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Agenda 09/29/2009 Item #16F 5 Agenda Item No. 16F5 September 29,2009 Page 1 of 5 EXECUTIVE SUMMARY Recommendation to authorize cash amounts to be allocated on September 30, 2009 for the parity Debt Service Reserve Account associated with the County's Capital Improvement Revenue Bonds (Series 2002/2003/2005) in an amount not exceeding $11,543,806. OBJECTIVE: That the Board of County Commissioners authorize certain monies to be allocated to a Debt Service Reserve Account in order to remain in compliance with applicable bond covenants. CONSIDERATIONS: On April 30, 1985, the Board of County Commissioners (the "Board") of Collier County, Florida (the "Issuer") duly adopted Resolution No. 85-107 (as amended and supplemented, the "Bond Resolution"), authorizing, among other things, the issuance of Capital Improvement Revenue Bonds from time to time. On July 28, 1992, the Board duly adopted Resolution No. 92-399 (the "Supplemental Resolution"), supplementing the Bond Resolution and authorizing the issuance of the Issuer's Collier County, Florida Capital Improvement Revenue Refunding Bonds, Series 1992. Section 19(D)(4) of the Bond Resolution permits the Issuer, in lieu of making celtain required deposits into the Reserve Account created there under, to cause to be deposited into such Reserve Account a Reserve Account Insurance Policy to meet the Reserve Account Requirement. Pursuant to this Section, the Seriesl2002, 2003 and 2005 bond issues all carry Reserve Account Insurance Policies. Section 13(E) of the Supplemental Resolution supplements Section 19(D) (4) of the Bond Resolution and requires the Issuer to cash fund the Reserve Account over time, or replace a Reserve Account Insurance Policy, in the event that the claims-paying ability rating of the Insurer for such Reserve Account Insurance Policy falls below "AAA" by Standard & Poor's Corporation or "Aaa" by Moody's Investors Service. Based on the Debt Service Reserve Requirement and the dramatic deterioration of the bond insurers' credit ratings, the County is obligated to allocate $16,684,826 for the parity Reserve Account by September 30, 2009 and an additional $2,885,952 by November 30, 2009 for a total of$19,570,778. On March 24,2009, agenda item 16F7, the Board approved funding the parity Reserve Account in the amount of $8,026,972. This amount satisfied the requirement for the Series 2002 Bonds, and approximately one-third of the 2003 and 2005 Bonds. Now an additional $8,657,855 is needed by September 30, 2009 plus another $2,885,952 is needed by November 30, 2009, which will satisfy all of the remaining 2003 and 2005 Bond Reserve Account requirements. At this time, we are requesting that the entire $11,543,806 (through November 2009) be funded. The monies to be allocated are currently held as undesignated fund balances of the Collier County Watcr/Sewer District Capital. The investment of these monies will not be altered by this action. Agenda Item No. 16F5 September 29, 2009 Page 2 of 5 While this funding requirement is necessary at this time in order to remain in compliance with the applicable bond covenants, the Finance Committee is simultaneously working with its Bond Counsel, Financial Advisor, and the Bond Insurcrs to attempt to alleviate or eliminate the funding requirements. FISCAL IMPACT: Budget amendments are needed to transfer moneys from the Collier County Watcr / Sewcr District Capital funds to the various Debt Service funds. When this item was brought to the Board on March 24, 2009 on agenda item 16F7, the recommendation did not clearly state that budget amendments were needed. Therefore below, is a schedule of the funding sources for the $19,570,778: . $1,020,778 from Solid Waste Landfill Closure Fund 471 . $9,275,000 from Water User Fee Capital Fund 412 . $9,275,000 from Sewer User Fee Capital Fund 414 -- I The County will still maintain the accounts and all interest earnings accrued in such accounts will be distributed back to the Solid Waste and Collier County Water / Sewer District Capital funds monthly. Therefore, there will be no direct fiscal impact as a result of designating these monies for the parity Reserve Account. However, if the County were to default on any debt service payment related to the Capital Improvement Bonds, bondholders would have a senior claim on the designated monies, and would be within their rights to seek debt service payment from the amounts on deposit in the Rescrvc Account. An evcnt of default is considered highly unlikely. At the time it becomes necessary to pay back the Collier County Water / Sewer District capital funds and/or the Solid Waste Landfill Closure funds, the Finance Committee will convene and discuss which County funds have excess capacity to replenish the internal bOlTowing requirement. This assumes that the markets have not corrected themselves by this time and the County fund-up surety requirements will not have been diminished or eliminated significantly. GROWTH MANAGEMENT lMPACT: There is no Growth Management Impact associated with this Executive Summary. LEGAL CONSIDERATIONS: Since the Bond Sureties ratings have all fallen below AAA, the Bond covenants require that the County allocate additional funds into a Reserve Account. The Sureties' respective Financial Guaranty Insurance Policies remain in effect, however. Whether they are sufficiently capitalized to honor their respective commitments is presently unknown, and hopefully will not need to be tested. This matter has been reviewed by the County Attorney, who has conferred with outside bond counsel, and is legally sufficient for Board action. -JAK RECOMMENDATION: That the Board authorizes certain monies to be allocated to the Capital Improvement Bond Debt Service Reserve Account in order to comply with the bond covenants for the Capital Improvement Revenue Bonds and approve the necessary budget amendments. Prepared by: John Yonkosky, Director, Office of Management and Budget A TT ACHMENT: Memorandum from the PFM Group (County's Financial Advisor) page 1 ot 1 Agenda Item No. 16F5 September 29,2009 Page 3 of 5 COLLIER COUNTY BOARD OF COUNTY COMMISSIONERS Item Number: 16F5 Item Summary: Recommendation to authorize cash amounts to be allocated on September 30, 2009 for the parity Debt Service Reserve Account associated with the Countys Capital Improvement Revenue Bonds (Series 2002/2003/2005) in an amount not exceeding $11,543,806 Meeting Date: 9/29/2009 9:00:00 AM I Approved By Jeff Klatzkow County Attorney Date County Attorney County Attorney Office 9/22/2009 3:51 PM Approved By -- OMS Coordinator OMS Coordinator Date County Manager's Office Office of Management & Budget 9/22/20094:02 PM Approved By John A. Yonkosky Director of the Office of Management Date County Manager's Office Office of Management & Budget 9/22/20094:06 PM Approved By Leo E. Ochs, Jr. Deputy County Manager Date Board of County County Manager's Office Commissioners 9/22/2009 6:25 PM file://C:\Agendatest\export\135-September 29, 2009\16. CONSENT AGENDA\16F. COUN... 9/23/2009 Agenda Item No. 16F5 2121 Ponce de Leon B~ptel3tl~t!#l~7,2009 Suite 510 305~~~~fffl5 Coral Gables, FL www.p .com 33134 The PFM Group Public Financial fv1anagement Inc. PFM Asset Management LLC PFM Advisors I September 21, 2009 Memorandum To: John Y onkosky, Director of Management and Budget, Collier County, Florida From: Public Financial Management, Inc. Re: DSRF Surety Policies The County's finance committee has-requested that Public Financial Management, Inc. ("PFM") provide further comment on the County's ensuing obligation to cash fund three Debt Service Reserve Funds ("DSRF"). All three DSRF's related to the County's Capital Improvement Revenue Bonds, Series 2002, 2003 and 2005. Collier County purchased the following Debt Service Reserve Fund surety policies in lieu of cash-funding a Debt Service Reserve Fund. At the time of issuance, each insurer was rated Aaa/AAAlAAA by Moody's, S&P and Fitch, respectively. However, the insurers (AMBAC, FGIC & MBIA) have all been downgraded in part because of deteriorated financial condition and exposure to the subprime mortgage crisis. The bond insurance and surety policies were utilized to increase the attractiveness of the bonds, thereby achieving lower borrowing costs at the time of sale. Most importantly, the bonds were issued as fixed interest rate obligations. Therefore, despite the insurer downgrades, the County will maintain the interest rates secured on the bonds and the debt service requirements on the bonds will not change. Series Original Par Credit Enhancer Ratings Surety Surety Name Amount Enhancer Moody's S&P , . Jiitch (MADS) Premium Capital Improvement Revenue Bonds, Series 2002 47,430,000 FGIC* \V'D WTJ) \-X:'D 5,704,210 114,084 Capital Improvement and Refunding Revenue Bonds, Series 2003 49,360,000 "~\IBAC Caa2 CC \V'D 2,629,064 52,581 Capital Improvement and Refunding Revenue Bonds, Series 2005 167,200,000 M13L\* R3 131313 \XTJ) 12,701,019 200,000 *MBIA Illinois has assumed the insurance policies and related surety policies for MBIA and FGIC insured municipal bonds. MBIA Illinois is cun-ently rated 'Baal' and 'A' by Moody's and Standard & Poor's, respectively. Under the bond resolutions, a trip1e-A rated surety policy was a valid substitute for a cash-funded DSRF. However, the remedy upon downgrade varies by resolution and by severity of the downgrade. The downgrade of each insurer below the 'AA' credit category requires replacement of the surety policy within one year. Replacement of the surety policies requires Collier County to obtain a replacement surety or deposit qualified securities into a reserve fund. Interest on such funds would continue to accrue to Collier County but may be restricted as to yield. Obtaining a - new surety would be very expensive relative to simply "re-allocating" existing funds_ o~~__... Agenda Item No. 16F5 September 29, 2009 Collier County, Florida Page 5 of 5 September 21, 2009 -~ Page 2 I ~PFM' -- -- '-",,,~,,,, The Finance Committee also requested that PFM inquiry whether other governments have been able to obtain compensation for damages caused by an insurer's actions. While there have been discussions of legal actions for several months, PFM is not aware of any specific action being taken. The likelihood of a successful and financially meaningful outcome to such action is likely remote. It should be noted that PFM communicates with the County's finance committee on a regular basis and continually monitors market conditions and credit ratings for opportunities to remedy the situation. We will continue to do so in the future. -