fsg dps board proposal -- pcops restructuring
TRANSCRIPT
Financial Advisory Services Proposal Page I-6
Pending Restructuring Plans
DPS is currently evaluating strategies for restructuring the 2008 PCOPs. While the 2008
PCOPs transaction is now working as originally proposed, the global financial crisis has
changed underlying credit market conditions in ways that warrant consideration of
restructuring of the 2008 PCOPs. The specific reasons for consideration of a restructuring at
this time include:
In April 2011, the existing Dexia liquidity agreement expires. Dexia has determined to exit
the U.S. municipal market, and indicated to DPS that they will neither renew nor extend the
existing agreement.
Bank credit facilities to replace Dexia are now scarce and more expensive. Due to the credit
problems of monoline insurance companies, banks are not currently writing liquidity only
agreements. Therefore, DPS has had ongoing discussions with banks to determine interest in
replacing Dexia with bank letters of credit. However, due to the legal requirements of state
law that limit the funds available to fund COP annual debt service, swap payment and bank
reimbursement costs to the maximum amount of “reasonable rent” on the underlying leased
assets, DPS cannot offer a letter of credit bank the normal 3-5 year term-out provision banks
require. By way of reference, there is no acceleration in the bank agreement with Dexia,
which is obligated to hold the PCOPs to maturity in the event that PCOPs are put back to
Dexia and not reoffered to the market.
Accordingly, DPS is considering a combination of fixed rate conversion and bank letters of
credit that will not require accelerated term-out provisions. In the current market, this would
result in an all-in interest cost in the 8.00% range.