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HomeMy WebLinkAbout5241Contract Number 5241 Vendor• D.A. DAVIDSON & CO Sub�ect. Underwriting Engagement Letter Department: Finance File Class LEG 12-1 Begin Date 3/4/2013 End Date Review Date. Vault Date 2015 Comments D.A. Davidson & Co. member SIPC March 4, 2013 Mr Becky Hasart Director of Financial Services City of Bremerton 345 6th Street, Suite 600 Bremerton, WA 98337 Re Underwriting Engagement Letter City of Bremerton, Washington Limited Tax General Obligation Refunding Bonds, 2013 (Tax-Exempt) Limited Tax General Obligation Refundmg Bonds, 2013 (Taxable) Dear Becky On behalf of D A Davidson & Co ("we" or "Davidson"), we wish to thank you for the opportunity to serve as underwriter for the City of Bremerton on �ts proposed offering and issuance of Limited Tax General Obligation Refunding Bonds, 2013 (Tax-Exempt and Limited Tax General Obligation Refunding Bonds, 2013 (Taxable) (together, the "Securities") This letter will confirm the terms of our engagement, however, it is anticipated that this letter will be replaced and superseded by a bond purchase agreement to be entered into by the parties (the "Purchase Agreement") if and when the Securit�es are priced following successful completion of the offenng process 1 Services to be Provided bv Davidson The Issuer hereby engages Davidson to serve as managing underwnter of the proposed offering and issuance of the Securities, and in such capaaty Davidson agrees to provide the following services • Review and evaluate the proposed terms of the offering and the Securities • Develop a marketing plan for the offering, including identification of potential mvestors • Draft the official statement and other offenng documents • Contact potential investors, provide them with offering-related information, respond to their inquiries and, if requested, coordmate their due diligence sessions • Consult with Bond Counsel and other service providers about the offenng and the terms of the Securities • Inform the Issuer of the marketing and offering process • Evaluate the benefits of considering a bond rating Fxed Income Capital Markets Columbia Center • 701 5th Avenue Suite 3100 • Seattle WA 98104 •(206) 389-8000 • 1-888-389-8001 • FAX (206) 389-4040 www.dav�dsoncompanies com/ficm/ • Negotiate the priang, including the interest rate, and other terms of the Secur�ties • Obtain CUSIP number(s) for the Securities and arrange for their DTC book-entry eligib�lity • Plan and arrange for the closing and settlement of the issuance and the del�very of the Securities • Such other usual and customary underwriting services as may be requested by the Issuer Davidson may provide inadental financial advisory services, mcluding advice as to structure, timing, terms and other matters concerning the issuance of the Securities Davidson will be providing such advisory services m its capaaty as underwriter, not as a finanaal advisor to the issuer As underwnter, Davidson will not be required to purchase the Securities except pursuant to the terms of the Purchase Agreement, which will not be signed until successful completion of the pre-sale offering period This letter does not obligate Davidson to purchase any of the Securities 2 No Advisorv or Fiduciarv Role The Issuer acknowledges and agrees that (i) the primary role of Davidson, as an underwriter, is to purchase securities, for resale to investors, in an arm's-length commercial transaction between the Issuer and Davidson and that Davidson has financial and other interests that may differ from those of the issuer, (ii) Davidson is not actmg as a municipal advisor, financial advisor, or fiduaary to the Issuer and has not assumed any advisory or fiduciary responsibility to the Issuer with respect to the transact�on contemplated hereby and the discussions, undertakings and procedures leading thereto (irrespective of whether Davidson has provided other services or �s currently providing other services to the Issuer on other matters), (in) the only obligations Davidson has to the Issuer with respect to the transaction contemplated hereby expressly are set forth in this agreement, and (iv) the Issue has consulted its own finanaal and/or municipal, legal, accounting, tax and other advisors, as appl�cable, to the extent it deems appropriate If the Issuer would like a municipal advisor m this transaction that has legal fiduciary duties to the Issuer it is free to engage a muniupal advisor to serve m that capacity In addition, the Issuer acknowledges receipt of certain regulatory disclosures as required by the Municipal Securities Rulemakmg Board that are attached to this agreement as Exhibit A Issuer further acknowledges that Davidson may be required to supplement or make additional disclosures as may be necessary as the specific terms of the transaction progress 3 Fees and Exaenses Davidson's proposed underwriting fee/spread will be 66% for the prinapal amount of the Securities issued The underwriting fee/spread will represent the difference between the price that Davidson pays for the Securities and the public offering price stated on the cover of the fmal official statement The Issuer shall be responsible for paying all other costs of issuance, including without limitation, bond counsel, rating agency, and all other expenses incident to the performance of the Issuer's obligations under the proposed offering Davidson will not be retaming Underwriter's Counsel for the Securities 4 Term and Termination The term of this engagement shall extend from the date of this letter to the closing of the offermg of the Securities Notwithstanding the forgomg, either party may termmate Davidson's engagement at any time without liability of penalty If Davidson's engagement is terminated by the Issuer, the Issuer agrees to reimburse Davidson for its out-of-pocket expenses incurred until the date of termmation � 5 Miscellaneous This letter shall be governed and construed in accordance w�th the laws of the State of Washington This Agreement may not be amended or modified except by means of a written instrument executed by both parties hereto This Agreement may not be assigned by either party without the pr�or written consent of the other party If there is any aspect of this Agreement that you believe requires further clanfication, please do not hesitate to contact us If the foregoing is consistent with your understanding of our engagement, please sign and return the enclosed copy of this letter Again, we thank you for the opportunity to assist you with your proposed financmg and the confidence you have placed in us Very truly yours, D A DAVIDSON & CO �'"""'"'"'� By /� �� Title Senior Vice President This Letter and Agreement is hereby accepted for and on behalf of the City of Bremerton on this � day of March, 2013 By Title D�recto of Finanaal Services 3 EXHIBIT A D A Davidson & Co (heremafter referred to as "Davidson" or "underwriter") intends/ proposes to serve as an underwriter, and not as a financial advisor or municipal advisor, in connect�on with the issuance of the Bonds As part of our services as sole underwnter, Davidson may provide advice concerning the structure, timmg, terms, and other similar matters concerrnng the issuance of the Bonds D�sclosures Concermn� the Underwriters Role• (i) MSRB Rule G 17 requires an underwnter to dea) fairly at all times with both municipal issuers and investors (ii) The underwnters' primary role is to purchase the Bonds with a view to distribution in an arm's-length transaction with the Issuer The underwnters' financial and other interests may differ from those of the Issuer (iii) Unlike a municipal advisor, the underwriters do not have a fiduuary duty to the Issuer under the federal securities laws and are, therefore, not required by federal law to act in the best interests of the issuer without regard to their own finanaal or other interests (iv) Underwriters have a duty to purchase the Bonds from the Issuer at a fair and reasonable price, but must balance that duty with their duty to sell the Bonds to investors at prices that are fair and reasonable (v) The underwriter will draft and review the offival statement for the Bonds in accordance with, and as part of, their respective responsibilities to investors under the federal secunties laws, as applied to the facts and arcumstances of this transaction Disclosures Concermn� the Underwriters Compensation As underwriter, Davidson will be compensated by a fee and/or an underwriting discount that will be set forth in the bond purchase agreement to be negotiated and entered mto in connection w�th the issuance of the Bonds Payment or receipt of the underwriting fee or discount will be contmgent on the closing of the transaction and the amount of the fee or discount may be based, in whole or in part, on a percentage of the prmupal amount of the Bonds Wh�le th�s form of compensation is customary in the municipal securities market, it presents a conflict of mterest since the underwriter may have an incentive to recommend to the Issuer a transaction that is unnecessary or to recommend that the size of the transaction be larger than is necessary Additional Conflicts Disclosure• Davidson has not identified any additional potential or actual material conflicts that require disclosure Risk Disclosures Pursuant to MSRB Rule G-17 - F�xed Rate Bonds The followmg is a general description of the finanual characteristics and security structures of fixed rate muniapal bonds ("Fixed Rate Bonds"), as well as a general description of certain fmancial risks that you should consider before deciding whether to issue Fixed Rate Bonds Financial Characteristics 4 Matuntv and Interest Fixed Rate Bonds are mterest-bearing debt securities issued by state and local governments, political subdivisions and agenues and authonties Matur�ty dates for Fixed Rate Bonds are fixed at the time of issuance and may include serial maturities (specified prinapal amounts are payable on the same date in each year until fmal maturity) or one or more term maturities (specified principal amounts are payable on each term maturity date) or a combination of serial and term matunties The final maturity date typically will �ange between 10 and 30 years from the date of issuance Interest on the Fixed Rate Bonds typically is paid semiannually at a stated fixed rate or rates for each maturity date Redempt►on Fixed Rate Bonds may be sub�ect to optional redemption, which allows you, at your option, to redeem some or all of the bonds on a date prior to scheduled maturity, such as in connection with the issuance of refunding bonds to take advantage of lower interest rates Fixed Rate Bonds will be sub�ect to optional redemption only after the passage of a specified period of time, often approximately ten years from the date of issuance, and upon payment of the redemption price set forth m the bonds, which may include a redemption premium You will be required to send out a notice of optional redemption to the holders of the bonds, usually not less than 30 days pnor to the redemption date Fixed Rate Bonds with term maturity dates also may be sub�ect to mandatory smking fund redemption, which requires you to redeem specified prmcipal amounts of the bonds annually in advance of the term maturity date The mandatory sinking fund redemption pr�ce is 100% of the principal amount of the bonds to be redeemed Secur� Payment of prmcipal of and interest on a muniapal security, including Fixed Rate Bonds, may be backed by various types of pledges and forms of secunty, some of which are described below Limited Tax General Obl►qat�on Refundmp eonds The City has irrevocably covenanted and agreed that for so long as any of the Bonds are outstanding, it will include in its budget and levy taxes annually, in an amount permitted to cities without a vote of the electors of the City, on all the taxable property in the City, in amounts suffiaent, together with all other money legally available and to be used therefor, to pay the principal of and interest on the Bonds as the same shall become due The full faith, credit and resources of the City are irrevocably pledged for the annual levy and collection of such taxes and the prompt payment of such prinapal and interest Additionally, the City may consider adding the pledge of the parking system or golf system net revenues to the respective senes of bonds The Bonds are not obligations of the State, the County or any other municipal corporation other than the Gry The description above regarding "Secunty" is only a bnef summary of certain possible security provisions for the bonds and is not intended as legal advice You should consult with your bond counsel for further information regardmg the secunty for the bonds Finanaal Risk Considerations Certain r�sks may arise in connection with your issuance of Fixed Rate Bonds, including some or all of the following 5 Issuer Defauli Risk You may be in default if the funds pledged to secure your bonds are not sufficient to pay debt service on the bonds when due The consequences of a default may be serious for you and, depending on applicable state law and the terms of the authorizing documents, the holders of the bonds, the trustee and any credit support provider may be able to exerase a range of avadable remedies against you For exampie, �f the bonds are secured by a general obligation pledge, you may be ordered by a court to raise taxes Other budgetary ad�ustments also may be necessary to enable you to provide suffiuent funds to pay debt service on the bonds A default may negatively impact your credit ratings and may effectively limit your ability to publicly offer bonds or other securities at market mterest rate levels Further, if you are unable to provide sufficient funds to remedy the default, sub�ect to applicable state law and the terms of the authorizing documents, you may fmd it necessary to consider available alternatives under state law, mcluding (for some issuers) state-mandated receivership or bankruptcy A default also may occur if you are unabie to comply with covenants or other provisions agreed to in connect�on with the issuance of the bonds This descnption is only a brief summary of issues relating to defaults and is not intended as legal advice You should consult with your bond counsel for further information regarding defaults and remedies Redemation R�sk Your ability to redeem the bonds prior to maturity may be limited, depending on the terms of any optional redemption provisions In the event that interest rates decline, you may be unable to take advantage of the lower mterest rates to reduce debt service Refinanun4 Risk If your finanang plan contemplates refmancing some or all of the bonds at maturity (for example, if you have term matunties or if you choose a shorter final maturity than might otherwise be permitted under the applicable federal tax rules), market cond�tions or changes in law may limit or prevent you from refinancing those bonds when reqwred Further, limitations in the federal tax rules on advance refunding of bonds (an advance refunding of bonds occurs when tax-exempt bonds are refunded more than 90 days pnor to the date on which those bonds may be retired) may restnct your ability to refund the bonds to take advantage of lower interest rates Remvestment Risk You may have proceeds of the bonds to invest prior to the time that you are able to spend those proceeds for the authorized purpose Depending on market conditions, you may not be able to invest those proceeds at or near the rate of interest that you are paying on the bonds, which is referred to as "negative arbitrage" Tax Compliance R►sk The issuance of tax-exempt bonds is sub�ect to a number of requirements under the United States Internal Revenue Code, as enforced by the Internal Revenue Service (IRS) You must take certain steps and make certain representations prior to the issuance of tax-exempt bonds You also must covenant to take certain add�tional actions after issuance of the tax-exempt bonds A breach of your representations or your failure to comply with certain tax-related covenants may cause the interest on the bonds to become taxable retroactively to the date of issuance of the bonds, which may result in an mcrease in the interest rate that you pay on the bonds or the mandatory redemption of the bonds The IRS also may aud�t you or your bonds, in some cases on a random basis and in other cases targeted to specific types of bond issues or tax concerns If the bonds are declared taxable, or if you are sub�ect to audit, the market pnce of your bonds may be adversely affected Further, your ability to issue other tax- exempt bonds also may be limited This description of tax compliance risks is not intended as legal advice and you should consult with your bond counsel regarding tax implications of issuing the bonds If you or any other Issuer officials have any questions or concerns about these disclosures, please make those questions or concerns known immediately to the undersigned In addit�on, you should consult with the Issuer's own fmanaal and/or municipal, legal, accounting, tax and other advisors, as applicable, to the extent you deem appropriate