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HomeMy WebLinkAbout(SAI 1 PO7160) Port Arthur Texas S2023 - Transaction Summary draft 081523© 2023 Hilltop Securities Inc. | All rights reserved | Member: NYSE/FINRA/SIPC City of Port Arthur, Texas Combination Tax and Revenue Certificates of Obligation, Series 2023 Transaction Summary August 15, 2023 © 2023 Hilltop Securities Inc. | All rights reserved | Member: NYSE/FINRA/SIPC 1 Senior Managing Director anne.burgerentrekin@hilltopsecurities.com 70 NE Loop 410, Suite 750 San Antonio, Texas 78216 Direct: 210.308.2204 Associate homer.maldonado@hilltopsecurities.com 70 NE Loop 410, Suite 750 San Antonio, Texas 78216 Direct: 210.308.2207 Anne Burger Entrekin Homer Maldonado Financial Advisory Team Contact Information © 2023 Hilltop Securities Inc. | All rights reserved | Member: NYSE/FINRA/SIPC Transaction Summary © 2023 Hilltop Securities Inc. | All rights reserved | Member: NYSE/FINRA/SIPC Some key credit highlights included in the report include: •Strong budgetary performance; •Very strong budget flexibility; •Very strong liquidity; •Strong management; and •Strong institutional framework. •“The city has historically posted operating surpluses due to conservative budgeting practices”, •“Good financial policies and practices under our Financial Management Assessment methodology highlighted by regular budget-to-actual and investment reporting to council, a formal fund balance policy and a long-term capital improvement plan; and a strong institutional framework score”, and •“Strong budgetary performance and very strong reserves expected to continue despite cash-funding of projects”. Credit Rating Commentary 3 A+/Stable © 2023 Hilltop Securities Inc. | All rights reserved | Member: NYSE/FINRA/SIPC Certificates of Obligation, Series 2023 -Aggregate 4 _________________________ (1)The Sources include a Net Premium of $1,431,679. The bid from the Underwriters results in a True Interest Cost of 4.13% © 2023 Hilltop Securities Inc. | All rights reserved | Member: NYSE/FINRA/SIPC Certificates of Obligation, Series 2023 –Ad Valorem Tax Supported Portion 5 _________________________ *It is projected that after the issuance of the Combination Tax and Revenue Certificates of Obligation,Series 2023 –Ad Valorem Tax Supported Portion, the debt service tax rate will decrease from $0.256854 (FYE 2023)to $0.250173 (FYE 2024). © 2023 Hilltop Securities Inc. | All rights reserved | Member: NYSE/FINRA/SIPC Certificates of Obligation, Series 2023 –Waterworks and Wastewater Supported Portion 6 © 2023 Hilltop Securities Inc. | All rights reserved | Member: NYSE/FINRA/SIPC •True Interest Cost is 24 basis points less than projections •The deposit to the Project Fund is $450,000 more than projections •The Par Amount is $1,025,000 less than projections August Projections versus Actual Results 7 Projected Series 2023 Certificates(1) Actual Series 2023 Certificates Par Amount of Bonds $25,500,000 $24,475,000 Deposit to Project Fund $25,050,000 $25,500,000 True Interest Cost 4.37%4.13% ____________ (1)Projections as of August 3, 2023 © 2023 Hilltop Securities Inc. | All rights reserved | Member: NYSE/FINRA/SIPC Summary © 2023 Hilltop Securities Inc. | All rights reserved | Member: NYSE/FINRA/SIPC •We recommend the City approve the bid from Loop Financial Capital Markets as Senior Manager and Raymond James as Co-Manager •The actual true interest cost of 4.13%is lower than the August 3rd projected interest rate of 4.37% by 0.24% or 24 basis points •The project fund deposit is $450,000 more than August 3rd projections •The actual par amount is $1,025,000 less than the August 3rd projections •We want to express our appreciation to the City Staff, Mr. Burton, Ms. Daniel, and Ms. Tizeno in particular, for all their assistance in making this a successful process and transaction •We thank the Bond Counsel, Derrick Mitchell with Holland & Knight LLP, for his efforts •We thank the Underwriters, Loop Capital Markets and Raymond James, for their efforts •Thank the City for the honor of serving Port Arthur as its Financial Advisor; we appreciate our long-term relationship Summary 9 © 2023 Hilltop Securities Inc. | All rights reserved | Member: NYSE/FINRA/SIPC Market Update © 2023 Hilltop Securities Inc. | All rights reserved | Member: NYSE/FINRA/SIPC Bond Buyer’s Index of 20 Municipal Bonds 11 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 Jun 2022 Sep 2022 Dec 2022 Mar 2023 Jun 2023 Bond Buyer GO Index This graph depicts historical interest rates and their respective relationships. Future interest rates are dependent upon many factors such as, but not limited to, interest rate trends, tax rates, the supply and demand of short term securities, changes in laws, rules and regulations, as well as changes in credit quality and rating agency considerations. The effect of changes in such factors individually or in any combination could materially affect the relationships and effective interest rates. These results should be viewed with these potential changes in mind as well as the understanding that there may be interruptionsin the short term market or no market may exist at all. Current: 3.71% © 2023 Hilltop Securities Inc. | All rights reserved | Member: NYSE/FINRA/SIPC Bond Buyer’s Index of 20 Municipal Bonds 12 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 1998 2003 2008 2013 2018 2023 Bond Buyer GO Index Current: 3.71% This graph depicts historical interest rates and their respective relationships. Future interest rates are dependent upon many factors such as, but not limited to, interest rate trends, tax rates, the supply and demand of short term securities, changes in laws, rules and regulations, as well as changes in credit quality and rating agency considerations. The effect of changes in such factors individually or in any combination could materially affect the relationships and effective interest rates. These results should be viewed with these potential changes in mind as well as the understanding that there may be interruptionsin the short term market or no market may exist at all. © 2023 Hilltop Securities Inc. | All rights reserved | Member: NYSE/FINRA/SIPC Historical Interest Rates 13 0% 2% 4% 6% 8% 10% 12% 14% 16%19801981198219831984198519861987198819891990199119921993199419951996199719981999200020012002200320042005200620072008200920102011201220132014201520162017201820192020202120222023Bond Buyer Weekly 20 Year GO Index 1981 -2023 Going back to 1981 when the Bond Buyer’s Index of 20 Municipal Bonds was started, interest rates have been higher 84.35% of the time than current interest rates © 2023 Hilltop Securities Inc. | All rights reserved | Member: NYSE/FINRA/SIPC MMD Yield Curve Benchmarks 14 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 Yield (%)8/10/2023 AAA MMD 8/10/2023 AA MMD 8/10/2023 A MMD 8/10/2023 BAA MMD This graph depicts historical interest rates and their respective relationships. Future interest rates are dependent upon many factors such as, but not limited to, interest rate trends, tax rates, supply, changes in laws, rules and regulations, as well as changes in credit quality and rating agency considerations. The effect of such changes in such assumptions may be material and could effect the projected results. These results should be viewed with these potential changes in mind as well as the understanding that there may be interrupti ons in the short term market or no market may exist at all. © 2023 Hilltop Securities Inc. | All rights reserved | Member: NYSE/FINRA/SIPC REGULATORY DISCLOSURES © 2023 Hilltop Securities Inc. | All rights reserved | Member: NYSE/FINRA/SIPC The general market commentary herein is intended for educational and informational purposes only and does not constitute legal or investment advice, nor is it an offer or a solicitation of an offer to buy or sell any investment or other specific product. Information provided in this market commentary was obtained from sources that are believed to be reliable; however, it is not guaranteed to be correct, complete, or current, and is not intended to imply or establish standards of care applicable to any attorney or advisor in any particular circumstances. This market commentary represents historical information only and is not an indication of future performance. This market commentary may not be shared with anyone other than the intended recipient without the explicit written consent of HilltopSecurities. This information is intended to be a summary of general market information. HilltopSecurities is not recommending an action to you as the municipal entity or obligated person. This commentary does not represent municipal advice pursuant to Section 15B of the Exchange Act. HilltopSecurities is acting for its own interests. You should discuss any information and material contained in this communication with any and all internal or external advisors and experts that you deem appropriate. When not already acting as a municipal advisor, HilltopSecurities could seek to serve as an underwriter on a future transaction. The primary role of an underwriter is to purchase securities with a view to distribution in an arms-length, commercial transaction with the issuer. The underwriter has financial and other interests that differ from those of the issuer 16 Disclosure © 2023 Hilltop Securities Inc. | All rights reserved | Member: NYSE/FINRA/SIPC This disclosure statement (“Conflict Disclosures”)is provided by Hilltop Securities Inc.(“the Firm”)to disclose information regarding conflicts of interest and legal ordisciplinaryeventsoftheFirmthatarerequiredtobedisclosedtopotentialclientspursuanttoMSRBRuleG-42(b)and (c)(ii). PART A –Disclosures of Conflicts of Interest MSRB Rule G-42 requires that municipal advisors provide to their clients disclosures relating to any actual or potential material conflicts of interest,including certain categories of potential conflicts of interest identified in Rule G-42,if applicable. Material Conflicts of Interest –The Firm makes the disclosures set forth below with respect to material conflicts of interest in connection with the Scope of ServicesundertheAgreementwiththeFirm,together with explanations of how the Firm addresses or intends to manage or mitigate each conflict. General Mitigations –As general mitigations of the Firm’s conflicts,with respect to all of the conflicts disclosed below,the Firm mitigates such conflicts through itsadherencetoitsfiduciarydutytoclients,which includes a duty of loyalty to clients in performing all municipal advisory activities for clients.This duty of loyalty obligates the Firm to deal honestly and with the utmost good faith with client and to act in the client’s best interests without regard to the Firm’s financial or other interests.In addition,because the Firm is a broker-dealer with significant capital due to the nature of its overall business,the success and profitability of the Firm is notdependentonmaximizingshort-term revenue generated from individualized recommendations to its clients but instead is dependent on long-term profitably built onafoundationofintegrity,quality of service and strict adherence to its fiduciary duty.Furthermore,the Firm’s municipal advisory supervisory structure,leveraging ourlong-standing and comprehensive broker-dealer supervisory processes and practices,provides strong safeguards against individual representatives of the Firm potentially departing from their regulatory duties due to personal interests.The disclosures below describe,as applicable,any additional mitigations that may be relevant with respect to any specific conflict disclosed below. I.Affiliate Conflict.The Firm,directly and through affiliated companies,provides or may provide services/advice/products to or on behalf of clients that are related totheFirm’s advisory activities.Hilltop Securities Asset Management (HSAM),a SEC-registered affiliate of the Firm,provides post issuance services including arbitragerebateandtreasurymanagement.The Firm’s arbitrage team verifies rebate and yield restrictions on the investments of bond proceeds on behalf of clients in order to meet IRS restrictions.The treasury management division performs portfolio management/advisor services on behalf of public sector clients.The Firm,through affiliate Hilltop Securities Asset Management (HSAM),provides a multi-employer trust tailor-made for public entities which allows them to prefund Other Post-Employment Benefit liabilities.The Firm has a structured products desk that provides advice to help clients mitigate risk though investment management,debtmanagementandcommoditypriceriskmanagementproducts.These products consist of but are not limited to swaps (interest rate,currency,commodity),options,repos,escrow structuring and other securities.Continuing Disclosure services provided by the Firm work with issuers to assist them in meeting disclosure requirements set forth in SEC rule 15c2-12.Services include but are not limited to ongoing maintenance of issuer compliance,automatic tracking of issuer’s annual filings and public notification of material events.The Firm administers government investment pools.These programs offer governmental entities investment optionsfortheircashmanagementprogramsbasedontheentitiesspecificneeds.The Firm and the aforementioned affiliate’s business with a client could create an incentivefortheFirmtorecommendtoaclientacourseofactiondesignedtoincreasethelevelofaclient’s business activities with the affiliates or to recommend against acourseofactionthatwouldreduceoreliminateaclient’s business activities with the affiliates.This potential conflict is mitigated by the fact that the Firm and affiliates are subject to their own comprehensive regulatory regimes. II.PlainsCapital Bank Affiliate Conflict.The Firm,directly and through affiliated companies,provides or may provide services/advice/products to or on behalf ofclientsthatarerelatedtotheFirm’s advisory activities.Affiliate,PlainsCapital Bank,provides banking services to municipalities including loans and custody.The Firmandtheaforementionedaffiliate’s business with a client could create an incentive for the Firm to recommend to a client a course of action designed to increase thelevelofaclient’s business activities with the affiliates or to recommend against a course of action that would reduce or eliminate a client’s business activities with the affiliates.This potential conflict is mitigated by the fact that the Firm and affiliates are subject to their owncomprehensive regulatory regimes. 17 Municipal Advisor Disclosure Statement © 2023 Hilltop Securities Inc. | All rights reserved | Member: NYSE/FINRA/SIPC III.Other Municipal Advisor or Underwriting Relationships.The Firm serves a wide variety of other clients that may from time to time have interests that could haveadirectorindirectimpactontheinterestsofotherclients.For example,the Firm serves as municipal advisor to other municipal advisory clients and,in such cases,owes a regulatory duty to such other clients just as it does to all its municipal advisory clients.These other clients may,from time to time and depending on thespecificcircumstances,have competing interests,such as accessing the new issue market with the most advantageous timing and with limited competition at the time of the offering.In acting in the interests of its various clients,the Firm could potentially face a conflict of interest arising from these competing client interests.In other cases,as a broker-dealer that engages in underwritings of new issuances of municipal securities by other municipal entities,the interests of the Firm to achieve asuccessfulandprofitableunderwritingforitsmunicipalentityunderwritingclientscouldpotentiallyconstituteaconflictofinterestif,as in the example above,themunicipalentitiesthattheFirmservesasunderwriterormunicipaladvisorhavecompetinginterestsinseekingtoaccessthenewissuemarketwiththemostadvantageoustimingandwithlimitedcompetitionatthetimeoftheoffering.None of these other engagements or relationships would impair the Firm’s ability to fulfill its regulatory duties to any specific client. IV.Secondary Market Transactions in Client’s Securities.The Firm,in connection with its sales and trading activities,may take a principal position in securities,including securities of its clients,and therefore the Firm could have interests in conflict with a client with respect to the value of the client’s securities while held ininventoryandthelevelsofmark-up or mark-down that may be available in connection with purchases and sales thereof.In particular,the Firm or its affiliates maysubmitordersforandacquireamunicipaladvisoryclient’s securities issued in an issue under a municipal advisory agreement from members of the underwriting syndicate,either for its own account or for the accounts of its customers.This activity may result in a conflict of interest with the client in that it could create the incentive for the Firm to make recommendations to the client that could result in more advantageous pricing of the client’s bond in the marketplace.Any such conflictismitigatedbymeansofsuchactivitiesbeingengagedinoncustomarytermsthroughunitsoftheFirmthatoperateindependentlyfromtheFirm’s municipal advisorybusiness,thereby reducing the likelihood that such investment activities would have an impact on the services provided by the Firm to any client under a municipaladvisoryagreement. V.Broker-Dealer and Investment Advisory Business.The Firm is dually registered as a broker-dealer and an investment advisor that engages in a broad range of securities-related activities to service its clients,in addition to serving as a municipal advisor or underwriter.Such securities-related activities,which may include butarenotlimitedtothebuyingandsellingofnewissueandoutstandingsecuritiesandinvestmentadviceinconnectionwithsuchsecurities,including securities of thefirm’s municipal advisory clients,may be undertaken on behalf of,or as counterparty to,the client,personnel of the client,and current or potential investors in thesecuritiesoftheclient.These other clients may,from time to time and depending on the specific circumstances,have interests in conflict with those of the Firm’s municipal advisory clients,such as when their buying or selling of the municipal advisory client’s securities may have an adverse effect on the market for municipal advisory client’s securities,and the interests of such other clients could create the incentive for the Firm to make recommendations to the municipal advisory clientthatcouldresultinmoreadvantageouspricingfortheotherclients.Furthermore,any potential conflict arising from the firm effecting or otherwise assisting suchotherclientsinconnectionwithsuchtransactionsismitigatedbymeansofsuchactivitiesbeingengagedinoncustomarytermsthroughunitsoftheFirmthatoperateindependentlyfromtheFirm’s municipal advisory business,thereby reducing the likelihood that the interests of such other clients would have an impact on the services provided by the Firm to its municipal advisory clients. VI.Compensation-Based Conflicts.Fees that are based on the size of the issue are contingent upon the delivery of the Issue.While this form of compensation iscustomaryinthemunicipalsecuritiesmarket,this may present a conflict because it could create an incentive for the Firm to recommend unnecessary financings orfinancingsthataredisadvantageoustoitsclients,or to advise clients to increase the size of the issue.This conflict of interest is mitigated by the general mitigationsdescribedabove. Fees based on a fixed amount are usually based upon an analysis by the client and the Firm of,among other things,the expected duration and complexity of the transaction and the scope of municipal services to be performed by the Firm.This form of compensation presents a potential conflict of interest because,if thetransactionrequiresmoreworkthanoriginallycontemplated,the Firm may suffer a loss.Thus,the Firm may recommend less time-consuming alternatives,or fail todoathoroughanalysisofalternatives.This conflict of interest is mitigated by the general mitigations described above. 18 Municipal Advisor Disclosure Statement © 2023 Hilltop Securities Inc. | All rights reserved | Member: NYSE/FINRA/SIPC Hourly fees are calculated with,the aggregate amount equaling the number of hours worked by Firm personnel times an agreed-upon hourly billing rate.This form ofcompensationpresentsapotentialconflictofinterestiftheclientandtheFirmdonotagreeonareasonablemaximumamountattheoutsetoftheengagement,because the Firm does not have a financial incentive to recommend alternatives that would result in fewer hours worked.This conflict of interest is mitigated by thegeneralmitigationsdescribedabove. PART B –Disclosures of Information Regarding Legal Events and Disciplinary History MSRB Rule G-42 requires that municipal advisors provide to their clients certain disclosures of legal or disciplinary events material to its client’s evaluation of the municipal advisor or the integrity of the municipal advisor’s management or advisory personnel. Accordingly,the Firm sets out below required disclosures and related information in connection with such disclosures. I.Material Legal or Disciplinary Event.The Firm discloses the following legal or disciplinary events that may be material to Client’s evaluation of the Firm or the integrity of the Firm’s management oradvisory personnel: •For related disciplinary actions please refer to the Firm’s BrokerCheck webpage. •The Firm self-reported violations of SEC Rule 15c2-12:Continuing Disclosure.The Firm settled with the SEC on February 2,2016.The firm agreed to retainindependentconsultantandadopttheconsultant’s finding.Firm paid a fine of $360,000. •The Firm settled with the SEC in matters related to violations of MSRB Rules G-23(c),G-17 and SEC rule 15B(c)(1).The Firm disgorged fees of $120,000 received as financial advisor on the deal,paid prejudgment interest of $22,400.00and a penalty of $50,000.00. •The Firm entered into a Settlement Agreement with Rhode Island Commerce Corporation.Under the Settlement Agreement,the firm agreed to pay $16.0 million to settle any and all claims in connection with The Rhode Island Economic Development Corporation Job Creation Guaranty Program Taxable Revenue Bond (38Studios,LLC Project)Series 2010,including the litigation thereto.The case,filed in 2012,arose out of a failed loan by Rhode Island Economic DevelopmentCorporation.The firm’s predecessor company,First Southwest Company,LLC,was one of 14 defendants.FirstSouthwest’s engagement was limited to advising on the structure,terms,and rating ofthe underlying bonds.Hilltop settled with no admission of liability orwrongdoing. •On April 30,2019,the Firm entered into a Settlement Agreement with Berkeley County School District of Berkeley County,South Carolina.The case,filed in Marchof2019,arose in connection with certain bond transactions occurring from 2012 to 2014,for which former employees of Southwest Securities,Inc.,a predecessorcompany,provided financial advisory services.The Firm agreed to disgorge all financial advisory fees related to such bond transactions,which amounted to$822,966.47,to settle any and all claims,including litigation thereto.Under the Settlement Agreement,the Firm was dismissed from the lawsuit with prejudice,no additional penalty,and with no admission of liability or wrongdoing. •From July 2011 to October 2015,Hilltop failed to submit required MSRB Rule G-32 information to EMMA in connection with 122 primary offerings of municipal securities for which the Firm served as placement agent.During the period January 2012 to September 2015,the Firm failed to provide MSRB Rule G-17 letters toissuersinconnectionwith119ofthe122offeringsreferencedabove.From October 2014 to September 2015,the Firm failed to report on Form MSRB G-37 that ithadengagedinmunicipalsecuritiesbusinessasplacementagentfor45ofthese122offerings.This failure was a result of a misunderstanding by one branch office of Southwest Securities.Hilltop discovered these failures during the merger of FirstSouthwest and Southwest Securities and voluntarily reported them to FINRA. The Firm paid a fine of $100,000 forthese self-reported violations. •In connection with a settlement on July 9,2021 ,the U.S.Securities and Exchange Commission found that,between January 2016 and April 2018,the Firm boughtmunicipalbondsforitsownaccountfromanotherbroker-dealer and that,on occasion during that time period,the other broker-dealer mischaracterized the Firm’sorderswhenplacingthemwiththeleadunderwriter.The SEC found that,among other things,the Firm lacked policies and procedures with respect to how stock orders were submitted for new issues bonds to third parties,including the broker-dealer that mischaracterized the Firm’s orders.The SEC found violations of MSRB Rules G-27,G-17,and SEC rule 15B(c)(1)and a failure to reasonably supervise within the meaning of Section 15(b)(4)(E)of the Securities Exchange Act of 1934.The Firm was censured and ordered to pay disgorgement of $206,606,prejudgment interest of $48,587 and a penalty of $85,000. 19 Municipal Advisor Disclosure Statement © 2023 Hilltop Securities Inc. | All rights reserved | Member: NYSE/FINRA/SIPC II.How to Access Form MA and Form MA-I Filings.The Firm’s most recent Form MA and each most recent Form MA-I filed with the SEC are available on the SEC’sEDGARsystematFormsMAandMA-I.The SEC permits certain items of information required on Form MA or MA-I to be provided by reference to such requiredinformationalreadyfiledbytheFirmsinitscapacityasabroker-dealer on Form BD or Form U4 or as an investment adviser on Form ADV,as applicable.InformationprovidedbytheFirmonFormBDorFormU4ispubliclyaccessiblethroughreportsgeneratedbyBrokerCheckathttp://brokercheck.finra.org/,and the Firm’s most recent Form ADV is publicly accessible at the Investment Adviser Public Disclosure website at http://www.adviserinfo.sec.gov/.For purposes of accessing such BrokerCheck reports or Form ADV,click previous hyperlinks. PART C –MSRB Rule G-10Disclosure MSRB Rule G-10 covers Investor and Municipal Advisory Client education and protection.This rule requires that municipal advisors make certain disclosures to allmunicipaladvisoryclients.This communication is a disclosure only and does not require any action by the firm’s municipal advisory clients.The disclosures are noted below. 1.Hilltop Securities Inc.is registered with the U.S.Securities and Exchange Commission and the Municipal Securities Rulemaking Board asa Municipal Advisor. 2.You can access the website for the Municipal Securities Rulemaking Board at www.msrb.org 3.The Municipal Securities Rulemaking Board has posted a municipal advisory client brochure.A copy of the brochure is attached to the memo.This link will take toyoutotheelectronicversionMA-Clients-Brochure. PART D –Future Supplemental Disclosures As required by MSRB Rule G-42,this Municipal Advisor Disclosure Statement may be supplemented or amended,from time to time as needed,to reflect changedcircumstancesresultinginnewconflictsofinterestorchangesintheconflictsofinterestdescribedabove,or to provide updated information with regard to any legalordisciplinaryeventsoftheFirm.The Firm will provide Client with any such supplement or amendment as it becomes available throughout the term of theAgreement. 20 Municipal Advisor Disclosure Statement