value basis. Even though indication rate of Wells Fargo is lower, due to the willingness to waive both the prepayment penalty and the escrow requirement which will reduce the loan size by approximately $75,000 the City will save approximately $5,507 more annually and $66,079 over the life of the financing compared to the Wells Fargo proposal. FirstSouthwest therefore recommends that the City accept the BB&T Proposal. This communication is for information only, not an offer, solicitation or recommendation, nor an official confirmation of any financial transaction. It is not to be considered research. The information is considered to be reliable, but First Southwest Company does not warrant its completeness or accuracy, prices and availability are subject to change without notice. We may trade, have long or short positions, or act as a market maker in any financial instrument discussed herein. Clients should consult their own advisors regarding any accounting, legal or tax aspects. Investors are instructed to read the entire Official Statement to obtain information essential to the making of an informed investment decision. 3

4 City of Palm Coast, Florida Redevelopment Refunding Revenue Note, Series 2012 Proposal Responses November 30, 2012 Bank: BB&T Governmental Finance Prosperity Bank Wells Fargo Bank, National Association Size $5,600,000 $5,600,000 $5,600,000 Final Maturity 1 Oct Oct Oct 2024 Tax Status Bank Qualified Bank Qualified Bank Qualified Call Feature / Penalty 1% Prepayment Penalty No prepayment penalty Make Whole Fixed Rate 2.29% 2.509% 2.20% Indicative Rate Date Rate held until Held for a closing date not later than 45 days of proposal response date Held for a closing date by December 28, 2012 with an acceptance of the Commitment by December 18, 2012 Not held. Indicative rate based on the (70% of the 10 yr US Dollar SWAP Offering Rate bps). Rate will be set three days prior to closing. Other Covenant Requirements New money financing proceeds shall be deposited on behalf of the City into a project fund account with BB&T Financing documents shall include provisions that will outline appropriate changes to be implemented in the event that the transaction is determined to be taxable Will waive 1% prepayment penalty and the requirement to fund an escrow untill 4/1/2013 call date on the outstanding loan if BB&T is chosen Borrower (which may include related entities of the City) shall establish and maintain a deposit relationship with lender throughout the life of the loan at a minimum of 20% out the outstanding balance Borrower may fund an amount necessary to payoff existing debt and draw in part or in whole the remaining funds at the borrower's request for a period of up to 15 months from the date of closing Determination of Taxability Neither the City nor the CRA will issue any additional debt secured by the State Road 100 CRA TIF Revenues Audited financial statements within 270 days of FYE Budget and CIP within 60 days of FYE Increased Cost and Capital Adequacy: Customary for facilities of this type, including, without limitation, provisions concerning increased costs, taxes, changes in capital adequacy, capital requirements and other requirements of law Legal Expense / Bank Fees $3,500 $2,000 $3,500 Main Contact David Pierce Garry R. Lubi Todd Morley Florida Banking Officer Senior Vice President Senior Vice President (904) (386) (407) This communication is for information only, not an offer, solicitation or recommendation, nor an official confirmation of any financial transaction. It is not to be considered research. The information is considered to be reliable, but First Southwest Company does not warrant its completeness or accuracy, prices and availability are subject to change without notice. Clients should consult their own advisors regarding any accounting, legal or tax aspects. Investors are instructed to read the entire Official Statement to obtain information essential to the making of an informed investment decision.

5 City of Palm Coast, Florida RFP Response Analysis Summary for: State Road 100 CRA Redevelopment Refunding Note, Series 2012 Friday, November 30, 2012 Selected Bank BB&T (1) Prosperity Bank Wells Fargo (2) Note Detail (Series 2012) Total Cash Flow Savings $444,015 $304,572 $377,936 Average Annual Savings $37,001 $25,381 $31,495 PV Savings $384,277 $260,780 $328,930 PV Savings as % of Refunded Bonds 11.43% 7.76% 9.79% Par Amount $5,446,000 $5,523,000 $5,523,000 Project Fund $2,000,000 $2,000,000 $2,000,000 Total Debt Service $6,263,345 $6,434,570 $6,317,926 Maximum Annual Debt Service $526,616 $541,687 $531,724 Proposed Rate 2.29% 2.509% 2.20% Average Life 6.55 Years 6.58 Years 6.54 Years All-Inclusive Cost 2.46% 2.69% 2.38% Dated Date 12/20/ /20/ /20/2012 Final Maturity 10/1/ /1/ /1/2024 Call Penalty 1% Prepayment Penalty No Prepayment Penalty Make Whole Penalty - Preliminary / Subject to Change. (1) Includes waived 1% prepayment penalty & ability to payoff existing loan on day of closing. (2) Wells Fargo has indicative rate as of 11/30/2012. Subject to Change. This communication is for information only, not an offer, solicitation or recommendation, nor an official confirmation of any financial transaction. It is not to be considered research. The information is considered to be reliable, but First Southwest Company does not warrant its completeness or accuracy, prices and availability are subject to change without notice. We may trade, have long or short positions, or act as a market maker in any financial instrument discussed herein. Clients should consult their own advisors regarding any accounting, legal or tax aspects. Investors are instructed to read the entire Official Statement to obtain information essential to the making of an informed investment decision. 5

6 City of Palm Coast, Florida RFP Response Analysis Summary for: State Road 100 CRA Redevelopment Refunding Note, Series 2012 Friday, November 30, 2012 Selected BB&T (1) Propserity Bank Wells Fargo (2) Date Debt Service Debt Service Debt Service 10/1/2013 $ 490,346 $ 502,163 $ 494,842 10/1/ , , ,706 10/1/ , , ,510 10/1/ , , ,116 10/1/ , , ,502 10/1/ , , ,712 10/1/ , , ,724 10/1/ , , ,450 10/1/ , , ,022 10/1/ , , ,418 10/1/ , , ,528 10/1/ , , ,396 $ 6,263,345 $ 6,434,570 $ 6,317,926 - Preliminary / Subject to Change. (1) Includes waived 1% prepayment penalty & ability to payoff existing loan on day of closing. (2) Wells Fargo has indicative rate as of 11/30/2012. Subject to Change. This communication is for information only, not an offer, solicitation or recommendation, nor an official confirmation of any financial transaction. It is not to be considered research. The information is considered to be reliable, but First Southwest Company does not warrant its completeness or accuracy, prices and availability are subject to change without notice. We may trade, have long or short positions, or act as a market maker in any financial instrument discussed herein. Clients should consult their own advisors regarding any accounting, legal or tax aspects. Investors are instructed to read the entire Official Statement to obtain information essential to the making of an informed investment decision. 6