Detroit Water and Sewerage Department
735 Randolph Street
Detroit, Michigan 48226
(313) 224-4704 Office
www.dwsd.legistar.com
Meeting Agenda
Wednesday, December 9, 2015
7:30 AM
Finance Committee Meeting
5th Floor Board Room, Water Board Building
Finance Committee
Finance Committee
Meeting Agenda
1.
CALL TO ORDER
2.
ROLL CALL
3.
APPROVAL OF AGENDA
4.
APPROVAL OF MINUTES
November 12, 2015
December 9, 2015
(Page 2)
5.
PUBLIC PARTICIPATION
6.
OLD BUSINESS
A. Preliminary Official Statement (Bond Refunding) and Bondholder Consent
(Page 5)
Update
7.
NEW BUSINESS
A. Resolutions Adopting Amendment to Ordinance and Authorizing Execution of
Supplement to Indenture for Both the Water Supply System and the Sewage
Disposal System
8.
(Page 14)
REPORTS
A. Customer Service Division Report
-
Customer Payments- Policy Decision
B. CFO Report
(Page 46)
C. Technology Update (verbal)
D. Monthly Information Reports
- Transition Budget
9.
OTHER MATTERS
Future Meeting Date(s)
10.
ADJOURNMENT
Detroit Water and Sewerage Department
Page 2
Printed on 12/4/2015
PAGE 1
AGENDA ITEM #4
Detroit Water and Sewerage
Department
735 Randolph Street
Detroit, Michigan 48226
(313) 224-4704 Office
www.dwsd.legistar.com
Meeting Minutes - Draft
Finance Committee
Thursday, November 12, 2015
7:30 AM
5th Floor Board Room, Water Board Building
Finance Committee Meeting
1.
CALL TO ORDER
Co-Chairperson Forte called the meeting to order at 7:30 A.M.
2.
ROLL CALL
Present:
3.
3 - Linda Forte, Michael Einheuser and Jody Caldwell
APPROVAL OF AGENDA
Co-Chairperson Forte requested approval of the agenda.
A motion was made by Co-Chairperson Jody Caldwell, seconded by
Co-Chairperson Michael Einheuser that the agenda be approved. The motion
carried by the following vote:
approved
Aye:
4.
3-
Co-Chairperson Forte, Co-Chairperson Einheuser and Co-Chairperson
Caldwell
APPROVAL OF MINUTES
Co-Chairperson Forte requested approval of the minutes of November 2, 2015.
A motion was made by Co-Chairperson Einheuser, seconded by
Co-Chairperson Caldwell that the minutes be approved. The motion carried by
the following vote:
approved
Aye:
5.
3-
Co-Chairperson Forte, Co-Chairperson Einheuser and Co-Chairperson
Caldwell
PUBLIC PARTICIPATION
This was none.
6.
OLD BUSINESS
Please view the Finance binder of November 12, 2015 for supplemental details.
Detroit Water and Sewerage Department
Page 1
PAGE 2
Finance Committee
Meeting Minutes - Draft
November 12, 2015
A. Preliminary Official Statement/Bondholder Consent Update (Page 5)
Presenters: Nicolette Bateson, CFO and Lee Donner of First Southwest
Lee Donner, First Southwest stated that Standard & Poors (S&P) took action and
upgraded senior lien bonds. He recommends reading the rating report. S&P gave
good report for the standup of Great Lakes Water Authority (GLWA) and legal
separation from the City. Moody's rating expected by Monday or Tuesday. Deadline
of November 24 for beneficial holders to submit consent solicitation documents to
trustee of DWSD and Citibank. Price the refunding on or about November 24. Create
a one week optional pricing date of November 23/24 or as late as November
30/December 1. Finalized the official statements and the closing for the refunding by
December 15 or 17. By the November 18 BOWC meeting will have a handling on the
voluntary consent process and an idea whether it necessitate a Plan B for advance
refunding.
7.
NEW BUSINESS
15-1188
Finance Committee binder of Nov. 12, 2015
Sponsors:
Attachments:
Bateson
FC Binder 11.12.2015
This Communication or Report was received and filed.
A. Actuarial Report for the CIty of Detroit General Retirement System (Page 6)
Presenter: Nicolette Bateson, CFO
B. Proposed Procurement of Asset Management Services (Page 46)
Presenter: Nicolette Bateson, CFO
8.
REPORTS
A. Customer Service Division Report (Page 55)
Darryl Latimer, Chief Customer Service Officer, reported shutoff activity continues;
news coverage regarding shut offs; payment plan customers have missed payments;
issued door tags to customers who fell off payment plans; 43 thousand customers in
payment plans; 5-6 thousand in delinquent status attached with workorders; water
fund asistance availability; general counsel continued work with Highland Park and
Melvindale; online payment system has 15 percent activity; challenges of check
process.
Detroit Water and Sewerage Department
Page 2
PAGE 3
Finance Committee
Meeting Minutes - Draft
November 12, 2015
B. CFO Report (Page 65)
Presenter: Nicolette Bateson, CFO
Project Implementation Plan ( Page 67)
Presenter: Michael Huber, Finance Director
C. Monthly Information Reports
- State Revolving Fund Loans and Status (Page 72)
Presenter: Jon Wheatley
9.
OTHER MATTERS
Future Meeting Date(s)
Dec. 9, 2015, 7:30 AM.
10.
ADJOURNMENT
Co-Chairperson Forte requested a motion to adjourn.
A motion was made by Co-Chairperson Caldwell, seconded by Co-Chairperson
Einheuser that this meeting be adjourned. The motion carried by the following
vote:
adjourned
Aye:
3-
Co-Chairperson Forte, Co-Chairperson Einheuser and Co-Chairperson
Caldwell
There being no further business, the meeting adjourned at 9:00 AM.
Detroit Water and Sewerage Department
Page 3
PAGE 4
AGENDA ITEM #6A
City of Detroit
Water & Sewerage Department
Financial Services Division
DT: December 9, 2015
TO: Board of Water Commissioners Finance Committee
FM: Nicolette Bateson, CPA, Chief Financial Officer
RE: Preliminary Official Statement (Bond Refunding) and Bondholder Consent Update
In the past two weeks, the City of Detroit Water & Sewerage Department successfully executed
two financial activities. Both of these transactions support that stand-up of the Great Lakes
Water Authority while also recognizing the significant financial improvements that the Board of
Water Commissioners (BOWC) has established as the foundation for the transition.
On Wednesday, November 25, 2015, the "Notice of 51% Consent Date" for the water and sewer
systems was posted to EMMA (the Electronic Municipal Market Access system provided by the
Municipal Securities Rulemaking Board). This notice was the outcome of a public voluntary
consent solicitation process that had a deadline of November 24, 2015. The consent sought was
for the purpose of pivoting the obligor of outstanding bonds from the City of Detroit Water &
Sewerage system to the Great Lakes Water Authority on the effective date (presumed to be
January 1, 2016). As of that date, approximately 67% consent had been achieved – surpassing
the goal of 51%.
On Wednesday, December 2, 2015, the bond refunding transaction of $324.4 million resulted in
cashflow savings of $38.2 million and net present value savings of $29.3 million. Like the 2014
refunding, many series were significantly oversubscribed (over $4.4 billion in orders were
received) which led to a re-pricing and further reduced debt service cost. The refunding bonds
also carry the pivot language which increases the percentage of outstanding bonds that carry the
bondholder consent language. Closing on this transaction is scheduled for Monday, December
14, 2015.
These activities have been underway since the Memorandum of Understanding was executed in
September 2014 to form the regional authority. The timing has been driven by the coordination
and completion of significant conditions precedent documents leading to the stand-up of the
Great Lakes Water Authority. The financing team supporting this transaction has worked
tirelessly to get us to this point. Many thanks to First SouthWest (Lee Donner and Ann BurgerEnterkin), Dykema (Ann Fillingham and Jim Kiefer), Citi (an extensive team led by Tom Green,
including Dave Houston, George Leung, Daniel Siegel, and Marjorie Henning), Kutack Rock
(Debbie Ruskin and Lisa Sturzenberger), Foster Group, LLC (Bart Foster), Michigan Finance
Authority (John Barton, Valerie Khoury, and Kester So of Dickinson Wright), Attorney
PAGE 5
General’s Office (William Petit), Dykema’s Advisor to the BOWC (Rick McDonald), Ramirez
& Co. (Ted Sobel), and US Bank (Susan Brown) as well as DWSD’s Public Finance Manager
Jon Wheatley.
Members of the financing team will be in attendance at the Finance Committee meeting to
provide a recap of the transactions. Their presentation is attached.
PAGE 6
December 9, 2015
Detroit Water & Sewerage Department
Review of the 2015 Consent Solicitation / Refunding Transactions
Presentation to the Board of Water Commissioners
PAGE 7
Review of Multi-Year, Multi-Step Strategy to Create GLWA
The 2014 tender and restructuring laid the groundwork for “standing up” the Great Lakes Water Authority
(“GLWA”). Via the 2015 transaction, GLWA will become effective by January 1, 2016.
 To effectuate GLWA, the holders of at least 51% of outstanding DWSD Water bonds and DWSD Sewer bonds
must consent to the transfer of such debt obligations to GLWA
 The 2014 transaction, which generated $249 million of gross cash flow savings and $113 million of present
value savings, included language that constituted consent of the purchasers of the 2014 Bonds to such
transfer
– These purchasers provided consent for approximately 35% of outstanding Water Bonds and 32% of
outstanding Sewer Bonds
– As consent solicitation manager, Citi canvassed the largest bondholders of DWSD Bonds, other than the
2014 holders in hand, and asked for formal consent by November 24, 2015
 Needing approximately $870 million of consents to reach the 51% threshold, Citi was able to bring in
approximately $1.5 billion consents
– In total, the holders of over 2/3 of DWSD’s outstanding bonds consented to the transfer of obligor
 DWSD posted a formal EMMA notice on November 25, 2015 to announce that over 51% of bondholders had
consented to the change in obligor from DWSD to the GLWA of all DWSD Bonds
– This posting precluded the withdrawal of any provided consents
 On December 2, 2015, DWSD priced “in-the-money” current refunding candidates for savings
– Over $38 million in gross cash flow savings and $29 million in present value savings was realized
– As only current refunding candidates were selected, future refunding opportunities will remain in 2016 and
2017
1
PAGE 8
Rating Upgrades (And More to Come)
All three rating agencies upgraded the DWSD Bonds since the 2014 transaction, with Moody’s expected to
upgrade the rating “several notches higher” upon formal GLWA conversion in January 2016.
 Leaner operations, improving financial metrics, and a proactive DWSD management team were the basis for
continued upgrades in 2015, with DWSD returning to the “A” rating category
 Moody’s, which currently has the lowest rating on the DWSD Bonds, took the unusual step of stating in its
report that upon GLWA stand up, “the rating could be several notches higher”
2
Pre 2014
Tender /
Restructuring
2014
Refunding
Bonds
2015
Refunding
Bonds
Senior / Sub
Senior / Sub
Senior / Sub
CCC / CCC
BBB+ / BBB+
A- / BBB+
B1 / B2
Ba2 / Ba3
Baa3 / Ba1
BB+ / BB
BBB- / BB+
BBB / BBB-
PAGE 9
Extensive Marketing Outreach to Bondholders and Insurers
Citi and FirstSouthwest planned and executed an unprecedented marketing campaign to educate investors and
insurers on the pivot to GLWA.
Approach
1. Electronic Investor Roadshow for MFA Bonds
– 51 unique institutional investors viewed the recorded roadshow available online
2. Electronic Investor Roadshow Targeting Largest Bondholders for Voluntary Consent
3. One-on-One Calls with Institutional Accounts to Discuss GLWA Consent and Series 2015C&D Bonds
– DWSD management participated in 20+ one-on-one investor calls to discuss GLWA consent and improving financial and operating
metrics of DWSD
4. Internal Citi Salesforce Teach-In to educate Sales and assist in canvassing accounts
Results
 Over $4.4 billion of orders were received for the Series 2015C&D refunding bonds, including $1.1 billion of Senior Lien orders and $3.3
billion of Second Lien orders
 72 distinct institutional investors placed orders
– Existing holders added to positions
– New investors came in to buy DWSD bonds for the 1st time
– Variety of account types participated including asset managers, mutual funds, insurance companies, SMAs, and relative value funds
 “Top Tier” accounts such as Vanguard, PIMCO, Fidelity, Goldman Sachs Asset Management, Nuveen, Franklin, Cap Re, Wamco,
BlackRock, and T. Rowe came in for significant orders
– Vanguard placed orders for the entire deal ($325 million of orders)
 Assured Guaranty offered to insure the entire deal and added to its DWSD exposure by insuring over $13 million
3
PAGE 10
Tightened Spreads, Enhancing Savings
Over $38 million in gross cash flow savings and $29 million in present value savings was captured. As only
current refunding candidates were selected, future refunding opportunities will remain in 2016 and 2017.
 On the Senior Lien Bonds, the underwriting syndicate tightened spreads 32 basis points from price views and 17 basis points from premarketing levels
– The lower interest rates saved DWSD approximately $1.1 million on the Senior Lien Bonds
 On the Second Lien Bonds, the underwriting syndicate tightened spreads 37 basis points from price views and 22 basis points from premarketing levels
– The lower interest rates saved DWSD approximately $3.5 million on the Second Lien Bonds
Senior Lien Spreads
Maturity
Sewer
Par
7/1/2017
Water
Par
505
7/1/2018
Pre
Marketing
Spread
40
Second Lien Spreads
Final
Pricing
Spread
33
50
Pre Marketing
Vs. Final
Pricing Benefit
-7
7/1/2017
N/A
7/1/2018
Maturity
7/1/2019
4,600
60
49
-11
7/1/2019
7/1/2020
2,005
70
58
-12
7/1/2020
7/1/2021
7,120
80
65
-15
7/1/2021
7/1/2022
5,925
90
75
-15
7/1/2022
Sewer
Par
500
Water
Par
Pre
Marketing
Spread
Final
Pricing
Spread
55
Pre Marketing
Vs. Final
Pricing Benefit
N/A
7/1/2023
7/1/2023
7/1/2024
7/1/2024
7/1/2025
7/1/2025
7/1/2026
7/1/2026
3,620
120
105
-15
115
N/A
7/1/2027
3,175
100
85
-15
7/1/2027
7,065
125
110
-15
7/1/2028*
8,250
100
65
-35
7/1/2028
7,415
125
110
-15
7/1/2029
9,270
100
85
-15
7/1/2029
7/1/2030
5,085
100
87
-13
7/1/2030
7/1/2031
5,660
100
86
-14
7/1/2031
7/1/2032
5,985
100
85
-15
7/1/2032
5,955
110
N/A
7/1/2033
6,405
100
85
-15
7/1/2033
21,165
7/1/2034
18,915
100
83
-17
7/1/2034
74,125
7/1/2035
6,530
100
83
-17
Total
89,430
7/1/2035**
77,815
Total
197,660
37,235
125
107
-18
125
103
-22
125
103
-22
37,235
* Insured by AGM
4
** $5 million insured by AGM (only uninsured spread is displayed)
PAGE 11
Over $38 Million in Savings to DWSD
Over $38 million in gross cash flow savings and $29 million in present value savings was captured, with positive
savings generated in every fiscal year.
Refunding Statistics
Delivery Date
Refunding Savings
Fiscal Year
Water Savings
By Year
Sewer Savings
By Year
Total Savings
By Year
Water System
Sewer System
12/15/2015
12/15/2015
2016
$3,078,891
$863,826
$3,942,717
Refunding Par
$126,665,000
$197,660,000
2017
1,698,550
838,370
2,536,920
Refunded Par
$142,065,000
$215,245,000
2018
3,023,100
872,370
3,895,470
2003A, 2003B,
2005A, 2005C
2001D,
2005A, 2005C
2019
232,000
1,231,370
1,463,370
2020
158,500
1,065,570
1,224,070
2021
158,500
2,950,370
3,108,870
Series Refunded
Gross Savings
$16,389,941
$21,883,689
2022
158,500
1,166,575
1,325,075
PV Savings ($)
$13,003,173
$16,347,772
2023
158,500
1,051,050
1,209,550
9.2%
7.8%
2024
158,500
833,213
991,713
$357,691
$584,135
2025
928,500
6,593,450
7,521,950
97.3%
96.6%
2026
2,120,000
756,200
2,876,200
2027
220,000
200
220,200
PV Savings (%)
Negative Arbitrage
Escrow Efficiency
True Interest Cost
3.87%
4.17%
2028
160,000
200
160,200
All-In TIC
3.96%
4.24%
2029
162,500
200
162,700
Avg. Life
15.1 yrs
18.1 yrs
2030
161,875
200
162,075
2031
162,875
200
163,075
2032
162,275
200
162,475
2033
159,050
3,655,200
3,814,250
2034
3,323,900
1,425
3,325,325
2035
3,925
3,500
7,425
$16,389,941
$21,883,689
$38,273,629
Savings, Negative Arbitrage, and Escrow Efficiency calculations for the Sewer system do not include the defeasance of the Sewer Series 2001D Auction Rate Security.
5
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PAGE 13
AGENDA ITEM #7A
City of Detroit
Water & Sewerage Department
Financial Services Division
DT: December 9, 2015
TO: Board of Water Commissioners Finance Committee
FM: Nicolette Bateson, CPA, Chief Financial Officer
RE: Resolutions Adopting Amendment to Ordinance and Authorizing Execution of
Supplement to Indenture for Both the Water Supply System and the Sewage Disposal
System
Background/Analysis: The Board of Water Commissioners is being asked to adopt a final set
of resolutions (one for both the water and sewer systems) to complete the bondholder consent
process. An explanatory memo and the related resolutions prepared by Ms. Ann Fillingham of
Dykema are attached. Ms. Fillingham will be present at the Finance Committee to review these
resolutions with the Committee.
Proposed Action: The Finance Committee recommends that the Board of Water
Commissioners approve the Resolutions Adopting Amendment to Ordinance and Authorizing
Execution of Supplement to Indenture for Both the Water Supply System and the Sewage
Disposal System.
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AGENDA ITEM #8B
City of Detroit
Water & Sewerage Department
Financial Services Division
DT: December 9, 2015
TO: Board of Water Commissioners Finance Committee
FM: Nicolette Bateson, CPA, Chief Financial Officer
RE: CFO Report – Thank you!
I want to express my most heartfelt appreciation to serve our customers as the Chief Financial
Officer for the City of Detroit Water & sewerage Department (DWSD) since February 2013.
The past 2+ years have been incredibly rewarding as a member of s a strong team that navigated
through the City of Detroit’s Chapter 9 with a successful tender/refunding, achieved regional
engagement resulting in the formation of the Great Lakes Water Authority (GLWA), rolled out
entity-wide optimization, engaged finance transformation, achieved cross-functional
collaboration, demonstrated a commitment to transparency, evaluated numerous ERP strategies,
and deployed just about any other tool in the management toolkit to craft a long and sustainable
future for our local and regional water system. These things could not have been achieved
without a thoughtful, supportive, and dedicated Board of Water Commissioners.
I have also been honored to work with a fine team of dedicated staff throughout DWSD. I do
give special thanks to the Financial Services Group team that have embraced and advance
continuous improvement. Presently we continue to press forward on the long list of prioritized
transition issues to stand up the GLWA and the DWSD-R entities. The status on all key finance
tasks for the January 1, 2016 operational effective date is green (on target).
The quick on-ramping to DWSD in 2013 would not have occurred without the active participants
in the wholesale customer outreach program. I am especially appreciative for their support of
our continuous improvement efforts and look forward to their engagement as I begin my tenure
as the Treasurer/Chief Financial Officer for the GLWA. In that role, I also look forward to
continuing to serve the City of Detroit in collaboration with, and support to, the leadership of the
new, local system focused DWSD.
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