1 2 3 4 5 6 7 KERR COUNTY COMMISSIONERS COURT 8 Special Session 9 Friday, February 4, 2005 10 3:00 p.m. 11 Commissioners' Courtroom 12 Kerr County Courthouse 13 Kerrville, Texas 14 15 16 17 Reconvened from Thursday, February 3, 2005 18 19 20 21 22 23 PRESENT: PAT TINLEY, Kerr County Judge H. A. "BUSTER" BALDWIN, Commissioner Pct. 1 24 WILLIAM "BILL" WILLIAMS, Commissioner Pct. 2 JONATHAN LETZ, Commissioner Pct. 3 25 DAVE NICHOLSON, Commissioner Pct. 4 2 1 I N D E X February 4, 2005 2 PAGE 3 1.1 Order authorizing the Issuance, Sale and Delivery of "Kerr County, Texas Certificates of Obligation, 4 Series 2005", providing for the future authorization of the levy of an annual ad valorem tax to secure 5 the payment thereof; approving and authorizing the execution of all instruments and procedures related 6 thereto including a Paying Agent/Registrar Agreement and a Purchase Agreement; approving the form of an 7 Official Statement; and providing for an immediate effective date 3 8 1.2 Consider and discuss authorizing County Judge to 9 execute any and all necessary documents on behalf of Kerr County to complete the purchase of the 10 Juvenile Detention Facility and issuance and sale of Certificates of Obligation, delivery of funds 11 to existing bondholders, and obtaining any necessary or required releases from bondholders, trustee(s) 12 and/or others 16 13 --- Adjourned 19 14 15 16 17 18 19 20 21 22 23 24 25 3 1 On Friday, February 4, 2005, at 3:00 p.m., the 2 February 3rd, 2005 special meeting of the Kerr County 3 Commissioners Court was reconvened in the Commissioners' 4 Courtroom, Kerr County Courthouse, Kerrville, Texas, and the 5 following proceedings were had in open court: 6 P R O C E E D I N G S 7 JUDGE TINLEY: Let me reconvene the -- the 8 Commissioners Court meeting that was recessed at 9 approximately 3:45, I believe, yesterday afternoon, and was 10 recessed until 3 o'clock this afternoon. It is a bit past 11 that time now. The items that are on the agenda for today's 12 consideration, I -- I've been advised a little over an hour 13 ago -- about an hour and 15 minutes ago that Mr. Noel Valdez 14 with the bond counsel firm of McCall, Parkhurst, and Horton 15 is en route, together with a representative from RBC Dain 16 Rauscher, the County's financial adviser. They should be 17 here momentarily with reference to the agenda items that we 18 have here today. But let me go ahead and first call the 19 first item. Order authorizing the issuance, sale, and 20 delivery of Kerr County, Texas Certificates of Obligation, 21 Series 2005, providing for the future authorization of a 22 levy of an annual ad valorem tax to secure the payment 23 thereof, approving and authorizing the execution of all 24 instruments and procedures relating thereto, including a 25 Paying Agent/Registrar Agreement and a Purchase Agreement, 2-4-05 4 1 approving the form of the Official Statement, and providing 2 for immediate effective date. I do note that we do have a 3 public participation form by a citizen who wishes to speak, 4 I presume, on this item. It relates to the Juvenile 5 Detention Facility. Ms. Claudell Kercheville. 6 MS. KERCHEVILLE: Yes, sir. 7 JUDGE TINLEY: Would you -- if you'd come 8 forward and identify yourself by name and address to the 9 reporter, and -- 10 MS. KERCHEVILLE: My name is Claudell 11 Kercheville, K-e-r-c-h-e-v-i-l-l-e. I reside at 118 Hilltop 12 Drive in Kerrville, Kerr County, Texas. That's District 2. 13 Your Honor, I do -- I would -- I come this afternoon with 14 questions. I have followed this -- the discussion in the -- 15 and the information that's in the newspapers. I've followed 16 this very closely, and I've taken a very keen interest in 17 it. And I decided that since I saw that -- I thought it was 18 a foregone conclusion, and then I saw yesterday that it was 19 delayed because -- as I understand, because of not securing 20 all the signatures that would indemnify the County. I 21 believe that's maybe the correct term. But I come with some 22 questions today that I'd like maybe you all to answer for 23 me, and if it's not appropriate, maybe I could -- you could 24 get back with me with the answers. May I state my 25 questions, please? I notice that there is recent reference 2-4-05 5 1 to the operating losses. That was not brought out 2 initially. It was, you know, "We're going to buy this," 3 and, you know, it's an operating facility, and it operates 4 at -- I guess at near break-even point or something. And 5 there had been recent references to the operating losses. 6 And these are my questions, please. How many 7 new employees are we adding to the County payroll, and what 8 are the estimated costs, including their benefits? What are 9 the -- what will be the projected rate of interest on the 10 proposed bonds? I know that probably those -- that maybe is 11 a negotiated rate, but in view of the downgrading of our 12 bond rating, I wondered if we might not have to pay a 13 premium rate for those. And I wondered if, also, referring 14 to the operating losses, I think concerning Mr. Letz' -- 15 your comments that were in -- quoted in yesterday's paper 16 about the -- that it would be near or break-even, I think, 17 or something, that -- something projected in that way. But 18 how will the losses be covered, and were they included in 19 the 2005 budget? And how will we pay those? And are the -- 20 will the sale of the bonds include the -- that deficit 21 amount? And those are my questions, and I just feel like 22 that the citizens maybe deserve and would like to hear more 23 concerning these particular issues. Thank you, sir. 24 COMMISSIONER LETZ: If I may make just a 25 general comment, we generally don't get into dialogue and 2-4-05 6 1 answer questions in this format. 2 MS. KERCHEVILLE: Okay. 3 COMMISSIONER LETZ: It's just difficult for 4 us, but I'll be glad to meet with you after the meeting, and 5 I can go over my comments. And -- 6 MS. KERCHEVILLE: Okay. Well, maybe -- 7 sometimes you might be misquoted, but I think you were the 8 one that he referenced the remarks to, sir. 9 COMMISSIONER LETZ: I haven't read the paper 10 today, so I'm not sure what they said I -- what they say I 11 said this time. 12 MS. KERCHEVILLE: Well, the San Antonio paper 13 gives a little bit more concise information than the 14 Kerrville paper does. They give a little bit more in-depth 15 information. 16 JUDGE TINLEY: All right. I think we've got 17 with us representatives from RBC Dain Rauscher and -- 18 MR. VALDEZ: Noel Valdez. 19 JUDGE TINLEY: -- McCall Parkhurst, and this 20 is Mr. Valdez who just came in the door, and this is 21 Mr. Dusty Traylor with RBC Dain Rauscher. I've called the 22 agenda item for the order authorizing the issuance, sale, 23 and delivery of the Kerr County, Texas Certificates of 24 Obligation, Series 2005, and if you gentlemen would be kind 25 enough to report to the Court where we are at this juncture, 2-4-05 7 1 I think we can move on. 2 MR. VALDEZ: I'll be happy to do so. I -- 3 once again, for the record, my name's Noel Valdez with the 4 law firm of McCall, Parkhurst, and Horton. I apologize that 5 Tom can't be here today. He's flying in from Phoenix, but 6 I've been in conversations with him this afternoon, this 7 morning, and he's been in conversation with trustee's 8 counsel, and also counsel to the bondholders. We received 9 this morning -- we've received all signature fax -- faxed 10 signature pages to the Consent and Release Agreement, and 11 we've released -- and we have also received a signature page 12 from the trustee signing the release agreement. The only 13 thing I would say is, there's one bondholder, Citigroup, 14 where Bank of New York is holding the bonds in trust for 15 Citigroup, but Citigroup has authorized Bank of New York, as 16 trustee, to sign the release agreement. 17 So, with that, we have all signatures to the 18 Consent and Release Agreement. Having known that -- and 19 this morning, we -- we had conversations with the Judge, 20 went into the market, priced the bonds. At this particular 21 juncture, Dusty's going to give you some information on how 22 that pricing went, and then up for your consideration will 23 be the -- the approval and sale of the certificates. And 24 I'll be happy to explain that order, and then there's going 25 to be a second process wherein you would also approve the 2-4-05 8 1 tax, but that would be at a separate meeting. And I'll be 2 happy to discuss those details. But I will, unless you have 3 any other questions for me at this point, turn it over to 4 Dusty to let you know how that pricing went. 5 JUDGE TINLEY: Thank you, Mr. Valdez. 6 Mr. Traylor? 7 MR. TRAYLOR: Thank you, Judge, 8 Commissioners. For the record, again, my name is Dusty 9 Traylor with RBC Dain Rauscher Incorporated, and Bob 10 Henderson has been in New Mexico for most of the week and 11 sends his regards; he could not attend today. With the 12 information that we received today that all of the 13 bondholders had approved the Consent and Release Agreement, 14 we went forth and instructed the underwriters to place the 15 bonds in the bond market today. They were able to do that 16 at -- at negotiated rates of interest and were in the market 17 for about an hour and a half, and then their orders came 18 back to us, and said that they had completed the 19 underwriting process and had a deal in-hand for us. And 20 it's my -- my privilege to be here today to present that 21 deal for your approval for the Court. 22 They went forth and sold Certificates of 23 Obligation, Series 2005, in the par amount of $2 million for 24 the County. This would leave 1.9 million available, as -- 25 as agreed upon earlier, for the Kerr County Juvenile 2-4-05 9 1 Detention Facility Corporation. The interest rate on these 2 bonds, the true interest cost is 5.25 percent. And you've 3 got to realize that in that 5.25 percent, that also includes 4 costs of issuance. If we were to just look at this thing 5 based upon the -- just the interest rates on the bonds 6 themselves as they're issued, that interest rate comes out 7 to 3.41 percent. Basically, what happens when you issue 8 bonds, all the costs of issuance get lumped in. They have 9 to be part of the interest costs as it's -- as it's 10 calculated, but the true interest cost without those is 11 3.419 percent. These bonds go out from year 2006; they 12 mature in 2006 through 2010. We feel like with the -- the 13 underlying rating of these bonds were sold with the 14 underlying rating of the County, which is an A3 from 15 Moody's. That is a very good deal on these rates for the 16 County to accept these terms. 17 COMMISSIONER WILLIAMS: First coupon is due 18 when? 19 MR. TRAYLOR: 2006. 20 COMMISSIONER WILLIAMS: 2006. 21 MR. TRAYLOR: Yes, sir. 22 COMMISSIONER LETZ: Do you recall what the -- 23 the old $5 million debt, what the rate of those bonds was? 24 MR. TRAYLOR: I do not know. I do not recall 25 exactly what the overall percentage rate was. Those bonds, 2-4-05 10 1 I know, went out to 2022, something like that, and those 2 bonds had an interest rate -- the bonds in 2022 had an 3 interest rate of, you know, 5 and a half percent, 5 and a 4 quarter percent, something in that area. But this structure 5 is much shorter than this structure. It's kind of not 6 really an apples-to-apples comparison. I -- 7 COMMISSIONER BALDWIN: Mr. Traylor, would you 8 explain to me what cost of issuance is and what all that 9 entails? 10 MR. TRAYLOR: Yes, sir. When bonds get sold 11 on the bond market, the -- there has to be some costs set 12 aside, some money set aside to help pay for selling of those 13 bonds. It's just like when you have retail stockbrokers and 14 you go to sell your stocks or bonds in your portfolio, they 15 keep a portion of the proceeds of the sale of those. 16 Those -- 17 COMMISSIONER BALDWIN: Is that your firm? 18 MR. TRAYLOR: That's not our firm that's -- 19 that's doing this. Southwest Securities is the underwriter 20 on this deal. 21 COMMISSIONER BALDWIN: Okay. 22 MR. TRAYLOR: And they are keeping a portion 23 of those for the sale of the bonds. You know, there are 24 other fees that go along with any bond transaction. There 25 are fees for our firm. There are fees for Mr. Valdez' firm, 2-4-05 11 1 McCall, Parkhurst, and Horton. Those are also included in 2 the transaction. But -- 3 COMMISSIONER BALDWIN: Okay. 4 MR. TRAYLOR: So, you have fees for the 5 underwriters, fees for the rating agency, fees for our firm, 6 fees for Mr. Valdez' firm, as well as printing costs, things 7 like that. 8 COMMISSIONER BALDWIN: Okay, thank you. 9 COMMISSIONER WILLIAMS: Do we understand 10 correctly that there is no bond insurance required of Kerr 11 County? 12 MR. TRAYLOR: Mr. Williams, that is correct, 13 there is no bond -- there is no bond insurance on these -- 14 these bonds. These bonds are backed by the County's credit. 15 COMMISSIONER WILLIAMS: Thank you. 16 COMMISSIONER NICHOLSON: I don't know who 17 knows the answer to this question, but we're borrowing $2 18 million and we're spending $1.9 million to the bondholders. 19 Where's the other 100,000 go? 20 MR. TRAYLOR: Yes, sir. That -- that money 21 goes to the costs of issuance. 22 MR. VALDEZ: And I would say there's also a 23 portion of that money that's going to title insurance and -- 24 MR. TRAYLOR: That's correct. 25 MR. VALDEZ: -- and also payment of 2-4-05 12 1 attorney's fees having to do the with the real estate 2 transaction. 3 MR. TRAYLOR: That's correct. 4 COMMISSIONER NICHOLSON: Closing costs? 5 JUDGE TINLEY: Yeah. All of these costs that 6 you're talking about are just the normal affiliated costs 7 for transactions of this type. 8 MR. TRAYLOR: Every one of these costs, with 9 the exception of some of these real estate costs built in 10 here, are -- are usual and normal costs of any bond 11 transaction that you would do. Whether you were doing this 12 type of bond transaction, or if you were doing a 13 transaction -- or if you were setting new streets and 14 drainage, these are all usual and normal costs. 15 JUDGE TINLEY: The real estate costs are 16 involved because we're going to be transferring a piece of 17 real estate. 18 MR. TRAYLOR: Absolutely. Yes, sir. 19 JUDGE TINLEY: Okay. 20 COMMISSIONER WILLIAMS: Well, I don't know 21 for certain, but I'm pretty sure I recollect that this rate, 22 3.419, is better than the rate that the $5 million was 23 struck on. 24 MR. TRAYLOR: I would have to agree that this 25 rate is -- is a lower rate than the $5 million was struck 2-4-05 13 1 on. However, it's not necessarily an apples-to-apples 2 comparison. 3 COMMISSIONER WILLIAMS: I understand. The 4 term is shorter. 5 MR. TRAYLOR: Yes, sir, you are correct. 6 JUDGE TINLEY: Any other questions for 7 Mr. Traylor? Okay. Thank you, Mr. Traylor. 8 MR. TRAYLOR: Thank you, Judge. 9 JUDGE TINLEY: With respect to this 10 particular agenda item, do you have anything further for us, 11 Mr. Valdez? 12 MR. VALDEZ: Yes. I would just add that what 13 you will be considering right now is the -- the authorizing 14 of the sale and delivery of the bonds, authorizing the 15 signing of the purchase contract. I've been in 16 conversations with underwriter's counsel, so that they're 17 well aware of -- of the recess and reconvening today, and 18 they're fine. However, the actual tax levy to pay the 19 certificates of obligation will not be considered until 20 February 14th at your regular term, as required by state 21 law. 22 COMMISSIONER WILLIAMS: Need a motion, Judge? 23 JUDGE TINLEY: Well, if we're going to go 24 forward, we're going to have to have a motion. 25 COMMISSIONER WILLIAMS: I would move that 2-4-05 14 1 Commissioners Court authorize the issuance, sale, and 2 delivery of Kerr County, Texas Certificates of Obligation, 3 Series 2005, providing for the future authorization of a 4 levy of an annual ad valorem tax to secure the payment 5 thereof, approval and authorizing the execution of all 6 instruments and procedures related thereto, including a 7 Paying Agent/Registrar Agreement and a Purchase Agreement, 8 approving the form and official statement, and providing for 9 the immediate effective date. And do we need authorization 10 for the County Judge to sign necessary documents on that? 11 JUDGE TINLEY: Certainly wouldn't hurt, but 12 there's a separate -- 13 COMMISSIONER WILLIAMS: There's a second one. 14 So, do you want them separate, or do you want them together? 15 JUDGE TINLEY: Separately is fine. 16 COMMISSIONER WILLIAMS: Okay. I -- that's 17 the first motion. 18 JUDGE TINLEY: Okay. 19 COMMISSIONER LETZ: Second. 20 JUDGE TINLEY: Motion made and seconded for 21 approval of the agenda item as stated. Any questions or 22 discussion on the motion? 23 COMMISSIONER BALDWIN: I have a question. 24 Judge, do you have all of the signatures in-hand? 25 JUDGE TINLEY: I do not personally. It's my 2-4-05 15 1 understanding our counsel that's been handling this 2 transaction for us does, or at least facsimile copies; that 3 we anticipate -- 4 MR. VALDEZ: I have with me signature pages 5 from all the bondholders, and the trustee's signature. The 6 only exception is that one bondholder who trustee's counsel 7 has assured Tom Spurgeon that he does have a written -- a 8 written document accepting the release and directing Bank of 9 New York, as its trustee, to sign the release. 10 JUDGE TINLEY: Okay. 11 COMMISSIONER BALDWIN: So you have one lawyer 12 promising another lawyer that's promising us. But, 13 whatever. That's good, if you're happy. 14 JUDGE TINLEY: Mr. Spurgeon was -- was 15 satisfied to go into the marketplace. 16 MR. VALDEZ: And I think that most of the 17 concern -- and, you know, I'm -- just from my observation, 18 has been with the trustee signing off on -- on the 19 transaction. And I will say that I do have trustee's 20 signature with me agreeing to the consent. 21 JUDGE TINLEY: Okay. Anything further? All 22 in favor of the motion, signify by raising your right hand. 23 (Commissioners Williams and Letz voted in favor of the motion.) 24 JUDGE TINLEY: All opposed? 25 2-4-05 16 1 (Commissioners Baldwin and Nicholson voted against the motion.) 2 3 JUDGE TINLEY: Chair votes in favor of the 4 motion. The motion passes. The next item of business is 5 consider and discuss authorizing the County Judge to execute 6 any and all necessary documents on behalf of Kerr County to 7 complete the purchase of the Juvenile Detention Facility and 8 issuance of sale of Certificates of Obligation, delivery of 9 funds to existing bondholders, and obtaining any necessary/ 10 required releases from bondholders, trustees, and/or others. 11 I put this matter on the agenda as kind of a catch-all. 12 Oftentimes there are various and sundry documents, as I'm 13 sure the County Attorney can verify, that are involved with 14 transactions that have to be executed in connection with 15 these transactions, and that was merely to avoid having to 16 come back to the Court in the event those come up and have 17 to be signed. It would be collateral, of course. 18 COMMISSIONER LETZ: I don't see that all of 19 that is necessary, the way I read it. 20 JUDGE TINLEY: Okay. 21 COMMISSIONER BALDWIN: You're joking. 22 COMMISSIONER LETZ: Well, I mean, it seems 23 that we -- I don't know what you're going to have to sign 24 related to the releases from bondholders. They're signing 25 the releases of bondholders. And I have no problem with any 2-4-05 17 1 document related to purchasing -- completing the purchase of 2 the Juvenile Detention Facility and issuance of Certificates 3 of Obligation, delivery of funds, but the release part I 4 don't see. And I'd like to keep it as limited as possible 5 so that if we -- if there are some other things that need to 6 be done, the full Court decides on them. So, I'll make a 7 motion to authorize the County Judge to execute any and all 8 necessary documents on behalf of Kerr County to complete the 9 purchase of the Juvenile Detention Facility and issuance and 10 sales of Certificates of Obligation, delivery of funds to 11 existing bondholders. That's it. 12 COMMISSIONER WILLIAMS: Second. 13 JUDGE TINLEY: Motion made and seconded as 14 indicated. Any question or discussion? All in favor of the 15 motion, signify by raising your right hand. 16 (Commissioners Williams and Letz voted in favor of the motion.) 17 JUDGE TINLEY: All opposed? 18 COMMISSIONER BALDWIN: No. 19 (Commissioners Baldwin and Nicholson voted 20 against the motion.) 21 JUDGE TINLEY: Chair votes in favor of the 22 motion. The motion passes. Anything further, gentlemen? 23 COMMISSIONER WILLIAMS: Just -- Claudell, if 24 you'll join us back here after court, we'd be happy to 25 address your questions. 2-4-05 18 1 MS. KERCHEVILLE: Thank you. 2 COMMISSIONER BALDWIN: Judge, I just want to 3 say that it's my opinion you've done the wrong thing. 4 However, I'm a team player, and now that the majority of 5 this Court has spoken, I'm on board and I'll do everything 6 in my power to make this thing work. 7 COMMISSIONER NICHOLSON: As will I. 8 COMMISSIONER WILLIAMS: And, just a footnote. 9 You probably all received an e-mail -- at least you should 10 have received an e-mail yesterday from Ms. Harris confirming 11 that she did, in fact, have a meeting which I assisted in 12 setting up with Bexar County, and Bexar County is going to 13 resume -- or renegotiate its agreement with Kerr County to 14 send its juveniles here. And the Bexar County delegation, 15 which is one Commissioner Larson, the judge -- the 16 probation -- juvenile probation judge, and others in the 17 Probation Department, will be in Kerr County at the facility 18 for a -- for the graduation on the 11th, I believe. Is that 19 right, Commissioner? 20 COMMISSIONER BALDWIN: Friday, the 11th. 21 COMMISSIONER WILLIAMS: Friday, the 11th. 22 COMMISSIONER BALDWIN: 10 a.m. 23 COMMISSIONER WILLIAMS: 10 a.m., to tour the 24 facility. And their view is to move forward and re -- and 25 have a new agreement with us in place. 2-4-05 19 1 COMMISSIONER LETZ: Good. 2 COMMISSIONER WILLIAMS: I think that's good 3 news. 4 JUDGE TINLEY: Anything else? We'll stand 5 adjourned. 6 (Commissioners Court adjourned at 3:24 p.m.) 7 - - - - - - - - - - 8 9 10 STATE OF TEXAS | 11 COUNTY OF KERR | 12 The above and foregoing is a true and complete 13 transcription of my stenotype notes taken in my capacity as 14 County Clerk of the Commissioners Court of Kerr County, 15 Texas, at the time and place heretofore set forth. 16 DATED at Kerrville, Texas, this 7th day of February, 17 2005. 18 19 20 JANNETT PIEPER, Kerr County Clerk 21 BY: _________________________________ Kathy Banik, Deputy County Clerk 22 Certified Shorthand Reporter 23 24 25 2-4-05