SUMMARY:
CPS Energy requests City Council approval of the following:
A. An Ordinance authorizing a) an amendment and extension of the existing Revolving Credit Agreement providing liquidity for the City's $150,000,000 Electric and Gas Systems Commercial Paper Notes, Series A (the "Series A Notes"); and b) distribution of an Updated Offering Memorandum related to the CPS Energy Commercial Paper Notes; and
B. A Resolution authorizing the distribution of an updated Official Statement for an existing CPS Energy variable-rate debt, which is solely an updated informational filing.
The Ordinance includes a delegation of authority by the San Antonio City Council to CPS Energy's Designated Financial Officers, defined in the Ordinance to include the President and Chief Executive Officer ("CEO") and the Executive Vice President, Chief Financial Officer, and Treasurer of CPS Energy ("CFO"), to be exercised by either of such parties, to execute an amended Revolving Credit Agreement relating to the Series A Notes, and to undertake necessary matters relating to the foregoing.
BACKGROUND INFORMATION:
Commercial Paper ("CP") Liquidity: The Commercial Paper (or "CP") program has been amended numerous times since its inception in 1983 and now authorizes the issuance of three series of Commercial Paper Notes (the "Notes") in an aggregate principal amount not to exceed $600,000,000. CPS Energy currently has three Revolving Credit Agreements (collectively, the "Agreements") (one for each Series of Notes) that authorize a commitment amount of $600,000,000 in aggregate principal amount of Notes outstanding. CPS Energy may not have more principal amount of Notes outstanding than the combined commitment amount of the liquidity facilities. The liquidity facility provides the source of funds in the event that the CP dealers are not able to remarket the Notes in the financial markets.
CPS Energy's current CP liquidity is provided by J.P. Morgan Chase Bank National Association ("JPMorgan"), for the Series A Notes ($150,000,000), State Street Bank and Trust Company and Wells Fargo Bank, National Association for the Series B Notes ($225,000,000), and The Bank of Tokyo-Mitsubishi UFJ, acting through its New York branch, for the Series C Notes ($225,000,000) to cover the existing $600,000,000 capacity. The Series A Notes Revolving Credit Agreement is set to expire on December 31, 2014, the Series B Notes Revolving Credit Agreement on June 24, 2016, and the Series C Notes Revolving Credit Agreement on June 23, 2017.
CPS Energy has negotiated with JPMorgan to extend the expiration date for the Revolving Credit Agreement relating to the Series A Notes, while at the same time reducing the annual cost of credit provided through such agreement. CPS estimates that it will save approximately $273,750 on an annual basis by extending this agreement. The Ordinance would allow for the execution of an amendment to the Revolving Credit Agreement for the Series A Notes that:
1. Extends the term of the Revolving Credit Agreement of the Series A Notes to February 7, 2017; and,
2. Reduces the current annual fees of the Series A Notes Revolving Credit Agreement by renegotiated amounts.
Variable Rate Debt Updated Informational Filing:
CPS Energy's debt portfolio includes both fixed and variable-rate debt. Offering documents for each are prepared at the time debt is first marketed and sold. The variable-rate debt portfolio includes debt that is remarketed periodically. The offering documents therefore describe and outline the terms of the securities to be offered and update various information concerning CPS Energy, the City, and their recent financial performance. Investors rely upon such information filings when making investment decisions relative to the subject securities.
CPS Energy, in consultation with its co-financial advisors and bond counsel, has agreed to take a more proactive approach to update the disclosure information contained within each of the variable-rate debt offering documents. While CPS Energy is not legally required to update these documents annually, this initiative provides bondholders, prospective investors, and other interested parties with current disclosure information relating to these debt obligations. This practice is well received in the marketplace and CPS Energy believes that these updated disclosure documents assist in ensuring that it receives the lowest possible interest rates on its variable rate debt portfolio in any given financial market.
The Resolution will authorize the distribution of the Updated Official Statement for the City of San Antonio, Texas Electric and Gas Systems Junior Lien Revenue Bonds, Series 2003 (the "Series 2003 Bonds").
TRANSACTION SCHEDULE:
CP Liquidity
Date Transaction
2/7/2014* Amendments to the Series A Notes Revolving Credit Agreement
Variable Rate Debt Updated Informational Filing
Date Transaction
1/31/2014* Distribution of the Updated Official Statement pertaining to the Series 2003 Bonds
* The date may change, as needed to effectuate the actual completion of this transaction.
ISSUE:
The lowering of the liquidity facility annual fees is consistent with CPS Energy's plan to lower debt service cost on outstanding debt and capitalize on present market conditions.
ALTERNATIVES:
City Council could elect not to approve the Ordinance. If Council elected not to approve the ordinance, CPS Energy will forgo the current opportunity to reduce its debt service cost.
FISCAL IMPACT:
These proposed transactions will not have a fiscal impact to the City.
RECOMMENDATION:
On January 27, 2014, the CPS Energy Board of Trustees, by resolution, authorized CPS Energy to proceed with these transactions and request their adoption by the City Council. City staff recommends approval of the proposed Ordinance and Resolution.
SUPPLEMENTARY COMMENTS:
The disclosure requirements of the City's Ethics Ordinance are not applicable.