bank loan authorization agreement by-law

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Report to
Rapport au:
Finance and Economic Development Committee
Comité des finances et du développement économique
6 October 2015 / 6 octobre 2015
Submitted on September 29, 2015
Soumis le 29 septembre 2015
Submitted by
Soumis par:
Marian Simulik, City Treasurer / Trésorière municipale
Contact Person
Personne ressource:
Isabelle Jasmin, Deputy City Treasurer, Corporate Finance/Trésorièr municipal
adjointe – Finances municipal, Finance Department/Service des finances
613-580-2424 ext./poste 21312, [email protected]
Ward: CITY WIDE / À L'ÉCHELLE DE LA
VILLE
File Number: ACS2015-CMR-FIN-0040
SUBJECT:
BANK LOAN AUTHORIZATION AGREEMENT BY-LAW
OBJET:
RÈGLEMENT SUR L’ENTENTE AUTORISANT UN PRÊT BANCAIRE
REPORT RECOMMENDATIONS
That the Finance and Economic Development Committee enact a By-Law substantially
in the form attached as a Document 1 authorizing the City Treasurer to enter into a loan
agreement with CIBC for a bank loan in an amount of $6,000,000 with a variable
interest rate and to enter into an interest exchange agreement to provide effectively a
fixed rate on interest satisfactory to the City Treasurer, as set out in this report.
RECOMMANDATIONS DU RAPPORT
Que le Comité des finances et du développement économique adopte un règlement
(essentiellement sous la forme jointe en tant que document 1) visant à autoriser la
trésorière municipale à conclure une entente de prêt avec la Banque CIBC relativement
à un prêt bancaire d’un montant de 6 000 000 $, à un taux d’intérêt variable, et un
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accord portant sur l’échange de taux d’intérêt dans le but d’offrir de façon efficace un
taux d’intérêt fixe que la trésorière municipale juge satisfaisant, comme il est indiqué
dans le présent rapport.
BACKGROUND
In accordance with Section 16, Schedule “A” of By-Law 2014-435, the Delegation of
Authority By-Law, the Treasurer is authorized to enter into bank loan agreements and
interest rate exchange agreements.
Also, in accordance with Section 15, Schedule “A” of By-Law 2014-435, the Finance
and Economic Development committee has the delegated authority to enact By-Laws to
enter into bank loan agreements and interest rate agreements.
CIBC has offered to provide a bank loan to the City of $6 Million on repayment terms of
10 (ten) years in quarterly instalments of principal and interest. This loan will be based
on floating rate of interest and the City will enter into an interest rate exchange
agreement (interest rate swap) with CIBC which will effectively provide a fixed rate of
interest currently estimated at 1.836%. Debt Financing has been authorized for the
project receiving financing as detailed on Schedule “A” to the bank loan By-Law
attached as Document 1.
This loan is similar to the bank loan with CIBC authorized by City Council on June 9,
2004 for the public-private partnership project in relation to the expansion of the Ray
Friel Centre. This loan is also similar to the two bank loans with Royal Bank of Canada
authorized by City Council on November 9, 2011 and May 25, 2012.
DISCUSSION
On May 14, 2014 Council approved the use of $6 Million debt to fund the development
of the Millennium Park construction, with repayment of principal and interest guaranteed
by Minto, Tamarack, Mattamy and Claridge (Participating Landowners). As is structured
in the Millennium Park Agreement, the City will establish a Millennium Park
Development Charge sufficient to recover the cost of the design and construction as
well as the principal and interest of the debentures issued.
CIBC offered to provide a long-term loan in an amount of $6 Million payable quarterly
over 10 years with interest on a floating or variable rate basis and to enter into an
interest rate exchange agreement (swap agreement) to provide an effective fixed rate of
interest for the full term of the loan. Similar to the City’s debentures issued in the capital
markets where the final interest rate on the debenture issue is only set at the time the
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issue is launched, the fixed rate on the proposed bank loan will be set at the time the
loan is funded and the interest rate agreement is booked.
Based on the prevailing interest rates, CIBC has indicated that the all-in equivalent fixed
rate for the proposed bank loan would be 1.836%.This rate compares favourably with
the City’s most recent public market debenture issue on 10 year terms which was
issued at 1.915% (April 2015) and the current rate posted on September 28, 2015 by
Infrastructure Ontario of 2.39% for a 10 year amortizing loan.
Ontario Regulation 276/02, as amended, sets a limit for the total amount of variable
bank loans which is not to exceed 15% of total outstanding debt and sets the minimum
ratings for banks and any other entities which enter into exchange rate agreements with
municipalities. The principal amount currently outstanding for bank loans including the
proposed CIBC loan represents 3.98% of the total outstanding debt including the
proposed bank loan, which is well within the Provincial limit.
CIBC secured debentures are currently rated Aa3 by Moody’s, A+ by Standard and
Poor’s and AA by DBRS which meets the minimum ratings set by the Province in
Ontario Regulation 276/02 as amended for banks and other organizations which enter
into exchange rate agreements with municipalities.
RURAL IMPLICATIONS
There are no rural implications to enacting the By-Law recommended in this report.
CONSULTATION
The public consultation process is not applicable.
COMMENTS BY THE WARD COUNCILLOR(S)
This is a City Wide issue.
LEGAL IMPLICATIONS
There are no legal impediments to approving the recommendations contained in this
report. On May 14, 2014 Council approved the use of $6 Million of debt to fund the
development of the Millennium Park construction as outlined in the report. The
Treasurer and City Clerk and City Manager in consultation with the City Clerk and
Solicitor will place the required by-law on the agenda of the Finance and Economic
Development Committee for enactment, pursuant to Subsection 15(3) of the City’s
Delegation of Authority By-law 2014-435.
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RISK MANAGEMENT IMPLICATIONS
There are no risk management implications to enacting the bank loan By-Law in the
form attached as Document 1.
FINANCIAL IMPLICATIONS
The proposed bank loan does not involve any new debenture authority but provides the
financing authorized by Council at the time the capital works were approved, as detailed
on Schedule “A” to the By-Law attached as Document 1.
The proposed bank loan will not impact the 2015 Tax Supported Budget, since the
project to be financed from the proceeds will be repaid from development charges. As
structured in the Millennium Park Agreement, the Participating Landowners will provide
18 months of debenture payments as security and provide a letter of credit in the event
that the development charges received combined with the trust account is insufficient to
make the debt servicing in any year. These mechanisms provide the security required to
ensure that the repayment never becomes a taxpayer’s obligation.
ACCESSIBILITY IMPACTS
Not applicable.
TERM OF COUNCIL PRIORITIES
Not applicable.
SUPPORTING DOCUMENTATION
Document 1 the bank loan By-Law authorizing the bank loan in the amount of $6,000,000
DISPOSITION
Once the bank loan is closed this report will be provided to Council for its information as
required by the terms of the delegated authority given to Finance and Economic
Development Committee.