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HomeMy WebLinkAbout1978-12-15 - Minutes - ifd(3 C Gc G • MINUTES OF A RESIDENTIAL. HOUSING FACILITIES BOARD MEETING A meeting of the City of Fayetteville, Arkansas, Residential Housing Facili- ties Board was held on Friday, December 15, 1978, at 1 :00 o'clock P.M. in the Board of Directors Room, City Administration Building, Fayetteville, Arkansas. MEMBERS PRESENT: Chairman F. H. Martin, Ron Pennington, George Faucette, Jr. , John Dominick and Dale Christy. MEMBERS ABSENT: None. OTHERS PRESENT: Jim McCord, Jim Buttry, Bobby Allison (Merrill-Lynch) , Bill Hill (Merrill-Lynch) , Judd Levy (Merrill-Lynch) , Warren Creighton (UMIC) , Robert Armstrong (UMIC) , Mike Phillips (Simmons First Natl. Bank) , Hayden Mcllroy, Chad Kumpe, George Graham (Salomon) , David Lewis (Salomon) , Don Grimes (Powell F Satterfield) , John Rauscher, III (Rauscher, Dallas) , Dave Smith (Rauscher, Phoenix) , Linda Kelly (Shearson) , Milby Pickell, Gail Biswell, Rick Briggs, Scott VanLaningham, other members of the press and unidentified members of the audience. ROLL CALL: Roll call was made, and it being found that all members were present, the Chairman announced the meeting open for business. MINUTES: The Chairman made a motion to waive the reading of the minutes of the previ- ous meeting until the next regularly scheduled meeting. John Dominick seconded the motion, which passed unanimously. REPORT OF SECRETARY: Ron Pennington, Secretary, stated he had no report to give. UNFINISHED BUSINESS: The Chairman stated that the principal purpose of this meeting was to hear oral presentations from five of the six underwriting firms which had submitted - the written proposals the Board had reviewed recently. The five firms represented at this meeting were: Merrill-Lynch, UMIC, Salomon Brothers, Rauscher, and Shear- son. The sixth proposal, submitted jointly by Stephens, Inc. and T. J. Raney F, a representative present. Sons, Inc. did not have ive Inc. , P The Chairman stated that each underwriter would have 30 minutes each, 15 minutes for presentation and 15 minutes for questions. Noting that two of the firms had plane schedules to meet, the Chairman stated that the order of proposals would be as follows: Merrill-Lynch, UMIC, Salomon, Rauscher, and Shearson. All representatives were asked to leave the Board Room. Each would be called in turn to present their proposal privately to the Board. MiCROF1LMT DATE JUL 1 1979 1 Residential Housing Facilities Board Meeting December 15, 1978 Page 2. Chairman Martin introduced Mr. Bobby Allison, manager of the local MERRILL- LYNCH office. Mr. Allison introduced Mr. Judd Levy, Vice-President of the corpo- ration's Municipal Finance Department in New York, and Mr. Bill Hill, marketing advisor. Mr. Levy stated that Merrill-Lynch was the largest investment company in the world and outlined its many diversified attributes. He stated that they had handled the largest issue ever made for single-family housing bonds, and that at this time they were interested only in issues pending in Fayetteville and in Little Rock in the State of Arkansas. He stated that. they were interested in only these two mainly because of their reasonable sizes, but particularly with the one in Fayetteville since they have a branch office located here and are interested in the growth and economy of the area. Mr. Levy suggested using the Arkansas Hous- ing Development Association as "Program Administrator" for this bond issue. Mr. Hill stated they would be willing to try private placement, but if that did not work they would start over and try to establish a public market. Mr. Hill and Mr. Levy both felt there was sufficient data available from both HUD and census surveys to determine income levels without the necessity of doing another survey. They stated, however, that they would be willing to "assist" in a survey if the Board felt one necessary. Mr. Levy stated that a survey was "not really needed to get a rating, only sufficient data" is needed to back up the income levels chosen. They agreed that if they were selected underwriter, they would be willing to "eat" costs of a survey and other related expenses in the event the issue did not make it to market. Mr. Levy stated he felt a custodian would be necessary in order to review "what the trustee is doing." Mr. Martin questioned whether this Board cbuld not serve as overseer. He also asked Mr. Levy whether or not the Arkansas Housing Authority could be consid- ered a competitor of this Board. Mr. Levy responded that this Board could probably be its own overseer if it had sufficient expertise, desire and willingness, and he also responded that he did not feel the Authority would be a competitor. After a considerable amount offurther discussion, the Chairman excused Messrs. Levy and Hill and called for the representatives of UMIC. Warren Creighton, Chairman of the Board of UMIC (Memphis) , introduced his fellow representatives, namely, Robert Armstrong, Vice-President of the UMIC Fi- nance Department, and Mike Phillips of Simmons First National Bank (Pine Bluff) . Mr. Creighton stated that UMIC had asked Simmons to join them in this proposal because they felt Simmons' experience in this field to be invaluable as Simmons had "engineered and made possible the only mortgage-backed bond issue that has come to market in Arkansas to date." Messrs. Creighton, Armstrong and Phillips outlined their experience in housing finance bond issues and discussed potentials for private and public place- ments of the proposed issue. They stated they were willing to try either method, and that they were interested in doing more than one issue with this Board. John Dominick questioned whether this firm, in addition to making available home mortgage financing, would be able to "sell tax exempt bonds in order to raise construction mortgage money for local financial institutions." Mr. Armstrong re- sponded thot his firm could help deliver construction money to the area by two different methods, i.e. : 1 . Creating construction notes at no cost to the City to provide needed money (he noted that special treatments were available using arbitrage rules) ; or 2. Providing monies to lending institutions which could be secured by Jai • Residential Housing Facilities Board Meeting December 15, 1978 Page 3 existing mortgages of the institutions (this will "free up" alot of necessary plac- ing in the mortgage pool in relation to having to pledge home mortgages vs. govern- ment, state or municipal securities) . Mr. Armstrong stated that their bond counsel and arbitrage counsel have re- viewed these procedures and feel they are valid. Hayden Mcllroy, present in support of UMIC, stated that UMIC was the only firm that had satisfied him that they could make additional construction money available. He stated that for local banks to be able to obtain construction money was a major factor in making the bond issue work. Mike Phillips stated he did not feel a need to separate VA/FHA money from conventional, but that both could be put together in the total package. He recom- mended a two-year issue that would have as much flexibility as possible. Robert Armstrong commented that his firm had been innovators of the so-called "trigger mechanism" which allowed rating services, lenders, etc. to feel more comfortable with issues exceeding 12-month lives in that there is little or no danger of the.bond issue going in default because loans are not being made. He did not give a technical description of what the trigger mechanism entailed, but only stated that it was a "protective measure." After further discussion, the Chairman excused the UMIC representatives and called for George Graham and David Lewis of SALOMON BROTHERS (New York) to pre- sent the next proposal. Mr. Graham and Mr. Lewis outlined the history of Salomon Brothers, noting that their firm had innovated the private "pass-thru" mechanism. Mr. Lewis stated that his firm was interested in a private placement only and intended to sell the total package to one buyer, a major insurance company. He stated his buyer would probably want no more than 10% of the loan pool to be for 90-95% loans, the major- ity to be 80% financing. He stated the reasoning for this was that 90-95% loans had a much higher default rate. The board members felt, however, that since the program was geared to low and moderate income people, a greater percentage of the loans should be 90-95%. They decided to ask Mr. Lewis ' investor to consider a higher percentage of 90-95% loans using a high pool insurance on the program. After a length discussion concerning mix, pool insurance, etc. , the Chairman excused Messrs. Graham and Lewis and called for representatives of Rauscher, Pierce, Refsnes, Inc. to make the next presentation. Mr. Don Grimes, Vice-President of Powell $ Satterfield, a Little Rock in- vestment firm, introduced Mr. John Rauscher, III, of the Dallas based Rauscher office, and Mr. Dave Smith, of the Phoenix based Rauscher office. Messrs. Grimes, Rauscher and Smith outlined the qualifications and capabilities of their firms. Mr. Rauscher stated, that if selected as underwriter, his firm would come in and make a feasibility study, make complete studies and surveys of area banks, lending institutions, economic agencies, etc. and then come up with a properly de- signed package for this area. He said they felt a conservative approach is always best, and that if after making studies they felt the City could best be served with an issue as small as $6 million to start, they would advise the Board of this. Then, he .gtated, if that issue went well, they could always come back with another one. Sometimes, he stated, by just making the first issue available this stimu- ' lates demand for further issues. He said that it would be hard to judge the demand for the amount of VA/FHA or conventional monies at this time, but this could be ascertained from the studies made. He noted they would not "shut the door" on • Residential Housing Facilities Board Meeting December 15, 1978 Page 4 either private or public placement, but would consider both, depending on what they feel the Board wants to accomplish and depending on the needs of the area. Mr. Rauscher and Mr. Smith both agreed they would be willing to absorb costs if the issue did not get to market. The Rauscher representatives stated they felt they could sell bonds with 50% of the loans being 90% financing and 50% being 95% financing. Mr. Smith noted that he agreed that making the majority of the funds available at only 80% financ- ing "defeats the purpose," which is to make housing funds available to people who • normally could not obtain them. He felt the rating services would agree to this type of mix, especially if a high amount of pool insurance could be obtained. He stated that he felt the best way to lower costs to the home buyers would be to put prepayment penalties on people who prepay and recoup servicing fees in that manner rather than by placing extra points on all home buyers "up front" or by charging higher rates of interest on the mortgages themselves. Mr. Smith stated they could not make a recommendation on the length the first issue should span, but after making all their surveys and studies, they could make a good estimation. He stated that he presently felt the recommendation would be in the neighborhood of two years. Lengthy discussions ensued. The Chairman noted that the last firm with a representative present was that of Shearson, Hayden, Stone, Inc. (Kansas City) which was making a joint proposal in conjunction with Kirchner, Moore U Company (Denver) . CMs. Linda Kelly, representing the firms of Shearson and Kirchner, stated that if selected underwriter, they would first read all the proposals given to the Board and incorporate all the good ideas from each in preparing their package. She stated they would make thorough studies as to need, qualifications of lenders, etc. , as well as present "innovative" ideas in preparing the package for market and in selling it at market. She stressed a very important aspect of putting together a bond issue is to make sure it isn't "too large." She said that offering too large an issue was one of the biggest mistakes that could be made. Ms. Kelly suggested that one technique her firm used was the "loans to lenders" approach whereby loans are made to the lending institutions. They (the lending institutions) in turn secure these loans by putting up seasoned loans they already have. Mr. Buttry noted there were several pros and cons to this approach. A pro being that these loans have already been rated, a con being that the lenders were committed even if they never made any loans. Ms. Kelly stated they would be willing to go with either private or public placement, however she felt that private placement was generally done "when it is anticipated that there will be problems marketing the bonds at public sale." She said she didn't foresee any problems in selling these bonds. She also stated she didn' t see much difference in the interest rates if the bonds were placed pub- licly or privately, ahtough she said the discount would be considerably less in a private placement as there would be fewer marketing expenses involved. In response to a question posed by Mr. Martin, she responded that she did not feel an under- writer would be necessary for a private placement. She stated that her firm would be willingrto act as a financial advisor only for this Board should they desire to go private without an underwriter. For this service they would charge a flat fee. The amount of the fee would depend somewhat on the size of the issue, but would mainly depend on the structure of the issue. Residential Housing Facilities-Board Meeting December 15, 1978 Page 5 Ms. Kelly noted that her firm had quoted an underwriter fee in the range of 2.075%. When asked why their fee was lower than most of the others quoted, ` she replied that they felt they could do it for less mainly because of their close,. central location to Fayetteville. She also asked what made some people think their time is worth $80.00 when others think theirs is worth $50.00. In response to Mr. Pennington's question concerning what methods she might propose in order to make interim financing (construction money) available for area banks, Ms. Kelly responded that she would suggest "something close to a private placement." • A general discussion ensued. OTHER BUSINESS: In other business, a discussion was had concerning the advisability of the Board's hiring a financial advisor for the bond issue. After discussion, George Faucette, Jr. moved to not retain a financial advisor. John Dominick seconded the motion. Chairman Martin reviewed with the Board the letter they had each received from Mr.. Boyd London of First Southwest Company which had also offered his company's services as a financial advisor. Dale Christy noted that Mr. London's company was already a financial advisor for the City, and since this Board's ac- tions and recommendations must first be approved by the City Board of Directors, the City's financial advisor could review this Board's proposals and make recom- mendations. He felt that the. Board's hiring its own advisor would simply be adding unnecessarily another 2% fee to the package. John Dominick called for the question, and after a vote having been taken, Mr. Faucette's motion to not retain a financial advisor passed unanimously. A discussion ensued concerning whether the decision as to which underwriter should be hired should be made at this meeting. Dale Christy noted that the Stephens-Raney proposal was still to be taken upand that he would like more time Y P P p to consider the proposals. The Chairman announced that a continuation of this meeting would be held on Monday, December 18, 1978, at 2:00 o'clock P.M. in the Chamber of Commerce Board Room. The decision as to which underwriter to hire would be among the unfinished business to be taken up at that meeting. The meeting adjourned at 6:30 o'clock P.M. Ron Pennington, Secretary ; T ATTEST: F. H. Martin, Chairman