HomeMy WebLinkAbout6 Finance Proposal Agenda Item #
Memorandum
To: Board of Directors
From: Peter Holzmeister
Date: March 10, 2006
Subject: Finance Analyst Proposal
Why this matter is before the Board: This matter involves employing a consultant to
provide a financial analysis of proposed new long-term debt. This requires Board approval.
History: We are in the process of arranging for construction of two major water projects.
One project involves construction of a twenty-four inch transmission pipeline from Martis
Valley to the District's distribution system in the downtown area. The other project involves
replacing leaking water lines in Tahoe Donner. Our plan has been to finance these
projects with long-term debt and pay the principal and interest over a period of twenty-five
years with water rate revenues and facilities fees.
During the last Board meeting, we held a workshop and discussed a possible opportunity
to save money by refinancing three existing loans: the Bridge Street Tank loan, the
Glenshire water system loan, and the 1996 COP. We also talked about the need to
arrange financing for the Donner Lake water system cost overrun. During that discussion,
we talked about employing a financial analyst to help evaluate whether refinancing the
three existing loans is beneficial.
New information: During the workshop, Mary Chapman recommended that the District
retain McDonald Partners to do the financial analysis. Questions were raised about the
District's prior consulting relationship with McDonald partners and their expertise and
experience that makes them the right people to do this current task. Attached is a letter
proposal dated March 7, 2006 from Sandra McDonald and a second letter dated March 9,
2006 containing a resume of their experience dealing with water financing and with the
TDPUD.
Recommendation: I recommend that the Board approve Task 1 of the proposal from
Sandra McDonald of McDonald Partners dated March 7, 2006.
. ....................... ....
McDonald Partners
March 7, 2006
Board of Directors
Truckee Donner Public Utilities District
P.O. Box 309
Truckee, CA 96160
Ladies and Gentlemen:
McDonald Partners, Inc. (McDonald Partners) would be pleased to advise the Truckee
Donner Public Utility District(TDPUD) in connection with the financing and potential
refinancing of TDPUD's water facilities.
Scope of Work
Task One
McDonald Partners will assist TDPUD in the development of a strategy to fund two new
water system projects and costs associated with the Donner Lake improvements.
The work will involve (i)an assessment of TDPUD's bonding capacity under various
fees and charges, (ii)an evaluation of the creditworthiness of TDPUD's various revenue
sources, and (iii) a recommendation on whether TDPUD should pursue one or more
external borrowings. In addition, McDonald Partners will perform an evaluation of
refunding opportunities related to TDPUD's outstanding Certificates of Participation,
Series 1996, the Bridge Street Tank Loan, and the Gtenshire Water System Improvement
Loan.
Task Two
If TDPUD chooses to pursue an external borrowing, McDonald Partners will assist
TDPUD in the execution of one or more financings. The work will involve (i) evaluating
sources of capital and recommending the appropriate market, (ii) determination of
whether a competitive or negotiated sale is appropriate, (iii) assistance with the selection
of an underwriter, if necessary, (iv) assistance in the drafting and review of all financing
documents, (v) preparation of a presentation for use with rating analysts and credit
enhancers, (vi) advising on market conditions and transaction timing, (vii) assistance with
a competitive sale or the negotiation of offering prices, (viii) assistance with closing and
investment activities.
McDonald Partners is prepared to work closely with TDPUD to develop financial
policies and strategies that will reduce costs, maximize investment earnings and minimize
overall rates for TDPUD's customers.
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McDonald Partners will be available to begin work on this assignment by March 15,
2006. All work will be carried out on a confidential basis unless otherwise disclosed by
TDPUD.
Fee Proposal
For the services outlined above, McDonald Partners proposes (i) an hourly fee in the
amount of$225/hour, plus (it) out-of-pocket expenses (which shall include, but not be
limited to, travel, lodging, overnight mail,postage and copying). Hourly fees and
expenses will be billed on a monthly basis,
It is estimated that total compensation for Task One will be in the range of$10,000-
15,000. Additional compensation for each borrowing executed under Task Two is
estimated to be in the range of$35,000-$45,000.
Additional provisions
The effective date of this engagement shall be March 15,2006. All work will be
performed at the direction of TDPUD's General Manager or Director of Finance.
McDonald Partners will not engage any subcontractors for this assignment. TDPUD or
McDonald Partners may terminate this engagement at any time.
If the terms of this engagement as set forth in this letter are satisfactory, kindly sign, or
have an authorized representative sign, the acceptance and return an original to me at the
above address. If you have any questions or need additional information, please call me
at (925)-743-8498. I look forward to working with you and your organization on this
engagement.
Sincerely,
Sandra McDonald
Principal
McDonald Partners, Inc.
Accepted:
Truckee Donner Public Utility District
By:
Title:
Date:
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McDonald Partners
March 9, 2006
Board of Directors
Truckee Donner Public Utilities District
P.O. Box 309
Truckee, CA 96160
Ladies and Gentlemen:
McDonald Partners, Inc. (McDonald Partners) is pleased to present our qualifications to
serve the Truckee Donner Public Utilities District as a financial advisor for the District's
upcoming water enterprise financings.
General Qualifications
McDonald Partners' qualifications to serve as a financial advisor stem from the
experience of the firm's principal, Sandra McDonald. Ms. McDonald has 17 years of
public finance experience. As an advisor who has worked at a major Wall Street
investment bank and an on-line investment bank, Ms. McDonald brings not only sound
financial advice, but also in-depth knowledge of the evolving financial markets. Ms.
McDonald is experienced in virtually all types of municipal finance including fixed and
variable rate debt, interest rate derivatives, public-private joint ventures, certificates of
participation, pooled financings, general obligation, non-recourse revenue financings and
project backed debt. Ms. McDonald's water experience includes financings for water
treatment, conveyance and storage facilities as well as a review of financial policies and
plans for the recently formed Truckee Meadows Water Authority.
To date, McDonald Partners has executed twenty-eight advisory contracts and has been
accepted to the California State Treasurer's pool of qualified financial advisors.
McDonald Partners is currently serving as financial advisor on seven transactions with a
total par value of over$1.5 billion.
Having participated in nearly $15 billion of municipal transactions, Ms. McDonald is
skilled in structuring bond transactions to produce the lowest possible yield and in
designing refunding and defeasance escrows to maximize savings. McDonald Partners
utilizes both industry standard models, such as DBC software, as well as proprietary
spreadsheet based models for more complex and customized solutions.
Specific Water Experience
Within the last six months, McDonald Partners was engaged by the State of Nevada
Attorney General's Office to assist with a financial audit of the Truckee Meadows Water
Authority ("TMWA"). TMWA is a joint action agency whose members include Washoe
County, Nevada and the Nevada cities of Reno and Sparks. TMWA was formed in 2000
in order to acquire the water assets and undertake the water utility operations of the Sierra
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Pacific Power Company. TMWA sold approximately $450 million of tax-exempt bonds
to complete the acquisition in 2001. After a mandated two year rate freeze, TMWA has
approved several rate increases and a large ten year capital improvement plan. The
Capital Improvement Plan includes numerous capital projects that are reported to be
necessary to accommodate growth and to enhance system reliability. In 2005, the
Nevada legislature requested the Attorney General's office to perform an audit of
TMWA's operations, rates and financial condition. McDonald Partners assisted the AG's
office in connection with the audit. McDonald Partners reviewed the terms and
covenants included in the acquisition financing, historical financial performance,
projected cash flows and borrowing plans. In addition, the firm assessed the adequacy of
developer impact fees to pay for growth related project and determined the expected
impact of financing the large capital improvement program on customer rates.
McDonald Partners developed and recommend two alternative strategies for
consideration. The alternatives balanced the need for capital improvements to improve
system reliability with the need for affordable regional water rates.
McDonald Partners has also recently been engaged by the South Feather Water and
Power Agency and has previously worked for the Tri-Dam Project. Both of these clients
own hydroelectric facilities whose operations are dictated by the need to move and store
water for irrigation and/or domestic use. Our role with the agencies is to assist in
maximizing revenues from the hydroelectric facilities while recognizing the need to first
optimize water operations.
Prior to forming McDonald Partners, Ms. McDonald worked with a number of cities in
the western United States on tax-exempt borrowings to fund water treatment, storage and
distribution facilities. Over her career, Ms. McDonald has financed water programs for
the Los Angeles Department of Water and Power, the Metropolitan Water District, the
Modesto Irrigation District, the California cities of Fresno, Gilroy and Riverside and the
City of Phoenix. In addition Ms. McDonald financed wastewater treatment facilities for
King County, WA, the City of Phoenix and the Sacramento Regional Sanitation District.
In total, Ms. McDonald has been involved in nearly $2.0 billion of water and wastewater
transactions for municipal utilities.
Experience with TDPUD
In 2002 and 2003, McDonald Partners was pleased to assist the District in the
development of strategies to reduce near term rate increases and volatility in the net cost
of energy delivered to TDPUD's electric customers. During the course of our work,
TDPUD elected to settle outstanding litigation and FERC proceedings associated with an
above market power contract. McDonald Partners assisted TDPUD in those negotiations
and subsequently served as the District's Financial Advisor for the sale of municipal
securities, the proceeds of which were used to buy-out the above market contract and
assisted the District in the procurement of a new power supply.
In connection with the new power supply contract, McDonald Partners analyzed
historical load data, assessed the risks and benefits of a full requirements contract,
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developed a list of market participants with delivery capability, and prepared a request for
proposals for a range of products. Upon receipt of the RPP responses, McDonald Partners
analyzed the proposals, assisted the District in selection of a short list, negotiated
enabling agreements with the short-listed suppliers, and concluded negotiations with the
winning supplier. The effort resulted in an attractively priced, multi-year power supply
arrangement that nearly eliminates the District's market price exposure.
In connection with the bond financing, McDonald Partners solicited proposals from
municipal securities underwriters, assisted the District in the selection of an underwriter,
prepared the District's rating agency and bond insurer presentation, negotiated with bond
insurers, and advised on the bond pricing. The transaction was successfully closed in
early April,2003.
Summary
McDonald Partners would be pleased to use our breadth of experience to assist the
District in the development and execution of a financing plan for the water enterprise.
Our water experience spans large joint action agencies, irrigation districts and small
California communities. We are pleased to have had an opportunity to understand the
growth and development of the District's service area and look forward to the
opportunity to work with the Board and staff again.
Sincerely,
Sandra McDonald
Principal
McDonald Partners, Inc.
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