Crestwood aldermen review proposal to refinance city’s debt

RFP under consideration would seek $2.86 million annual appropriation note


Crestwood aldermen earlier this week were scheduled to review a request for proposals for refinancing the city’s short-term debt and line of credit.

The request for proposals, or RFP, was scheduled to be reviewed by the Board of Aldermen during a work session before the board’s regular meeting Tuesday night — after the Call went to press.

As proposed, the city will solicit proposals for a $2.86 million annual appropriation note that would be repaid over the next seven years with revenue generated by Proposition S, a tax-rate increase of 20 cents per $100 of assessed valuation that was approved by voters in April.

The 20-cent tax-rate increase has a seven-year sunset provision after which the city no longer will collect the additional 20 cents.

The Board of Aldermen voted last fall to adopt an ordinance borrowing up to $3.5 million from Southwest Bank. The $3.5 million includes a $1.5 million line of credit and a $2 million promissory note that will expire Oct. 31. As collateral for the $3.5 million from Southwest Bank, the titles to City Hall and the city garage on Pardee Lane were pledged.

In an Oct. 6 memorandum to Mayor Roy Robinson and the Board of Aldermen, City Administrator Frank Myers and Assistant City Administrator Justina Tate wrote, “Over the past 45 days, the administration has been working with the city’s financial adviser and bond counsel to develop a financing plan to pay off the $1.71 million promissory note owed to Southwest Bank and replace the need for a line of credit. The attached RFP allows for the city to pay off this promissory note due Oct. 31, 2006, as well as pay off the outstanding balance on the line of credit. In addition, this fi-nancing plan allows the city to fund a working cash balance, thereby replacing the need for a line of credit.

“To accomplish this, the city will need to borrow $2.86 million. This debt would be repaid over the next seven years entirely through revenue generated from Proposition S. This annual appropriation note will be tax exempt and meet all of the requirements of state law. As stated in the RFP, interest on this debt would be paid semiannually — March 1st and September 1st — with the principal payment being made on March 1st of each year. It should be noted that this debt will be structured to allow the city to prepay any outstanding principal amount owed without a premium. Also, please note that this RFP does not require the city to use city property as security for the loan,” the memo stated.

The memo also noted that the city’s financial adviser, Carl Ramey of Stifel, Nicolaus & Co. Inc., and the city’s bond counsel, Mark Grimm of Gilmore & Bell, will be present at Tuesday’s work session.

In an Oct. 5 letter to Myers, Ramey wrote that the financing plan “has been reviewed and concurred with” by Gilmore & Bell “both as to meeting tax-exempt status — state and federal — and meeting the legal requirements of the state of Missouri.”

The letter stated, “The plan addresses and meets the objectives of the city by accomplishing the refunding of the promissory note, in its entirety, eliminating the current obligation that the line of credit creates and establishes for the city funding for a working cash balance in the general fund. This will obviate the need for the city to have a line of credit in the future.

“Based upon the cash-flow projections prepared by the city, the working cash balance should, with fiscal discipline, provide the city with needed cash balances to meet its monthly cash-flow needs in the upcoming year and beyond.”

Ramey continued, “The structure of the transaction is based upon an annual appropriation note, payable from the proceeds of Proposition S. This structure meets the test for purposes of meeting state law requirements and tax-exempt status for the note. Repayment is based (on) annual payments with maturities spread over the seven-year life of Proposition S with the ability by the city to prepay without premium any outstanding portion of the note.

“This offers the city flexibility in retiring the obligation early as funds allow. Based upon the city’s projections of Prop S revenue, it is anticipated it will not take the full seven years to retire the note. Based upon the current market, we anticipate annual debt-service requirements on the note to be approximately $470,000 annually. Of course, this will change based upon actual interest rates,” Ramey stated in the letter.

“Currently, the obligations with Southwest Bank are secured by the City Hall and public works properties. It is our intention through the RFP process to seek financing for the city without encumbering city property. However, there is no assurance that a bank, in order to secure more favorable rates, may require some form of security. If that becomes the case, we will review the matter with the city and negotiate on the city’s behalf the best terms.”

In his letter, Ramey raised the question of whether other options are available, but stated, “In order to meet the city’s stated objectives of having a financing (plan) that first meets all of the tests to comply with Missouri law and to secure the lowest possible cost of borrowing through the use of tax-exempt financing, the conclusion reached by bond counsel is under the current circumstances this recommendation represents the only vehicle that meets these objectives. Clearly, a taxable product could be done, but the cost to the city would be much higher — usually 1 percent to 1.5 percent.”

Ramey also wrote that consideration was given to refunding only the promissory note, leaving in place the line of credit. But that option was rejected for a number of reasons, he wrote, including an issue of state law.

“As pointed out, the number of feasible options for the city to consider in managing its existing obligations and the use of Proposition S funding is very limited. Our recommendation is to move forward and market local banks the annual appropriation note as outlined in the RFP-Term Sheet that is attached,” Ramey wrote.

As proposed in the RFP, all proposals must be submitted by 2 p.m. Wednesday, Oct. 18, to Ramey.

In his executive summary accompanying Tuesday night’s meeting agenda, Myers wrote, “The first item under my report is an ordinance authorizing the city to execute and deliver an annual appropriation note and to appropriate funds in connection therewith. This legislation, drafted by Mark Grimm, lays out the legal framework to implement the financing plan discussed at the work session. This ordinance requires a first reading only at Tuesday’s meeting. The second reading will take place at our Oct. 24th board meeting when the board selects the financial institution to carry this debt.”