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1. Debenture Issue émission de débentures |
That Council receive this report
on the City’s recent debenture issue in the amount of $92,000,000 to Ontario
Infrastructure Projects Corporation, for information.
Que le Conseil prenne connaissance du présent rapport sur l’émission
récente de débentures de la Ville d’un montant de 92 000 000 $ à la
Société ontarienne de travaux d’infrastructure.
Documentation
1. Debenture Committee report dated 22 February 2011 (ACS2011-CMR-FIN-0015).
2. Extract of Debenture Committee Minutes 3, 23 November 2010 (immediately follows the report).
Council / et au Conseil
22 February 2011 / le 22 février 2011
Submitted by/Soumis par : Marian Simulik, City Treasurer/Trésorière
municipale
Contact
Person/Personne ressource : Mona Monkman, Deputy City Treasurer-Corporate
Finance/Trésorière municipale adjointe-Finances municipales
Finance
Department/Service des finances
613-580-2424
ext./poste 41723, Mona.Monkman@ottawa.ca
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Ref N°: ACS2011-CMR-FIN-0015 |
SUBJECT:
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OBJET :
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That Council receive this report on the
City’s recent debenture issue in the amount of $92,000,000 to Ontario
Infrastructure Projects Corporation, for information.
Que le Conseil prenne
connaissance du présent rapport sur l’émission récente de débentures de la
Ville d’un montant de 92 000 000 $ à la Société ontarienne de travaux
d’infrastructure.
On January 27, 2010 Council delegated authority to the Debenture Committee to enact debenture by laws to authorize the issuance of debentures where the project debt authority has been approved by Council and the Treasurer has proceeded with one or more debt issues in accordance with the delegation of Authority By-law 2009-231 as amended.
On April 28, 2010 Council approved the purchase of 226 buses for the transit service. The total approved cost of this purchase was $155.7 million; and $142 million in debt financing was indicated as required to support this purchase (Report ACS2010-ICS-TRA-0005).
Motion 88/8 which was also carried by Council at the same meeting authorized the Treasurer to apply to Ontario Infrastructure Projects Corporation (OIPC) for a loan to finance all or part of the amount of debt required and to do all things necessary to complete the transaction and/or issue debentures to provide the financing required.
A meeting of the Debenture Committee was held on November 23, 2010 and a Debenture By-law (By-law 2010-370) was enacted in accordance with the authority delegated by Council authorizing the issue of a debenture in the amount of $92 million. The Debenture Certificate and all other documentation required to close the debenture issue were signed and delivered to satisfy the conditions to be met prior to closing and the net proceeds were received on December 1, 2010.
In accordance with the authority delegated by Council, an application for financing was made to OIPC on May 17, 2010. On June 1, 2010, OIPC confirmed that a loan in the amount of $142 million was approved and a Financing Agreement was signed.
In order to secure permanent financing for the payments made to the vehicle supplier and for bus deliveries expected to be made by year-end, the City requested OIPC to provide debenture financing of $92 million. As of December 23, 2010 the City has paid the supplier $106.5 million. The balance of the loan of $50 million will be requested from OIPC after all deliveries have been completed.
OIPC offered a fixed interest
rate of 3.92% for a 15 year term for the $92 million debenture. Lending rates offered by OIPC reflect their
current cost of borrowing from the Province. The 15 year term offered by OIPC
is consistent with the service life of the vehicles.
There are no rural implications to enacting the By-law by the Debenture Committee.
The public consultation process is not applicable.
There are no legal/risk management impediments to receiving this report.
The debenture issue does not involve any new debenture authority but provides the financing authorized by Council at the time the bus acquisition strategy was approved on April 28, 2010. The financial analysis which was completed when Council approved this debt was based on issuing the debt at a 5.5% interest rate. The actual rate for this financing, 3.92% represents a substantial improvement over the estimated interest rate at the time the financial analysis was completed and results in lower total interest costs of $11 million over the full term of the loan. Debt servicing costs can be accommodated within the existing budget since there will be operating budget reductions associated with the purchase of newer and more fuel efficient vehicles.
N/A
This report is presented to Council for its information in accordance with the authority delegated by Council to the Debenture Committee. Debenture By-law 2010-370 has been enacted and the debenture issue closed successfully and the net proceeds were received on December 1, 2010. No further action is required.
1. DEBENTURE
BY- LAW
Règlement
régissant les obligations non garanties
ACS2010-CMR-FIN-0073 city-wide / À l’Échelle de la ville
Deputy City Treasurer, Mona Monkman, provided background to this particular debenture, explaining that in 2010 Council authorized the purchase of 226 replacement articulated buses through 2010 and 2011. At the same time Council authorized the Treasurer to also obtain the debt financing of $142 million to purchase the buses through Ontario Infrastructure Projects Corporation (OIPC). Bringing forward a debenture bylaw now enables the City to begin drawing down soon that agreement, said Ms. Monkman, adding that the by-law will be for $92 million, with the remaining $50 million to be advanced in 2011.
In addition, Ms. Monkman added that the low interest rate of 3.92% for the $92 million will afford the City to achieve additional savings from what was initially forecast in the City’s business case (5.5%), reflecting an added savings of around $1.2 million a year on the debt’s 15-year term. The repayment of this debt will not affect the City’s operating budget, confirmed Ms. Monkman, as replacing buses earns back dollars saved through fuel efficiencies.
Ms.
Monkman added that as committee members knew, the City issues debt to finance its
capital projects that service future generations, much like a mortgage, as
dictated in the City’s fiscal framework; otherwise, the City would need to use working
capital and cash reserves, which affects a municipality’s cash position. With this
debt issue, Ms. Monkman advised that the project remains within Council’s
target of no more than 7.5% of its own source revenue to service the city’s
debt.
In
response to questions from Mayor O’Brien, Ms. Monkman replied that the City’s
current cash position without this debt issue is between $850-$900 million with
cash and investments, and that it earns
roughly 2-3% on its own investment portfolio,
adding that the City has roughly $200 million a month in expenditures. Treasury Manager Gerry Mahoney also replied
that appetite for the City’s debt through OIPC was very good, noting that the
group used to fund itself through the marketplace until a few years ago when it
began borrowing directly from the province.
Moved by M. Simulik:
That the Debenture Committee enact a debenture
by-law to authorize the issuance of debentures to the Ontario Infrastructure Projects
Corporation (OIPC) in the total principal amount of $92,000,000.00 where the
project debt authority has been approved by Council and the Treasurer has
proceeded with one debt issue pursuant to Section 16, Schedule “A” of By-law
No. 2009-231, the Delegation of Authority By-law, by finalizing the terms and
conditions of such debt issue.
CARRIED
2. enactment
of by-law (ONE by-law)
Adoption de règlements municipaux (uN Règlement municipAL)
Bylaw Three Readings
Moved by M. Simulik:
That the
following by-laws of the City of Ottawa be given three readings and enacted by
the Debenture Committee in accordance with its delegated authority:
By-Law No. 2010-370 A by-law of the City of Ottawa to authorize the borrowing upon 15 year serial debentures in the principal amount of $92,000,000.00 towards the cost of certain capital works of the City of Ottawa.
CARRIED
3. enactment
of CONFIRMATION By-law
Adoption de LA RATIFICATION DU règlement municipal
Bylaw Three Readings
Moved by M. Simulik:
That the
following by-laws of the City of Ottawa be given three readings and enacted by
the Debenture Committee in accordance with its delegated authority:
By-Law No. 2010-371 A by-law of the City of Ottawa to confirm proceedings of the Debenture Committee, a Committee of the Council of the City of Ottawa at its meeting held on November 23, 2010.
CARRIED