The Deerfield Beach City Commission on Aug. 5 authorized city staff and bond counsel to negotiate a five-year, $5.75 million tax-exempt loan agreement with TD Bank — choosing TD Bank’s five-year “option B” proposal — to reimburse the city for previously purchased equipment and to finance other equipment acquisitions.

Background and bids: Finance consultants and staff issued a request for proposals to a panel of lenders. Five banks submitted proposals for four- and five-year terms. Two proposals were competitive and resubmitted updated rates in the days before the meeting. Davenport municipal-finance advisor Ted Cole told the commission that TD Bank’s five-year option B, which allows prepayment with a 1% penalty but avoids a yield-maintenance calculation, was the most attractive bid; TD’s indicative interest rate for the five-year option B at the time of the meeting was 3.50%. Webster Bank’s five-year rate was slightly higher at 3.65%.

Why the city is borrowing: the city will largely use the loan to reimburse itself for equipment purchases already made in the capital program and to finance additional equipment on the capital list. Cole and Chief Financial Officer Oleg Gharovski told the commission the five-year schedule better matches the useful life of the equipment and reduces near-term debt-service pressure; the fiscal-year debt service under the TD five-year option was modeled at about $1.25 million annually.

Prepayment and risk: Davenport advised the commission that option B at TD Bank avoids a variable “yield maintenance” prepayment penalty; the commission and CFO said they did not anticipate prepaying the loan and recommended moving forward to lock a rate. Staff said closing would be targeted for August and that final loan documents would return to the commission for final approval at second reading.

Votes and action: Commissioner Ben Hudak moved and Vice Mayor Michael Preston seconded a motion directing staff and bond counsel to negotiate the loan agreement with TD Bank under the five-year option B terms; the motion passed by roll call. The commission then voted to advance the ordinance on first reading to set a public hearing and second-reading vote on the ordinance and final loan documents.

Ending note: staff said they will lock the bank’s proposed rate if authorized, complete documentation with counsel, and present the final loan documents for the commission’s second-reading approval and closing.