AGENDA ITEM NO.

TO: . San Antonio Water System Board of Trustees

FROM: Eugene E. Habiger, General, USAF (Ret.), PresidentiChiefExecutive Officer

SUBJECT: APPOINTMENT OF A POOL OF BOND UNERWRTING FIRS

Board Action Date: June 12,2001

SUMMARY AND RECOMMENDATION:

The attached resolution appoints a pool of bond underwting firms to assist the System in
restructurig its currently outstanding bonded debt and in financing its proposed capital
improvement programs.

. The System currently has $728,455,000 .of long term, fixed rate debt outstanding.
Schedule 1 depicts the annual principal and interest requirements for this debt until
maturity.

. The Series 1992 bonds, which total $292,020,000 or 40% of the amount outstanding,
become callable on May 15,2002.

. The callability of these bonds plus the current favorable interest rate markets provide
an opportunity to restructure the System's outstanding debt in anticipation of
financing the projected capital program requirements over the next ten years of over
$2 bilion. Schedule 2 depicts the projected capital improvement programs for this
period oftime by core business.

. Preliminary analyses indicate that the restructuring would result in a present value
savings to the System.

. Appointment of the pool of underwriting firms at this time would allow for
completion of a transaction as early as September, 2001 should changes in the credit
markets dictate. .
. The standard process of requesting and evaluating proposals based on experience
and qualifications using the System's decision analysis tool was utilized. Firms
were categorized based on their designation as national, regional, or SMWBE. The
Contracting Department was informed of this process and observed the proposal
evaluation meeting.
Appointment of a Pool of Bond Underwting Firms Agenda Item No. 33
Page 2 -

. Based on the results of the evaluation process, the following pool of underwriting
firms is recommended:

National Firms Regional Firms .

A.G. Edwards & Sons, Inc. Dain Rauscher, Incorporated
Bear Stears & Co., Inc. M.E. Allson & Co. Inc.
Goldman Sachs & Co. Morgan Keegan & Company, Inc.
JPMorgan Chase & Co. Southwest Securities, Inc.
Morgan Stanley & Co. Incorporated
Salomon Smith Barey, Inc.

SMWBE Firms
Apex Pryor Securties
Samuel A. Ramirez & Co., Inc.
Siebert Brandford Shan & Co., L.L.C.
Southwestern Capital Markets, Inc.

. The recommended pool consists of foureen firms. The specific syndicate for
each individual transaction would consist of eight to twelve firms, depending
upon the size and complexity of each transaction.

. Oral interviews would be conducted prior to each transaction to determine

the firm best suited to serve in the role of senior manager.

. Following designation of the senior manager and formulation of a plan of

finance, including sizing and structure recommendations, other members of
the specific syndicate would be formulated. Each syndicate would reflect a
balance of national, regional, and SMWBE firms.

. Inclusion as a member of subsequent syndicates would take into

consideration a firm's performance on previous transactions. A minimal or
non-performing firm would be subject to removal from the pool.

. Firms not par of the initial pool recommended above, may be considered for
future inclusion based on interest in providing service to the System, as may
be evidenced by submission of timely and meaningful reports and analyses.
Appointment of a Pool of Bond Underwriting Firms Agenda Item No. 33
Page 3

. Based on the result of oral interviews conducted May 30 with the six national
firms, Salomon Smith Barney, Inc. is recommended to serve in the capacity
as senior manager on the initial transaction. Salomon Smith Barey, Inc. is
recommended for this role due to their superior approach and strategy to
restructuring the System's outstanding debt and plan of finance to address the
System's capital improvement needs over the next several years.

The Management Services Committee was briefed on the approach and calendar of events
for this matter.

Staff recommends approval of the attached resolution.

FINANCIAL IMP ACT:

The appointment of the pool 'of underwriting firms creates no immediate contractual or
financial obligation to the System.

Once the size and structure of the bond issue is finalized and a sale date is determined, a
purchase agreement wil be negotiated with the senior manager. Based on recent experience
in the market place estimated underwriting fees could range from $4.50 to $6.00 per bond.

SUPPLEMENTARY COMMENTS:

The System's co-financial advisory team of Estrada Hinojosa and First Southwest .assisted
staff in the formulation of this recommendation, with Estrada Hinojosa serving in the lead
role.

Requests For Proposals were distributed May 8, 2001.

Nineteen proposals were received by the due date of May 18,2001.

The proposals were evaluated by thee staff members from SAWS, two representatives from
Estrada Hinojosa, and one representative from First Southwest.

The City's Public Utilities Supervisor was apprised and informed of this process and
recommendation.
 Appointment of a Pool of Bond Underwting Finns Agenda Item No. ~
Page 4

APPROVED:

Eugene E. Habiger,
¿~ General, USAF (Ret.).
r- PresidentiChiefExecutive Offcer
 RESOLUTION NO. 01.-171'
OF THE SAN ANTONIO WATER SYSTEM BOAR OF
TRUSTEES APPOINTING A POOL OF UNDERWRITING
FIRMS CONSISTING OF A.G. EDWARS & SONS, INC., APEX
PRYOR SECURITIES, BEAR STEARS & CO., INC., DAIN
RAUSCHER, INCORPORATED, GOLDMAN SACHS & CO.,
JPMORGAN CHASE & CO., M. E. ALLISON & CO., INC.,
MORGAN KEEGAN & COMPANY, INC., MORGAN STANLEY
& CO., INCORPORATED, SAMUEL A. RAREZ & CO., INC.,
SALOMON SMITH BAREY, INC., SIEBERT BRAFORD
SHANK & CO. L.L.C., SOUTHWEST SECURITIES, INC., AND
SOUTHWESTERN CAPITAL MARTS, INC. TO ASSIST THE
SYSTEM IN THE RESTRUCTURING OF ITS CURRNTLY
OUTSTANDING BONDED DEBT AND PROVIDING
FINANCING FOR FUTURE CAPITAL IMPROVEMENT
PROGRAS; DESIGNATING SALOMON SMITH BAREY,
INC., IN THE ROLE OF SENIOR MANAGER FOR THE
INITIAL. TRASACTION CONDUCTED; DIRECTING THE
PRESIDENT/CHIEF EXECUTIVE OFFICER TO DEVELOP A
SET OF PROCEDURES FOR MAAGEMENT AND
ADMINISTRATION OF THE POOL; FINDING THE
RESOLUTION TO HAVE BEEN CONSIDERED PURSUANT TO
THE LAWS GOVERNING OPEN MEETINGS; PROVIDING A
SEVERABILITY CLAUSE; AND ESTABLISHING AN
EFFECTIVE DATE

WHEREAS, San Antonio Water System (the "System") monitors its

outstanding debt and investigates opportunities to manage this debt in an effective and
effcient maner; and

WHEREAS, current interest rate conditions and projected capital improvement

needs make it advantageous and prudent for the System to consider a restructurng of its
currently outstanding debt; and

WHEREAS, in order to proceed in a timely fashion with such restructuring and

financing for capital improvements, a pool of underwriting firms needs to be appointed to
assist in the strcturing, marketing, and sale of debt; and

WHEREAS, the System's standard process for solicitation and evaluation of

proposals for professional services has been completed; and'

WHEREAS, oral interviews have been conducted as a basis for designating one
of the underwriting firms to serve in the role as senior manager of the initial transaction
to be completed; and
I.
01.- 171

WHEREAS, guidance is necessary to provide an orderly process for

maintaining a quality and effective pool of underwting firms; and

WHEREAS, the San Antonio Water System Board of Trustees desires to (i)
appoint a pool of underwriting firms consisting of AG. Edwards & Sons, Inc., Apex
Pryor Securities, Bear Stears & Co., Inc., Dain Rauscher, Incorporated, Goldman Sachs
& Co., JPMorgan Chase & Co., M. E. Allson & Co., Inc., Morgan Keegan & Company,
Inc., Morgan Stanley & Co., Incorporated, Samuel A Ramirez & Co., Inc., Salomon
Smith Barey, Inc., Siebert Brandford Shan & Co. L.L.C., Southwest Securties, Inc.,
and Southwestern Capital Markets, Inc. to assist the System in the restructurng of its
currently outstanding bonded debt and providing financing" for futue capital
improvement programs, (ii) designate Salomon Smith Barey, Inc., in the role of senior
manager for the initial transactions conducted, (iii) direct the President/Chief Executive
Offcer to develop a set of procedures outlining management and administration of the
underwriter pool; now therefore:

BE IT RESOLVED BY THE SAN ANTONIO WATER SYSTEM BOAR OF

TRUSTEES:

1. That the following firms are hereby appointed to serve as the pool of underwriting
firms to assist the System from time to time in the issuance of debt:

AG. Edwards & Sons, Inc.

Apex Pryor Securities
Bear Steams & Co., Inc.
Dain Rauscher, Incorporated.
Goldman Sachs & Co.
JPMorgan Chase & Co.
M. E. Allison & Co., Inc.
Morgan Keegan & Company, Inc.
Morgan Stanley & Co., Incorporated
Samuel A Ramirez & Co., Inc.
Salomon Smith Barey, Inc.
Siebert Brandford Shan & Co. L.L.C.
Southwest Securities, Inc.
Southwestern Capital Markets, Inc.

2. That Salomon Smith Barey, Inc., is hereby designated to serve in the role of
senior manager for the initial debt offering related to the restrctung of existing debt
and financing for capital improvements of the System.

3. That the President/Chief Executive Offcer is hereby directed to develop a set of

procedures outlining management and administration of the underwriter pool, including
at a minimum provision for designation to serve as senior manager based on an
evaluation process to be conducted for each transaction, provision for the rotation of
underwting syndicate members, evaluation of the performance of syndicate members,
 ¡
~

01-171
provision for the substitution of minimal or non-performing syndicate members, and
provision for recommending to the Board inclusion of underwriting firms not originally
part of the pool based on submission of timely and meangful debt reports and analyses.

4. It is officially found, determined and declared that the meeting at which this
resolution is adopted was open to the public, and that public notice of the time, place and
subject matter of the public business to be conducted at such meeting, including this
resolution, was given to all as required by the Texas Codes Anotated, as amended, Title
5, Chapter 551 Governent Code.

5. If any part, section, paragraph, sentence, phrase or word of this resolution is for
any reason held to be unconstitutional, ilegal, inoperative or invalid, or if any exception
to our limitation upon any general provision herein contained is held to be
unconstitutional, ilegal, invalid or ineffective, the remainder of this resolution shall
nevertheless startd effective and valid as if it had been enacted without the portion held to
be unconstitutional, ilegal, invalid or ineffective.

6. This resolution becomes effective immediately upon its passage.

PASSED AN APPROVED ths the 12th day ofJune 2001.

ATTEST:
~~
L es M. Mayor, hairman

J.~í