Travis County Commissioners Court
December 16, 2008
Travis County Housing Finance Corporation
>> > good afternoon. We do not need the Travis County road district. Let's call to order the Travis County housing finance corporation. First action consider and take appropriate action on request to approve payment to trimbuilt.
>> the amount is the 5% retainage that facilities management has recommended that is appropriate to pay this amount. It is $13,485, essentially the visitation center has been completed. It has not cleared the state, you know, the state has to inspect it and give the okay to make the donation to the state. But we recommend approval of the invoice.
>> so moved.
>> second.
>> discussion? All in favor? That passes by unanimous vote. Number 2 is consider and take appropriate action regarding resolution authorizing sale of the mortgage-backed securities securing the corporation's single-family mortgage revenue bonds series 2006 a, amt, approving the form and substance of a purchase agreement and the discharge of the related indentures, authorizing the execution of documents and instruments necessary or convenient to carry out the purposes of the resolution and takenning other provisions relating thereto.
>> I'm here with cliff bun, our attorney, our financial adviser and mark o'brien with morgan keygan and I'll let mark brief the court on why we are presenting this to the board and the rationale behind doing this transaction.
>> thank you, harvey. Judge Biscoe, Commissioners, mark o'brien with morgan keygan and company, single bond underwriter for the Travis County housing finance corporation. You'll recall we did this in our new era of doing single-family bond programs in conjunction with the city of Austin. We did a program in 2006 and 2007. A 15 million-dollar program in 2006 and both were successful, fully originated the loans. Helped a lot of first time home buyers achieve the dream of homeownership. Both programs are fine. What we are looking for and perhaps first or second quarter of 2009 such that the market will stabilize, but it's been a difficult market to put these programs in place anew right now. But what we were coming to you and we've developed this proposal over the last two months and discussed it with your bond counsel and when we did the 2007 -- 2006 a program, the $15 million issue, we sold those bonds for 104 cents on the dollar, plus 4% we used to the downpayment assistance grant to the home buyer families. Due who this tremendous market, these bonds are trading this the high 80s and low 90s. They've lost a lot of value. These are aaa rated bonds, backed by mortgage backed securities such that they will pay and all these holders if they wait long enough will get par for their bonds, but it's a function of buyers needing liquidity, such that's the situation we find ourselves that these bonds are trading significantly below to where we sold them. A number of holders have asked can we get out of these buyers for these bonds. We need cash and we're ready to take a discount in order to do that. That put light on our head which is the fact that collateral, mortgage backed security is still worth close to par, 98, 99, whereas the bonds are worth in the low 90s or high 80s. We developed a proposal for harvey and discussed it with your financing team and we appreciate their work on it as well and we have done this for several other issuers in Texas and around the country whereby we enter into agreement -- we negotiate with these bond holders to buy these bonds at a discount, 93 cents on a dollar and simultaneously effect a sale of mortgage backed securities backing the 2006 a issue. Let's say we achieve of price of 98 for that. That difference minus costs to put the transaction in place for your finance team would be cash to the housing finance corporation. That's what this transaction is about. It's basically just taking advantage of a market opportunity here for you all to get those bonds redomed early, sell off the collateral, pay off the bonds and push some cash into the housing finance corporation's pocket. That's the basic transaction. We've developed it quite detail with your counsel, your bond counsel in terms of making sure that this is appropriate in terms of secondary market trade and also that you retain the taxes and status of these bonds, that nothing negatively happens to the corporation or to this bond issue as you end up doing this transaction. In the event that the corporation were to approve going forward with the transaction, we would be ready as soon as tomorrow to bid out, to make an agreement with these bond holders. We've been in touch with them and gotten an indication they are willing to sell and at a certain level. That we would firm up that tomorrow, bid out these securities, the mortgage backed securities collateral tomorrow and the entire transaction would close on the 23rd, next Tuesday. So that is the sum and substance. I would be happy to answer any questions, but the basic trade is provide a wind for bond holders to get a slight premium from current market and they want out of these positions. It would be a win for the housing finance corporation because you are able to get some unrestricted cash to put into your coffers for future first time buyers or other housing needs. It would be unrestricted funds.
>> do we know about how much cash may be made available per this type of transaction for the housing corporation? Is there any type of projection as far as the amount of money?
>> yes, Commissioner Davis. We are conservatively estimating today it would be -- on this small 15 million-dollar issue this would be north of $300,000 of cash proceeds to the housing finance corporation. I believe that the motion that harvey has proposed to you with cliff's -- blunt's drafting is parameters type resolution that the transaction not go forward unless a minimum net amount were achieved on the transaction.
>> so do we have -- is there any risks that we would not be able to sell the certificates? At, you know, between 95 and 97?
>> no, I'm the financial adviser. I looked at this with mark, have been involved in the some of the discussions withholders and seen similar transactions that have been performed the last two or three weeks, and I really do believe that the market for those ginny may's is somewhere in that 97, 98 range in the market for the bonds somewhere in that 93 range. And if we can make this spread, it's -- it's cash in your pocket that's better than the present value back, what you get from the stream of income from fees is about $49,000. Here maybe you could get north of 300,000. In one fell swoop.
>> is there any risk?
>> what's the silver lining of this market? It's really a shame that somebody is taking it, but --
>> what's interesting, and mark did not mention, Commissioner Daugherty, if you all recall and you've heard in the news the mark to market rule. When the market goes down on all these things and with some of these types of securities, they are still aa. And paying every time they have to pay. They are performing. But because of the market value these companies have to mark these on their books, these assets down to whatever that market is. And sometimes in some different types of market backed securities you would see things go down to 50, $70 a hundred. So it's a win for them to get it off their books, create liquidity and get the cash. So yes, this is a silver lining in this situation and I believe the 2007 series, we're still in the origination period or it ends within days, the next couple of weeks, we could do this again with the 2007 bonds after the first of the year.
>> but even so -- but with the aaa rating compared to other ratings that are lower than aaa, we would actually yield and be getting more because of the rating still, though; is that correct? In other words, with the lower rating for someone, they would try to end up doing something --
>> most of these housing bonds are all rated at that level because they have the backing and where we sold them.
>> I was just referring to not Travis County per se. Let's just say it's another entity somebody trying to do the same thing.
>> there's always a --
>> but that rating is not as high as Travis County's. But anyway, go ahead.
>> yes, sir, I understand.
>> Commissioner eckhardt, you asked another question which I think is part of what you are asking. If we bid these tomorrow and agree -- they are holders the 3 and tomorrow they say 95 is my price, no deal, this whole thing goes away. Similarly if we bid out the ginny mays and the ginny may's only get us 94, 95, the transaction doesn't happen. It only happens if we have agreement.
>> right. So we'll set up parameters for --
>> yes, and --
>> minimum purchase and --
>> [multiple voices]
>> that's right.
>> I think what we had talked about beforehand is to put a minimum to the corporation that would be around 275 to 300. Was it 275 we talked about?
>> 250.
>> but I asked them to raise it. Also in the resolution harvey would have the authority in consultation with the judge and myself to say okay that we'll do the deal. But if for any reason the guys that are selling the bonds and the guys bidding on the bonds all have a bad breakfast and they don't want to do business tomorrow, we'll wait and come back next month and see if they are feeling any happier.
>> who do we think the new owners of these bonds would be?
>> actually the way this would be structured, morgan keegan would buy them, sell them at the same price, the bonds would be canceled t mortgage backed securities would find a new owner. This $15 million issue would go away altogether, you would have cash left over and the mortgage backed securities backed by these pools of mortgage loans in Travis County, Austin would be bought by a new purchaser. That generally we get four to five to six bids on that, judge, large wall street firms, hedge funds, mutual funds that is correct sort of thing or large banks buy this kind of mortgage backed securities collateral sue that's where they would go, to the highest bidder.
>> from the corporation standpoint, it's riskless.
>> there are some of those left in wall street?
>> [laughter]
>> are these considered preferable mortgage backed securities? I mean are our brand considered cleaner than other mortgage backed securities because of our financial literacy and screening processes?
>> well, the history of repayment is -- remains very strong so yes, they are quality bonds.
>> as we all found, mortgage backed securities are not very attractive these days.
>> well, and this is a different sort of mortgage backed securities. These are ginny may and fannie mae. These aren't collateralized. In the case of fanny and -- fanny and freddie effectively. That's really what investors are looking for. They've had a good pre-payment record.
>> I think it's safe to say, Commissioner eckhardt, of all the things we've heard about in the news, this is the highest tier.
>> so they should have zero affect on the homeowners.
>> correct. They will continue making their payments on the loans, the very is in controller will continue to service the loans. That's correct.
>> this started out as a $15 million deal. The outstanding balance is now 14 --
>> 144,229. We had that level of payoffs and loans have amortized or paid off. The original 15 is close to 14 million now.
>> it really becomes 14 million plus transaction.
>> correct.
>> okay. Questions?
>> move approval.
>> second.
>> any more discussion? All in favor? That passes by unanimous vote.
>> thank you.
>> see you next year.
>> if something happens that we're not able to pull off the deal as described today, basically we don't identity and come back to the board.
>> that's correct.
>> okay.
>> thank you.
>> thank you all.
>> 3, consider and take appropriate action regarding resolution authorizing sale of the mortgage backed securities securing the corporation's single-family mortgage revenue bonds series 2007 a, amt, approving the form and substance of a purchase agreement and the discharge of the related even dentures, authorizing the execution of documents and instruments necessary or convenient to carry out the purposes of the resolution, and containing other provisions relating thereto. And these read pretty much the same except for the year of the series.
>> yes, sir this is a resolution for the 2007 a bonds. We went ahead and drafted the resolution since we were done the one for 2006. You can either adopt it now or we can come back in early to mid-january once the origination period is over and then we can do it then. So it's really a matter of timing in what you want to do.
>> does the resolution speak to the parameters or will those parameters be developed as --
>> the resolution says that the decision will be made by harvey Davis in consultation with judge Biscoe and lad, but there's not the financial minimum, which you all can set or --
>> yeah, and I think it would make sense before we recommended going ahead on this, we would come back to the board with another agenda item.
>> I think last week we were putting this together, we put the 2007 bonds on just in case, but we can certainly come back in a month. In the market stays where it is and it looks favorable to do it in January, we can come back.
>> so what if we move to proceed to put together an appropriate factual presentation to be brought back to the board mid-january for final approval?
>> I think mark can work on that and find the bond holders and start negotiations and see if it makes sense on that one also.
>> that's my motion.
>> second.
>> discussion? All in favor? That passes by unanimous vote. Thank you very much. And 4, consider and take appropriate action on resolution to waive redemption lockout provision to redeem multi-family housing revenue bonds, fort branch landing project, series 2000.
>> and as you well know, this is the third time this has been on the agenda and they have accepted the proposal of $12,500 payment for the next two years. The annual fee this year I think that was a question at the meeting last week is a little over $12,600.
>> so the deal is they will pay the fee owed for last year and give us two payments of 12-5 in exchange for us approving this deal.
>> right. Well, actually the annual fee was calculated through December 29th. Because -- so it was a little more than a year because the bonds will be outstanding until December 29th.
>> how much money do we get, mr. Davis?
>> $37,600, approximately.
>> now you are talking. Move approval.
>> second.
>> can I add one thing? I got an e-mail request this morning from the borrower. Their new lender -- in our regulatory agreement there's a provision regarding the placing of liens on the property. Our bonds will be paid off so we will not have any financial interest in the property more in terms of a loan or the bonds outstanding, but we do have the regulatory agreement that will stay in place that we talked about for a number of years, I believe until 2000 -- either 16 or 17. They just needed confirmation we didn't have a problem with the lien on the property to make the loan that's going to pay this off.
>> what leverage do we have to protect our $37,000?
>> we have drafted -- number one, we'll get that 12,600. We'll have that before closing or at closing, no matter than closing, and drafted an agreement agree to go pay the other 12,500 for the next two years. So we have an agreement with them.
>> yeah, and that's tied to the regulatory agreement. So we have the lien on the property, it wouldn't be released unless they paid all the fees owed.
>> the regulatory is an encumbrance, it's not necessarily a lien. It would be long before the agreement terminates.
>> so we think it's sufficient to protect our $25,000?
>> yes, sir. This new loan won't curtain bonds -- all this transaction won't happen unless the new lender can place a lien on the property. So it's really something this deal won't happen unless we agree to this. I don't believe it's an unreasonable request from a lender. It's a technicality in the documents.
>> we have a motion and second to approve. Any more discussion? All in favor? That passes by unanimous vote.
>> move adjourn.
>> second.
>> all in favor? That passes by unanimous vote. There's a work session this Thursday at 1:30.
>> and judge, I won't be here. I have a funeral at 1:00.
>> do we expect the other four?
>> I'm going to try to gear up to come.
>> it will be your last work session. I wouldn't miss it for the world if I were you.
>> I'm going to take my valium and come on and listen.
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Last Modified:
Tuesday, December 16, 2008 1:45 PM