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Home My WebLink About90-489 ( ' December 20, 1990 # 90-489 RESOLUTION (CARRIED LOST LAID OVER WITHDRAWN ) PURPOSE: APPROVE PROPOSAL FOR ESCROW RESTRUCTURING SERVICES INITIATED BY: CITY ADMINISTRATION WHEREAS , the City of Oshkosh solicited and received proposals for escrow restructuring services related to the City's General Obligation Refunding Bonds Series 1985; and WHEREAS , upon review of the proposals with the City ' s financial consultant, it is advantageous for the City to pursue restructuring the escrow account which services the 1985 refunding and to use the services of Kirschner Securities, Inc. , San Francisco, CA. to obtain and coordinate the legal and finan- cial services necessary to complete this debt restructuring; NOW, THEREFORE, BE IT RESOLVED by the Common Council of the City of Oshkosh that the attached proposal for escrow restructur- ing services is approved and the proper City officials are au- thorized and directed to enter into an appropriate agreement for the purposes of same, all according to the said proposal. BE IT FURTHER RESOLVED that the proper City officials are authorized and directed to take the appropriate actions and to execute any and all documents necessary to accomplish this debt restructuring. Money for this purpose is appropriated from the Debt Service Fund which will be reimbursed from the proceeds of the debt restructuring. SUBMTTiE�J �Y � � i --��/J'`' .PI�' �P � •--------------r.�_ - 4 3 - j � � Res 90-489 i E KIRSCHNER SECURITIES INCORPORATED . December 13, 1990 �.,. City of Oshkosh, Wisconsin Ed Nokes Finance Director � 215 Church Avenue � � Oshkosh, Wisconsin 54901 � Deaz Ed, � I would like to take this opportunity to introduce to the City of Oshkosh ("City") an investment opportu- ; nity called an escrow restructuring. An escrow restructuring is a transaction whereby all or a portion of the � i current escrow holdings of a refunded municipal bond issue are liquidated, and a new portfolio of securi- � ties is purchased for the escrow which meets all remaining debt service requirements of the refunded bonds. The proposed escrow restructuring pertains to the foilowing municipal bond issue which refunded 23 then '`� outstanding issues: 530,560,000 City of Oshkosh, Wiscons[n General Obligation Rehinding Bonds � Series 1985 The total cash gain today from the proposed escrow restructuring is $'78,259.42, before payment of the costs � of restructuring (see section 1 of this book for more details). ; , � We have bid the work for thls transact(on on a straight-fee basis o[510,000. On this bas[s, we would over- i see the successful completion of the transaction by working closely with City Staff, Bond Counsel, Escrow � � Agent, and the accounting firm (escrow verificatIon report). In addition, we would prepare all the yield, , cash flow,trans[erred proceeds, and minor portion calculations requIred to complete the transaction. Lastly, � ` through this straight-fee approach we would promote the City bidding out the securitles on a competitive bas[s. This bldding process will guarantee that the City receives the maximum bene[it from the restruc- � turing. The prices used for our analysis are from December 13, 1990. x � ; In 1985, the proceeds of the refunding issue and money contributed from the refunded issues were used to purchase U.S. Government securities in varying amounts and maturities to meet the debt service requirements 6 on the outstanding bonds being refunded. These securities were placed in an escrow account held by the escrow agent on behatf of the City. The escrow securities purchased with the proceeds of the refunding is- sue are yield restricted ("Restricted Obligations"),which, according to tax law, cannot be invested at a yield 'which is higher than that being paid out to the bondholders of the refunding bonds. Currently, the Re- stricted Obligations consist of U.S. Treasury Obligations - State and Local Government Series (SLGs) ma- turing on the exact debt service payment dates of the refunded bonds. This is the most efficient use of the "Restricted" proceeds because the money is invested until the actual day it is needed to pay debt service. , , ��,iacid�r'.ti .,%�r�al�ni.na,,�ce o,nd...�iced�nca„�e„ w�$,s. =H6ADQUARTERS Preston Road,Suite 730 351 Californis Street ,Texae75230 U.S.A. 7th Floor '.. (214)661-3083 San Francisco,California 94104 U.S.A. ,(800)866-5472 (415)398-6900 , .�4. 14)387-0212 FAX - 43d - (415)391-0915 FAX _.._,._ ' , °�# ' Res 90-489 �. � � The funds contributed from the refunded bond issues ("Unrestricted Obligations") were used to purchase -- open-market securities. These securities are neither subject to the refunding bonds yield restriction nor sub- ; ject to rebate under current federai tax law. These Unrestricted Obligations consist of several U.S. Treas- ury Strips which mature from February 15, 1991 to February 15, 1999. These securities mature anywhere from 45 to 75 days prior to the payments being made, from the escrow account, to pay the outstanding � bonds. This mismatch of security maturity dates to debt service payment dates represents the inefficiency which exists within the escrow portfolio. This inefficiency is the amount of additional interest which would ' be eazned on the escrow securities if those securities matured closer to the debt service payment dates. � ; The escrow restructuring transaction proposed consists of substituting for the existing Unrestricted U.S.Treas- ury Strips, several Treasury Notes and several Resolution FLnding Corporation Strips (REFCO STRII's). These securities mature closer to each payment date in the escrow. The Resolution Funding Corporation � was established by the Federal Government for the purpose of issuing bonds to help pay off the debt in- curred from the insoivent Savings & Loans. These bonds have been stripped into interest components in __ ' the same manner as U.S. Treasury Strips. lfiese REFCO STRIPs aze backed by the Secretary of the Treasury, making them direct obligations of the U.S. Government. Currently these securities are trading at , a higher yield, therefore they cost less than the comparable Treasury Strips. The removal of inefficiency in the escrow and the additional yield associated with the REFCO STRIPs will result in an immediate cash gain, to the City, of$78,259.42 (not including the costs of restructuring). This � cash gain represents the difference between the sales price of the current escrow securities and the purchase ; price of the new securities portfolio. The cash gain available from this transaction is derived from the in- �,,,.r creased interest earnings assdciated with the securities maturing closer to the the debt service payment dates � � on the refunded bonds and the additional yield associated with the REFCO STRIPs. ? I The San Francisco office of Kirschner Securities, Inc. (formerly Liberty Capital Markets, Inc.) was founded , two years ago to pursue escrow restructurings as a core business. Under the firm of Liberty Capital Mar- � , kets, Inc. the restructuring group completed 18 transactions totalling nearly $310 million. The restructuring i group switched to Kirschner Securities, Inc. (a Dallas based securities trading firm) to allow better access to �. the market for the trading of government obligations, in particular, REFCO securities. Under the firm of i Kirschner Securities the restructuring group has completed 6 transactions totalling over $275 million. The sections contained in this book explain the proposed escrow restructuring and the steps needed to com- plete it.Also, we provide background information on the professionals from Kirschner Sacks Securities, Inc. � � along with references and a list of transactions the restructuring group has completed. � This transaction is extremely straightforward. T�vo points I would like to stress are first that this is a com- ' pletely risk-free transaction. When we are prepared to proceed, the buying and selling of securities will occur simultaneously, thus allowing the City to lock in the exact gain. Secondly, this is a time-sensitive transac- tion given the limited supply of REFCO securities and the likelihood for increased demand once word spreads that the new security has direct obligation status. AS`. Y'�:,l,.,.� k�: .,1;;t, y�. . �}:.�..,".: k<� - 43b - ,�:;��_..�. t, I .. �x ;� � r��.a , . Res 90-489 .�: ,�. � �� :� ; . , � �.,,.�.,..�.�� .._ _..._ . �y �R�f•i,� � . � y 1, ! �T �,�� , � .. � � . � � ... . . � . } . . � . . . , . ��.' �t' � The yie(d spread between the REFCO STRIPs and Treasury Strips is decreasing slowly as more issuers taking �� advantage of this opportunity. This reduction of yield spread will serve to reduce the City's cash gain. How- ; ever,we will always be able to take advantage of the inefficiency which exists within the City's escrow ac- i 'coun� To avoid further loss, I would recommend pursuing this transaction as soon as you aze able to. � IFinally, I request that you respect the proprietary nature of our proposal. � � � :;�t was a pleasure talking with you,on Wednesday. If you have any questions,please feel free to contact me t s(415)�398-6900. .. �. . _ �U � �� '?- ;�E., �.r� ' � 3 �s. ':��. ��, e �� ..`��."�� ' . . . . . . . .4 .. . '� : { ... ,. _ :; ,.�A, r�,,, r., :� ,�� Dieker. ��:�,> �,�.,_;� . . . r. ,. , s�,a,, <�. � ,::Vice President . ,� �p :��'�$��' `�' , � �.'�. ' { , 4 rb P." . h4` � { i-. ST'�` . ;'�.l..rs. s�:. }�`§ ,�,�, ..}.,�; d 4;K,;,fi Lg "�"p G. »,i'�'° ��`;..e .E.'�.:'� !4..x . r � ."�,, � €�r� '� �i� '�� • �;.,� � ;�x__;;�: '.:,�� s��_ � s� � 3�.�:; , s � ��. , � � 5 �� , � . . �s�y ��: � � � � � .� �.: ;. � . :; ,�, � s= ,� . . Y , � 'j. . . . . . . .. . . .. . .... . . i �� .�: . , . . . . . . y�w*�� , , p i ��'( '; � y�. . � � . . . . - . � � . . � .r.: �;�r � • � �� t " � � �, � _ a 1�� +� � � � - � � z >� t � � : r ! �., � � � 1� �� , '� ?ii' a '' . . . � � � . � . . ��;�: q ��' � , �: { � � � �� " � y {. �. � . r� °�"' ' r �aa r �. _ ,. ,� `:�; � a�� , �;? � � � �.;; �..: ,,,,. . � .. _ . - _ , , ..,.�,. . . . „ .,,N.� ,_.�..a.....�, . _:.,... � , } - ,_ _µ...�..�-..�.�..:..... .m..,._.._. . .._� 1 ... : �� , ��... ' . �.. �j� b {3�.1`�. . � " . !4/�� i�Ys'.i.f"1'4�`;4„'� ; ��`'��'�� — 43c — � ',. � �� , y�., e ,��, " ' Res 90-489 � � ` Ciry of Oshkosh�Wisconsin ��; `` � Pronosed Restructuring Plan ;; ,;r� �. � ; .Under cunent market conditions the Sources and Uses of F�nds will be as follows: f ��A � Sale of Unrestricted Obligations $6,025,775.83 �; Ending Cash Balance $27,346.40 t. 6,053,122.23 �;. �Purchase of Unrestricted Obligarions 55,974,862.81 � y, Cash Gain to the Ciry $78,259.42 ;� Total Uses of Funds 6,053,122.23 This cash gain to the City, according to preliminary discussions with many Bond Counse( firms, is not sub- ject to any restrictions. This means the money can be used for any lawful purpose (eg. pay salaries, invest- ing,etc.). In essence, we have taken advantage of the inefficiencies in the escrow and the yield differen- :: tial on the REFCO Securities and removed them today in the form of a cash gain. � The parties involved in an escrow restructuring are the City Staff, the City's Bond Counsel, the City's Escrow Agent, an Accounting Firm (verification of escrow), and Kirschner Securities, Inc. Pursuant to the Escrow Deposit Agreement, it is necessary to secure a legal opinion from Bond Counsel, as well as a new escrow ; verification report from an independent accounting firm. The legal opinion and verification report are re- quired documents to permit the escrow agent to release the securities currently held in the escrow. Kirsch- ner Securities, Inc.provides the management experience necessary for structuring the transaction (cash flow, ;;, yield calculations, minor portion calculations, and transferred proceeds calculations), and the trading capabil- � `';. ity to execute the purchase and sale of the securities. �' . ; The following is an outline, in order, of the steps necessary to transact the escrow restructuring: ; � , .e:�i �Y' :. ; Discussion and comprehension of the proposed transacrion. 4�,�r�` City authorizarion to proceed. � 3. Prepare Bond Counsel, Escrow Agent, and Accounting Firm for the transaction. r—'"' 4. Sell current escrow securiries and purchase substitute securities (for settlement at least 5 business days later). � 5. Escrow agent receives legai opinion and verification report. ,� 6.� Settlement Date: Securities are exchanged and cash gain is made available to the City. s x,;��' �Ii 'have am additional questions or concerns please call me or Mike Cornblum in our San Francisco ,.(415) 398-6900. +4 'aA"`. :.-:.`y? . . �,. �*'fF.�',..�. . ,4•. i � �t"e LF...�. Kirschner Securities,Inc. �_-. � - 43d - �� : c� 3 0 � D � D O CD CD "C7 lo :U —I (� cn "a O �L7 �--� fD c+ '-S 1 �--� O � C O -P m z � c� < o0 p •• CD c+ (p �o •• '^S C "S "� N �'• � z D � O � O o -< o � tn -� m m o 0 (n N '� —� N cn --I l0 N � �.-• �p � � V O < �..� �• ---I (� O lD N � "5 O < �• a N rn � � � 0 �