STAFF REPORT ACTION REQUIRED Issuance of Debentures Date: March 31, 2016 To: From: Wards: Reference Number: Debenture Committee Deputy City Manager & Chief Financial Officer All P:\2016\Internal Services\Cf\Dc16009cf (AFS #22921) SUMMARY This report requests that the necessary Bill be introduced and adopted by the Debenture Committee to give effect to the issuance of a sinking fund debenture in the amount of $200 million that was syndicated and sold in the domestic capital market on March 29, 2016 and will be issued to investors on April 8, 2016. A debenture was issued in the amount of $200 million, having a term of 20.2 years with a maturity date of June 3, 2016 with an all-in cost of 3.578%. This report also provides details of the projects that are being debt-financed from the proceeds of this deal. RECOMMENDATIONS The Deputy City Manager & Chief Financial Officer recommends that: 1. The Debenture Committee approve the provision of the long-term financing of the capital projects listed in Schedule "A" of the borrowing by-law through the issuance of a 20.2 year sinking fund debenture in the amount of $200 million in accordance with the terms and conditions set out in the Purchase Letter entered into by the Mayor and the Deputy City Manager & Chief Financial Officer as further described in this report. 2. Authority be granted for the introduction of the necessary Bills to the Debenture Committee to authorize the issuance of debentures. Staff report for action on the Issuance of Debentures 1
3. The Debenture Committee authorize the appropriate City of Toronto officials to take the necessary actions to give effect thereto. Financial Impact The 2016 debt charges (coupon interest payments) of $4.6 million associated with the $200 million are included in the City s 2016 operating budget in the Non-Program Corporate and Capital Financing account. ISSUES BACKGROUND Chapter 30, Debentures and Other Borrowing of the City of Toronto Municipal Code, authorizes the Mayor (or the Deputy Mayor or the Budget Chair) and the Deputy City Manager & Chief Financial Officer ("DCM & CFO") to enter into agreements in 2016 for the issue and sale of debentures to an aggregate amount not exceeding $900 million to provide long-term financing for capital works. With this debenture issue, the Debenture Committee will have further authority to issue an additional $700 million for the remainder of the year. The terms of any such agreement to issue debentures must be reported by the DCM & CFO to the Debenture Committee for approval. Chapter 30 of the City's Municipal Code also delegates the authority to the Debenture Committee to borrow money or to provide long-term financing of capital works by issuing debentures in accordance with the terms of any such agreement entered into under that Chapter and to enact the requisite borrowing by-laws in accordance with the annual borrowing limit established by Council, the City s Financing of Capital Works Policy and Goals and all applicable legislative requirements. The sinking fund debenture issued in the Canadian domestic market of $200 million is required to finance previously approved capital expenditures. The proceeds of this issue will mainly finance capital projects for the Toronto Fire Department, the Pan Am Games, and Long-Term Care Homes. COMMENTS Acting in accordance with the aforementioned authorities and the unanimous advice of the City s debt issuance syndicate's lead manager RBC Dominion Securities Inc. and coleads CIBC World Markets Inc. and Scotia Capital Inc., negotiations were completed and the syndicate's offer to purchase the debentures, as contained in the Purchase Letter, dated March 29, 2016, was accepted by the City. This issue achieved a very good reception and sold well with wide distribution with the placement of bonds in various accounts across Canada and the United States. Staff report for action on the Issuance of Debentures 2
The $200 million issue with a 20.2 year maturity and a coupon interest rate of 3.50%, maturing on June 2, 2036, was priced to yield 3.529% to investors and 3.578% to the City when the dealer commissions are included. The structure and pricing of this transaction achieved the lowest cost of funds available relative to other potential structures, markets and currencies as permitted by the City of Toronto Act, 2006. Delivery of the debentures and the receipt of proceeds will occur on April 8, 2016. Appendix A provides information showing the projects that were financed through this $200 million issue. The issue will be book-based with no physical certificates as were previous debenture issues. This process continues to generate savings for the City related to the printing, registration and distribution of the securities since the Canadian Depository for Securities Ltd. administers the interest and principal payments to the debenture holders at no cost to the City. CONTACT Joe Farag, Executive Director, Corporate Finance Phone: 416-392-8108; Fax: 416-397-4555; E-mail: jfarag@toronto.ca Martin Willschick, Manager, Capital Markets, Corporate Finance Phone: 416-392-8072; Fax: 416-397-4555; E-mail: mwillsch@toronto.ca SIGNATURE Roberto Rossini Deputy City Manager & Chief Financial Officer ATTACHMENT Appendix A: List of s Debt Financed in 2016 to date Staff report for action on the Issuance of Debentures 3
Appendix A City of Toronto 2016 Debenture Issue Summary as at April 8, 2016 Section Funded (millions $) Percentage of Total Fire Services $ 34.7 17.4% Facilities and Real Estate $ 27.7 13.9% Long-Term Care Homes $ 49.5 24.7% Waterfront Secretariat $ 54.1 27.0% Pan Am Games $ 34.0 17.0% Total to Date $ 200.0 100.0% Fire Services - $34.7 million Radio System Infrastructure Replacement Construction Radio Sites and Towers 27.3 2012 2015 2015 7.3 2011 2015 2015 Facilities and Real Estate - $27.7 million Old City Hall HVAC 7.8 2014 2015 In Progress & Electrical Upgrades North West Path 19.9 2012 2015 In Progress Staff report for action on the Issuance of Debentures 4
Long-Term Care Homes - $49.5 million Kipling Acres Site (Phase 1) Kipling Acres Site 2 (Phase 3) - Construction 24.1 2012 2014 2015 25.4 2014 2015 In Progress Waterfront Secretariat - $54.1 million Waterfront Revitalization Union Station Waterfront Precinct Implementation 26.0 2012 2015 In Progress 28.1 2013 2015 In Progress Pan Am Games - $34.0 million PAAC/CIO 2010-2014 (Pan Am Sports Centre) Etobicoke Olympium Retrofit 2010-2014 25.8 2011 2015 2015 8.2 2011 2015 2015 Staff report for action on the Issuance of Debentures 5