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Date
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June 18, 2007
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Agenda
Item No. 42 Roll
Call No. 07- Communication No. 07-371 Submitted by: Craig
Smith, A.A.E. Aviation Director and Allen McKinley, Finance Director |
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AGENDA HEADING:
Approving
extension of Airport’s Commercial Paper Series C Program, including Letter of
Credit with Bank of America, for one (1) year through June 30, 2008
SYNOPSIS:
The City of Des
Moines Aviation Department has implemented a Commercial Paper Program
consisting of a debt obligation not to exceed $12 million. The program includes a program dealer, a
letter of credit, and paying agent agreement, and is set to expire on June 30,
2007.
The Airport’s
plan in creating the Series C was to fund capital projects until large enough cumulative
requirements had developed to justify selling an issue of long-term bonds. Because the Airport has impending debt needs,
but is not yet prepared to formalize Airport Revenue Bonds or other long-term
debt, it is desirable to continue the Commercial Paper Program for one
additional year.
FISCAL IMPACT:
Amount: Interest rates on the Letter of Credit are variable and have
ranged from 3.15% to 3.95% over the past year.
The current outstanding balance on the Letter is $8.7 million. In addition to interest charges, Bank of
America charges a fee of 0.1% of the authorized amount each quarter. During the fiscal year ended June 30, 2007,
it is expected that interest payments for the commercial paper program will
total approximately $291,182.
Funding Source: Interest and related service
charges and fees are paid from the Fiscal Year 2007-08 Operating Budget, Airport
Operations Fund (EN002 AIR010100), page 66.
Costs of the program are recovered through rates and charges assessed
against commercial airlines and other users of the Airport facilities.
ADDITIONAL INFORMATION:
On August 21,
2000, the City Council established the Airport's Commercial Paper (Series C)
Program. The Series C portion of the
Commercial Paper Program is secured by a subordinated pledge of the Airport’s
net revenues.
In
2003 the Airport’s financial
advisor (Fullerton & Friar, Inc.) provided projections reflecting funding
of the various capital projects as shown in the Airport's approved Capital
Improvement Program. Their analysis
indicated that in order to fund projects an increase in the Series C Commercial
Paper was needed. Fullerton &
Friar’s projections also indicated that a bond issue would likely be required
within five years to repay the Series C Commercial Paper, and they determined
that $12 million was an appropriate level for the Commercial Paper
program. Fullerton & Friar also advised
that it would then be efficient for the Airport to contemplate a bond issue with
debt rising to that level.
On
April 7, 2003, the City Council approved the expansion of the Commercial Paper
Series C Program from $5 million to $12 million and an extension of time for
the underlying letter of credit with Bank of America from June 30, 2003, to
June 30, 2007. The Paying Agent
Agreement with US Bank and the Program Dealer Agreement with Merrill Lynch are
open-ended and thus do not require a formal extension.
Currently,
the Airport still plans to repay the full amount of the outstanding Series C
Commercial Paper from the
proceeds of a future revenue bond issuance.
Recently, it has become apparent that Airport Revenue Bonds will be
needed to facilitate construction of parking facilities and possibly certain
other projects. In light of the timing
of the expiration of the line of credit, City Finance Staff has communicated to
Bank of America its desire to extend the existing letter of credit for one
year, to June 30, 2008, and received written approval from the bank.
PREVIOUS COUNCIL ACTION(S):
Date: April 7, 2003
Roll Call Number: 03-792
Action: Approval of the expansion of the Commercial
Paper Series C Program from $5 million to $12 million and an extension of time
for the underlying letter of credit with Bank of America from June 30, 2003, to
June 30, 2007.
Date: August
21, 2000
Roll Call Number: 00-3505
Action: Establish the Airport's Commercial Paper (Series C) Program,
consisting of a debt obligation not to exceed $5 million including a program
dealer, a letter of credit, and paying agent agreement.
BOARD/COMMISSION ACTION(S):
Date: June
5, 2007
Resolution Number: Airport Board A07-101
Action: Recommend
to City Council the Extension of the Commercial Paper Series C Program for One
(1) year to June 30, 2008.
ANTICIPATED ACTIONS AND FUTURE COMMITMENTS: NONE