Agenda Index City of Vancouver

ADMINISTRATIVE REPORT

TO:

Vancouver City Council

FROM:

General Manager of Corporate Services/Director of Finance

SUBJECT:

Renewal of Fiscal Agency Agreement

 

RECOMMENDATION

POLICY

BACKGROUND

A fiscal agent provides expert advice on a variety of issues related to issuance of debentures, including market conditions; liaison with credit rating agencies; the timing, size and structure of debenture issues; orderly marketing procedures to avoid conflicts with similar competing borrowers; favourable exposure of the name of the borrower to the capital markets; and the underwriting of debenture issues.

RBC DS and its predecessor companies have been the City's fiscal agent since 1974 and have a history of serving the City extremely well. As the City's fiscal agent, RBC DS has assisted the City with the placement of a considerable number of successful debenture issues, including the preparation of related financing documents and various presentations to the rating agencies.

The City is currently rated as a triple `A' credit by Standard and Poor's, Moody's and Dominion Bond Rating Service.

The previous fiscal agency agreement expired on December 31, 1999. Despite the expiry, RBC DS has continued to work under the general terms of the agreement, reflecting the long-term relationship with the City.

DISCUSSION

As a periodic participant in the capital markets, it is impossible for the City of Vancouver to be sensitive and up to date on the borrowing conditions at all times. The City therefore relies on our fiscal agent to provide advice and guidance on an ongoing basis during the year. This service is particularly critical when the City is preparing to launch a debenture issue because significant savings in interest costs are possible if a borrower can position itself to take advantage of favourable market conditions.

The fiscal agency agreement is not a highly formal contract and can be cancelled at any time for any reason by the City. However, it does set out the general terms and conditions and the mutual understanding between the City and RBC DS. In essence, the City agrees that, in return for providing a range of advice on underwriting, trading and economics and research on a continuing basis, RBC DS will receive exclusive responsibility for managing the marketing of City of Vancouver debentures in cases where the City accesses external markets. Typically this responsibility involves managing and leading a syndicate of underwriters involving other members of the financial community. The only compensation received by RBC DS under the agreement is when the City actually issues a debenture, in which case a commission based on generally accepted industry practice and mutual agreement applies. The actual terms and conditions of each issue are determined by negotiation at the time of issue, and the City retains complete discretion not to proceed if any aspect of the issue is unacceptable.

In summary, the agreement documents a process for the marketing and sale of City debentures.

RBC DS and the City have a long term fiscal agency relationship and staff recommend for a number of reasons that the recently expired agreement be extended. First, RBC DS has given and continues to give the City excellent service, utilizing both local and eastern-based staff (RBC DS is the only investment firm to have a public finance specialist - Mr. Larry Blain, Vice-President & Director - located in Vancouver). The strong, long term relationship between the City and its fiscal agent is one of our most important. Second, it is unlikely that a tender for this service would result in lower managing and underwriting commission since the major brokerages work on industry standard commissions. In fact the City can expect more service for the same cost as the City can set a high performance standard for its fiscal agent, that it could not set on a non-relationship basis. This is the main argument in favour of an exclusive fiscal agency relationship for an infrequent borrower like the City. Third,in terms of experience and track record, RBC DS is one the most highly qualified underwriters in Canada and in offshore Canadian dollar markets. Fourth, while the fiscal agency agreement gives RBC DS the exclusive responsibility to market City debentures, the City retains control over the underwriting participations earned by other financial service companies in City issues. Finally, as it is anticipated that the City will be in the market early in the fall, it is impossible to complete a tender process that would meet our 2000 borrowing timetable.

Approval of the agreement proposed in Recommendation A does not give staff the authority to proceed to market a debenture issue. Recommendation B reaffirms the current policy that, prior to the issuance of any debentures, the Director of Finance will seek concurrence of Council or, if Council is unable to meet, with the Mayor, Chair of the City Services and Budgets Committee and the City Manager, prior to proceeding to market.

CONCLUSION

The City's debentures are best sold to investors through and by a fiscal agent having expert knowledge of the domestic and foreign capital markets. RBC DS has established an excellent tract record with the City in that regard and a renewal of their current fiscal agency agreement is recommended on that basis.

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