7.             FINANCING LEASE AGREEMENTS 2007

 

Ententes de Financement des baux financiers de 2007

 

 

 

Committee Recommendation

 

That Council receive this report on outstanding Lease Financing Agreements, as at 31 December 2007, as required by Ontario Regulation 653-05 amended to Regulation 604/06 and the City’s Debt and Financing Policy.  . 

 

 

Recommandation du comité

 

Que le Conseil prenne connaissance de ce rapport sur les accords de financement des baux financiers en suspens en date du 31 décembre 2007, tel qu’exigé par le Règlement ontarien 653/05, modifié en Règlement 604/06, et par la politique de la Ville sur les dettes et le financement..

 

 

 

Documentation

 

1.   City Treasurer’s report dated 17 July 2008 (ACS2008-CMR-FIN-0027).

 


Report to/Rapport au :

 

Corporate Services and Economic Development Committee

Comité des services organisationnels et du développement économique

 

and Council / et au Conseil

 

17 July 2008 / le 17 juillet 2008

 

Submitted by/Soumis par : Marian Simulik, City Treasurer, Trésorière municipale     

 

Contact Person/Personne ressource : Gerry Mahoney, Manager, Treasury / Trésorerie Gestionnaire,

Financial Services/Services financiers

(613) 580-2424 x 21310, gerry.mahoney@ottawa.ca

 

City Wide/à l'échelle de la Ville

Ref N°: ACS2008-CMR-FIN-0027

 

 

SUBJECT:

FINANCING LEASE AGREEMENTS 2007

 

 

OBJET :

Ententes de Financement des baux financiers de 2007

 

 

REPORT RECOMMENDATION

 

That the Corporate Services and Economic Development Committee and Council receive this report on outstanding Lease Financing Agreements, as at 31 December 2007, as required by Ontario Regulation 653-05 amended to Regulation 604/06 and the City’s Debt and Financing Policy. 

 

RECOMMANDATION DU RAPPORT

 

Que le Comité des services organisationnels et du développement économique et le Conseil prennent connaissance de ce rapport sur les accords de financement des baux financiers en suspens en date du 31 décembre 2007, tel qu’exigé par le Règlement ontarien 653/05, modifié en Règlement 604/06, et par la politique de la Ville sur les dettes et le financement.

 

 

BACKGROUND

 

In accordance with Ontario Regulation 653/05 amended to Regulation 604/06, Council adopted a Policy on Debt and Financing on  11 April  2007.  The  City Treasurer is required to provide a report annually to Council on any outstanding lease financing agreements including the following information:

 

  1. estimates of the proportion of financing leases to the City's total long-term debt and to provide a description of any change in that proportion to the previous years report, if any; and

 

  1. a statement that in his or her opinion all financing leases were made in accordance with the lease policy and goals as approved by Council.

 

Accordingly this report is submitted in accordance with Council's  Policy on Debt and Financing.

 

DISCUSSION

 

The following summarizes the significant or material financing lease agreements outstanding at year-end 2007:

 

Financing Leases Outstanding

31 December  2007

($000's)

 

Project

Amount

Term

Rate of Interest

Office Building

68,515

24 years starting July 2003

6.0%

Paramedic Services Building

15,153[1]

30 years starting December 2005

5.79%

Total

83,668

 

 

 

 

The total principal amount outstanding under Financing Lease Agreements represents 17.8% of the City's total net debt including Public Private Partnership (PPP) debt as at 31 December 2007.  For comparsison purposes, as at 31 December 2006 the total principal amount outstanding under Financing Lease Agreements represented 16.4% of total net long-term debt including PPP debt. The change in this ratio largely results from the net long-term debt being lower at year-end 2007 ($469.1 M) than 2006 ($521.3) as a result of the City not issuing new debenture debt during 2007.   As reported to Council on 27 February 2008, the City issued $100 million amortizing debentures in January 2008. 

 

The Policy on Financing and Debt provides for the City Treasurer to approve non-material leases which are defined as a financing lease in which the annual payment will be less than $500,000, the term of the lease does not exceed 10 years and as a class does not exceed 1% of the City's net tax levy.  No non-material leases were approved by the City Treasurer during 2007.    

 

There was only one new lease financing arrangement approved by Council during 2007. On 11 April 2007 Council approved entering into a Lease  Financing Agreement with Orleans Town Centre Partnership in an amount of approximately $28.7 million and a loan guarantee to be repaid over 30 years.  Since the project is still in the construction phase and the lease payments have not commenced, the Lease Financing Agreement is not included in the above table.  The transaction closed on 2 May 2007. The interest rate for the Lease Financing Agreement was set at 5.012% semi-annual yield.  Interest accrues during the construction period with the first monthly blended payment of principal and interest commencing 2 January 2009 and the final payment due 2 December 2038.  Construction of the Orleans Art Centre is well underway and at this time is expected to be completed early in 2009.

 

 

CONSULTATION

 

The public consultation process is not applicable.

 

 

FINANCIAL IMPLICATIONS

 

It is the opinion of the City Treasurer that the Lease Financing Agreements referred to in this report, comply with the lease policy and goals as outlined in the Policy on Debt and Financing as adopted by Council.  Lease payments are budgeted in the annual Operating Budget.

 

 

DISPOSITION

 

Following consideration by Corporate Services and Economic Development Committee, this report will be forwarded to Council for its consideration.

 

 

 



[1] The amount outstanding reported for this lease will be adjusted for 2008 as noted in the 2007 Audit Results and Communications submitted to Council on 25 June 2008. The amount of capital lease obligations has been understated by approx. $7.8 million.