Meeting Date:

August 18, 2008





Darby Fuerst,




General Manager

Line Item No.:    


Prepared By:


Rick Dickhaut

Cost Estimate:


General Counsel Approval:  Yes

Committee Recommendation:  The Administrative Committee reviewed this item on August 12, 2008 and recommended securing a $2.5 million line of credit from Bank of America

CEQA Compliance:  N/A


SUMMARY:  In response to a request from Director Brower and concurrence by the Administrative Committee and the Board of Directors that the District secure a $2 million line of credit, District staff has been working with several area banks to secure proposals for the line of credit.  Bank of America (BofA) and First National Bank of Central California (FNB) have reviewed the last three years of the District’s audited financial statements and have submitted proposed terms and conditions to furnish a line of credit to the District.  In discussions with staff, Rabobank had originally expressed interest in furnishing a line of credit and was expected to submit a proposal.  However, on August 6, 2008, a bank representative informed staff that they would not be able to submit a proposal at this time.  No specific reason was given.


The proposed terms and conditions submitted by BofA and FNB are summarized on the attached Comparison of Proposals to Provide Letter of Credit (Exhibit 17-A).  While the terms and conditions are quite similar, the major difference is that BofA proposes a variable interest rate based on the Wall Street Prime Rate (Prime Rate) minus 0.75%, while FNB proposes that the variable rate be based on the Prime Rate with no margin.  Using the current Prime Rate for comparison purposes, the interest rates proposed would be 4.75% for BofA and 5.00% for FNB.  Based on these rates, the interest for one year on an outstanding balance of $2 million would be about $15,000 less at BofA.  FNB has also proposed a fixed rate option based on the London Interbank Offered Rate (LIBOR), a common benchmark interest rate index used to make adjustments to adjustable rate mortgages, plus a 2.5% margin.  However, advances would have to be in increments of $250,000 or more and would have maturities of only one, three or six months.  For comparison purposes, the one, three and six month LIBOR rates plus the 2.5% margin are currently 4.96%, 5.30% and 5.61%, respectfully.  BofA has proposed a $2.5 million line of credit, but has indicated the terms would be the same if the District wished to keep the limit at $2 million.  While no actual fees are proposed by either bank, each has indicated that they charge out-of-pocket expenses, such as attorney’s fees to review documents, at actual cost.  While the costs are unknown, it is estimated that they would not exceed $5,000 and will probably be less.  Each bank has stated that their final commitment to provide the line of credit will be contingent on the District meeting certain conditions and providing additional information, such as its authority to enter into this type of transaction.  Both banks have also indicated that the line of credit would require the District to maintain its primary operating accounts at that bank.  The District’s primary accounts are currently at BofA.     


RECOMMENDATION:  District staff recommends that the Board authorize staff to proceed to establish a $2.5 million line of credit with Bank of America at a variable rate based on the Wall Street Prime Rate less 0.75%, and with out-of-pocket costs not to exceed $5,000.  The Administrative Committee reviewed this item on August 12, 2008 and also recommended securing a $2.5 million line of credit with Bank of America.   


BACKGROUND:  Director Brower has requested that the Board direct staff to secure a $2 million line of credit to fund potential startup costs of a water supply project.  The amount borrowed via the line of credit would be repaid from either an increased user fee, a portion of debt issuance proceeds for the project, other revenue increases or a combination of these sources.  The Administrative Committee reviewed this item at its May 13, 2008 meeting and recommended approval for staff to proceed.  The Committee further recommended that when more information is available, staff should bring this matter back to the Board for final approval at a future meeting.  At its May 19, 2008 meeting, the Board of Directors concurred with the Committee’s recommendation.  At the July 21, 2008 Board meeting, staff presented an update and reported that a final recommendation would be given to the Board at its August 18, 2008 meeting.



17-A    Comparison of Proposals to Provide Letter of Credit