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1980/10/1080-1301 City Hall~ Anaheim~ California - COUNCIL MINUTES - October 10, 1980, 8:00 A.M. 175: The City Council of the City of Anaheim met in adjourned regular session. PRESENT: ABSENT: PRESENT: COUNCIL MEMBERS: Overholt, Kaywood, Bay, Roth and Seymour COUNCIL MEMBERS: None CITY MANAGER: William O. Talley CITY ATTORNEY: William P. Hopkins CITY CLERK: Linde D. Roberts PUBLIC UTILITIES GENERAL MANAGER: Gordon W. Hoyt FINANCE DIRECTOR: George P. Ferrone TREASURER: Glenn Stewart EIGHTY-FOUR MILLION DOLLAR CITY OF ANAHEIM ELECTRIC REVENUE BONDS~ ISSUE OF 1980: Nineteen eighty bonds being issued for the primary purpose of ac- quiring a 1.66% ownership interest in the San Onofre Nuclear Generating Station, Units II and III, from the Southern California Edison Company (SCE). Mr. Gordon Hoyt, Public Utilities General Manager, first introduced those present in connection with the sale of the $84 million Electric Revenue Bond Issue of 1980: James J. Lowry and Company, Inc., financial advisor for the City: Mr. James J. Lowry, President and Principal Negotiator; Mr. Robert MacDonald, Executive Vice President. Salomon Brothers, Senior Manasin~ Underwriter: Mr. John O'Brien, general partner in charge of Municipal Sales and Trade; Mr. Joe Darcy, Vice President; Ms. Josephine Curran, Vice President. Mud.Re Rose Guthrie & Alexander, Underwriters Counsel: Mr. Edward Long. R. W. Beck & Associates, Consultin8 Engineer: Mr. Allan Dashin, Executive Engineer. O'Melveny & Myers, Bond Counsel to the City: Mr. Bill Kraemer. Rourke & Woodruff, Special Counsel to the City: Mr. Alan R. Watts. City of Anaheim: Mr. George Ferrone, Finance Director; Mr. Glenn Stewart, City Treasurer. Mr. Hoyt stated they were recon~nending two separate actions today: (1) proposed Resolution No. 80R-457, authorizing the issuance of $84 million Electric Revenue Bonds providing the terms and conditions for the issuance of said bonds and, (2) proposed Resolution No. 80R-458, approving the Bond Purchase Agreement relating to Electric Revenue Bonds, Issue of 1980, authorizing the execution and delivery thereof, approving the final Official Statement relating to said bonds, appointing paying agents for said bonds, and authorizing the execution and delivery of certain agreements relating to San Onofre Nuclear Generating Stations, Units II and III. As a matter of prudency, Mr. Hoyt felt that the Council should also reaffirm the action they had taken in the past with Resolution No. 77R-697 and Letter Agreements dated November 1, 1977, March 27, 1979 and June 29, 1979 by approving again the terms and conditions thereof and directing the Public Utilities General Manager 80-1302 City Hall, Anah~%m,. C~lifornia - COUNCIL MINUTES - October 10, 1980, 8:00 A.M. to execute, on behalf of the City of Anaheim, the San Onofre Units II and II Participation Agreement, Supplemental Agreement for the Integration of Anaheim's Entitlement in San Onofre, Units II and III, and the Edison-Anaheim San Onofre Transmission Service Agreement, as outlined in the proposed resolution. October 6, 7 and 8, 1980 were the days devoted to preliminary pricing in the order period of the bonds. During this time, Anaheim was represented by James Lowry, its financial advisor, who negotiated on Anaheim's behalf primarily with John O'Brien and Joe Darcy from Salomon Brothers, Senior Managing Underwriters who were also acting for Merrill Lynch Whiteweld Capital Markets Group, Goldman Sachs and Company, and Donaldson, Lufkin and Jenrette, all co-managing under- writers, as well as the syndicate which they formed to purchase the bonds. Salomon Brothers, acting on behalf of the Managers and Underwriters, offered to enter into the Bond Purchase Agreement and to purchase $84 million Electric Revenue Bonds, Issue of 1980, all with 8% coupons for a price of $75,600,579.25 with maturities and principal amounts as set forth in the agreement. Basically there would be $30,475,000 of Serial Bonds with maturities from 1984 to 1997; $16,650,000 of Term Bonds due in 2001; and $36,875,000 of Term Bonds due in the year 2007. The true interest cost to Anaheim of the bonds was 9.173%. During the course of the negotiations, they were able to price the bonds and lengthen the maturities to 2007, thereby reducing annual debt service over the preliminary Official Statement maturities and reducing annual debt service by approximately $577,000, and increasing the savings from participation in the project over the first nine years by $3,899,000. Now, the first nine-year savings estimated by R. W. Beck and Associates was $48,053,000. Mr. Hoyt then introduced Mr. John O'Brien, General Partner in charge of Munici- pal Sales and Trading of Salomon Brothers, to go over the offer with the Council and to brief the Council on the blue booklet submitted entitled Bid Submitted For $84 Million City of Anaheim~ California Electric Revenue Bonds, Issue of 1980--October 10, 1980. Mr. John O'Brien first stated that Salomon Brothers had been extremely honored by Anaheim to be selected as their Senior Manager. Knowing that this was some- what of a new transaction in terms of public financing for the City, they had done an extra special job, in his estimation, to obtain the best possible cost for the City on the money it had to borrow. Mr. O'Brien then briefed the Council on the booklet submitted, Tab 1 through Tab 8: Tab 1--Terms of the Bid; Tab 2--Components of Gross Spread; Tab 3-- Comparative Spreads on Recently Negotiated Electric Revenue Bonds; Tab 4-- Special Refunding Call Provisions; Tab 5--Comparison of Trading Levels For Selected Electric Revenue Bond Issues (January 7, 1980-September 29, 1980); Tab 6--Comparison of Yield Levels for Salomon Brothers AA Electric Revenue Index The Bond Buyer Index and Los Angeles Department of Water and Power From February 4, 1980 through October 6, 1980; Tab 7--Recent Interest Rate Trends; Tab 8--somewhat of an advertisement for Salomon Brothers, but documenting the tools that they used to come to the market and pick the proper timing, utilizing all the assets of their firm including a research department and credit analysis to get bonds sold to investors. 80-1303 City Hall~ Anaheim~ California - COUNCIL MINUTES - October 10, 1980, 8:00 A.M. Mr. Hoyt, referring to Tab 6, considered it important to point out that when they began pricing the bonds and taking orders, the Bond Index was 9.22%. The Los Angeles Department of Water and Power Bonds were going for 9.20%. The final interest rate for Anaheim was 9.173% which was indicative of the fact that they beat the Bond Buyers Index again and were about even with the Los Angeles Department of Water and Power. This was a good measure of the deal they obtained through negotiation. Mayor Seymour asked, under Tab 3, Comparative Spreads on Recently Negotiated Electric Revenue Bonds, the interest rate (on longest maturity) column, how they could compare the Anaheim issue to that since it involved various matur- ities. Mr. O'Brien answered that it was difficult to compare specifically on the issues listed because of various sizes and maturities. He felt the Los Angeles Depart- ment of Water and Sewer Bonds and 9%, which were trading in the secondary after market, was a much better comparison. The Anaheim Bond was priced according to what was in the market and thus the maximum maturity would be more easily com- pared in the marketplace and more easily checked by comparing it with the Los Angeles Department of Water and'Power. The other maturities in the Serial Issues through 1997 could only be compared with issues that had sold very recently, and he did not have all those numbers on hand. There was nothing that had sold that was exactly like the subject issue in the last three or four weeks, and he had shown that the market had gyrated considerably over that period of time. On the Serial Bonds, there were some left for sale at this point by the Syndicate. However, they were not all sold by the Syndicate, the only ones being the Term Bonds with 2001 and 2007 maturities. They did have some of the Serial maturities left in the 1987 and 1989 maturities. Mayor Seymour noted that Mr. Hoyt stated that R. W. Beck estimated, based upon the City's cost of borrowing, that over a nine-year period, there would be a savings of $48,053,000. Mr. Hoyt stated that one of the things they did bear in mind from the Council's previous comments, was that they were concerned about the early years' payout. That was one of the reasons they wanted to stretch the maturities as long as they could. They increased that first nine-year savings by $3.9 million. By stretching the bonds out and the terms, it produced approximately one half million dollars more, and they were able to take that and add it into the City's contingency. Now instead of a $2.8 million contingency, they had a $3.3 million contingency which they felt accomplished what the Council wanted and what they wanted as well, to provide some additional budget in case of schedule slippages, etc. Discussion then followed relative to the Mayor's question as to the ability to mathematically compute what the difference would be in that $48,053,000 over the nine-year period by a change of one tenth of one percent, i.e., instead of a 9.173% figure, what if it were 9.0%. At the conclusion of discussion, Mr. O'Brien stated that he understood the Mayor's quandary, but it was not as though they had a discount rate or prime rate to compare to. They only had the marketplace and it was not something easily quantified because it was a living viable market. As a professional, he could swear that the issue was tucked into a rally in the marketplace which 80-1304 City Hall, Anaheim, California - COUNCIL MINUTES - October 10, 1980, 8:00 A.M. ended towards the close of the day yesterday, and this morning the market was trading down a little bit. They were able to execute the deal quickly and cleanly and to get it out of the marketplace at a period of time that was very efficient for the City. He felt that a dialogue on "what if's" would best be taken up at a later time, as it was not something he could answer in five minutes. Mr. James Lowry, Financial Advisor, then gave an extensive dissertation on what took place relative to the financing of the bonds. The following is a summary of some specific points highlighted in the presentation: First priority was to get the money on time so that the City could sign the contract with Southern California Edison. There was a very peculiar characteristic associated with the bond and that was the 8% coupon limitation with a minimum bid requirement of 90% which posed some very serious problems down the road if they were to maintain financial integrity. Another priority which weighed almost equally was the ability to refund the bonds. They were concerned with the redemption feature and the borrowing terms, not only in interest costs, but also the debt service schedule. They decided they wanted to have a redemption feature that the City could benefit from without incurring significant costs, either today or refunding it at a later date. They also wanted to be able to extend the bonds to the maximum permissible maturity, given the constraints under which they had to live, so that borrowing costs would be as low as they could be. They believed that rates were going to come down over a period of time and they wanted to be able to put the City in a position where it could capitalize on the situation and not be penalized. Anaheim had done something that had never been done before--they had an average redemption price of 96.62%, rather than 103 or 104%. That option would allow the City to save $5 million in refunding terms if the interest rate declined to 7%, and the savings could be bigger than that. What the City had done, besides getting its money on time with documents that would allow tremendous flexibility in the future, and besides having interest costs that had beat the market, they were in a position where they might be able to save $5 million on a refunding and it had not cost the City a nickel. That was a testimony not only to the outstanding Utilities system, the fine credit of the City of Anaheim and the people who were so involved in running things in the City, it was also a testi- mony to Salomon Brothers and their ingenuity in the market, and to the City's other Co-managers and some of the people who were managers in the Syndicate. Ail things considered, whether the bonds were sold at competitive bid and they received five or six bids, there was no way that any bid could top the one being presented today. The City was in a fortunate position and one where it was going to benefit. As the City'm advimor, he would may that Anaheim was a beneficiary of so many different forces that if he were the Mayor, or an elected official, or Mr. Hoyt or Mr. Talley, he would may that Anaheim had gone a long way. They had done a good job, the City had outstanding credit, and they had raised money in terms that nobody in the country thought could be done. Consi- dering the negative redemption feature and doing what they had done in a muni- cipal market, it could be analogous to a major breakthrough in another area of endeavor. After Mr. Lowry's presentation, Councilwoman Kaywood noted that he stated the City could save $5 million on refunding without any costs. She wanted to know if it would be necessary to go back and renegotiate something or was that part of the original negotiation. 80-1305 Ci~3 .H. all~ Anaheim, California - COUNCIL MINUTES - October 10, 1980, 8:00 A.M. Mr. Lowry answered first that refunding occurred for two reasons: (1) Because there were documents outstanding that they did not like, and (2) Deterioration in interest rates. With the call feature they had, versus 103 or 104%, interest rates would have to fall by 97 basis points for the City to affect a savings of one dollar. In his opinion, he felt they were going to get back to more normal times within the next three years. He could envision Anaheim doing a refunding at 7½% without any difficulty. He was not going to say 6%, but he would say that 7% could be realistic because of the dense service schedules. If they did a refunding at 7%, the savings to the City would be $5 million versus the 103% call where that might be $1½ million. It would be their advice to the City, as its financial advisor, if interest rates were to fall where trey could affect a savings, to enter into a refunding. That could be put out to competitive bid, but he did not know what he would, advise, because it would depend on the market climate at the time, and it would be an entirely new transaction. Councilwoman Kaywood explained that at the present time under the City Charter, they were not able to refund bonds and thus it would require a Charter revision. Mr. Lowry answered "yes". He and Mr. Hoyt had discussed the matter and there were certain things that were just not in the City' interest and would have to be changed. Prudent financial practice mandated that they be changed.. Anaheim was not the only City--there were a number of utility systems in municipalities in California that had charters or articles of incorporation that were not really in their best interest. Councilman Roth noticed that the bonds maturing on or prior to October 1, 1990 were not subject to call or redemption. He asked how that would affect re-- financing, if at all. Mr. Robert MacDonald, Executive Vice President, James J. Lowry and Company, stated in the initial years what they would do would be to sell the bonds, buy U.S. Government Securities, and put them in an escrow bank. Those securities would be sufficient to pay the interest on those bonds up to 1990 and in 1990, pay off all bonds. Councilman Roth stated the reason he asked was due to the discussions that perhaps after a new administration, etc., that the economic climate would start getting better in a three-year period of time with a more stable market and interest rates going back to a more normal level. If they were locked into a higher interest rate until 1990, but five years hence the interest rate decreased to 7~% or 8%, without the redemption or call privilege until 19§0, he wanted to know what effect would that have on Anaheim. Mr. Lowry stated that they would have to pay the specified interest rates for 10 years and there was no way to get around that, but they could discharge the obligation, the contract between the City and the bondholders, or go into trustee by putting up government bonds, causing a defeasance because government bonds were just like cash and thus, they could discharge the obligation. Councilman Overholt asked what was the period of time during which the City would have an option to issue a refunding issue to take care of that obliga- tion--was it three years or the whole ten years? 80-1306 City Hall,Ana. heim~ Califor.nia - COUNCIL MINUTES - October 10, 1980, 8:00 A.M. Mr. Lowry answered, the whole ten years, but the savings would differ. If they refunded in the first three years, the average redemption would be 96.62. After three years, redemption was par. Councilman Overholt asked for confirmation that the critical period in terms of maximizing was the three years; Mr. Lowry answered that was correct. Mr. Hoyt stated that one of the things they talked about was the need to amend the City Charter to provide refunding. They tried to do so in the last election and because of misunderstandings in the community, it barely failed to pass. The next time they should work with the Council and the Public Utilities Board and develop the appropriate refunding and launch a grass roots movement by spending some time with the Chamber of Commerce to be certain they understood everything that was involved. He felt with the present bonds at 9.17% and the Water Bonds at 8.62%, they could muster up support in the community because it was obvious as the market went back to "normal", a lot of money could be saved for the water and electric rate payers. Mr. Lowry suggested having a P R firm include material with the utility bills. When customers saw that rates could be lower, they would understand very fast. Councilman Bay first prefaced his remarks by stating that against the current market, he felt they did a super job to come in at 9.173% and also that the gross spread looked excellent against anything. His concern, however, was relative to the Beck report and the changes to it on projected savings. He questioned if that report included the latest Boilermakers strike, impacts and the delays in the start-up of San Onofre as projected in the newspaper yesterday. Mr. Hoyt stated that the flatout answer was "no". Late last night, they were in contact with Maurice Kent, Manager of Construction and Engineering for SCE, to try and determine the characteristics of the strike and how they needed to address it. They put a paragraph in the final Official Statement that addressed the strike that indicated they simply could not predict how long the strike would go on and what the effects would be. If a short strike, the thoughts were they may be able to recoup any lost time. The newspaper article yesterday first of all indicated, in the reporter's opimion, that it was going to extend the comple- tion date, but further into the article, Southern California Edison's represen- tatives stated they were still holding their original dates of December 1, 1981 and February 1983 commercial operation dates. To take care of that sit- uation, they had a $2.8 million contingency, now approximately $3.3 million, which would give a cushion against any draw out of the construction schedule. Those funds were included in the R. W. Beck analysis. Councilman Bay stated his concern was relative to the fact that today represented more than making a decision to go with the bond deal. It was also decision time for no turning back on San Onofre. He was looking at that decision point just as seriously as he was looking at how good a deal they were getting on the bonds and what they could do in the way of refunding in the next five-year period, some time after the market returned to the norm or whether the situation today would become the norm. He was concerned about delays and all the possibilities of delays at San Onofre based not only on the strike situation, but also the "No Nukes" situation, the political atmosphere, earthquakes, etc. Every time those 80-1307 City Hall, Anaheim* California - COUNCIL MINUTES - October i0, 1980~ 8:00 A.M. issues arose, they were blown out of proportion. He reiterated he was concerned over how long it would take in delays to wipe out all the savings they were looking at and possibly putting the City in a bind. Mr. Hoyt explained that they tried to provide as much contingency as they felt pertinent. Yesterday, they spent a great deal of time with SCE and their various representatives. Earlier in the week, representatives of Salomon Brothers and Mudge Rose Guthrie & Alexander, Underwriters' Counsel, met with the Manager of Nuclear Engineering, Licensing and Safety, Ken Baskin, of SCE and reviewed all the material in the Official Statement from two viewpoints-- (1) they wanted to be absolutely sure it was correct. Also, the Underwriters had a responsibility not to misrepresent anything to their investors and to be sure that everything in the Official Statement was, in fact, accurate as of today. He felt that, as of today, they could say everything in the Official Statement was accurate. Nobody could predict right now how much time was going to be taken in the process before the Nuclear Regulatory Commission in obtaining the Operating License. From everything they could glean, he would say there was optimism on the part of SCE and Anaheim generated largely through Alan Watts' participation in some of the licensing proceedings. There were really only two main issues to be considered in the final operating license. One was the seismic issue, and Edison was confident that they were going to be able to demonstrate that relative to the maximum credible earthquake that could occur, the plant had been designed to be able to withstand that earthquake. The other item revolved around the emergency evacuation plans. Because of the Long Beach area down coast from the plant, Edison's people were confident they were going to be able to meet all of the requirements of the Nuclear Regulatory Commission in terms of the emergency evacuation plan. Mr. Allan Dasin, R. W. Beck & Associates, also explained for Councilman Bay that when they sized the original contingency, they looked at a six-month slip of each project and came up with the $2.8 million figure. Since that occurred, the contingency was now up to $3.356 million or another $550,000. There was also a hidden amount of reserve in that as a result of the contingencies, so that they would end up with more capitalized interests. Thus, there were more total funds than obvious. Councilman Bay stated, in effect, the increase in contingency added one month to the six months if figured on a linear basis. If $2.8 million was the con- tingency for six months, then $3.3 would be seven months; Mr. Hoyt answered, if linear, that was correct, and seven months was a fairly significant period of time. Councilwoman Kaywood stated whatever costs Edison was going to incur by slippage of whatever kind, their cost would be passed along to any of their users, whether wholesale or retail. She asked, therefore, if that would mean whatever savings they were planning on would not be affected? Mr. Hoyt answered, to the extent that there was any delay and that increased the cost of the wholesale rates, they could expect to pick up their share of the cost. As fellow owners of the plant, they would share directly in any immediate cost impact of delay. 80-1308 City Hall, Anaheim, California - COUNCIL MINUTES - October 10, 1980, 8:00 A.M. Mayor Seymour then stated that relative to his original query, 100 basis points (1%) was worth $750,000 a year. The thing that really concerned him and that he was wrestling with, even though they had all done a super job, was the fact that this was their last shot. He had no doubt they should conclude their investment in the San Onofre project, but as he looked at the wild fluctuations in the money market which, since May reflected approximately 160 basis points, and recognizing that 160 was worth over $1 million a year, he had to question where the market was going to be 30, 60 or 90 days from now. If they made their decision today, they could say they had it locked in, delivered the money on time, and could tell their constituents they saved them $48 million over a period of nine years. On the other hand, if 90 days from now there was an improvement in the market of 100 basis points, then they would be telling their constituents, or what they would like to be telling them, was that they saved not $48 million, but $57 million. He was saying they were going to "pull the plug" today, and he was questioning if now was the time to do SO. Mr. Hoyt stated that they would have another problem--they really did not have the luxury of all that time and probably have less than 30 days left. They had to execute the agreement on November 4, 1980. Mayor Seymour asked what would happen if they did not do so. Mr. Hoyt answered they would then not have met the requirements to participate in the project and he would assume from everything Edison had told him in the past, they wanted Anaheim in the project now and they would like to have their money and needed to count on it. They wanted to hold the City's "feet to the fire" to have them meet the contractual requirements. If for some reason they were unable to sell the bonds and the market did move away from them, Edison indicated they would have to sit down and talk about that situation and they had no further agreement. He would say there were two possibilities: (1) that Anaheim would be excluded from the project for failing to meet its contractual agreements or, (2) Edison might agree to extend the time, but they had not shown much inclination to do that. Part of the problem was the fact that they were now on the construction license. Councilman Bay asked their liability if they did not meet the November 4, 1980 deadline and they were dropped. Mr. John O'Brien interjected and stated that one thing they had to recognize was that if in 60 or 90 days there was a tremendous rally in the marketplace where they could save a lot of money, they would have a refunding vehicle that would save that money. That was one of the aspects of the issue although he realized that legislation would have to be changed. As Mr. Lowry pointed out previously, there was a great deal of flexibility with the issue that would protect the constituents as well. Mayor Seymour stated perhaps he needed a better understanding of the refunding provisions. Mr. Lowry stated relative to his first concern about the marketplace, it had deteriorated significantly since May for good reasons, which he explained. In his opinion, however, he did not expect to see a significant rally in the market 80-1309 City Hall~ Anaheim~ California - COUNCIL MINUTES - October 10, 1980~ 8:00 A.M. in the next 90 days or six months and he also elaborated upon the reasons why. Therefore, the prudent course of action would be to accept the Salomon Brothers bid and make the commitment. It was not as though they would not have any options later on, because they would have the refunding option. They lived in an uncertain world and if ther~ was anything that was really uncertain, it was trying to deal with the market~. In his professional opinion, he did not look for a significant rally and a collapse in interest rates, especially not in the magnitude the Mayor ~lluded to. Mayor Seymour asked Mr. Lowry to again explain the refunding provisions. Mr. Lowry explained, if interest rates went down from their current level, they would be able to sell another bond issue. That bond issue would bear an interest cost which would be less than the present 9.17%. The bond issue would be used to purchase government securities which would be deposited with the trustee or escrow agent to defease the outstanding bonds and discharge the liability. On the outstanding bonds, there was a debt schedule of around $213 million. As to how far interest rates would go down, 8, 7 or 6%, that was a variable, and they would then have a new debt service schedule they could live with. The new schedule could take on two characteristics--the characteristic of the old bonds with respect to the year 2007 maturity, or the characteristic of the useful life of the plant, and they could extend even more. No matter what they did it would be the difference between the new and the old debt service schedule to produce a stream of revenues. That stream of revenues could be $2 million, $10 million, $15 million, but in terms of present value basis, what they would be doing was taking advantage of a market that had done better. By selling the bonds today, they were going to incur an interest cost for 10 years and they were going to have to pay that no matter what happened. The municipal market was a very unique market having the positive slope yield curve. The longer they borrowed for, the higher interest rate they were going to have to pay. They were borrowing 27- or 26-year money right now and if they refunded, they would, in effect, have borrowed 27-year money while paying a ten-year interest cost. They were borrowing for 26 years or so, but had the option to refund the bonds so they could say they were borrowing for ten years. The flexibility was costing something, but there was no certainty the market was going to be better in nine months, six months, one and one-half or two years from now. In essence, they were saying the recommended action seemed to be the prudent course of action and in the event there were changes in the future, those were steps they had taken to allow the City to capitalize on unforeseen events. Mr. Hoyt stated that Mr. Lowry covered the refunding in various general terms and perhaps Mr. Joe Darcy could discuss the matter in terms of specifics as to how the data was present in the brochure. After a brief discussion between the Mayor and Mr. Darcy relative to Table IV of Tab 4 in the blue brochure, the Mayor, in summarizing the situation, stated that they would owe approximately $84 million, they knew what the debt service was going to be on that, they knew the average rate of interest was 9.173%, and they would now go out into the marketplace and borrow approximately $3.5 million more at a much lower rate of 7% and subsequently turn around and invest those in government bonds--he questioned at what rate. 80-1310 City Hall]. Anaheim, California - COUNCIL MINUTES - October 10, 1980, 8:00 A.M. Mr. Darcy answered at 7% according to Treasury regulations; the Mayor felt that if they borrowed money at 7% and, in turn, invested it at 7%, that would repre- sent a wash. Mr. Darcy first turned to Table I and Table II under Tab 4 and briefed the Mayor on the figures contained therein. In concluding, he explained the escrow fund was used to pay the debt service on the 1980 bonds up to and including 1990, and at that time they could use the special call provision to call all of the re- maining bonds outstanding. The escrow fund would produce a level stream of revenues until 1990, at which time it would generate some $70 million which would be sufficient to call all the remaining 1980 bonds outstanding at that time. The savings would result, as a result of the reduction or the ability to redeem in 1990, in $72,775,000, which would then be outstanding for a dollar price average of 96.62%, as opposed to 103% and 104%. In calling the bonds from the escrow fund, debt service for the new bonds would be substituted in lieu thereof, and that was how the savings would o~cur. Thus, they would recall 8% bonds and replace them with 7% bonds. Mayor Seymour noted that City Manager Talley had to leave to attend another meeting and before doing so, he wanted his opinion relative to the proposed bond sale. City Manager William Talley first stated that he could not pose as any authority on either a negotiated sale or where the market was going to go. He did parti- cipate in the process to prepare the bonds for negotiation and if they had any other alternative, under mo circumstances would he ever recommend a negotiated sale, because they would have to rely upon representations of people who, no matter how honorable they were, they were not being tested in a competitive situation. However, because of the stringent requirement that the City has as far as the interest rate it could bear, there was no doubt in his mind that the bonds with the current National situation were unsaleable if they had to go with a competitive bid. He had been advised even with the discount factor, there would be less than $300 between what they would be'allowed to pay at a maximum and what the total sale represented. The advice they received then from financial counsel was almost totally accurate. If they assumed that refunding was an available tool within three years and that the Electric would at some future date in the three-year period allow a refunding effort, he felt the issue as presented gave the City the most flexible arrangement it could reasonably expect. He would not be prepared to estimate what the market would be in the next two to three weeks. There was every possibility that if it did no~ change from where it was at present in a strongly positive manner to the City, the bomd$ were unsaleable. Mr. Talley stated, therefore, they were unfortunately faced with a choice that they could either adopt what he felt was the best program available at the time within $300 of all they had on any $4 million, or they could hope that there would be a change to the better sufficient to allow a competitive bid to exist. If that did not happen, then they were throwing all their options to Southern California Edison to determine whether or not Anaheim would be a participant, because under no circumstances could they go back and restructure the present offering after turning it down. It would be his recommendation, based on everything he knew, that the only viable alternative at this time if the City wished to participate in San Onofre, Units II and III, would be to accept the proposal. 80-1311 q~ty Hall, Anaheim~ California - COUNCIL MINUTES - October 10, 1980, 8:00 A.M. Councilman Overhol~ stated it was his understanding that he (Talley) was present in New York during the negotiation process; Mr. Talley answered that he was present during the time in which the documents were being prepared with Salomon Brothers, Mr. Lowry's firm, and City staff. That consisted basically of one and a half days and also visits to the rating agencies. The major information or educational part was the one and a half days in which the documents and the manner in which the sale would be offered were constructed and that was sub- stantially in more detail and substantially different than a competitive offering. Councilman Bay stated, in other words, what Mr. Talley was saying, unless they wanted to get out completely, then they better go forward. Mr. Talley felt that they would be at a considerable risk if they anticipated that the market was going to c~ange substantially and allow them to go com- petitive in the next two to three weeks. He could not ever recommend trusting the tender mercies of Southern California Edison on whether they would allow Anaheim to stay in the project if they missed the contractual date. There was a great deal of merit in allowing Anaheim to stay in on the part of Edison, but they would be under no obligation to let Anaheim stay or to let them do so under the present conditions. The experience to date had not been that they would give a position away under any circumstances for nothing. Councilman Overholt asked the City's present level of investment in the project; Mr. Hoyt answered there was approximately one-quarter million dollars including their past effort to market the bonds in 1978. He reported that Mr. Watts also pointed out that Edison had incurred some costs for which the City was responsible in connection with the securing of a favorable opinion from the IRS relating to preparing the application to transfer ownership from Edison to the Cities of Anaheim and Riverside. There was approximately $240,000 which had gone out thus far. Mayor Seymour stated as he understood, all the refunding schedules were based upon the refunding issue that would mature at a date not in excess of the original year 2007. Thus, they were not extending the maturities of any of the Series beyond their original maturity date. Mr. Hoyt answered in the example set forth, the options were all open. There were no constraints in the present deal that would restrict the City Council in any way as to what it could do in terms of refunding. In this particular instance, that might be the de$ireable thing to do because what they would normally want to do was to have the length of maturities consistent with the life of the project. Tab 4 showing debt service on the refunding issue con- templated that the maturity of the refunding issue would be the same as the maturity on the present issue. Mayor Seymour stated it was not an easy decision to make, but the City Manager accurately stated the options available. He believed that what had been brought to them by their financial consultants, legal consultants and Salomon Brothers was the best they were going to find in today's market and at the same time provide them with a maximum of flexibility that would leave the door open should long-term rates improve greatly in the future so that they could re- cover some substantial interest costs. Therefore, he for one was totally supportive of taking positive action today. 80-1312 City Hall~ Anaheim~ California - COUNCIL MINUTES - October 10, 1980, 8:00 A.M. Councilman Seymour thereupon offered Resolution No. 80R-457 for adoption as recommended. Refer to Resolution Book. RESOLUTION NO. 80R-457: RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ANAHEIM, CALIFORNIA, AUTHORIZING THE ISSUANCE OF $84,000,000 ELECTRIC REVENUE BONDS OF SAID CITY AND PROVIDING THE TERMS AND CONDITIONS FOR THE ISSUANCE OF SAID BONDS. Before a vote was taken, Councilman Overholt stated he agreed with the Mayor 100%. The thing that made the issue so attractive was the special call pro- vision. Without that, he felt that the decision would be much more difficult. Mayor Seymour stated he was looking at the bottom line. They believed there was going to be a $48 million savings to rate payers over a period of nine years. He would like to be able to say it was going to be $48 million plus another $9 million, or a total of $57 million. He did not think they were provided that luxury today. However, with the flexibility they had in the call provision, perhaps they could say that tomorrow. Councilwoman Kaywood stated with that flexibility, there was the option of extending the maturity date and by doing that, also saving money. Mayor Seymour, after giving an analogy with regard to the housing market, stated that extending the maturities did not necessarily mean they were saving money. Councilwoman Kaywood asked since the bonds were extended to the year 2007, if they would then save overall. Mr. Hoyt explained there were two sides to that question and they accomplished three things by doing that. They were able to extend the average life of the bonds more nearly to the life of the project. When they did so, they decreased the annual debt service which was of benefit to the early years' cost of the plant. Also, in lengthening the term, they were borrowing money for a long-term period so that the total cost of interest would go up. The annual debt service would go down, but the total interest cost would increase. If they refunded with the same maturities, they would pay some amount of interest and principal. If they extended it out to a longer time, the principal might be much the same, but the interest cost would be higher. Those were some of the trade-offs they had to consider when trying to determine initially what the length of maturity should be, and the initial goal was to have the maturity as closely equal to the useful life of the project as possible. A vote was then taken on the foregoing resolution. Roll Call Vote: AYES: NOES: ABSENT: COUNCIL MEMBERS: COUNCIL MEMBERS: COUNCIL MEMBERS: Overholt, Kaywood, Bay, Roth and Seymour None None The Mayor declared Resolution No. 80R-457 duly passed and adopted. Councilman Seymour offered Resolution No. 80R-458 for adoption. Refer to Resolution Book. 80-1313 City Hall, Anaheim, California - COUNCIL MINUTES - October 10, 1980, 8:00 A.M. RESOLUTION NO. 80R-458: RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ANAHEIM, CALIFORNIA, APPROVING BOND PURCHASE AGREEMENT RELATING TO ELECTRIC REVENUE BONDS, ISSUE OF 1980 AND AUTHORIZING THE EXECUTION AND DELIVERY THEREOF, APPROVING FINAL OFFICIAL STATEMENT RELATING TO SAID BONDS, APPOINTING PAYING AGENTS FOR SAID BONDS AND AUTHORIZING EXECUTION AND DELIVERY OF CERTAIN AGREE- MENTS RELATING TO SAN ONOFRE NUCLEAR GENERATING STATION, UNITS 2 AND 3. Roll Call Vote: AYES: NOES: ABSENT: COUNCIL MEMBERS: COUNCIL MEMBERS: COUNCIL MEMBERS: Overholt, Kmywood, Bay, Roth and Seymour None None The Mayor declared Resolution No. 80R-458 duly passed and adopted. ADJOURNMENT: Councilwoman Kaywood moved to adjourn. Councilman Bay seconded the motion. MOTION CARRIED. Adjourned: 9:45 A.M.