Loading...
HomeMy WebLinkAbout1978-12-12 - Minutes - • • MINUTES OF A PUBLIC FACILITIES BOARD MEETING A meeting of the Public Facilities Board was held on Tuesday, December 12, 1978, at 10:00 o'clock A.M. in the Board of Directors Room, City Administration Building, Fayetteville, Arkansas. MEMBERS PRESENT: F. H. Martin, Dale Christy, Ron Pennington, John Dominick } and George Faucette, Jr. MEMBERS ABSENT: None. OTHERS PRESENT: Jim McCord, Jim Buttry, David McWethy, Gail Biswell, John Carpenter, Bob Allison, Boyd London, Robert Armstrong, Scott VanLaningham, Rick Briggs, other members of the press and unidentified members of the audience. Chairman F. H. Martin called the meeting to order. Mr. Martin stated that he would like to introduce Mr. Boyd London of the First Southwest Company, Dallas, Texas. Mr. Martin stated that Mr. London's company was presently a financial advisor to the City and Mr. London would like the Board to consider retaining his company as a financial advisor to the Public Facilities Board, Mr. London stated. that he was present at the meeting as a representative' of First Southwest Company. He said that First Southwest Company was "a strong regional underwriter and the largest financial advisor in the State of Texas." He stated that his company would -like to offer its services to the Board solely as a financial advisor and not as an underwriter. He stated that a financial advisor has five basic duties, to-wit: (1) To assist the Board in proper selection of an underwriter; (2) To represent the Board in the structure' of the program they wished to put together; (3) To represent the Board in the preparation of the offering documents necessary for the sale of the bonds; (4) To represent the Boardin all dealings with the underwriters; and (5) To monitor the interest rates and spreads when the issue is finally taken to market. . Ron Pennington questioned Mr. London regarding the amount it would cost the Board to retain his services. Mr. London replied that there was not a defi- nite rate for the entire length of his services, but that the fees "are on a sliding scale and that basically, the small deals cost as much as the large." He stated that the scale was progressive and decreased as the size of the issue decreased. He said a $12 million issue would cost about $2.00 per bond, or approximately $25,000.00. George Faucette, Jr. noted that Mr. London and his company were listed on one of the proposals they had received as a financial advisor of Shearson, Hayden, Stone, Inc. and that he wondered what connections Mr. London had with the Shearson firm. Mr. London replied that he was not aware that he had been listed in their proposal, but that he did recall receiving a telephone call from a lady of that firm asking his opinion as to whether he felt it would be worth her time to make a proposal to the City. He said he recalled telling her that although he was a financial advisor to. the City, he could not give her ad- vice as such, but he personally felt submitting a proposal would be well worth her time. I C:OFILMED DATE"'„I 1979 - Public Facilities Board Meeting December 12, 1978 - 2 - Mr. Faucette noted that several of the proposals listed many of the same_ services to be included in their discount fees as Mr. London's company proposed to render solely as a financial advisor. He questioned whether it was nozuial • that Mr. London's fees were included in those discounts. Mr. London responded, "no, our fee is not included in their discount." He replied further that "what we are trying to sell to you is independent representation . . . the underwriters, of course, have a possessive interest in how the deal is done, how well it works, and this may or may not take into account the Board's feelings as to how it would like it to be done." Mr. Faucette questioned Mr. Jim Buttry (bond counsel for the City from the law firm of Friday, Eldredge. F, Clark, Little Rock, Arkansas) whether it was not normal for the bond counsel of the parties to prepare the offering documents instead of a private financial advisor as Mr. London proposed. Mr. Buttry re- plied affirmatively stating that "the bond counsel does and the underwriter, also." Mr. Faucette commented that he did not feel an independent consultant was needed at this time and questioned Mr. Buttry about his feelings on the matter. Mr. Buttry replied that "a financial advisor is an approach sometimes used in a: negotiated underwriter sale . . . and financial advisors are usually used more in public sales than in the negotiated underwriter type." Mr. Faucette questioned whether the issue in discussion was a negotiated underwriter sale opposed to a public sale and Mr. Buttry responded that it was. Chairman Martin commented that he felt the matter of retaining a private financial advisor was not a matter the Board was ready to decide immediately. .. BY-LAWS: The Chairman stated the first order of business would be consideration of the adoption of the proposed By-Laws which Mr. Buttry had presented to the Board members prior to the meeting. Dale Christy moved to adopt the By-Laws as pre- sented. John Dominick seconded the motion, which passed unanimously. 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 announced that a reading of the minutes of the previous meeting would be waived. ; He asked whether there were any corrections, additions or deletions to be made to said minutes. City Attorney, Jim McCord, stated that two corrections should be made on page 3; (1) He stated that Jim Bell was out of Little Rock, not Fort Smith; and (2) In the fifth paragraph of page three, second line, after the word "rather" the sentence should read as follows: "that for the bonds to be tax exempt they must be for a public purpose." There being no further corrections to be made to the minutes, Dale Christy moved to approve the minutes and George Faucette seconded the motion, which passed unanimously. Public Facilities Board Meeting December 12, 1978 - 3 - REPORT OF SECRETARY: , The Chairman then asked whether the secretary, Ron Pennington, had a re- port to give and he replied that he did not. COMMITTEE REPORTS: The Chairman stated that since no committees had been appointed at the last meeting, there would be no reports from committees to be made. He stated, however, that there would be committees appointed before the conclusion of this meeting. UNFINISHED BUSINESS: The Chairman inquired as to where the Board stood at the present time on obtaining an income survey. Mr. Dominick reported that Phil Taylor of the Bureau of Business Research had been contacted and Mr. Dominick stated that he had asked Mr. Taylor "to try to determine and project the median family income in Fayette- ville above the level that would qualify for public assistance housing . . . and then try to get an estimate of what the so-called modest price house would be." Mr. Dominick stated that, based upon other studies in Arkansas, he felt a modest priced house of approximately 1,400 to 1,450 square feet would cost in' the neighborhood of $43-44,000.00. Mr. Dominick stated further that once a figure for the price of a modest house was reached, a figure regarding incomes necessary to purchase such a house could be arrived at, possibly by use of FHA or FNMA ratios. Chairman Martin questioned whether Mr. Taylor had been able to estimate the amount of time it would take to undertake and complete such a survey. Mr. Dominick replied that Mr. Taylor had not stated anything definite, other than that he was "rather busy now." Dale Christy commented that he had visited with Mr. Taylor recently and Mr. Taylor had conveyed that the Bureau probably already had the data necessary to project the Fayetteville situation due to the fact that they had done some preliminary work and had given assistance to other such studies recently. Mr. Christy stated that he felt, if the request were made, the study could be done fairly promptly at little or no cost to the Board at this stage for a preliminary study. Chairman Martin inquired of Mr. Buttry whether there was a need to have the bonds limited to moderate and low income housing, and he stated that "by need I am referring to a need other than to get along with the community . . . a legal need." Mr. Buttry responded that in order to be safe, he felt the program needed to be related to incomes. He said that the only written Arkansas law they had on this was a present case in Supreme Court that justified revenue bonds issued to finance housing in terms of income, or "in terms of making something available that is making housing available to persons who would probably otherwise not be able to finance that type of housing. The only judicial back-up to that is a decision from the Arkansas Supreme Court where the Court upheld what was done , . . it might have upheld more because what they upheld was that housing which was assisted or that was financed to assist people who probably would not otherwise J have been able to obtain that type of financing." 1 • Public Facilities Board Meeting '``� December 12, 1978 - 4 - Mr. Buttry continued, stating "In all candor, it is entirely possible that somebody might take a case to the Supreme Court and the Court might say that housing itself is a public purpose and the Act under which this Board was created doesn't limit the jurisdiction or functions of this Board to housing just for certain people. It just says 'residential housing facilities. '" John Dominick questioned whether only single-family dwellings would be eligible or whether they should look into the possibility of allowing duplexes, triplexes or quadplexes. He stated that the UMIC proposal mentioned 1-4 family owner-occupied dwellings. Mr. Buttry responded that the 1-4 approach "gets in there, because, as you know, it is typical to structure these so that some portion of the financing for FHA insured mortgages. Under one of the FHA insur- ance programs, single-family residence is defined to include up to a 'four-plex . . . so long as the borrower lives in one of the four as his residence." Mr. Dominick stated that the reason he wanted to raise the question was that, if a person wanted to buy a quadplex and live in a portion of it, he thought the income needed to support that would need to be much greater. He stated that he felt the Board should look into this. Jim McCord noted that the City Ordinance does not limit it to single- family housing. A discussion ensued concerning the need for that type of hous- ing in Fayetteville and whether the Board would want to consider allowing other than single-family residences to be eligible for loans. Mr. Buttry suggested that as far as the "public purpose" is concerned, the Board might take the approach of having the survey ascertain what kind of incomes would be required for safe, decent and sanitary duplex, quadplex, etc. housing, and "depending on what those figures are, maybe coming back to putting a feasible income limit on that type of thing." He stated that, depending on the demand, "this could be considered a public purpose. Charman Martin appointed a committee consisting of Dale Christy and John Dominick to obtain a survey "perhaps in conjunction with both the Regional Plan- ning Commission and the Bureau of Business Research." George Faucette questioned how critical would the source of the survey be for credibility purposes or in terms of getting the necessary bond ratings or tax exempt status. Mr. Buttry responded that it was "pretty important.' Mr. Buttry suggested that an underwriter be selected shortly. He said a critical element in the interest rate would be: (1) size (since the "survey needs to tell you what size bond issue is needed, although the market will always tell you it needs to be less") ; (2) the number of people in low and moderate income levels (economic factors being very material to rating on bonds) . Mr. Buttry added that he felt it would be a good idea toretain an underwriter before "getting too far down the road" and makethe underwriter aware of what is going on "and let him get in contact with the people who will be doing the survey." . , Chairman Martin stated that he felt a big. determining factor of the size of the bond issue would be "what the local financing institutions will submit to." He stated that he felt the local institutions should be contacted and asked to commit to what amount they would take. He questioned Mr. Buttry whether there might be other legal reasons that a survey would be needed. Mr. Buttry stated in reply: "Only from the standpoint of getting some grip on what is low and . moderate income, although there may be no real legal reason, but obviously a marketing reason." Public Facilities Boars seting December 12, 1978 - 5 - The Chairman stated that in the letters to the underwriters asking for proposals, the underwriters .were asked to let the Board know their willing- ness to provide such an income survey. Mr. Buttry commented that it would be fortunate if a survey could be done without and that if an underwriter made a good proposal to take the issue without one, he felt they should seriously listen to him. The Chairman appointed George Faucette to a committee to "contact local financial institutions and get their indications as to what amount(s) they would be able and willing to take without a survey; and also to give them an alterna- tive of an income level of about $25-30-35,000.00. . . . If they can come back with some definite figures, then we can talk to some underwriters and the under- writers could give indications on how far they would go with those certain figures." Mr. Faucette questioned whether he should contact only local lenders or also other lenders out of town. Chairman Martin stated he felt that the obvious local lenders should be contacted first and that all lenders in Washington County, as well as others who had expressed an interest in participating, should also be contacted. Mr. Buttry stated that he and Mr. McCord might put together a questionnaire which could be given the lending institutions which might help in comparing figures. Mr. Faucette stated he would welcome the assistance. OLD BUSINESS: The Chairman stated that proposals had been received from: (1) UMIC, Inc. and First National Bank of Pine Bluff, Arkansas; (2) Rauscher, Pierce, Refsnes, Inc. and Powell $ Satterfield, Inc. ; (3) Stephens, Inc. and T. J. Raney , Sons, Inc. ; (4) Shearson, Hayden, Stone, Inc. $ Kirchner, Moore and Company; (5) Merrill Lynch Pierce Fenner F, Smith, Inc. ; and (6) Salomon Brothers, Inc. (Mr. McCord having information received via telephone from this company as written proposals were still on their way via airplane) . The Chairman stated that he had not looked on the timetable set out in the letter for receiving proposals as a "hard deadline." A discussion was had concerning whether the deadline should be considered firm and concerning whether proposals should be kept secret from other underwriters until all had been sub- mitted. George Faucette Stated the final concensus of the members when he said that he felt the Board had an obligation to hear any competitive proposals to be made, although they should not "wait forever" for further ones , ' Chairman Martin stated he felt it might be proper to allow each underwriter to make an oral presentation. Dale Christy and George Faucette agreed. Mr. Faucette said he would like to hear the oral presentations this week, if possible. Mr. Buttry commented that, when all was said and done, the Board would "have before them six reputable firms, any one of which is capable" of doing a good job. He stated that a comparison could be made on the spreads proposed, but "it would be unfortunate to seize" on the difference in spreadsas a deter- mining factor. He suggested that, in order to make definitive, objective com- parisons between underwriters, oral presentations should probably be heard. He said that none of the proposals had committed to any certain interest rate and that "spread doesn't mean much without interest rate." ..: . ... , - . . Public Facilities Board Meeting 7) December 12, 1978 - 6 - Chairman Martin stated that the proposals were now open for discussion, the first before him being that of MERRILL LYNCH. •He noted that, according to its proposal, Merrill Lynch "does assist in each and every matter involved in issuing, acting for and use of funds." However, he stated, he did not believe they had made any definite indication as to whether they would pay the cost of a survey. Mr. Bob Allison, representing Merrill-Lynch, stating that the question of absorbing the cost of a survey had not been addressed in the proposal, but he offered to contact the people in New York who made oral presentations for the firm to see if they could come before the Board, perhaps this week, and discuss such items. Dale Christy commented that he felt it would be helpful to have quota- tions and general statements of what the various underwriters would do in some type of comparison form by the time the oral presentations were complete. Mr. Buttry offered to prepare a questionnaire-type form which the various underwriters could go by in presenting their oral proposals. A general discussion ensued concerning the amounts, types and number of bond and related issues which the Merrill Lynch company has managed. The next proposal for consideration was that of UMIC, INC. Mr. Robert Armstrong, representing the firm, stated that his company would assume all costs of a survey if the bond issue did not "come to market." T) . Dale Christy commented that he hoped the underwriters would express their specific need for a housing or income survey during their oral presenta- tions. Mr. Buttry responded that he would include such an item on the questionnaire. Mr. Buttry inquired of Mr. Armstrong whether the reference in their proposal to certain issues which the company had "syndicated" referred to multi- lender issues or federally assisted issues. Mr. Armstrong responded that his company was "the managing underwriter of 79 issues just on housing alone . . . approximately 10,000 units of housing." The next proposal for consideration was that of RAUSCHER, PIERCE, REFSNES, INC. Dale Christy commented that there was nothing in the Rauscher proposal regarding the Powell a Satterfield firm other than the fact that they were an Arkansas based firm. He said he would like to know what it had to do with the Rauscher proposal. George Faucette stated he would like the persons submitting proposals to comment in their oral presentations upon the possibility that a fee for a private placement might be less than the fee for a public sale. Mr. Buttry noted that the Rauscher firm "talks up the private placement approach," and that he felt "that would be an excellent way to do it." He also noted that they stated in their proposal that they had been "involved" in a number of single-family mortgage financing" issues and that he would like them to elaborate on the number of bond issues they had done in Arkansas. He stated that their "figures on the spread are self-explanatory and they did make a clear statement on the cost." - George Faucette said he had another question about the survey, and though it might seem to be minor, he did not think it would be minor if the bonds never ..1) came to sale and they were "stuck with the bill" for the survey. He said he didn't see anything about the survey question in their proposal. , . Public Facilities Boar Seting December 12, 1978 - 7 - Mr. Buttry responded that' thi's firm had recently indicated in another con- text that they could market bonds if they themselves did the survey. He said he had never heard that type of approach before and was uncertain whether that was really the way to do it. The next proposal for consideration was that of SHEARSON, HAYDEN, STONE, INC. Chairman Martin stated that their proposal was "pretty straightforward about the questions asked of them in the letter." George Faucette stated that this firm stated they would "not pay for the bond rating." He questioned whether the other underwriters had indicated that they would pay for the rating. Mr. Buttry said he was also somewhat confused. He said the question posed was "will you pay for it if bonds are not issued?" He said that different kinds of ratings could be had and they might get one which would make them want to reevaluate whether they would even want "to:.do 'it or not," He said the question should have been, "if bonds are not issued, will you absorb the cost?" He said the Shearson answer was, "we will not pay for it because it is considered an 'issuance expense. "' Mr. Buttry said he was unsure what they meant in their statement of what they would pay for, also. Mr. Faucette questioned whether it would be "good logic" to want the bonds to be sold locally, a possibility that Shearson noted. Chairman Martin stated he would like the underwriters to address a question such as where they would sell the bonds, although he was not certain the Board would want the bonds to be sold locally. ) The next proposal for consideration was that of STEPHENS, INC. and T. J. - RANEY , SONS, INC. . Mr. Faucette stated he did not understand, from the way the proposal was written, whether this proposal addressed the question of whether they would or would not pay for the survey and related costs if the bonds do not issue. Mr. Buttry responded that he thought they did. Mr. Christy stated he felt this should be one of the specific questions asked of all underwriters during oral presentations. Mr. Faucette also stated he did not understand a quotation made in the proposal on the page entitled "Economic Factors To Consider In Evaluating Under- writers Fees Versus Debt Service Savings." He stated that in the last paragraph of that page, it read "However, if Underwriter B can obtain a price .10 basis points higher '. . ." He said that he felt the word higher should have been lower in order to make the example work. Robert Armstrong explained that the language. was "peculiar to the trade" in that stating a "higher bid" meant a "lower interest rate." Mr. Faucette re- sponded that, in that case, he did not understand how the Board could judge what underwriter could get the highest bid and the lowest. interest rate. He said that some underwriters had noted that, although they had higher discount fees, the Board should look at the amounts the bonds could be sold for. Mr. Buttry responded that the Board could pick the underwriter with the lowest spread and make a mistake. He said that the only way to try to make the decision would be to objectively relate to the personnel of the companies involved, the records of the personnel and the company with regard to similar issues, etc. He said he thought the Board would have a good idea as to who would do the best job by the time they finished talking with all of them. He said he did not mean to infer that the spread was insignificant, but that when they got to the point of marketing the bonds, it could be difficult to reduce the spread s, • Public' Facilities Board Meeting December 12, 1978 - 8 - of the underwriter if they felt it was "making too much." He said that it should be "set up so that if everything goes right, you won't be faced with this." Mr. Dominick stated that they should not look at low spread alone since they might obtain a low spread and not get any service. Mr. Buttry agreed. Chairman Martin asked Mr. Buttry for some guidelines to follow in order to obtain a tax exempt status for the bonds from the IRS as well as requirements of rating service agencies. Mr. Buttry responded that he felt the Board was already "pretty close on having some of the things documented." He said he would point out provisions Mr. Martin was referring to. One thing, he stated, they should pursue with the underwriters the possibility of private placement in that from the standpoint of responsible handling they wouldn't want to deliberately deviate from standards of rating agencies. On the other hand, he said, the re- quirements wouldn't be that different between public and private placement. He called this a "stalking horse" as far as rating was concerned. He said that the Jefferson County records gave a good idea of the present state of acceptability of rating agencies and that Moody's hasn't developed a program for rating. He said that Standard Poor's changes theirs as they go along, and he was not being critical of them for that. He said that if they didn't change, they would never learn anything and that the rating agencies were learning along with everyone else. Mr. Faucette stated that Jefferson County had sold out to VA and FHA and had not sold any conventional. He asked whether he should talk to the lenders about how much FHA and VA they would take. The Chairman stated that he thought so. ' Mr. Buttry responded that he would add this to his questionnaire for the lenders. Jl Mr. McCord offered information he had obtained about the SALOMON BROTHERS proposal. He said that they had read him their cover letter and were proposing a private placement; that they had talked to an institution that had "indicated a willingness to make the purchase so long as the issue equals or exceeds $8 million dollars;" that they had indicated that the proposed purchaser would like to meet with the Board and area lenders to negotiate terms of the sale; and that there would not be any commitment to Salomon Brothers in the event the purchaser and the City could not come to terms. He stated that they had indicated a dis- count fee between 1.5% and 1.9%. A discussion was had concerning whether a time limit should be put on the issue in order to determine which underwriter could get the issue to market faster. A discussion also was had concerning the desirability of hearing oral presentations within the coming week, and the Chairman announced that oral pres- entations would be heard on Friday, December -15, 1978, at 1:00 o'clock p.m. in the City Board of Directors Room. The meeting adjourned at 12:00 o'clock P.M. - Ron Pennington, Secretary l ATTEST; _J F. H. Martin, Chairman