Press Alt + R to read the document text or Alt + P to download or print.
This document contains no pages.
HomeMy WebLinkAbout03.b. Review draft Position Paper authorizing the General Manager to execute two contracts with (1) Public Financial Management (PFM) and its associated firms and (2) Sperry Capital, Inc.Page 1 of 4
Item 3.b.
CENTRAL SAN BOARD OF DIRECTORS
' POSITION PAPER
DRAFT
MEETING DATE: NOVEMBER 21, 2017
SUBJECT: REVIEW DRAFT POSITION PAPER AUTHORIZING THE GENERAL
MANAGER TO EXECUTE TWO CONTRACTS WITH (1) PUBLIC FINANCIAL
MANAGEMENT (PFM)AND ITS ASSOCIATED FIRMS AND (2) SPERRY
CAPITAL, INC. IN AMOUNTS NOT TO EXCEED $462,000 AND $100,000,
RESPECTIVELY, TO PROVIDE FINANCIAL ADVISORY SERVICES OVER A
PERIOD OF FIVE YEARS
SUBMITTED BY:
INITIATING DEPARTMENT:
PHILIP LEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION -FINANCE
ADMINISTRATION
REVIEWED BY: THEA VASSALLO, FINANCE MANAGER
ANN SASAKI, DEPUTY GENERAL MANAGER
ISSUE
Subject to Board approval, Central San's financial plan anticipates use of external financing for a
substantial portion of projected capital needs. Expert financial advisory services provided by consultants
will ensure Central San executes these financings in a cost-effective and efficient manner. Proposed
contracts with two financial advisors, PFM (which includes the following associated firms: 1) PFM
Financial Advisors LLC, 2) Public Financial Management, Inc., and 3) PFM Asset Management) and
Sperry Capital, will ensure expert advice is available to staff and the Board on financing needs and other
complex financial matters.
BACKGROUND
The Comprehensive Wastewater Master Plan projects the need for capital spending of $873 million over
10 years ($1.017 million inflated). Central San's financial plan anticipates funding nearly half of these costs
through external financing, which could include bonds, State Revolving Fund (S RF) loans, or other forms
of long-term financing. Capital raising events are anticipated every other year, commencing in early Fiscal
Year (FY) 2019-20. While these spending plans are still subject to future Board consideration, it is
prudent to begin preparing for these events.
RFP and Selection Process
In September 2017, Central San released a Request for Proposal (RFP) for financial advisory
November 21, 2017 Regular FINANCE Committee Meeting Agenda Packet - Page 83 of 219
Page 2 of 4
services. Six firms responded to the RFP, and Central San evaluated the proposals against the criteria
noted in the "Selection" section below. Services requested in the RFP included:
1. Financial advisory services for bond issuances, proposed at a fixed cost per issuance
2. Reporting on bond arbitrage rebate requirements
3. Other as -needed financial advisory services
Selection
The selection criteria was based on the following:
1.
Firm Qualifications, Experience
35%
2.
Proposal Approach
25%
3.
Cost
20%
4.
References
5%
5.
Exception to Proposal
5%
6.
Executive Summary
10%
Total: 100%
Central San interviewed two finalists (PFM and Sperry Capital, Inc.) whose proposals scored the highest
by a panel of four Central San staff. PFM is a highly regarded national firm that has advised Central San
on a variety of financial matters in recent years. Sperry Capital, Inc. is a Bay Area based firm (located in
Sausalito) that has advised clients since 1994.
Both firms, through proposals and interviews, demonstrated strong experience and credentials, and that
they were well qualified to perform the services requested. PFM scored the highest overall, with strengths
noted in breadth of resources, competitive pricing, and expertise. Sperry Capital, Inc. scored highly on
approach, cost, and expertise. Central San sees value in establishing relationships with both finalist firms,
for services as denoted below.
1. Financial advisory services for bond issuances, proposed at a fixed cost per issuance. Awarded to
PFM.
2. Reporting on bond arbitrage rebate requirements (fixed price per report), Awarded to PFM.
3. Other as -needed financial advisory services (hourly/task order). Awarded to both PFM and Sperry
Capital, Inc.
Sperry Capital, I nc. would be awarded a contract for other as -needed financial advisory services for work
that may include advice on bond structuring (including novel ideas, approaches, and advice on complex
structures), advice and assistance on state revolving fund loan applications, P3 matters, and other
miscellaneous financial advice.
Term
The RFP requested, and the contracts provide for a five-year term. Services can be terminated by Central
San at any time. Costs are discussed in the Financial I mpact section of this paper.
Next Steps
Staff will begin planning for capital needs for FY 2019-20 and beyond with an anticipated bond funding
event in early FY 2019-20. Consideration will be given to the availability of low cost SRF funding, or other
forms of financing. The viability of refinancing existing debt then, or earlier, will also be assessed with the
assistance of the financial advisor.
November 21, 2017 Regular FINANCE Committee Meeting Agenda Packet - Page 84 of 219
Page 3 of 4
ALT ERNAT IVES/CONSIDERAT IONS
Financial advisory services are typically used by issuers who need expert advice on capital market issues
to ensure bonds are sold at the lowest possible long-term cost to the issuer. Alternatively, staff could
provide some of these services, but best practice is to supplement staff knowledge with experts who are
involved in bond issuances on a full time basis and have a level of expertise which cannot be realistically
replicated by staff who are involved in bond offerings only once every several years.
Similarly, for financial advice on miscellaneous financial topics, the Board could rely on staff for these
services. However, for complex matters where a knowledge of best practices is important, supplementing
staff expertise with outside expert advice has been the preference of the Board in the past, and is
advisable prospectively.
FINANCIAL IMPACTS
The costs for financial advisory work for a five-year period are estimated at $562,000 comprised of the
following elements:
Bond advisory: The fixed price Financial advisory services are quoted on a per -bond issuance basis;
no costs are payable unless the bond issuance is executed. Financial Advisory fees for three
issuances are assumed, at an initial cost of $47,500 escalated at 2.5% (per issuance/per year), for a
total cost of $150,000. Such fees should be seen in the context of external financings over the next
five years projected at $285,000,000. The $150,000 of fees for bond offering financial advisory
service represents 0.05% of the total bond issuance amount.
Allocated to: PFM: $150,000
2. Arbitrage rebate reports: The costs of $1,500 per bond arbitrage report will depend on the number
of bond series issued. For planning purposes, we assume a maximum of $12,000 for eight separate
bond series.
Allocated to: PFM: $12,000
3. Other Financial Advisory Projects: We assume a total funding pool over five years of $400,000.
This represents funding for approximately three projects per year, at 90 hours per project. Hours to
be billed in accordance with hourly rate schedules (with costs range from $225 for Analyst to
Managing Director $350). Total projected cost is $80,000 per year. Total projected cost over the 5
years is $400,000. The other financial consulting advice includes expert advice on a variety of
matters such as liability management (pension, and OPEB), investment management, debt policy
issues, additional advice on bond structuring matters, P3 matters, etc.
Allocated to: PFM: $300,000, Sperry Capital: $100,000.
Contracts with each firm specify a not to exceed amount of $462,000 and $100,000 for PFM and Sperry
Capital, respectively, for a total of $562,000. Task orders will be issued for each bond advisory event,
arbitrage rebate report, and other financial advisory projects.
COMMITTEE RECOMMENDATION
The Finance Committee reviewed this matter at its meeting on November 21, 2017, and recommended
that the Board approve the proposed contracts with PFM and Sperry Capital for financial advisory services
in an amount not to exceed $562,000.
November 21, 2017 Regular FINANCE Committee Meeting Agenda Packet - Page 85 of 219
Page 4 of 4
RECOMMENDED BOARD ACTION
Authorize the General Manager to execute contracts with PFM and Sperry Capital, Inc. in amounts not to
exceed $462,000 and $100,000, respectively, to provide financial advisory services over a five-year
period.
GOAL THREE: Be a Fiscally Sound and Effective Water Sector Utility
Strategy 1 - Conduct Long -Range Financial Planning, Strategy 2 - Manage Costs
November 21, 2017 Regular FINANCE Committee Meeting Agenda Packet - Page 86 of 219