REPORT TO THE CITY COUNCIL
FROM: MICHAEL LIMA, Finance Director/Controller
Finance Department
BY: PHILLIP L. HARDCASTLE, Principal Accountant - Debt Administration
Finance Department
SUBJECT:
Title
Actions pertaining to executing the Master Equipment Lease Purchase Agreement and Resolution:
1. RESOLUTION - Authorizing the execution and delivery of a Master Equipment Lease Purchase Agreement and certain separate lease schedules with respect to the acquisition, purchase, financing and leasing of equipment for the public benefit; and authorizing the execution and delivery of documents required in connection therewith.
2. Approve an agreement of the Master Equipment Lease Purchase Agreement (MELPA) with Banc of America Public Capital Corp. (BAPCC)
Body
RECOMMENDATION
Staff recommends that the Council adopt the resolution approving a Master Equipment Lease Purchase Agreement with Banc of America Public Capital Corp. This agreement is necessary to provide the City with a lease-purchase financing mechanism to purchase equipment, vehicles, and other items.
EXECUTIVE SUMMARY
The City has utilized a Master Equipment Lease Purchase Agreement (MELPA) for several years. A MELPA provides a ready-to-use mechanism to finance equipment purchases over time. The City’s previous MELPA expired on December 31, 2021. Staff conducted a procurement process to find a lender that would finance a new MELPA. As a result of that process, it is recommended that the Council approve a new MELPA with Banc of America Public Capital Corp (BAPCC). Proceeds from this MELPA will be used to fund upcoming equipment purchases which will be approved as part of current and future Adopted Budgets, and other equipment as approved by the City Council.
BACKGROUND
A MELPA is a common form of financing that the City has utilized for several years to lease-purchase fire apparatus, police vehicles (including helicopters), telecommunications, computers, building improvements, and software licenses. The MELPA does not approve the purchase of this equipment nor authorize the financing of any equipment. It simply provides a mechanism to fund equipment once approval for purchase and authorization to finance is given by the City Council. A new MELPA is needed to succeed the City’s previous MELPA, which expired on December 31, 2021.
On September 22, 2021, the City requested proposals for a MELPA from local, regional and national financing institutions. There were 359 firms asked to submit a proposal; including local firms; 16 of whom have previously solicited the City for these types of services. Out of all that outreach, only BAPCC submitted a proposal. BAPCC was the company that serviced the City’s previous MELPA. BAPCC’s proposal offers the same rapid timelines for financing that were in the previous MELPA, with interest rates that are lower than those in the previous MELPA with the City. Because of their competitive pricing and their overall response, City staff is recommending the selection of BAPCC to provide a MELPA and associated services to the City.
The proposed MELPA with BAPCC will provide for lease financing of City needs over the next three years, up to a maximum aggregate leasing of $35 million. The contract also provides for two 1-year extensions by mutual agreement. In that this MELPA is intended to meet the City’s equipment financing needs over this time frame, the lease rate has been structured so that the rate is set each time the City needs to lease purchase equipment. The lease rate is set by adding a fixed percentage (Rate Spread) to 79% of the Average-Life Swap Rate (Index) for the number of years approved by the Council on each individual lease. Rate spreads are between 52.16 and 78.45 basis points above 79% of the Index. A structure of this type is common and provides the lessor and lessee with market-level lease rates at the time a lease purchase is transacted. The Index can be found on the Intercontinental Exchange Inc. website at www.theice.com/marketdata/reports /180 <http://www.theice.com/marketdata/reports%20/180>.
The City Attorney’s Office has reviewed the MELPA and approved to form. It is on file with the City Clerk’s Office for review.
ENVIRONMENTAL FINDINGS
This item is not a project of the City of Fresno and as such, the California Environmental Quality Act requirements are not applicable.
LOCAL PREFERENCE
Local preference would have been considered in the evaluation of the documents and pricing. However, BAPCC was the only respondent. BAPCC does not have a local presence.
FISCAL IMPACT
Adopting the resolution approving the MELPA allows the City Departments to finance certain equipment through lease-purchase under this agreement, subject to meeting any competitive procurement, budgeting, and appropriation requirements. There is no concurrent fiscal impact. Not approving the resolution will require the City to reconsider certain acquisitions or find alternative funding sources or methods to purchase items; including items that the Council has already appropriated in the Fiscal Year 2022 budget.
Attachment: Master Equipment Lease Purchase Agreement
Resolution