Meeting Date:

May 17, 2010





Darby Fuerst,




General Manager

Line Item No.:††††


Prepared By:


Rick Dickhaut

Cost Estimate:


General Counsel Review:N/A

Committee Recommendation: The Administrative Committee reviewed this item on May 7, 2010 and recommended approval.

CEQA Compliance:N/A


SUMMARY:Per the Boardís request, staff has solicited proposals to establish a new line of credit (LOC).Proposed terms and conditions to furnish a LOC were received from Bank of America (BofA) and Fremont Bank (FB).As discussed in the background section, Wells Fargo Bank (WFB) and First National Bank (FNB) did not submit proposals.


The proposed terms and conditions submitted by BofA and FB are summarized on the attached Comparison of Proposals to Provide Letter of Credit (Exhibit 3-A).While the terms and conditions are somewhat similar, the major difference is that BofA proposes a variable interest rate based on the Wall Street Prime Rate (Prime Rate) plus 0.25% with no floor rate, while FB proposes that the variable rate be based on the Prime Rate plus 0.50% with a floor rate of 5%.Using the current Prime Rate of 3.25% for comparison purposes, the interest rates proposed would currently be 3.50% for BofA and the floor rate of 5.00% for FB.Based on these rates, the interest for one year on an outstanding balance of $1 million would be about $15,000 less at BofA.BofA has also included an interest rate option based on the 1-month London Interbank Offered Rate (LIBOR), a common benchmark interest rate index used to make adjustments to adjustable rate mortgages, plus a 3.0% margin.For comparison purposes, the 1-month LIBOR rate as of April 30, 2010 is 0.28%.This rate plus the 3.0% margin would result in an interest rate of 3.28%.BofA has proposed a LOC of up-to $2.5 million while FB has offered a credit limit of $2.0 million.Each bank has proposed an up-front fee of 0.50% of the amount of the LOC.FB has proposed a flat amount of $1,000 for setup costs, while BofA will charge the cost of an outside attorney to review documents.That cost is estimated to be $1,000 to $2,000.Each bank has stated that their final commitment to provide the LOC will be contingent on the District meeting certain conditions and providing additional information.Both banks have also indicated that the LOC would require the District to maintain its primary operating accounts at that bank.The Districtís primary accounts are currently with BofA.Additionally, the FB proposal requires that the District maintain a minimum average balance of $500,000 in depository at its bank, although FB representatives have verbally indicated that amount is negotiable.


Based on a comparison of the two proposals, and largely because of the difference in the proposed interest rates, staff concluded that establishing the LOC with BofA will be most advantageous for the District.Staff then analyzed the proposed Prime Rate and LIBOR rates over the past ten years and found that the majority of the time the LIBOR option would have yielded a lower interest rate.The LIBOR option would also have been lower than the Prime option for the past twelve months.While BofA has offered an LOC of up to $2.5 million, staff has had discussions with BofA representatives who indicated that if the LOC was established at a lower amount, it could be increased within 30 days or less if needed.Based on that discussion, staff recommends that the LOC initially be established at the $1.5 million level which results in an up-front fee of $7,500 as apposed to a fee of $12,500 for a $2.5 million LOC.†† †††††††


RECOMMENDATION:District staff recommends that the Board authorize staff to contract with Bank of America to establish a $1.5 million line of credit with Bank of America at a variable rate based on the 1-month LIBOR Rate plus 3.0%, with an up-front fee of $7,500 and costs estimated to be $2,000.The Administrative Committee reviewed this item on May 7, 2010 andrecommended approval. †††


BACKGROUND: As directed by the Board of Directors on March 15, 2010, District staff has paid off and closed the $2,500,000 LOC that was established with BofA in October 2008.Also per Board direction, staff has solicited proposals to establish a new LOC.Proposals were requested from BofA, FB, FNB and WFB.Proposals have been submitted by BofA and F B, while Wells Fargo declined to submit a proposal and First National Bank was not able to do so in a timely manner.



3-A††††† Comparison of Proposals to Provide Letter of Credit