Report to Finance and Economic Development

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Report to
Rapport au:
Finance and Economic Development Committee
Comité des finances et du développement économique
6 December 2016 / 6 décembre 2016
and Council
et au Conseil
14 December 2016 / 14 décembre 2016
Submitted on December 5, 2016
Soumis le 5 décembre 2016
Submitted by
Soumis par:
Isabelle Jasmin, Deputy City Treasurer, Corporate Finance/Trésorièr municipal
adjointe – Finances municipal, Finance Department/Service des finances
Contact Person
Personne ressource:
Mark Martin, Manager, Treasury / Gestionaire Tresorerie
613-580-2424 ext./poste 21307, [email protected]
Ward: CITY WIDE / À L'ÉCHELLE DE LA
VILLE
File Number: ACS2016-CSD-FIN-0015
SUBJECT: BANK LOAN AUTHORIZATION AGREEMENT BY-LAW
OBJET:
RÈGLEMENT DE RATIFICATION DE L’AUTORISATION D’UN
EMPRUNT 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 in the amount of $20,000,000 with a variable interest rate; and to enter into
an interest exchange agreement to effectively provide a fixed rate on interest
satisfactory to the Treasurer, as set out in this report.
RECOMMANDATIONS DU RAPPORT
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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 relativement à un prêt bancaire au
montant de 20 000 000 $, à un taux d’intérêt variable, et un accord portant sur
l’échange de taux d’intérêt dans le but d’effectivement offrir un taux d’intérêt fixe que la
trésorière municipale juge satisfaisant, comme il est indiqué dans le présent rapport.
BACKGROUND
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 debt is undertaken to support the purchase of buses under the financing which was
authorized by Council at the time the capital project was approved. The debt is
proposed to be in the form of a credit facility that has been used successfully for other
projects. The credit facility is made up of two instruments: a variable rate bank loan
which will amortize over 15 years and an interest rate swap that will effectively provide
the City with a fixed rate of interest on the debt arrangement. This arrangement allows
the City to achieve greater certainty of repayment rates over the term and achieve a
lower cost of borrowing than an outright fixed rate loan.
This debt financing does not involve any new debenture authority and is of a form
undertaken on three previous debt arrangements:

Bank loan with CIBC, authorized by City Council on October 6, 2015 in relation to
Millennium Park.

Bank loans with Royal Bank of Canada authorized by City Council on November 9,
2011 and May 25, 2012.
In accordance with Section 12, Schedule “B” of By-Law 2016-369, the Delegation of
Authority By-Law, the Treasurer is authorized to enter into bank loan agreements and
interest rate exchange agreements to fund capital works.
Also, in accordance with Section 11, Schedule “B” of By-Law 2016-369, the Finance
and Economic Development committee has the delegated authority to enact By-Laws to
enter into bank loan agreements and interest rate agreements.
The detailed terms of financing will be set via a competitive process: Treasury Staff
have received offers for a bank loan of $20,000,000 to the City on repayment terms of
15 years in monthly instalments of principal and interest from financial institutions and
will be assessing these offers on a competitive basis. The loan will be based on the
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floating rate of interest and the City will enter into an exchange rate agreement (the
interest rate swap) with the successful bidder which will effectively provide a fixed rate
of interest. Based on offers received to date it is currently estimated the effective rate of
interest would be in the range of 2.20% - 2.25%. The loan portion of the facility will
have a 15 year amortization period with a 10 year stamping fee reset clause.
DISCUSSION
Treasury staff obtained offers from financial institutions to provide a long-term loan in
the amount of $20,000,000 payable monthly with interest on a floating, or variable rate
basis, and to enter into an interest rate swap agreement to provide an effective fixed
rate of interest for the full 15 year 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 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, the bidders have indicated that the all-in
equivalent fixed rate for the proposed bank loan would be in the range of 2.20% 2.25%.This rate compares favourably with the 15 year rate available in the public
markets of approximately 3.06% and the current rate posted on November 30, 2016 by
Infrastructure Ontario of 2.98% for a 15 year amortizing loan.
The details of the loan recommended as described above are in compliance with
Ontario Regulation 276/02, as amended.
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
Section 401 of the Municipal Act, 2001, as amended, authorizes a municipality to incur
debt for municipal purposes by borrowing money or in any other way, and further
authorizes a municipality to issue debentures in relation to debt. The City of Ottawa’s
Delegation of Authority By-law 2016-369, Schedule “B”, Sections 11 and 12 authorize
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the City Treasurer to proceed with debt issue and bank loans respectively. Subsection
11(3) of By-law 2016-369 further authorizes the City Treasurer and City Manager to
place the debenture by-law associated with debt issued during the term of Council
directly on the Agenda of the Finance and Economic Development Committee. The
associated by-law is attached as Document 1.
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 bank loan does not involve any new debenture authority but provides the financing
authorized by Council at the time the capital works were approved.
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 $20,000,000
DISPOSITION
Once the bank loan is closed this report will be provided to Council for information as
required by the terms of the delegated authority given to the Finance and Economic
Development Committee.