3. DEBENTURE ISSUE

ÉMISSION D'OBLIGATIONS NON GARANTIES

Committee Recommendation

That Council receive this report for information on the results of the City’s debenture issue.

Recommandation du comité

Que le Conseil prenne connaissance du présent rapport qui porte sur les résultats de l’émission d’obligations non garanties de la Ville.

Documentation

1. City Treasurer's report dated 19 February 2008 (ACS2008-CMR-FIN-0006).

Report to/Rapport au :

Corporate Services and Economic Development Committee

Comité des services organisationnels et du développement économique

and Council / et au Conseil

19 February 2008 / le 19 février 2008

Submitted by/Soumis par : Marian Simulik, City Treasurer / Trésorière municipal

Contact Person/Personne ressource : Gerry Mahoney, Manager Treasury

Financial Services/Services financiers

(613) 580-2424 x 21310, gerry.mahoney@ottawa.ca

City Wide / À l'échelle de la ville

Ref N°: ACS2008-CMR-FIN-0006

SUBJECT:	DEBENTURE ISSUE
OBJET:	ÉMISSION D'OBLIGATIONS NON GARANTIES

REPORT RECOMMENDATION

That Corporate Services and Economic Development Committee and Council receive this report for information on the results of the City’s debenture issue.

RECOMMANDATION DU RAPPORT

Que le Comité des services organisationnels et du développement économique et le Conseil prennent connaissance du présent rapport qui porte sur les résultats de l’émission d’obligations non garanties de la Ville.

BACKGROUND

By-law 2006-112 delegates to the Treasurer the authority to proceed with debenture issues provided that:

Ø the current year's debt servicing budget is not exceeded;

Ø the project debt authority has been previously approved by Council;

Ø and an information report is brought forward to Council on the conclusion of a debt issue.

On April 11, 2007 Council adopted a Debt and Financing Policy, which provides the administrative framework and guidelines for issuing short and long-term debt.

DISCUSSION

On January 17, 2008 the City issued debentures in the amount of $100,000,000 in two tranches:

(a) $75,000,000 in twenty year fully amortizing debentures with interest at an all-in effective yield of 4.942% per annum. These mature in semi-annual instalments commencing 28 July 2008 and ending 28 January 2028 as authorized by By-law 2008-22 and

(b) $25,000,000 in eighteen year fully amortizing debentures at an all-in effective yield of 4.914%. These mature in semi-annual instalments commencing on 28 July 2008 and ending 28 January 2026 as authorized by By-law 2008-23.

The combined effective yield for both tranches is 4.935%.

Appendix A provides the details of the specific capital projects financed from the proceeds of this issue. To comply with section 408 (3) of the Municipal Act, the term of the debenture cannot exceed the estimated useful life of the capital works for which the debenture is issued. Traditionally the City 's purchases of buses has been financed on terms no greater than eighteen years. Therefore a separate tranche of eighteen year debentures was issued to finance bus purchases.

This issue fulfills the planned debenture issue contained in the 2007 Capital Budget and complies with the Debt and Financing Policy.

The capital markets presented unusually difficult times for debt issuers during 2007. During the first half of the year the Canadian economy benefitted from strong global demand for commodities which resulted in strong employment growth and a strong housing market which seemed to push capacity constraints and resulted in inflation remaining above Bank of Canada's targets. As a result the Bank raised rates on July 10, 2007 increasing the overnight target by .25% to 4.50%. During the first half of the year, 10 year Government of Canada bond yields increased 62 basis points to 4.66%. The Canadian dollar was strong in 2007 appreciating to parity with the US dollar. According to Scotia Capital "the currency strength was for the most part a reflection of strong Canadian fundamentals: stronger growth than in the US, higher commodity prices, and narrowing interest-rate differentials between Canada and the US."

However by the middle of August concern over US sub prime mortgage debt spread to the Canadian market with trading in the non-bank sponsored asset backed commercial paper (ABCP) market coming to a halt. The impact on Canadian financial markets was signifcant. Generally, investors became cautious and directed investment funds to Government of Canada bonds away from other classes of investments not only corporate debt, but securities of federal crown corporations, the provinces and municipalities were impacted as well. The Bank of Canada as well as the US Federal Reserve Board responded with various measures to provide liquidity to the system to help restore investor confidence. In December the Bank of Canada lowered rates by .25% and has further reduced rates by .25% on January 22, 2008.

As a result of these events not only did the cost to borrow funds for borrowers (other than the Government of Canada itself) increase but access to financial markets became intermittent and uncertain. Although discussions with the City's underwriting syndicate during this time identified opportunities to launch a debenture issue, market access was limited and uncertain. In addition Government of Canada bond yields were continuing to decline.

The all-in cost to the City for this financing for the twenty year debenture was quoted at 5.35% in July and 5.262% in September. Although market conditions have improved since the summer of 2007, uncertainty remains and the impact of the sub-prime mortgage events in the US is still expected to continue well into 2008 as many low rate mortgages in the US come up for renewal which may result in increasing defaults and further write-offs.

An attractive opportunity developed in mid January to complete the City's 2007 financing program and the debentures were issued at an all-in yield of 4.935% which represents a significant improvement of .41% over the estimated costs quoted last summer and compares favourably with the City's last public debenture issue undertaken in 2006 at an all-in yield of 5.074%.

In recent years the City of Ottawa has been issuing debentures with 20-year terms to take advantage of near historically low interest rates as well as to issue somewhat more debt while keeping annual debt charges within the tax supported debt service budget. The 2008 issue was fully subscribed in the market although a number of previous City of Ottawa investors were looking for higher returns and did not participate in the issue.

CONSULTATION

The public consultation process is not applicable.     

FINANCIAL IMPLICATIONS

The debenture issue does not involve any new debenture authority but completes the financing authorized by Council at the time the various capital works were approved. The 2007 Budget included new debenture issues in the amount of $100 million. This issue can be managed in the existing base Capital Formation Envelope which is part of the long-term debt management strategy.

SUPPORTING DOCUMENTATION

Details of the projects financed from the proceeds of the 2008 debenture issue are attached in Appendix A.

DISPOSITION

Following consideration by Corporate Services and Economic Development Committee, this report will be forwarded to Council for its consideration.

1	2	3	4	5	6
					Term of
	Authorizing	Debentures	Debentures	Debentures	Debentures
	By-Law	Authorized by	Previously issued	Issued	Hereunder
Purpose	Number	Council	Amount/B/L No.	Hereunder	in years
		$	$	$
Protection Services - Police
903033 Central Cellblock Upgrade	2005-33	2,200,000
Capital costs associated with the Central Cellblock Upgrade & Expansion.	2006-296	170,000
	2007-310	300,000	2006-297
		2,670,000	320,000	2,125,000	20
			2006-297
903130 Facility Work Plan 2005	2005-33	1,200,000	1,000,000	90,000	20
Capital costs associated with the facility work plan designed to ensure owned
facilities at 474 Elgin Street, 245 Greenbank Road, 2799 Swansea Cres., 3343 St. Joseph
Boulevard, and 4561 Bank Street are properly maintained.
Protection Services - Fire
903703 Vars Fire Station Reconstruction.	2005-562	2,200,000
	2007-102	180,000
		2,380,000		2,380,000	20
903153 Fitzroy Fire Station Retrofit	2005-33	200,000
Construction of two additional fire vehicle bays.	2005-432	500,000
	2007-310	45,000
		745,000		745,000	20
Transportation Services - Roadways
900057 Bank Street (Rideau River to Rideau Canal)	2001-173	415,000
Total reconstruction is required as the roadway has effectively reached the end of its life cycle	2002-123	1,450,000	2003-103
and normal maintenance activities are no longer economically viable. This project includes	2004-228	850,000	1,450,000
underground utilities, curbs, sidewalks and related facilities.	2005-432	1,435,000	2005-321
	2006-296	(369,000)	415,000
		3,781,000	1,865,000	1,916,000	20
900058 Laurier Avenue (Nicholas St. to Charlotte St. 912-30718)			38-1996
Total reconstruction of roadways which have effectively reached the end of their economic			758,000
life where normal maintenance activities are no longer economically viable.			68-1998
	15-1997	4,444,000	1,000,000
	2001-173	959,590	2005-321
	2005-432	1,200,000	959,590
		6,603,590	2,717,590	2,577,000	20
900061 King Edward Avenue (Laurier to Sussex)	97 of 1999	1,000,000
This project is part of the Urban Rehabilitation Program which provides	2001-173	1,970,000
for the total reconstruction of roadways including underground	2002-123	1,400,000
utilities, curbs, sidewalks and related facilities.	2005-33	7,725,000
	2005-562	1,700,000	2005-321
	2007-102	1,500,000	3,708,000
	2007-201	50,000	2006-297
	2007-310	450,000	7,176,759
		15,795,000	10,884,759	4,910,241	20
900441 Intersection Improvement Program	2002-123	1,800,000
The rehabilitation and replacement through geometric changes to strategic, seriously	2003-9	400,000
congested signalized intersections.	2005-226	103,000
	2005-432	1,100,000
	2006-296	(324,000)
		3,079,000		2,469,261	20
901095 Street Light Rehabilitation	2002-123	1,000,000
The annual program provides for the installation of new/upgraded streetlights and plants	2003-9	1,425,000	2004-297
required to meet the City's current lighting policies.		2,425,000	1,425,000	819,759	20
903173 Hunt Club Bridge Modification - Michael Sheflin Bridge	2005-562	68,000
The reconfiguration of the existing Hunt Club bridge deck from four to six lanes will make full	2006-296	1,450,000
use of the available capacity of the adjacent Hunt Club intersections with Prince of Wales	2007-102	100,000
Drive and Riverside Drive.	2007-201	50,000
		1,668,000		1,668,000	20
903379 (0103TU1250) Structures - 2005	2005-33	100,000
This project provides for capital costs in connection with condition assessments, preventative	2005-432	5,000,000	2006-297
maintenance, rehabilitation and reconstruction works undertaken on the City's existing		5,100,000	4,525,000	371,000	20
bridges, culverts, pedestrian overpasses and retaining wall systems.
903506 Snow Disposal Facilities	2005-33	644,000		644,000	20
This program ensures ongoing, adequate, environmentally responsible snow disposal capacity
through implementation of long-term strategic initiatives for expansion and
acquisition of new Snow Disposal Facilities to service the City growth.
903527 Bank Street Reconstruction	2004-553	271,000
Completion of the engineering and final design for the total project limits between the Rideau	2005-432	100,000
Canal and Wellington Street as well as the reconstruction of the first phase of the project	2005-562	5,315,000
between Laurier Avenue and Wellington Street in 2006.	2007-102	3,590,000
	2007-201	10,000	2005-321
		9,286,000	259,238	4,809,739	20
903528 Perth Street (WIP)	2004-553	141,000
The road rehabilitation and sidewalk reconstruction coordinated with sewer improvements	2005-33	4,000,000
and upgrades.	2006-296	2,245,000	2005-321
		6,386,000	141,000	5,510,000	20
903530 Parkdale Avenue (WIP)	2005-33	2,500,000
This project coordinates sewer rehabilitation, drainage improvements, roadway reconstruction,	2005-226	174,000
and sidewalk replacement of the existing watermains, valves, hydrants and water services		2,674,000		2,025,000	20
to the property line.
903675 Infrastructure Services Structures - Pretoria Lift Bridge Rehabilitation (WIP)	2005-226	1,846,000
Capital costs associated with the construction of Phase 2 rehabilitation will take place	2005-432	700,000
in 2006 to address structural deficiencies that include rusting of structural members, leaky	2005-562	1,800,000
joints and access hatches, deteriorated windows and doors, as well as failed mortar joints	2007-102	1,300,000
in the masonry. The work also includes the replacement of expansion joints, and various	2007-201	70,000	2006-297
repairs to the deck and abutment walls.		5,716,000	2,470,000	770,000	20
Recreation and Cultural Services - Recreation Facility
903267 New Arena and Paramedic Facility	2005-226	100,000			20
The provision of a new ice surface, mini soccer field and paramedic post at the Kinburn	2006-110	5,400,000
Client service centre site, 5670 Carp Road.		5,500,000		4,770,000
Transportation Services - Transit
901223 Smart Growth Transit Control Centre	2005-562	860,000
The construction of an integrated control centre at 875 Belfast, which would include Bus	2007-102	464,000
Service Control, as well as Security Control and the Telephone Call Centre		1,324,000		312,000	20
is planned.
903274 West Transitway (Bayshore to Pinecrest)	2005-562	942,000
The construction of the extension of the West Transitway from Bayshore Station to Pinecrest	2007-310	3,300,000
Avenue is identified as a Phase I priority in the TMP and directly contributes to the City's		4,242,000		4,242,000	20
Smart Growth agenda through the Ottawa Rapid Transit Expansion Plan as outlined in the
2006 Planning & Growth Management Departmental Business Plan.
903401 Transitway System Improvements	2005-33	100,000
This is an ongoing program to undertake improvements to the Transitway relating to safety	2005-562	100,000
modifications, reduce bus travel times, bus service reliability, promote transit service,	2007-102	284,000
unforeseen minor platform improvements, and to assist in reducing transit operating costs.		484,000		39,000	20
903402 Transitway Capital Works	2005-33	520,000
Works for these 2006 projects include capital costs in connection with station environmental and	2005-562	350,000
safety upgrades, station infrastructure rehabilitation and new installations.	2007-102	568,000
		1,438,000		409,000	20
903751 Various Structures - LRT Feeder Project	2005-562	400,000		25,000	20
This project provides dedicated funding for capital costs associated with existing structure and
station repairs and improvements.
903780 Transit Garage	2005-562	5,788,000
This project provides for the construction of bus maintenance and storage facilities along with	2006-296	(1,000,000)
support vehicles and equipment to accommodate growth in the transit fleet.	2007-102	45,599,000
		50,387,000		970,000	20
903893 Transitway Structures	2005-562	500,000
This component of the program provides for the engineering and construction activities	2006-296	(97,000)
relating to repair and rehabilitation of various transitway structures to address deficiencies		403,000		403,000	20
and to extend their service life.
Environmental Services - Waterworks System
900606 Lemieux Island Transmission Mains (WIP)	2003-9	18,900,000
This project will include Low Pressure Line construction (2002/2003) and High Pressure Line	2005-33	4,752,000
construction (2002/2004) including the design and construction associated with the	2005-562	27,850,000
implementation of the High Pressure Main contract and rehabilitation of the transmission	2007-102	19,150,000
main bridge crossing of the Ottawa River at the Lemieux Island Water Purification Plant.		70,652,000		18,900,000	20
900510 Waste Water Management (0103TU4230) Water Regulatory Program - 2005	2005-33	28,640,000
Capital costs related to the construction of Lemieux Island Water Purification Plant and	2005-562	9,700,000	2006-297
Britannia Water Purification Plant predesigns to allow for the discharge of the thickened		38,340,000	23,000,000	11,100,000	20
waste to the sewer system, to be ultimately incorporated with the biosolids from
the Robert O. Pickard Environment Center.
Total Amount of the Debentures				75,000,000

1	2	3	4	5	6
					Term of
	Authorizing	Debentures	Debentures	Debentures	Debentures
	By-Law	Authorized by	Previously issued	Issued	Hereunder
Purpose	Number	Council	Amount/B/L No.	Hereunder	in years
		$	$	$
Transportation Services - Transit
900525 Bus Additions	2003-580	166,000
Capital costs in connection with the timely renewal or modification of all the revenue transit bus	2004-391	1,052,000
fleet . Replacement will be primarily by forty-foot, low-floor, wheelchair-accessible buses with air-	2005-33	23,400,000
conditioning and cloth-cushioned seats.	2005-432	(8,946,916)
	2006-296	(5,415,000)
		10,256,084		3,100,000	18
900874 Bus Additions	2005-33	16,000,000
The acquisition of 32 additional buses included in the 2006 Capital Budget will be delivered in	2005-562	5,896,000
2007 in time to introduce a 3% increase in peak period transit service directly after	2006-296	(1,819,000)
Labour Day.	2006-338	6,732,000
	2007-102	17,894,000	2005-321
		44,703,000	16,000,000	13,600,000	18
903960 Revenue Bus Replacement Program	2006-296	1,000,000
Capital costs in connection with the program that is designed for the timely renewal or	2007-102	11,163,000
modification of the revenue transit bus fleet.		12,163,000		8,300,000	18
Total Amount of the Debentures				25,000,000