Authority to Issue Debentures During 2000

The Policy and Finance Committee recommends the adoption of the following report (December 23, 1999) from the Chief Financial Officer and Treasurer:

Purpose:

This report requests Council's annual authority to enable the Mayor and the Chief Financial Officer and Treasurer to negotiate and enter into agreements for the issuance of debentures, including foreign exchange and interest rate contracts if required, as permitted by provincial legislation.

Funding Sources, Financial Implications and Impact Statement:

Based upon preliminary forecasts of capital expenditures as well as previously approved amounts that may need to be permanently financed during 2000, debenture requirements for the City of Toronto, including the Toronto District School Board, total approximately $500 million. Although the actual timing of a proposed financing transaction is related to capital market conditions, the impact of the City's forecasted 2000 debenture requirements and debt charges will be detailed in the 2000 Capital Program, the Capital Financing Plan and the 2000 Operating Budget.

Recommendations:

It is recommended that:

(1)authority be granted for the Mayor of the City of Toronto and the Chief Financial Officer and Treasurer to enter into an agreement or agreements, in accordance with Section 101 of the City of Toronto Act, 1997 (No. 2) with a purchaser or purchasers for the sale and issuance of debentures to provide an amount in 2000 not to exceed $500 million;

(2)authority be granted for the introduction of the necessary Bills in Council to give effect to the foregoing; and

(3)the appropriate City of Toronto officials be authorized to take the necessary actions to give effect thereto.

Background:

Section 101 of the City of Toronto Act, 1997 (No. 2) empowers the Council annually by by-law to authorize the Mayor and the Chief Financial Officer and Treasurer to negotiate and enter into agreements for the issuance and sale of debentures to finance capital expenditures previously approved, including the purposes of any former area municipality, the former Municipality of Metropolitan Toronto and a board of education, subject to such terms and conditions as the by-law specifies. Sections 146(2) and 146(7) of the Municipal Act, permit municipalities as may be prescribed by provincial regulations to enter into agreements to manage any risk associated with issuing debentures in foreign currencies due to changes in exchange or interest rates.

Any such agreements must be reported to Council not later than the second regular meeting of Council after the agreement is signed and Council is required to pass all necessary money by-laws to carry out the agreement.

Discussion:

Preliminary estimates of debenture requirements for 2000 to finance capital expenditures on behalf of the City of Toronto, the former area municipalities, the former Municipality of Metropolitan Toronto and the Toronto District School Board total approximately $500 million. This sum may be reduced during capital budget considerations. In 1999, the preliminary amount identified was $500 million and the authority to issue up to this amount was requested and approved. Due to capital market conditions and timing considerations as well as the Province delaying approvals for the Toronto District School Board to issue debt, no debenture financing was completed during the year to finance the City of Toronto=s requirements.

The proceeds from debentures issued under this authority will be used to finance capital expenditures that have been incurred or committed for fully approved projects.

Conclusion:

This report is requesting that authority be granted to the Mayor and the Chief Financial Officer and Treasurer to negotiate and enter into agreements for the sale and issue of debentures not exceeding $500 million and related financial agreements in order to manage any risk associated with foreign currency debentures as required by provincial regulations. By providing this mechanism, it is recognized by the City of Toronto Act, 1997 (No. 2) that a successful debenture issue requires an ability to respond to financial market conditions in a timely manner to obtain the most advantageous rates and terms. The Act requires that a signed agreement must be reported to Council no later than the second regular meeting of Council when the required money by-laws are passed.

Contact Names and Telephone Number:

Len Brittain, Director, Treasury and Financial Services, Tel: 392-5380, Fax: 397-4555.

Martin Willschick, Manager, Treasury Services, Tel: 392-8072.