HomeMy WebLinkAboutDEMOLITION & CLEARANCE CONTRACT
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THE STATE OF TEXAS S 1
DEMOLITION i CLEARANCE CONTRACT
COUNTY OF DENTON
This Agreement is made on the _2..$_ day of _ JUNE, 1990 ,
between BOYD EXCAVATION of 4j
the City of DENTON County of DENTON
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State of Texas, hereinafter referred to as "Contractor", and the ft
City of Denton, Texas, a Municipal More Rule Corporation, 1
hereinafter referred to as "City".
In consideration of the mutual covenants contained herein and =
other good and valuable consideration, the Contractor and City II
agree as follower
1. Contractor will dismantle and carry away all of the f
materials as agreed to and specified in BID# 1119 - DEMOLITION
AND CLEARING 115 and asde a part of this agreenent herein, foe
the structure ■nd/or improvements situated on the property located
at DRSVRIPTIQH TSTF•D IN BID
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and described more particularly as followar _ylr aS 8In 61119
DEMOLITION AND (:FARING 115
The premises shall be left clean ani free frog all rubbish and
' IAN debris.
x. Contractor will provide all labor and materials and
furnish and srsct, at its own expense, whatever equipment or work
may to necessary for the eepNitious and proper execution of its
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duties hereunder,
J. Contractor will secure, at its own expense, all permits,
licenses, franchises, and consents required by law or necessary to
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perform its work and will give all notices and pay all less and 1 otherwise comply with all applicable city, county, and state
laws,
ordinances, rules and regulations.
4. Contractor will begin work within ten (10) days of the
execution of this contract and complete the same by the 18 - day
of JULY , 19 90, Should Contractor at any time refuse
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I or neglect to supply a sufficient number or amount of properly
' r skilled workmen, materials, or equipment or fail in any respect to
r prosecute the work, with promptness and diligence, or tall to 1
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perform any of the agreements of this contract, City say, at its
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BiU! 1119 PAGB 13 of 18
Fe . election, terminate the employment of Contractor, giving notice to
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Contractor in writing of such election, and enter on the f
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and take possession, for the purpose of completing the work
included under this agreement, all of the materials, tools, and
appliances belonging to Contractor, and to employ any other person
or persons to finish the work and to provide the materials
therefore at the expense of the Contractor.
S. Contractor will to in full charge and assume all liability
of the dismantling and clearing away of the material, brisk, wood,
and other substances off said propertye Contractor, his agents,
and servants' will be liable and responsible for all damage done to
other property adjoining the property so described above and shall
be responsible and liable for any damage done to any person that
might to injured while said material is being removed,
rurthersors, the Contractor will indemnity the City against all
suits or claims arising out of rintractor's performance of its
duties under this contract, regardl-ess of who makes the claim or
whether the claim is based on the alleged negligence of it
? Contractor. Contractor will defend all such actions at its own
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expenses including i
attorney tees, and will satisfy any judgement
` rendered against the City in any such action.
f. City will pay to Contractor the total sun of $8,265.00
dollars within thirty (30) days from date
of completion of this contract, satisfactory to the City as
consideration for such activity. r
L;UNTRACT
ClTY OF Olt, To '
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(,to BID/ 1119 0AGB 14 o ~
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INSURANCE
The Contractor is fully responsible, for all losses pertaining to, resulting
from, or connected with the complr,tion cf this contract. The owners
acceptance of a Certificate of Insuranct, that doe* not comply with the bid
or contract documents, does not release the contrai:tor or the insurance
company from any liability. conditions or other requirements within the
scope of this contract documents.
It is the responsibility of the Contractor to send this complete insurance
j package to his insurance provider. This will enable the policies and the
Certificate to include all requirements as they apply to the Contract
I documents. The Insurance Certificates must be returned to the City of
Denton with the Contract documents for approval and execution.
All Contract documents must be returned to the CI7T OP DEH70N, TOM D. SHAN* r.
MOWING AGENT, 901-8 TBIAS STREBP, DEMN, ?UM 76201. _i
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BID1 1119 PAGE 15 of 18 '
CITY OF DENTON
MINIMUM INSURANCE REQUIREMENTS
i
I NS URANCE J
Without limiting any of the other obligations or liabilities of the
Contractor, the Contractor shall provide and maintain until the contracted
work and/or material has been completed/delivered and accepted by the City of
Dentea, Owner,, the minimum insurance coverage as indicated hereinafter.
Satisfactory certificate(s) of insurance shall be ailed with the Purchasing
Department prior to starting any construction work or activities to deliver
material on this Contract. The certificate(s) shall state that thirty (30)
days advance written notice will be given to the Owner before any policy
covered thereby is changed or cancelled. The bid number and title of the
project should be Lndicatedp and the City of Denton should also be listed on
all policies as an additional named insured. To avoid any undue delays, it is
worth reiterating that:
o Thirty (30) days advance written notice of material change or
cancellation shall be lived:
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o The City of D"k-on stall be an additional named insured on all
policies.
I. gL~kmonls Comoensatiee ■nd tmolovoc's Liabiiit!►. This insurance shall-
protect the Contractor against all claims under applicable state
workmen's compensation laws. The Contractor shall also be protected
against claims for injury, disease, at death of employees which,, for
any reason, may not fall within the provisions of a
w0rkmen '
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co*pensation law.
The liability limits-shall not be' less than,,
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o Workmen's Compensation - Statutory
a Employer's Liability - Statutory
lit s v Aut b e L ab t This insurance shall be written in
eoarprehensive fors and shall protect the Contractor against all *loins
for injuries to ambers of the public and damage to property of others
arising from the use of motor vehicles licensed far highway use,
whether they are owned, aonowned,, or hired.
The liability limits shall not be lose thans
o A combined single limit of 5500,,000
IIll g" rohensive General Liability. This$insurance shall be written in
comprehensive fora and shall protect the Contractor against all olaias
arising from injuries to members of the public or damage to property of
others arising out. of any act or omission of the Contractor or his
agents,, employees or subcontractors.
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•&iD1 1119
• PAGE 16 of 18
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Insurance Requirements
page two
A
To the extent that the Contractor's work, Or work under his direction,
May require blasting, explosive conditions, of underground operations,
I the comprehensive general liability coverage shall contain no exclusion
relative to blasting, exploaioao collapse of buildings, Of damage to
underground property.
h The liability limits shall not be less thane
o A combined single licit of $300000
IV. owner's Protect ve Liability Insurance Policy. This insurance shall
provide coverage far the Owner and lta~emp ° ei Y es, in the name of the
City of Denton, for liability that may be imposed & rising out of the
work being performed by the Contractor. This also includes liability
arising out of the omissions or supervisory acts of the Owner.
Although this insurance is strictly for the benefit of the 0.►aer, the
Contractor is ceeponsible for obtaining it at his expease.
The liability limits shall not be less tbans .
a A coftined single limit of
0Z00,000
The Contract shall provide insurance to cover operatioq hazards during the
period of placinq the facility in operation and darinq tasting, and until such
time as the facilities are completed and accepted for operation by the Owner
and written notice of that fact has bees issued by the Owner. Approval of the
Insurance by the Owner shall not in any way relieve or decrease the liability
of the Contractor hereunder. It is expresaly understood that the Owner doom
not in any way represent that the specified limits of liability or coverage at
policy forms are sufficient or adequate to protect the interest or liabilities
of the Contactor.
Againp the Owner 0411 be given ,A certificate of insurance indicating that all
of the above policies and the appropriate liaata are Indeed enforced. The
certificate shall also indicate that the owner will be given at least thirty
(30) days written notice of cancellation, non-reneval► or material change of
the required Insurance coverage. All ramponsibility for payment of any sums
resulting from any deductible provisions, corridor or self-insured retention
conditions of the policy or policies shall remain with the Contractor.
_Coate_aetor shall not begin any work until the Owner has reviewed and aggroved
the irtaueanw certificates and so notified the contractor diSeetly in
writing, Any notice to proceed that Is issued shall be subject to such
approval by the owner.
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PAOOUCER t
T'" CERIFUCATE r. fSSUEO AS A MATTER OF WTFOHWATION ONLY AND CORERS
NO F0TFs t=r4 CERTFIC1Tt iIOIDEA. THH CERTFXATE DOES NOT AMM.
EATEND OR ALTER Tiff COVERAGE AFFORDED BY THE POL"s BELOW. J
Denton Insurance Center, Inc, - s
P. O. Drawer C COMPANIES AFFORDING COVERAGE
Denton, Tx 76202
Ls A Scottsdale Insurance Co.
rNSUKO LcEoruTPEAANY B Hou::on General Insurance Co. j
Leonard Boyd IAHY C
3500 Ft. Worth Drive
Denton, Tx 76205 i` TTER D
COMPANY
LEITER
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THIS 3 TOMMY THAT POLICIES OF EISURANCE LISTED !FLOW NAVE BEEN ISSUED TO THt INSURED NAMED ASOVE f0A THE PDIICY PE1110D MIDICAT~.
NOTWITNSTANDWOANYPEOUIREWENT 1ERMORCONOITIONOFANTCOHTRACTOFIOTfIEHIOOCU►tMWI1NIIESPiCTfO'M/ECNTHISCtlIIF1CATtM
K ISSUED OR MAY PERTAIN. TILE HSC94ikE AFFORDED BY TM POU 6 DESCRr/EC j=N IS BIIBdlCT To All TNt TtRAq L7ICLVt10M! AND CdHOF
TIONS Or SUCH POLICIES.
TYPE OF 04SMANCE POLICY NU4BER pp~C ExRCfM p0.'PAroDYn DG'IVI IiDM
L atrt AAwDYn aTw€ Alt L"TS IN THOWANDS 1
OEHERAL LIAN&OT
A IJ
CCNAIERCK GFNEML UAFtIrr GE' NN AOdiFGn Soo
CLS288058 03-03-90 05-03-81 ^~~~+~afr
nwsWAX ~axvtlau KASDM1 16 #"lagft MAX"
A oRIEKSlOIYritlC10RSNiDIFLTAQ FloXOAMEMC! Soo
fit 60"a MY CW FIN)
AIITOMOBQ.t IJABIIITY KDPW (xKku ow x K"
ANY AUTO Cl1 500
Au om AUToS
B "No A008
SAUT83S8781 04-05-80 04-03-81
HRED AUTOS IMF
_MC- i
WX oNQHED AUTOS
6ARKHE lIAI0.IrY
EACtq LAAK17-V a ; arE
f orm o" LA WLA F"
WORKERS, COWE NSA110N ETATyTOPY
EADI ASCQth
AND
tMPLOYERt' UA1f1.ITY EaEAkaQ Cti lAET1
M"AAOf tAfID+TD
OTHER
OESCRIPr10N OF OPERATIONSILOCATIONRIVEHXAlSIRES1PoCTgNSISPECIAL riems
THE CITY OF DENTON IS ALSO SHOWN AS ADDITIONAL INSURED ON THE GENERAL LIABILITY
POLICY.
ENOLAO ANY OF THE AS*" OED WO POLICES K CAW AUN0 WOM TM M
f City of Denton Attn: Tom Shaw, Purchasing ryPAT10N OATS THtREOF, THt ISIVND COMPANY Mlll lNDEArOR TO
215 E. McKinney MAL 30 DAYS W ITEN NOTWA TO THt CERT0VATt NOL0eA NAMED TO T1ft
Denton, Tx 76201 LEFT, BUT ?"URE To MAX BUCI Motcl INku WPM No OKIOATION OR
OF ANY KIND UPON THE COWANr a$ M911 OR WNUNTATM,
MLlill REPRE
SENTATArt
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Dana Mille
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A1.1- 9ENENTS hEDUCED 0NE•H41.1' AT AGE 65.
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224 N. Wep,,+.;nae P.O. ikower 0248
Enld aVYuno 73701 (405) 2034000
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AMERICAN STANDARC),LIFE CENT EA
BLANUXT ACCIDENT POLICY
The Company wit( pay benefits to the extent provided herein, tor "loss which rosulls from the accidental bodttyinjury
of nny Insured. Such benefits are subject to all the provis;ons, oxcius)ons and limitations of the policy. To be Insured
by this policy, a person must be a full lime employee of the Policyowner named in the Policy Schedule for the E
perlodof
tima for which coverage Is effective. Such covered employee shall be called the Insured In this contract,
TW% ' policy pays benefits for losses resulting directly and indepandently of all other causes from accidental bodily
i injuries sustained by the Insured while this policy Is In force for such person hereafter referred to at 'such InjuNea," I V'
rhis polley Is isscsd In conslderallon of tho apaUcation of the Pollcyownor and payment of thelnitia) premium. A copy
of the applicaltorl Is attached to this policy and Is mada a part of It. The loltial premium payment shall maintain this
policy In force frtm the Policy Date to the First Renewol Dale, on whi %h date the insurance granted hereunder shell 1
lerminato unless the policy is renewed as herein provided. The pollcS may be renewed for like consecutive periods,
but only with the consent of the Company, by the payment In advance of the premium for such renewal period, The ~i
Comp,,any sacceplance of each renews l premium shnil constllute lls consent to renew. All periods of insurance shall r
togInandendat1.'!;Of a.m., StandardTimo, at the placool residence of the Insured. (if default be made InGtepayment
of the premium for this policy, the subsequent acceptance of a premium by the Company, or by any of Its duly
authorized ngonts shall reinstate the policy, but only to cover loss resulting from accidental injury thereafter
sustained)
Ali provisfons and conditions set forth by Iho Company on the following attached pages are a part of tnis contract as
` fully as though hereinabove raclled at fongth.
IN WITNESS WHEREOF THE AMERICAN STANDARD L)FE L ACCIDENT INSURANCE COMPANYhas caused this
policy to he slgnQd my its President and Secretary at Enld, Oklahoma,
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Secretary
President
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Countersigned by Ucensed Resld9nt spent ;
~ Iwf»r0 rrqulrcd) r
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UEFINITI014S
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1. ADDITIONAL INSURED: The City of Denton, its elected and
appointed officials, officers and employees. (This does
not apply to Worker's Compensation.)
I 2. NOTICE OF CANCELLATION: Each policy shall require that
IIII thirty (30) days prior to the cancellation, non-renewal, or
any material change in coverage, a notice thereof shall be
gtven to owner by certified mail. If the policy is
cancelled for non-payment of premium only ten (10) days
written notice to owner is required:
3. CONTRACTURAL COVERAGES (Liability assumed by contract or
agreement, and would not otherwise exist.) The contractual
a`. E liability requirement shown on the reverse side of this
Certificate of Insurance under comprehensive General
Liability, must include a definition of coverage broad
enough to provide coverage for obligations assumed by the
contractor in the referenced contract. This Certificate of
insurance is provided as required by the governing contract.
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4. CLAIMS MADE POLICY FORM: Required period of coverage will
be determined by the following formula: Continuous 1
x coverage for the life of the contract, plus one year (to
provide coverage for the warranty period), and a extended
discovery period for a minimum of five (5) years which
shall begin at the end of the warranty period.
5. FIRE LEGAL LIABILITY: (Required in all contracts that
±'s involve the occupancy, construction or alteration of
City-owned or leased facilities.) Insurance is to cover I
buildings, contents (where applicable) and permanently
installed equipment with respect to property damage to
structures or portions of structures if such damage Is
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• caused by the peril of fire and due to the operations of
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the contractor. Limit of liability is to be a :ainimum of ;
$500,000.
6. OWNER: The term owner shall include all authorities,
boards, bureaus, commissions, divisions, departments, and
offices of the owners, and individual members, employees,
and agents thereof in their official capacities, and/or
while acting on behalf of the owner.
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PURCHASING DEPARTMENT BID INVITATION
Fxr.. City of Denton
rr 901.8 Texas Sc ON OF DENTON, TEXAS !
t Denton, Texas 78201
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Data JUNE 51 1990 fi
BID NUMBER 1119
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BID TITLE DEMOLITION A CLEARING #15
Boyd Excavation
Sealed 3500 Ft, worth Dr Sealed bld proposals wIN be Hatred unto M pm
Denton, TX 76205 JUNE 21. 1990 at the offtaof the
Purchasing Agent, 901.8 Texas St., Dem". Texas 76701
For addHbnal Infarnallon contact
TOM D. SKAw, C.P.M.
Office D" Motto
atltt au•2e7ca2 ~
INSTRUCTIONS TO BIDDERS
t. Uesied bid ptoposah naval to rocahrad in &Vftsts, on this form, prior to opening data and time to be oonslderad. Lels
propueais w1I be returned unopened.
R 2 Bids shall be plainly marked as to the bW numtkr, name of the bid, and bid opening date on the outside of completellw
paled envelope, end milled or delivered to the Purchasing Department, City of Denton, 001-B Tsui SL. Denton, TX i
70201.
I Any submitted arWW deviating from tie speditatlons must be Id/ IMW and have W dssorlptive data aoeo r" ying
wne, or M WN not be ow4ldrsd. 1 t
L AN materials we to be quoted F09 Denton, Texas, delivered to the flow of the wuehouse, or u oUwwlse indicated. I
6 The Ctty of Denton, Tawas ~m the right to accept "Wale Items In a bW unless M right Is denied by tie bidder.
a kt ease of d0au8 after bid acceptance, the City of Donlon, texts may at He option hold the aoeepted bidder or ooMrsdor
I" lot any and all f"LAtant Incroaaw cats as a penalty fa ouch defeulL
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7. The Cffy of Denton reserves tie rtgM to rsleel any and all bide, to wales aN InformaNtles and repuke that sub Itted bale
rrnairt in Iora for a sixty f" day psrtod atlr opening of Will award Is made; whkhow cornea r"L
a The quantitles shown maybe spproximate and could vary according to the requirements of the City of Denton
throughout the contract period.
a IN Name re to be priced each net. IPack"Ing or shipping 4a"lles *111 be owt1dw*0
10. TM Purchasing Deportment auww msponsibllHy for the correctness and clsrity of this Did, and IN Information andlor
qmUwa prlal" to IN@ bid @NM be directed to the qty of Denton Purchaskg Ao*N.
N. My attempt to npotlate or gins Intorfne!Iat on the ewl"Is of (hit bid meth the Clly of Denton Of Ile repwesentsllws
dlsgwflfkatlons.
grip to "wend shall be oourde to
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" 12• The oortdilkxfe and Irm1 of this DW wiN W conaWend whrt /vsiuetkg for award. ~
I& IN City of Dent* 1 Is atempt from all safe and exdse taxes, fArtlcle 20," f
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Page 2 0( 18
810 NUMBER 1119 BID PROPOSALS
b01•b Tau$ SL
Coy of OW01% Toles ' PurchNing DgWtffwf Denton, Texas 18201
OUAN. PRICE AMOUN
DESCRIPTION
ITEM
1. DEMOLITION a CLEARING STORK 1128 E. UICKORY lS31 j
a. Removal of structure on lot. I
b. Remove all trash, debris, shrubs (on sides
of structure), and brush. v
c. Grade lot smooth for nowing. 1
e, DRemove large o not disturb r fence around middle backyard of
structure. I
DEMOLITION: 4 CLEARING WORFr 703 E. PRAIRIE s.il7n'
2.
a. Removal of structure on lot.
b. Remove all trash, debris, shrubs, and brush.
c. Grade lot smooth for mowing.
f 3.- DEMOLITION fi CLEARING STORK 1522 BOLIVAR
(Cellar in Back of Main Structure
a. Removal of cellar in back of main structure.
b. Remove all trash and debris around area that
cellar was demolished.
co Grade lot l novas demolished)(around area
that cel
4. DEMOLITION i CLEARING STORK 1209 WILSON
{Sheds to the West Rear of Structure
a. Removal of sheds to the West rear of
structure.
' b. Remove l area of p sheds debris, that h isb to bed brush
demolished) '
" c. Grade lot smooth for mowing.
d. Removal of fence in back of lot.
S. DEMOLITION 4 CLEARING STORK 527 )!ADD-OX a. Removal of structure on lot.
b. Remove all trash, debris, shrubs, and brush. j
t . , C. Removal of one tree in front of structure.
d. Removal of all small trees on sides and in
/ back of structure. i
e. Removal of fence in backyard.
f. Removal of old shed in backyard.
TOTALS
wo apt wo above f.o b. cWhwsd to UwAm Ttas. SMvr*m cube MA" 1n ~--~Ye ncMD1 « twrtt• n~tt30
urAwa othsndsa kx katod. Dwftr naswAbms W cd ~ oooomtin tr~Thei W@tod OW Rro "(meft tM e be Hpmpsrl Pte, WVW wA nWmw *ftW a
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BID1 1119
PAGE 6 Of 18
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BID# 1119
PAGE 8 of 18
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BIDI 1119 PAGE 11 of 18 „ It
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CONTRACTOR ADDITICNAL INGTP.UCTIONS
FOR DEMOLITION $16
CONTRACTOR SHALL TREAT AREA WiRODENT BAIT AT LEAST 10 DAYS
PRIOR TO DEMOLITION TO INHIBIT RODENT MIGRATION AS PART
OF HIS/HER DEHOLITIO-N CONTRACT FOR EACH STRUCTURE LISTED.
CONTRACTOR WILL ALSO DISCONNECT THE SEWER LINE TO THE
STRUCTURES LISTED AS PART OF HIS/HER DEMOLITION CONTRACT. i1
CONTRACTOR SHALL FURNISH PRL'OF OF IfiSLRANCE PRIOR TO BiD SS
OF A CERTIFICATE TO THE PURCPA3ING t
AWARD IN THE FORM
DEPARTMENT.
r 1'
CONTRACTOR SHALL FURNISH PAID RECEIPTS FRCH DUMPSITE W/ '
INVOICE AFTER COMPLETION OF DEMOLITION ACTIVITIES. y'.{
j CONTRACTOR SHALL OBTAIN DEMOLITION PERMIT FROM BUILDING
INSPECTION OFFICE BEFORE WORK BEGINS.
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MINUTES Of A SPECIAL MEETING
I Of TflE BOARD Of DIRECTORS
Of THE MORTH TEXAS HIGHER EDUCATION AV MORITI, INC.
A special meeting of the Board of Directors of the North Texas Nigher
Education Authority, Inc. convened at Ss 1S p.n. on the 18th day of November,
1987 in the City of Arlington, Texas with the following Directors presents
Mr, Governor Jackson, President
Mr. Gary Con, Secretary/Treasurer `
Me, James Brock, Director
Dr. Wayne Duke, Director y
Me, Natban Robinett, Director
Dr. John M. Trapani, Director
and the following Directors were absents
Ms. Nets Stallings, Vice President
Mr. Michael Grandey, Director
Dr. Lindsay Reffer, Director Mr. Ray Weyer, Advisory Director
r Othere' in attendtacei
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Mr. Vic bloods
a,, s Tt
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Geabryan
. Carl Kathryn
! eras,
k
Mr. Nation Jacob '
Mr. Neal Jones
Mr, Phil Marshall
tit ~tg~ Me. Bonate NcCharen d.. 1
{ ( Me. Robert Patterson
s: Aganda Item I - Introductory Reaarke. The Presiding Officer called
the meeting to order and weltered those precast,,
Agenda Item It -Approval of Minutes. A motion was made by Dr.
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Duke cad seconded by Mr, Stock to approve the Minutes of October 160' 19$7 as
p d. Vote onaaisous,
No. Bryan advised that Mr. Phil Marshall of Post Marwick Main who was scheduled to present the Audit Report would not be able to join the .aeons
until Tatar, The Presiding Officer announced that Agenda Item III would be €
'po'itponad.vatil Mr. Marshall's arrival and proceeded with'the e`anda. r.
'
Agenda Item IV -Progress Report from the Silber Edneatiea Servicing
Corporation 1, Financial Report. Ms. Bryan advised that the form of the
fiaaacial statements has changed sonewhat due to the implementation of a more
efficient method of generating reports. She then reviewed the September 30,
1987 financials and provided details on certain accounting items$ she (
reported that the total audit expense will be approximately $18,000 and that
j
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an interim billing of $2,500 has been received. The Fuji Line of Credit
' fund balance at 9/30/87 was $309,000.
The LOC investment schedule vas reviewed, and Mr. Cox asked if the
investments in Master Notes were MBank managed. Kr. Patterson advised that
Fannie
these funds are not MBank managed that MBank contracts directly with Mae in terms of a Master Note arrangement for daily short-term purchases.
He
explained that when funds come in late in the day for various accounts, the
monies are placed In these short-term Master Notes and are reviewed by the t
Financial Advisor the next day for reinvestment in a longer term, higher
yielding product. Kr. Patterson also explained that certain funds need to be
in cash or cash equivalent form at the end of the month for allocation to
other funds as required. He added that funds must be available on the last
day of the month for the regularly scheduled acquisitions. Mr. Jones advised
that the acquisition schedule is monitored by Phyllis Brown of KESC.
Discussion ensued regarding investments. Mr. Jones advised that he would
review the LAC investments and report to the Board. He pointed out, however,
that in 14 days the LOC notes will be transferred into the new 1987 issue.
Ka. Bryan advised that the 1982A Bond Series fund balance is $3.4
million with loans at $5.8 million and bonds at $5.1 million. Because of the
j 13 1/2% interest on these bonds, expenses (including bond expense as well as
operatiat expense) exceeds the income each month. In order to avoid any
shortfall in the future, Ms. Bryan advised that moves expenses may need to be
lessened and that she has talked with Mr., Jones about preparing a cash flow to
project this issue's financial condition for the next five years. She also 111
toted, that on the Intoae'Statement the budgeted amount for 1188C was
cectly shown ae,$140600 per month instead of $14,062 which will be
incor a shown
correc In answer to the question by Mr, Cox and Mr. Robiaett as to vhy
„ these is no budgeted figure stated for bond interest expense', Ms. Bryan 3
advieed:that this is not put into the budget until it is actually paid because
it, is au sccrusl sad As budget is a cash bnd:et. She than explaia04 the s~
~i
accounting procedures involved and assured the board that 'a change in; this
could easily hat the 14S2A
method of reporting be ,cede. Mr. broth suggested 't
j issue be reviewed carefully. Mr. Jones indicated that he would certainly do
e0. A lengthy discussion then ensued regarding the possible redeaption of
some of these bonds. It was pointed out that there are provisions in the
Indenture that must be adhered to in regard to redeeming bonds. The Presiding
Officer arcked the Financial Advisor to review the 1982A issue and report to
i"• ` the Bard at its next meeting.
Mr. Marshall joined the meeting at this time.
Me, Bryan reported that the 1985A loans are down to $11.7 pillion with Y$18.3 million is bonds outstanding. There was discussion retarding
Lave 9tooata. Kr. Cox and Mr. Robinatt noted that the first City Bank Monty ~r.
Market Account should be identified as to whather it is first City Bank .'t
Arliogtoa or. First City Bank Dallas. Me, Bryan indicated that this would be
dom in future reports. She than advised that the possibility of refunding
the 1983A issue would be addressed in the Financial Advisor Report.
2. Acquisition Report. Ms. Bryan reported that $36 million worth of
loans have Dow been purchased under the Fuji Line of Credit. She noted that
the fora of the acquisition reports have been changed to show the current ~f.
2
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participating leaders separate from noncurrent participating tenders and the t
historical summary.
3. Portfolio Summary. Me. Bryan reported that the delinquency rate is
at 21%, and th
calculateduon antannual4bazis whichxisaanmorehaccurate method rata is
now $
4. Lender News and Activities, Me. Bryan noted that there are s few
leaders in the GETHEA service area that have indicated they wish to continue
working with HESC and have requested participation with HTHEA (as reported in
the recent Progress Report). She reported that First RepublicBank Oak Clnow
has advised that they will no longer be participating directly, but will
have to refer their student loan business to First RepublicBank Dallas. HTHEA
should eventually be able to purchase those loans, but not as soon as it would
have from the Oak Cliff bank. 41
Ms. Bryan reported that she visited the Southaide State Bank in Tyler
on behalf of tLe East Texas Higher Education Authority who is cooaideriag the
possibility of starting up again. The Soutbsida Bank expressed some cnacern
that ETHEA was a viable organLeation at that point without financial, and Ms.
Bryan advised that she indicated to Southaide that she felt sure NTHEA would L
back up ETHEA if they needed help and did decide to go into busines%ho°wererf
need be, would purchase loans for ETHEA in the interim. Now, , ti
Bryan advised that
Southsida is interested is doing business with HTHEA. Ms.
at this paint it is still uncertain what action ETHEA will take, but that she
wanted NTW to be aware of her visit to Southaida, especially if Southaids
should decile to contact HTHEA regarding participation in its program.
Discussion. W. Duke asked why ETHEA is considering going back into business. Ms, Bryan advised that many of that ETHEA lenders ere unhappy
with the *ev
GETEtEA sarv[ciag corporation (as indicated by the number that have requested
lrW participation with OTHEA) and that ETHEA is concerned that eventually there
will be no lenders in that area to sccoa®odate students. I
S. Miscellaneous. Ms. 3ryan reported that HESC is planning to noes its j
r offices fret the 7th to the,Stb floor of the building it presently occupies.
t' A three.-year lease at a very reasonable rate has bean negotiated and
x, ^rs
additkonel work space bas been acquired as well. enton Ns. Bryan reported that meta Stallings advised
the dBoardamembers who } J
City Council mat last night and had just now approved
vere tip for re-appointeen to Me. Stallings also advised that the Denton City.
Manager bad suggested that the Pioance Directors for the cities of Arlington .
and Denton be included an the HTHEA Board as non-voting membses. 7
Ageads Itom III - Audit Report for the Fiscal Year laded Aaguot 31,
19g7 by Feat Masviek Main It Co. Mr. Marshall briefly reviewed the Audit
Report and notes. He advised that as usual it was an unqualified, clean
opinion. He pointed out that good management of the HTHEA operations has
resulted in a $6 million fund balance. He explained that the notes now
' reflect that the excess income of the Authority upon dissolution will be %
transferred to the Treasury of the United States, whereas in the past the
y
notes reflected that any excel funds would go to the cities of Arlington and
Denton. Mr, Marshall advised that compliance work is being performed in that
a reviev of the Authority's Plan of Doing Business is being conducted for s
3
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F~ xe~ it report to the Department of Education. He advised that the report is almost
' complete now and that it will disclose no incidences of noA-compliance. Mr.
Marshall added that the audit went very well and extended his compliments to
' the HESC accounting department. The audit was finished by far the earliest
ever and in time for audited financials to be provided for the new bond issue.
i Mr. Marshall noted that more evidence of bow well the audit went was that a
I. j Management Lettev woo not issued this year and that only a few minor points
^
were diac(rssed with Ms. Bryan and the Accounting Manager and that tbere was
nothing that needed the attention of the Board.
k Mr. Cenjres commended Peat Marwick Main and HESC for their efforts to
included in the Official S
provide audited financials Statement in time to be
' ~
the $98 million 1987 Bond Issue. Mr. Marshall advised that being able to
provide the audited financials for the new issue actually saved the Authority
4 I money is that Post Marwick Main would have been required to issue *comfort ti { letter to the underwriters which would have been costly.
4 Upon completion of his presentation, Mr. Msrsball excused himself from
the meeting.
Agenda Ito* V - Report from Financial Advisor. Mr. Bloede briefly
reported on the sale of the 1987 bond issue, advising that the issue went to
market on October 14 and 15 in what was one of the most unprecedented periods
of market volatility. The initial plan of finance called for the sale of a
f' fixed rate issue in the amount of $28,950,000 and the remaining $69,000,000
would be at a variable rate. Due to the difficult market environment,
! however, only $10 million of the fixed rate issue vas sold at 6.9f and the
remainder of almost $90 million was marketed at a variable rata of 6X and is 'J
now at 5.9%. Mr. Bloede advised that it was still a very good financing *van
though the goal of a substantial portion of fixed rate debt was not achieved,
4 F
~ The rates of the fixed and variable portions were still substantially below ~k
the current Fuji Line of Credit rate of 7.202, which in effect the now issue <<~
JI t~ I replaced. Mr. Jones added that it was 'a missed opportunity and cot a
rl ' disaster, explaining that the plan bad been to set aside as such of the issue
as possible In fixed rate bonds to give the Authority the opportunity to
receive as with Special Allowance as possible; however, it was fortunate that
what could not be marketed as fixed could be shifted to variable rate.
Discussion.
Mr. Bloede than distributed a brief summary of the cost of Issuance for
' the 1987 issue. He noted that assuming there are no major changes in the
estimates the total cost will be $543,000 and that $23,000 should be returned
i co the Authority lowering the overall cost to approximately $520,000. He .j
added that this is a relatively small percentaga when considering that the
issue size was almost $10000000000. Discussion en+ued regarding the various
costs. Mr. Jones advised that the underwriter's discount of approximately
li's ,$810,000 was not addressed in this cost summary. There was discussion j
regarding the Bond CaI pbotocopying expense, and it was noted that there
1 ` is a q+ustiod now before the Bond Counsel regarding this expense and that a
` response is expected soon. Mr. Jones reported that the percentage of expenses f
=,t
was 1.3% of the issue and added that for a financing of this site it vas a
relatively economical financing. j
4
t, r
3 '
's 1
s
reviewed the history of the Fuji Line of Credit
Kr. Jones briefly ,
Agreement. He then explained that during a document session for the new
issue, it was discovered that there was a misunderstanding between Fuji and
MIA in regard to the reduction prov[stoa in the original Line dit
Agreement. After further discussion between Fuji and NTHEA, Fuji offered
attend the existing line to $60 million with no change to the maturity or rate
and to allow the Authority to take out all of the surplus exce tin for $100,00
which will be used for paying 1% premiums (the $100,000 may be vested) as
outlined in the proposed Second Amendment to Line of Credit Agreement. In
Fuji requested that the Authority agree to a standby fee of+five
q Mr.
1
has d ua rt Y
urn
t
basis points or approximately $90,600 Per year to b e Pai
fee in regard to the current rate for
minimal
this i s a d
Jones noted that the very
standby fees and that there is little cost, if any, in re-negotiating the of
Line of Credit.
There was discussion regarding the proposed amendw nts and the need for i'
a backup source of funds for purchasing student
the Fuji Line of Credit as
loans. Kr. Janes advised that the Line of Credit will probably not be used
for at least a year since there should be enough funds to bthe new issue to
ut the Authority
meet the scheduled acquisitions for that length of time,
will have it in place against the time when the 1987 funds are consumed. He
pointed out also that the Fuji Line of Credit would be in place to covet
approximately $2 million in Federally Insured Studsot Loans (FISL) which y.i
sue
cannot to transferred d from hCredit changepoflsthe
until an unsatisfied problem
Trustee to Mrust Corp is resolved. Because ?Crrust Corp is splitting off trot
the LOC Trustee, KBank, it must acquire a participation agreement with the
Deportment of Education to cover the FISL loans; and Bob tiemski and Robert
Patterson, as wall as others, are working diligently to resolve this:
{ Kr, Ceneres advised that he felt that the provisions offered by Fuji
s were very good and that in light of the situation it would be -the most,
economical war for the Authority to provide a backup s0 ftbe Second
purchase loans. Be recommended that the Authority approve
F.' Amendment to the Line of Credit Agraement, Kr, Bloods agreed that it
sad also
certainly was the most economical action for taea Author ityFto t aredia a alon '
recommended that the Authority app
ensued. J
1f Agenda Item VI - Resolution Relative to Approval of Second Amendment
Era eb Texas Higher Education
Ltdbetween
ChieagoWorth
to the • nlactanCredit d the Fuji Bank, Agreement
Authority, A motion was made by Mr. Robiuatt and secoaded by Dr, Duke to approve
Fuji Aras Sank, be , between t Chicago each Texas
the Second Amendment to the Line of Credit
Higher Education Authority, Inc. and
The vote unanimous. xI.
Agenda item VII - Resolution Relative to Adoption of as operating hroug'h Budget for the MT EA Bond Series 1987 for the Period Novveberaa1.bu987
tfor the Yf
August 31, 1988. Me. Bryan presented the propo E !
1987 issue which vas prepared by Phyllis Brown to replace the preliminary i 1
( budget, Ks. Bryan noted that the efteetive, data of the budget is November 5,
1987 which is the closing date of the 1987 issue and the date funds were ;
r E
y 5
. ~ I
z deposited Into the various accounts. She added, however, that no expenses ~
~y will be paid until the loans are transferred on December 1, Discussion, ,`la
Mr. Bobinett moved that the Operating Budget for the NTHEA Bond Series
1987 for the period November 5, 1987 through August 31, 1988 be approved as
presented. Dr, Trapani seconded. Vote unanimous.
Agenda Item VIII - Other Business, Mr. Jones advised that he would 'y
be reviewing the 1982A issue as discussed earlier, but that be would also like `
some direction from the board regarding the 1985A issue. He explained that
during the course of the 1987 issue, the NTHEA staff Indicated they were
k
pleased with its structure and suggested that the underwriters and the
Financial Advisor review 1985A to see If it would be feasible to consider a
current refunding at the earliest possible date. Mr. Jones pointed out that a
current refunding could not be done until 90 days before the next adjustment z
period which is next May 1, so the earliest anything could be done would be
February of 1988. He advised that for its size ($18,000,000) mad for what it
t' does, the 1985A issue is an expensive and operationali f'
y painful issue; and
perhaps It could be refunded into something that would operate better and save
money, He added that it would not require a cap allocation because it would
be a current refunding, Mr. Jones stressed, however, that the Authority
should only consider action that would be co its advantage,
After discussion the general consensus was that the Financial Advisor
should study the 1985A Issue to determine the feasibility of entering iato a
current refunding and
perhaps include new mosey in the Issue if the acquisition schedule to demands and present a report at the next Bosrd,
meeting.
Agenda Item IX - Adjourm, There being no further business, a motion
was made by Dr. Duke ■nd seconded by Mr. Brock to,adjouea. The msst;dg 3
adjourned at 7:30 p.m.
~4. MINUTES APPROVED this the day of
•7 ~ 1988.
is
4
res en oar o rectors
North Texas Higher ucation
Authority, Inc. j.
0 ATTEST:
I
A ISTANT SCCilBTA Y, nerd 0 D rectors
North Texas Higher Education f
Authority, Inc. .
:k 6
,
T _ Ya.•...
owp~
MINUTES Of A SPECIAL MEETING
OF THE goW OF DIRECTORS
OF THE NORTH TEXAS HIGHER ED(iCATIOH AUTHORITY, INC. t
1
A special nesting of the Board of Directors of the North Texas Higher
Education Authority, Inc. convened at S:OS p.m. on the 18th day ofAuguet,
1988 in the City of Denton, Texas with the fciloving Directors present•.
Mr. Governor Jackson, Pr-3sident
Mr. James Brock, Director
Dr. Wayne Duke, Director 1~'J
Mr. Michael Graadey, Director I
Dr. Lindsay Keffer, Director iii
Ms. Nets Stallings, Vice President
s Dr. John M. Trapani, Director
Ms. Lynn Hampton, xx-officto Member
The following Directors were absent:
f Mr. Ray Meyer, Advisory Director
Mr. John McGrane, Ex-Officio Member
a, a Others in attendance:
Mr. Vic Sloede
Ms. Phyllis brow
Ms. Kathryn Bryan'.
} Mr. CarlGeneres f
Ms. Ann M putt
Mr. Robert Hoffman l
Mr. Marion Jacob
Mr. Neal Jones
Ms. Bonnie McCbaren
Mr. Jim Ntederls
Mr. David Obsrgfel marks The YN
idiag Offi ~rl
r a
Re
7 Ageads Item I - Introductory car called }I
;,t the oeetlag to order and welcomed tbosa present. Be then introduced Ms. Ana
ewitt sod Mr. Robert Hof fasn of Cbeaicel bank in New York and welcomed Mr.
Hewitt'
Jim 19iederle of Texas Commerce Bank in Houston. Ms. Rryaa advised that the
f= board may knov Mr. Hoffman from his former affiliation with Chase' Manhattan
Bank.
Agenda Item It -Approval of Minutes. A motion was aide by Mr.
s Brock sad seconded by Dr. Keffer to approve the Minutes of the Regular Meeting
oa February 29, 1988 as presented. Vote unanimous. Dr. Duke roved that the
Minutes of the Special Meeting on March 1S, 1988 be approved as prassoted.
Dr. )Keffer seconded the motion. Vote unanimous.
Agenda Item III - Resolution Relating to Nomination of Iadividusla to
the City Council of Denton, Texas to Serve to Places 2 and 4 of Aa Ntli1RA
Board o>t, Directors. Tha Yrsaiding Officer advised that Plates 2' sad 4 ire,
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({~raa.M.ee i
occupied by himself and Ms. Stallings respectively and that they both have
agreed to serve another term. or. Reffer moved that Mr. Governor Jackson be E
nominated for Place 2 and Ms. Kota Stallings for Place 4. Dr. Duke seconded i
the motion. Vote unanimous.
Agenda Itea IV - Discussion Relating to Nomination of Individuals to
the City Council of Arlington, Texas to Serve in Places 1 sad 3 of the KTHEA
Board of Directors. The Presiding Officer advised that due to the
resignations of Mr. Gary Cox and Mr. Nathan Robinett, Place 1 and 3 are vacant S
and asked if there were any recommendations for replacements. There were no j
nominations at this time. Ms. Hampton advised that Mr. Robinett had written t
the City of Arlington advising that he and Mr. Cox were resigning and had
asked the City to appoint replacements. She advised that the Arlington City
Council is presently considering two individuals, a certified public
accountant and a banker, and asked if that was proper procedure. The
Presiding Officer advised that the pattern in the past has been for the NTHEA
IN
Board to make recommendations to the City Councils of Arlington and Denton for
their approval, but that it is certainly proper for the Cities to make' the
appointments without nominations from the NTHEA Board. The Presiding Officer
asked Ms. Hampton to follow-up on the status of the appointments and to
contact Ms. Bryan. He added that if any members do have recommendations, they
should submit then to Ms. Bryan as soon as possible since the City of
Arlington may make a decision on appointments soon.
Agenda Item V - Election of in Individual to the Office of
Secretary/Treasurer of the MTHEA Board of Directors. The Presiding Officer ; -#E
advised that due to Mr. Co: 's reaigtiatioa the oEftes of Secretary/Treasurer is
vacant. Me. Stallings nominated. Dr. Wayne Duke to serve as ;
Secretary/Treasurer. Mr. Grandey seconded the notion. There being no further f;
aoeinatioas, Dr. Trapani moved that Dr. Duke be elected by acclasa►ion: Mr.
frock seconded. The vote was unanimous. j:.
x 1
Agenda Use VI - Election of an Iadividnal to the Ezeeatire Committee
' of the XTREA Board of Directors. The Presiding Officer advised that there
is also a vacancy on the Executive Committee due to Mr. Cox's resignation.
tie. Stallings suggested that selection of a replacement be postponed until the
y: new members are appointed. The Board agreed.
Aganda Item VII - Election of Two Individuals to the finance Committee
of the HTHEA Board of Directors. The Presiding Officer advised that both
Mr. Robinett and Mr. Cox bad served on the Finance Committee which leaves two
vacancies on that committee. He added that Mr. Graadey who also serves on the
finance Committee has tendered his resigastton, but bas agreed to serve until
the other vacancies on the Board have been filled.
Ms. Hamptoa volunteered to serve on the Finance Coasittse..The Board rT'
expressed their appreciation of bar willingness to serve. Dr. %after moved
that Ms. Hampton be nominated for a position on the Finance Committee. Mr.
Brock seconded. There being no further nomiaatioas, Dr. Trapani moved that y
Ms. Hampton be elected by acclamation. Ms. Stallings seconded. •vote
uaeniaoua.
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After discussion. the consensus of the Board was to postpone selecting an i f
individual to serve in the remaining position until after the new members are
appointed.
Agenda Item VIII - progress Report from the Rigber Education Servicing
Corporation. 1. Financial Report. Ms. Bryan reviewed the financials and `
reported that the 1985A financials reflect a small amount of activity in the 11
Operating Fund, but It will be closed out and the funds transferred to the
Surplus Fund at the end of August. She advised that the Findacial Advisor and
Mr. Jim Niederle have reviewed the 1982A issue and will report on it later and
that they had sent a letter indicating the results of the review to each Board
member. The issue has been losing money and was expected to, but it appears {
there will be some remaining funds. It has been losing between $10-$13,000 {
per month which is close to the budgeted figure. The Bonds are down to $3.9 ;
zillion and the loans are at $4.8 million. Investments were discussed and she
noted that most of the investments in the Surplus Fund are placed with
participating lenders. Ms. Bryan advised that the H.B.S.C. financials were ;
also included in the agenda packets.
2. Acquisition Report. Ms. Bryan referred to the 1987 Bond Series
Report and advised that through July 29, approximately $25.3 million worth of
student loans has been purchased which is far ahead of schedule. Ms. Brown
advised that after the August acquisition, there will only be $6 million left i
for the purchase of loans. This amount will not be sufficient for the
remainder of the 18-montb period and the Authority may have to use the Line of
Credit by December or January to purchase loses if there to ao other financing
in place by that time.
3. Lender Recruitment and Activity Reports. Ms. Bryan reported on the
- status of the commitments from the tbres major leaders for the 1987 Bond issue.
r I a;
First Republic Bank which is now NCKS Texas National Bank has sold only $1.5
million worth of loans Oct the second cosaitseat of $6 million. Kr. Obirgfel
advised that the FDIC assumed all liability in addition to taking over all of First Republic's assets, to while it is still under FDIC control
and NCNB is
# only managing its he fails the cossitmet+t will be booorod. He pointed out
r that in the else of insolvent banks, commitments can be done away with when
FDIC take over... Mr. Crandey advised that a new bank can bonor a commitment, f
but does not ban to do so. Ms. Bryan reported that Texas Commerce Bank of
Arlington committed $12 million and bet sold approximately $2.1 million. She
advised that Mr. Niederls has confirmed that Texas Commerce Bank will deliver
the notes. MBank Fort worth committed $12.5 million and has sold $14.8
million.
4. Portfolio Summary Report. The cumulative amount of loans being s
serviced is $98.9 million. Delinquency and default rates are fairly i
stable--less than one-tenth of one percent cbsags. Discussion ensued
regarding default retest and Ms. Bryon advised that one major reason NTRIA's i
default rats is high is because the Authority purchases a large amount of
proprietary loans. She explained that the Authority is required to purchase
any loans a Lander wishes to sell if they are guaranteed., Dr. Duke noted that
the schools also have little control in that they are required to certify any w;r
"xi
student that may be eligible under the federal guidelines,
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j 5. Report on Denied Claims. Ms. Bryan reported that there are some
claims that have been denied because of servicing problems and that cure
procedures have been unsuccessfully implemented on those claims. She
explained the variety of problems Involved and noted that most of them bad to
do with separation dates. If a separation date is incorrect, it can result in
some due diligence steps being missed. The last resort with denied claims E
after all else fails is to file a lawsuit and obtain a judgment, then the
judgment can be assigned to the Guarantor, and the Guarantor will pay the 1
claim. H.E.S.C. has asked Mr. Generes to file suits on the accounts H.E.S.C.
is responsible for and will pay the court costs and attorney's fees.
1
Ms. Bryan advised that 22 accounts in the amount of $52,000 are
attributable to H.E.S.C.; First ;iebovis has 24 in the amount of $57,000; the
Trustee has 23 in the amount ot, M,700, and eight accounts are attributable r
to the originating lender in the amount of $16,800. Firs: Wachovis has bees I ~j
notified and has always stood behind their servicing in the past, so there is {tj
fi
no reason to believe this would be a problem. The Trustee apparently was
understaffed and did not get some of the claims to the Guarantor within' the
required length of time. Ms. Bryan advised that the Trustee agreed to stand
behind the accounts they were responsible for and they are paying interest on
the money the Authority would have received,
In regard to the eight accounts that are originating lenders' errors, I
Ms. Bryan advised that the Authority needs to decide whether to recourse the
loans or take other action. Mr. Generes advised that he would file lawsuits
for the Authority for a fee of 152, assuming judgment is received and payment
4 is made by the Guarantor. He added that there would also be court coats. Ms. r
i'
Bryan advised that she would not recommend recoursing the loads due to the
competitive climate that exists among the secondary markets. It is a time to
strengthen relatioasbips with lenders and recoursing the loans might cause
1 ff 'l ~
so" bad feeliaga.
A motion vas made by Dr. Duke and seconded by Or. Keffer not to
recourse the loans to the originating lenders and to bsve Mr. Generes file
r lawsuits oa the eight claims that were denied. Vote unanimous.
` 6. Report on RESC, Inc. Activities. Mr. Jacob reported that the new
for-profit corporation is just getting underway and that its purpose is to
permit the servicing corporation to engage in some activities that the
non-profit corporation could not without jeopardising its non-profit status.
Primarily, RISC, lot. plans to engage in other higher education support
activities that are consistent with the general purpose of, H.I.S.C. The sole
business activity at present is an alternative loan program which to a credit ?
worthy loan made to students who either have no eligibility for federal aid or ;f d
whose eligibility is not sufficient to meet the cost of education. RISC, Inc.
` entered into an agreement with the Educational Credit' Corporation of
Philadelphia to act as their agent in 13 states. Mr. Jacob advised that
penetration of the market has been slower tnsa anticipated which **sit the
cash street ls'not as strong as originally anticipated. HESC, Inc. bas been t
in the program eight months and its expectation of that activity bas not
diminished. Other activities ore being constdered--scholarship search,
counseling packages, etc. Mr. Jacob added that be anticipated that the
venture will begin to show a profit within the year. 3
1
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.~wl~-~ 1.,'.r lam'.. t•, i,: \.MJ..i\rn\.4i1.4 ✓r.\.n.V 4JU Ur. 1.1'w+~.tM
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g a*'~ 7. Miscellaneous- Ma. Bryan reported that H.E.S.C. is still looking
into the posatbiltty of bringing more servicing is house. !i.E.S.C. has talked
with wachovia about being on line with their mainframe, using their be
'
mad having the H.E.S.C. staff do more of the actual servicing. This would
accomplished in phases over the nest year or two. wachovia will be cbargtng
the Authority over $1 million this next fiscal year. Wacbovia has raised its
fees 18% in the last 18 months and H.E.S.C. feels that it can not only do the
servicing for less money, but that it could do' a better job. Many complaints
are received everyday from students and schools who have trouble getting
through to Wachovta for service--one of the reasons being that Wacbovia is so
large and handles so many accounts. Ms. Bryan advised that CSX Technology has
also submitted a proposal that is under consideration. She advised that she
would keep the 3oard informed and that H.E.S.C. would seek the Authority's
approval before soy definite decisions are made. Approval would also have to
be obtained from Fuji Bank. She added that at B.E.S.C.'s last Board meeting
on August 16, Governor Jackson recommended that an independent party research
the possibility of more in house servicing to confirm that it would be cost
effective.
Ms. Brgso reported that the Texas Guaranteed Student Loan Corporation 5
will audit H.E.S.C. next week and that Touche Ross to coming in September to
conduct an audit for Fuji Bank. She advised that she would provide the g,
Authority with a report on the audits.
Ms. Bryan noted that Mr. Bob Ziemaki, formerly of kTrust Corp to {
Dallas, has joined COSTF.P and will be located in the Austin area.
t} ,
6t33 p.m'.e it was m*ettog refreshments .10 p.m. and agreed that the Financial Advisor's Report would rbe board at '
this tine.
3 Agenda ltes X - Report from Finaneial Advisor. Mr. Jones ,
re-introduced Mr. Robert Soffsan. Mr. Soffsan advised that be was pleased io
be visiting with the Board and advised that be had been with Chase Manhattan
Bank before joining Chesical Bank and that be will be responsible for
monitoring MTSBA's 1981 issuance and will stay to touch vitb appropriate i'
1y
parties, especially M'tHLA's Financial Advisor whoa be has known for,some Rise, !
as well as liathryn Bry. an. No. Havitt advised that Mr. 8offsan vas very
knowledgeable about student loan financings and that Chemical Bank is very
r, fortunate to have him. She added that his presence confirms Chesical Bank's
commitment to the student loan business. She added that Mr. Jack Wallace who
worked with the Authority last year on the 1987 issue has accepted the
position of Director of Tax-exempt and Taxable Markettog with the Back of Boston which is a great opportunity for him.
Mr. Jones advised that several months ago the Board asked him to review ! 14
the 1482A issue to see if there would be sufficient maintenance sad (
• operating funds to operate until the and of the issue. Re added that Mr. Jim t
Iftederle offered to run a cash flow which be has completed and a short E
synopsis of the results was sent to each board member on August 11.` As the'
Issue stands now, it will support the operating expenses (based on Ms. Brown's estimate of expenses). Tbo ending balance will be approximately $3
milltool
however, $2.7 sillioa Was put is by the Authority at the begiontag, so the net
, 3
will be around $900,000. He noted that if repayments continua as scheduled,
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71 11
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the Bonds will pay off in 1992 rather than 1997. Mr. Niederle then reviewed
the cash flow. Ms. Brown advised that the $2.7 million up front was not
money, but principal amount of student loans. She advised that when the Bonds
mature in 1992, the Board will have to decide what to do with the high
yielding securities to the Reserve Fund. Depending on the market, the Board +
will need to sell them or hold on to them until 1996. The average yield on
those securities is 13.861, based on her calculations. Discussion. Mr.
Niederle advised that he would be glad to review the 1982A issue periodically
for the Board.
At this time, Ms. Hewitt, Mr. Hoffman and Mr. Niederle left the
meeting.
Mr. Jones discussed the fact that NTHEA is using its funds faster iban
anticipated. He advised that the Authority's-needs should be determined-end
to the extent there is a need, the Authority should consider the possibility
of a tax-exempt financing. He advised that the cap allocation for 1988,has
been gone since February and that there is little chance of receiving any of
the reallocated money that becomes available on October 1 from the other
categories. So it appears that the Authority needs to be ready to proceed
with a financing in f-nuary when the cap allocation begins again. Preparation +
I
would have to begin now to get in line for a reservation of cap on the first
business day of January 1989. Mr. Bloade advised that most of the activities i
surrounding the bond issue would have to be done by November in order to be in iE
line for cap allocation. to January--if allocation is received the bonds would
have to be delivered within 60 days. Discussion. Me. Drown provided an
anal sis from 1984 to resent on the principal amount ofaew loans purchased
and based on the past, she anticipates the Authority will peed funds to t :rR~
purchase approximately $34 million worth of student loans, t!
Mr. Jones advised that if everything falls into plaea, work could begin
relatively soon. Be suggested that the Authority give coasideration as to how i
it wishes to choose an underwriter. He pointed out that one of the main
conatderstioas last year was to try to include the major lenders that sell E
z+{ loans to the Authority in the financing. Re noted that the last underwriting
group accomplished a very good fiaaaciag for the Authority. Se added also
' that he and Ms. Bryan visited with Mr. Paul Sheldon of Chase Manhattan
U
yesterday and that be has been involved in student loan financings since 1980, 1 +
many with other Texas authorities and that Chase Manhattan might be a
possibility. Me. Bryan explained, however, that there might be a problem }
because if Cbsse committed any loans to the Authority, they would want to l!
retain the servicing on those loans iur three years.
Mr. Blood* gave a brief overview of some proposed legislation that.
mlgbt adversely affect tax-exempt financials. The Rouse of lspresentativas
bas passed a technical amendment to the 1986 tax bill and there are several
negative things in regard to tax-exempt funding of student loans tacludedi
(1) it would reduce the allowable arbitrage earnings o* students losns to 1% j
(currently it is 1 1/21)0 (2) it would include Special Allowance payments in j
4 the ealcnlation of arbitrage (which to not the case cow) and (3) the temporary ,
period which is now 18 months in which you are allowed to earn unlimited
arbitrage to recover coat of issuance would be reduced to six months. He
advised, however, that the Senate version does not have say of those things
and that there is another bill in the Senate which restores some of the things
6
1
the 1986 tax act. This is from one extreme to another and makes j.
taken away % G
it difficult to know which way it will go or if it will go at all. If nothing
happens, then some of the provisions that are scheduled to go into effect at i
j
the end of the year well su period to six months. effect--the advised that the
shortening of the te~~porary ry period
general feeling of the bend attorneys is that these issues will be ironed out
prior to the election.
After further discussion, the general consensus was that the Financial
Advisor should determine the need, pursue the possibly of a financing and
report to the Board.
Resolution Relating to Adoption of Operating Budgets for the Fiscal
Yes I. Ending August 31, 1989. Ms. Brown reviewed the revised Operating
Budget for the 1987 goad issue. She advised that the original budgets were
based upon best calculations as to what the loss acquisition schedule would be
{
which turned out to be substantially less than what was actually acquired, and
there has been a major change in operating expenses this fiscal year.'
order to withdraw funds to November, 1/12th of 1.752 of the monthly loan,
portfolio balance must be budgeted because the asset coverage ratio percentage
will not have been reached sirce the cost of issuance will not have been
recovered. Therefore the budgets for the 1987 Bond issue and LOC need to be
amended for presentation to Fuji Bank.
It is anticipated that the 1985& Operating fund will be transferred
to the Surplus Food at the end of August. Due to the fact that the loans vivo 4. { 1
acquired as of April 1 by the LOCI the Trust Indenture and trust accounts 1 1
continued until the Bonds were redeemed to May, so there vas an overlap of j j
S.C. did
work on 1985A to LOC. In other words, the monthly fee paid to H.g.
not take that into account. The amended budget for 1965A, if the Board wants
to handle it this way, would pay H.E.S.C. an additional $6,000 for duplication
of work for the month or the Board could antbortze a special payment, of
$6,000. Discussion. f
Ms. Brown advised that the Fuji budget was prepared on a cash basin
and in order to bring it core in line with financial reporting, the amended
~s budget has been converted to an accrual balls. She pointed one that an
additional $3,000 payment to H.E.S.C. Is included becoiie the LOC FISL loans
could not be sold to the 1987 Bond issue in December when the TGSLC loans
were, so duplicate work was perforated in December sad January in LOC and the
' 1987 Bond issue. The amended LOC budget above the selling of the loan a1 1
portfolio and the return of hinitial borrowing to Fuji. The expenses, i !I
reflected are actual and not projected.
Ms. Brows then reviewed the Operating Budgets for the 1988-89 fiscal `
Ms. Bryan advised that when the 1967 issue was done that it was agreed
year.
that mosey would be taken out of the Surplus fund each year is seeded to fund ,
ahead and that it would then be recovered and that this is reflected to the
1987 Series budget which shows (under Expense) Reimbursement to Surplus Fund
6151,000, The $1,676,000 taken out under Revenues will also be recovered
Ms. Bryan advised that Ms. Brown bad also prepared a budget for the Surplus
fund,
After discussion, Ms. Stallings moved that the Amended Operating U
Budgets for the fiscal year ending August 31, 1988 and the Operating Budgets {
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for the fiscal year ending August 3t, 1989 be approved as presented. Kr. ~
Grandoy seconded. Vote was six "for," and none "against," with Mr. Jackson J
abstaining.
Agenda Item XI - Other Business. The Providing Officer circulated
Mr. Grsndey's letter of resignation and expressed his appreciation of Mr.
Grandey's willingness to servo until the new members are appointed in order
that the Authority's business can continue smoothly.
Ms. Bryan advised that first Interstate Bank of California (which
purchased all the Allied Banks) is starting a student loan program statewide
from Dallas which puts another large holding company bank in the NTHU 'a
I service area which is very good news. She added that Cheri Vbltten who was
formerly with First Republic has joined First Interstate and will start up the r{f
program for them. Ms. Bryan reported that Colonial Savings has decided, to
f dis:ootiaue its student loan program and is selling its portfolio to Nr&A.
Also, Mr. Granday's bank in Denton will no longer make student loans and•NTREA }
will purchase its portfolio as well. I
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Agenda Item XII - Adjourn. There being no further business, Mr.
Brock moved that the mreeting adjourn. Vote unanimous, The meeting adjourned
at 7t52 p.m. + E!~
r NINUTU APPAOM this the day of 1968'
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PresMeat Board
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North To High Education
M1 Autborit, In
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li l T ATTEST t
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AnaAaa tantecre ary, oar o oirectorsary, a roirectors 1
lforth Texas Higher Education ;
Authority, Inc.
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' I
MINUTES Of A SPECIAL METING
OF THE BOARD OF DIRECTORS
Of THE NORTH TEXAS HIGHER EDnCATI0K AUTHORITY, INC-
A special meeting of the Board of Directors o! the North Texas Nigher
Education Authority, Inc. convened at 5:12 p.m. on the 13th day of September,
1988 in the City of Arlington, Texas with the following Directors present:
Mr. Governor Jackson, President
44
Mr. James Brock, Director I
Dr. Wayne Duke, Director f 1
Mr. Michael Grandey, Director
Mr. Jim O.'Schulta, Director
Dr. John M. Trapani, Director
Mr. H. Eugene Walton, Director
and the following Directors were absent:
' Ms. Nets Stallings, Vice President
Dr. Lindsay Xeffer, Director ;
Mr. Ray Meyer, Advisory Director
i Me. Lynn Hampton, Ex-Officio Member
Mr. John F. McGrans, Ex-Oiflcto Member
a tr ~ .,I
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Others is attendance:
_ Ms. Shelby Bear
Mr. Vic Bloede
Ms. Phyllis Brown i 1
Ma. fatbtyn Bryan
_t. Mr. Carl Geoeros
r Mr. Heal Jones
Ms. Borate Mecharen ,
_ Mr. Elbert Morrow
Mr. Robert Patterson
` Agenda Item I - Introductory Remarks. The Presiding officer called i~
the reattag to order and welcomed those present. Be extended a special
welcome to the two new members, Mr. Jim B. Schulte, Partner, Wee Waterhouse,
W Mr. H. Engaas Walton, President of the First City Rat[oasl Bank of
w4 Arlington, rho will serve in Place 1 and tlaee 3. The tstb of affice wag then.
! x
administered to Mr. Bchul: and Mr. Walton. He noted that !!r. Brock is
ex meted to join the meeting later. Mo. Bryan advised that Minutes of the i tyr
August 180 1988 meeting would not be available uatit the next meeting dug to
the chore period of ties mimes the last meeting and Ma. McChaeen'a vacation.
- Dtacusai~a Relating to the Issasede of Tax-exempt
Agenda Item It
Bonds. Mr. Elbert Morrow distributed booklets which provided current`
information and requtreoents for entering into a bond istue in 1988 or 1989.
Be reviewed those items: '
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1. A draft of a House bill has been passed vhLch makes substantial
changes in the student Joao program. The Special Allowance wou be
included in the calculation as to yield. At present it is excluded andlthis
is one of the things that made the
Payment program any tax-exempt financing if the House Billrpo It would be impossible Senate to dl
provides a six months extension of all Passes. The proposed Senate bill
some,tlae is needed to work present rules--the theory helm ~
on tba
preserving 8 t
the F
six months would give Congress time to do that. Mro student
noted progthat he had
received copies of these bills only this morning and that was the reason the
to booklets could not be provided earlier.
2. State law and various forms used.
3. The Student Loan sale agreement which is a best efforts type of
contract that has been used in the past and has been 'approved by tbb Attorney jj
General's office under big new system, f
Mr. Morrow then advised that the following things need to be done right
away if the Authority Proposes to enter into a tax-exempt bond issue any time
doting the next twelve months:
ne
1. A notice of public hearing must be j.
the Arltagtoc and..
Denton newspapers one time, 14 dogs before the bearing data.
2. After the
public heartag and only after, the two eittes, Arlington
and Denton, must approve the possibility of the Authority Issuing bonds. The
"
law provides that sPousprin cities baye to a
obligations, whether tax-exempt or taxable. pprove tae Issuance of
3. If the Authority makes application for cap reservation and receives
allocation, it would have 20 days to Gaya the band documents completed and
there are none at "u
present. Those documents include: +SFf
a. Affidavit of Publicattoa
' s
„f b. Approval of two cities j
e. Dodd 4solutton
l d. Pnrebut Contract wbe=eby fffVXA sold The
. ' r hoods
Hr. Jones askod if anything would bare to be re-done if the traaeact
r r f&:* a 1989 transaction versus a 198e.
Hr. Horror advised that ragnieliona "
t that are in existence now cover 1988 and the Te:na De artment;of
(TDC) regulations ;or 1989 are supposed to be P Zee Commetc -
1 sometime in October. These roar basic thin=sadt~cas~~ed~ 5ohwev~e re f lstor
law and would remain. Hr. Jones explained that the regnant to the federal ;
would be for a hood issue of a certain amount, whether tax-exempt or taxable.
Me. Deer advised that the series dove not have to be designated. She added
that once an applicatioa is made, the Authority vould be locked in and at that r;
point would have to meet the TDC requirement of issuing 90x of the amount
requested. Mr. Morrow advised that all the cap to the student loo bond
that category was taken by the middle of February,
amount left in the other categories will become navailable October lie go added
that If the Authority is serious about dotag a tax-exempt Issue, it should y
prepare to Set In line for allocation to 1989 if allocation cannot be obtained
in October.
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Mr. Morrow advised that at the present, if hoods could be delivered in
1988 they would be tax-exeapt; however, the Authority would need to place a
disclosure statement in its official SCatV[itten; tbut if the legislation
are exempt a$ the federal law is presently
passes in its proposed form, that the interest on the bonds would become suanc subject to
federal iya a who pur Oases boadsaettve. This,
of course,
kt this time the Presiding Officer advised that Mr. Generes had E
reminded him that the new Board members may need to be briefed on the purpose 1
and function the reviostftnanciags briefly reviewed SyCs
previous
history And purpose,
` and other entities. Ms. Brown and MS. Bryan
loans being serviced and thepamount dof not ey available to
about the mum
purchase those loans.
Mr. Jones advised that he discussed the recent events and proposed
advised members
t that the !
legislation
those discussions. t He the
ne last weekrand°reviewed tax-exempt
telephone
Attorney General of Texas is requiring stricter coomiC>sents is regard o
getting a bond issue approved. For this reason there may be a poseiblity
do so ay He suggested the NTHZA eight wish
that someone line ftunity to allocation
't NTHBA might hava an opportunity
' to get in line for allocation with little or no hope of receiving toy to
October; and it none was received, the Authority would ad,readMyrbeJoaepa anted ! 3
s
receive an allocation is January, 1989 and deliver {
that the Authority clearly needs funds to purchase loans; becomes svto if the
a totally taxableefio early a next
at that Authority
option chance the
point t would l be run
LOC is ethe there only is a
rear and licatioo for allocation for
year
go advised that Bond Counsel could prepare to app ;
TDC slid they would hold it until October 1. If there is say cap left at that-
ties, TDC would contact VrNzA. at pointed out that he has looked at various
. . types of financing and feels that the bent financial and the most taHbla
would be taaiaallr what was lane last ti with the excepti6o die ofhsnifa rate
ti bonds involved. It would probablr be ble s;f
F quarterly interest payment vehicle. If the Board wished co do that, it could
nerd to select a bond counsel and underwriting group. l;
n
..r. A lengthy discussion ensued re;eyeing various aspects of the possibillLy
of doing a financing.
MY. Schulte asked what the Authority's exposure would be if the }y
financing could not be done for whatever reason. Mr. Morrow advised that, the ,
" $500 application fee would be lost. No added that to the past the Bond. en badly ned. Be
Counsel othat owhen Bo contingency fee basis. and has
el begins writingbthe financingrdocuments
would prefer that it be on an hourly basis. If the iaaua cannot be done, than Bond Counsel
would only bill for actual hours and expenses. Mr.Mo~iead a thate iswoauld
be willing to put a cap on the fees of VO-$25,000. h g with the ?
t either he or Frs. Beer w be working
done. Mr. Morrow advised tha ould
Authority and ed that his fhighier. -to
when the wo S group is selected and t
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accomplished, they would be only two weeks away from document preparation.
Discussion. Mr. Geoeres suggested that perhaps the Bond Counsel could eater i j
into the bond deal on a coottageacy fee basis; and if the financing collapsed, I
cove to the Board and advise that x number of hours are involved and at that
point submit a bill of 920-$25,000 or whatever. Mr. Morrow agreed that would
be a much better arrangement. Vc. Generes advised that if be is involved as
General Counsel, his fee would be on a contingency basis. Mr. Jones advised
that be felt that the Authority will be able to accomplish a tax-exempt bond
issue early next year. The Presiding Officer asked what the cost of all {
parties involved would be if the financing did not go through. It was
determined that it would be approximately $30,000. Mr Bloede added that he f
also feels the flosacings will be done early Pert year and any work done will ffl
not be lost. He noted that the underwriter and Financial Advisor tees would
also be on a contingency basis.
A motion was made by Dr. Trapani and seconded by Dr. Duke to wthortse
the Bond Counsels Fulbright 6 Jaworsris Mr. Carl Generes and the Finincial
Advisor, Matcher 6 Company, to pruceed with structuring a financing. Vote
unanimous.
Agenda Item III - Resolution Relating to 8agagestat of on Underwriting
Croup to Prepare a Tax-exempt financing to Refinance Loans Held Under the Fuji
Bank Line of Credit Agreement and Provide Puads for the Purchase of Stadeot
Loans for a lbrar)ear Period, Mr. Bloods asked that the lir.ancial Advisor
he given authority to negotiate with nnderwritiog groups; and if those
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negotiations can be successfully concluded, engage an underwriter. Xr. Jones
I advised that perhaps negotiations could be made with the group that completed ?.s
the 1987 Bond Issue--Chemical Sank and Texas Commerce Bank. Be noted that Mr.
Roffman bas a lot of experience to structuring those traosections end, +oUld
" probably also structure the cash flows for review, Texas Commerce Bank his
~a
and will continue to sell the Authority loans. He added that. MBank lost j
North, one of the Authority's largest lenders, and also NCMB Texas National
abould be included in the STOUP. Ms. Brown would also need to review
proposals froze Trustees. There vas discussion reSardinS nadet+rritee'a '
discount oa the 1987 Boad issue. 4 r
t A motion vas cede by Dr. Duke sad ssconded.by Dr. Trapani to sntbosise fr'
the Fiaancial Advisor to solicit proposals, assotiate the teras and slake e' 3
i recomateodation to the Board. Vote unanimous.
Agenda Item IV - lagagemeat of Functionaries to Partieipsts in tbe.
Proposed Tax-ex"pt FinaactaS,. (a) Food Counsel, (b) Trustee sa."(c) General >
Counsel. It was noted that the Bond Counsel and the General Counsel wire
authorized to proceed with structuring a financing under Agenda Item It. Mr.
Jones advised that the Trustee proposal from M?rust Corp has been received,
but the one from First City Bank of Dallas has not. Mr. Jones advised that
First City is working on it and it sbould be received soon. Ea advised that
these proposals would need to be reviewed by Ms. Brown for recommendation at
the Part board meeting.
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I Agenda Item V - Resolution Authorising the Financial Advisor to Apply +
to the Texas Department of Commerce fora Reservation of Allocation of
h 9
$1000000,000 on behalf of the Authority for Issuance of Qualified Student Loan
Bonds. It was noted that authorization was given to Bond Counsel to proceed
` with structuring the financing under Agenda Itea II.
Agenda Item VI - Resolution Relating to Authorization of Payment of
Premium to Colonial Savings Association and MBank Longview for Liquidation of
Student Loan Portfolios. Ns. Bryan advised that MBank Longview sad Colonial .
l Savings Association are going to cease making student loans, but are going to
refer all applications to MBank Fort Worth. The Colonial portfolio is a
little over $2 million total and MBank Longview will sell a total of $5
I million in all. MBank plans' to sell $3 million very soon and the remainder
before the end of the year. Sallie Mae has offered a 1.252 prestum to both
lenders, so in order to meet Sallie Mae's offer, Ms. Bryan requested
authorization to pay a transfer fee of .251 in addition to the normal 11
She added that Fuji's permission will also be required, but !eels '
premium.
that will be no problem. She noted the the cost will be earned back in a _
year's tima, and since their applications will be going to MBank Fort Wortb,
those lenders will still be a source of loans.
A motion was made by Dr. Duke sad seconded by Hr. Schulz to approve f
aymeat of 1X premium plus a 2S-Oasis point transfer fee to MBank Longview sad
p should there be a delay to receiving approval
Colonial Savings Association and
{ from Fuji, authorize payment out of the Surplus Fund. Vote unanimous.
Agenda Item VIt - Other Business. Ms. Bryan advised that the peak k%
of gorton is Ransas has requested that b "MA consider purchasing student Loans'
from than. The loans are Texas loans; however, many may be proprietary intos. L`I
After discussion, the general consensus was that it might not be appropriate.
for the Authority to purchase loans out-of-state at this time.
A action was *ad* by Mr. Schulz and seconded by Mr. Brock that the z
Authority not consider the purchase of student loans from the lack of Norton.
` v6ti Unanimous.
L
Kr: italtoa suggested that the Authority solicit tirat`City Bink' Ly'
Noaatoo's student loan basiaasa because there to some talk that they will
centralize their loans and the Anttiority would no longer be purchasing the
Arlin ton Bank's loans.First City lack gouston boo been selling'losA• to vy
a proposal from the Greater East Texas Nighet Education
Sallie }tae and have
Authority. Kr. Halton advised that First City National Bank Arlington would
I
like for NTHEA to submit a bid that will either accomplish purchasing all
their product or at least the product from the Arlington Bank. He advised
that this change sight occur in the next year. Discuesion.
A motion was made by Dr. Duke and seconded by Mr. Brock to authorise Ms. i
Bryan to approach First City Bank Houston about selling student loans to NTHEA.
w Vote was sit "for," none "against," with Mr. Halton abstaining.
f The Presiding Officer noted that committee appointments vane held up
until the new members were appointed. He asked No. Bryan to provide some j
ieformation to the new members regarding HTHEA's committee structure and take
this up at the next meeting. I
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Agenda YIII - Adjourn. There being no further business, Dr. Duke j
coved the aeetiag adjourn. The meeting adjourned at 7s12 p.m.
:slavrsS APPeoasD this the 13t,L day of lC'~r~il~J , 1988.
j..
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rth th Texas ucation.
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,
MINUTES OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS
OF THE NOBTH TEfAS ZIGHER EDUCATION AUTHORITY, INC. r
A special meeting of the Board of Directors of the North Texas Higher
Education Authority, Inc. convened at 5:35 p.m. on the 13th day of October,
1988 in the City of Denton, Texas with the folloving Directors present:
Mr. Governor Jackson, President
Ms. Meta Stallings, Vice President
Dr. Lindsay F.effer, Director
Hr. Jim D. Schultz, Director
Dr. John H. Trapani, Director
Ms. Lynn Hampton, Ex-Officio Member
Mr. John F. McGrane, Ix-Officio Member
and the following Directors were absent: ,
s Dr. Wayne Duke, Secretary/Tceasurer
Mr. James Brock, Director
Mr. Michael Gratdey, Director
' lie. H. Eugene Balton, Director sE
Mr. Ray Meyer, Advisory Director
f Others to attendances I'
worski
rEht6Ja
lb i
b :v
y Beeriu
1
.'She
Ms. Kathryn Bryan, Higher Education Servicing Corporation
Mr. Carl Generes,_General Counsel
Mr. Robert Noffson, Chemical Securities, loc. '
v F
Mr. Neal Jones, Hatcher & 'Company
f.. Ms. Bootie McCharet, gibber Education Servicing Corporation
sa' Mr. Jim Niaderle, Texas Commarce Bank - Hoystoa
Mr. Robert Patterson, Mruist Corp; K.A., Dallas i`
Mr. Jerry Robinson, 1fClTB Texas National Bank Dallas
Me. John Rupley, Mtruat Corp, N.A., Daltss
Agenda Itea I - Introductory Remarks. The Presiding Officer called
the meeting to order and velctmed those present. Introductions followed.
Agenda Itea It -Approval of Minutes of August 189 1486 and September
139 1988 Kestl6ie. The Presiding Officer advised there vas a typograpbicsl
error on page four, second aregrapb, line five of the August 18, 1968Minetes.
The word "have" +.bould read "has." A motion was made by Dr. f and
seconded by Dr. Tra:fat to approve the Minutes of August 180 1988 as corrected
and the Minutes of ;,iptember 13, 1989 as preaeatsd. Vote unanimous.
Agenda Item III - Report from the Financial Advisor. Hr. Jones
advised that events are happening daily that influents the options available
to the Authority in relation to the proposed tax-exempt financing and that
many decisions teed to be made at least in theory. He then asked Ms. Bear to l
report on the current status of the proposed legislation and the cap
allocation situation.
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Me. Beer referred tc a memorandum distributed earlier wbich provided an
update on the cap allocatioa and reported that most of the issuers in line
before the Authority Fave received their allocation. The Brasos River
Authority has withdrawn, and the City of Terrell is to the process of
withdrawing, so those allocations will be returned for re-distribution. The
Authority is next in line to receive allocation, and there is some talk that
several of those listed who received allocation may not be able to meet the 20 ;
day deadline which leaves reason to believe some cap might become available.
Ms. Beer advised that the cut-off day, October 23, falls on Sunday, so there
might be a possibility that she would hear something on the Friday before, but
more than likely it will be after the 23rd before she hears anything. She
added that even though she cannot definitively state that the Authority will
or will not receive rap allocation in October, that preparation needs to
3 proceed so that the Authority will be in a position to go forward with the
!1 financing at a moment's notice rather than having to complete everything
within a very short time frame.
f Ms. Beer reported that the proposed legislation Is still somewhat up in =
i the air. It Is rumored that Congress might recess for the Presidential debsts
and then return and finish up. Discussion ensued regarding the Rouse version
and the Senate version of the bill. Ms. Beer advised that the best case a'
scenario would be for the Senate bill to pass which would keep the current law
that allows the 18-month temporary period. The worst case would be If the
House bill passes which would ■aka it very difficult to structurs a tax-axemt
financing. If nothing happens, a transaction at the and of this year would i
come under present law. If the Authority is unable to obtain allocation this
year and has to wait until the beginning of 1989, there will only be a six
month temporary period as opposed to the l8 months. 1
Mr. Jones advised that if it is learned in the next two weeks that
is - allocation has been received, things will have to happen very rspidly, k
Documents in the fora of a bond resolution have to "a at the Texas Departe4at' E
of Coamarce within 20 days following the date allocation is received and that
means a letter of credit support will need to be to place. The indentare, will
3 bare to be agreed upon. The Board will have to meet to approve the bond
resolution and basically most of the work will need to be completed by that cs
;
+ time, The bonds have to be delivered within 60 days of the date allocation to
received and within the year, 1988. +
Agenda Item I4 - Resolution Relstio$ to Engagment of as Underwriting
Croup to Prepare a Tax-exempt Yinancing to Refinance Loans Held Under the Yuji
Barak Line of Credit Agreaaent and Provide Funds for the Purchase of Strdeat
Loans for a Three-year Period. Mr. Jones advised that one of the decisions
C that needs to be made in order to move forward is the approval of as.,
underwriting group. He added that any decision made at this meeting or up 4
until the time of delivery of the bonds is subject to negotiation. He advised
that Chemical Securities, Inc., Texas Commerce Bank-Houston, NCNB Texas
National Bank Dallas and MBank Capital Markets Croup Dallas have presented a
proposal to act so the Authority's underwriter should the opportunity arise
for the Authority to enter into a financing this year or next year. The
proposal outlines a transaction very similar to the 1987 transactloo. Mr.
Jones stated that it is a good group and pointed out that three of the members
have a past history and hopefully a future history in the area of selling
loans to the Authority and providing commitments to the Authority. The
2
Attorney General is now requiring that an issuer have best efforts commtteents
on the amount of the bond issue when it goes to a rket and three of these
underwriters are prepared to provide this commitment, NCNB Texas National Bank
Dallas, Texas Commerce Bank, and MBank Capital Markets (MBank Port Worth). In
addition, Mr. Jones advised that Mr. Robert Hoffsua of Chemical Securities,
Inc. brings to the group a great deal of expertise in the area of preparing
cash flows and putting together transactions of this sort.
Mr. Hoffman then described the proposed structure advising that it is
very similar to the portion of the 1987 transaction that was a variable rate
demand bond. He adde6 that the current market environment would probably
preclude, unless interest rates drop significantly, soy fixed rate portion of
a bond issue. This structure is designed to maximise the ability to recycle
surpluses and student loan repayments into the acquisition of new loans for
the entire life of the issue which is proposed to be 20 years. This
translates Into the capacity to finance with tax-exempt borrowing an average
of $10 million per annum of student loans for which the Authority will not
have to seek further cap and will not have to issue further bonds. That is a
great advantage in an environment where six months from now a new tax bill
might be on the table with the same proposals from the House as before. The
proposal involves a potential conversion to fixed rate which is driven
strictly by economic factors and calls for the remarketing agent to {I
periodically test whether the bond issue can be converted to fixed a rate at ,
' levels which will maximise the arbitrage earnings available under current IRS
codes without involving a reissuance problem from the standpotat of bond
counsel. It is subject of course to cash flow projections and other market
driven considerations that are a part of what is negotiated up front to the
original indenture.
' Port of the proposal also involves a restructuring or modlficatioo of l
the remarketing arrangements that occurred on the last transaction as veil as
this transaction. Thera are responsibilities associated with managing these ji4
that involve attention to a lot of detail on an ongoing basis. The group
proposes to keep the level of overall compensation for remarketing at the saa►s
level of 12 1/2 basis points. Ten basis points would be for pure remarketing
and two and one-half, both for this transaction and the last transaction, y~
would be purely for the function of monitoring the fixed rate conversion,
- running the cash flows and staying absolutely in touch with and on top of the s •,i*`' condition of the portfolio, the numbers and all
the activities of the
Authority as it moves forward. Mr. Jones explained that this does not Nan an
additional payment on the now issue. It only means that the billing will be
group will receive ten basis potato for
broken out whereby the remarketing
! remarketing and the iadextag and calculating agent will receive two and
one-half basis po-nts. Mr. Hoffman explained farther that Chemical is I
proposing co be the remarketing agent in the issue; and following the original f
underwriting and distribution of bonds, the remarketing agent takes the
responsibility on an ongoing basis for remarketing the bonds, and the other
members are not involved. Mr. Niederle added that there would be no
difference to the Authority, that it just needs to be addressed in the
documents.
Mr. Hoffman then advised that Mr. Jones, Mr. Niederle and himself have
been Involved over the last three weeks in soliciting proposals from potential
letter of credit providers for the purpose of being prepared in that area ;
should the Authority receive cap allocation in October and need to proceed
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quickly. FCesarefmaderwichastrong comfort levels that credit
received. The proposals
butroval willbeal chas not eived abeenhobtai adcfromuanyrofstheithree a proposalslated, credit 8
Mr. Jones advised that it would be preferable for the credit approval to
He explained
accompany the proposal, but that it just does not work the herever that say be,
that the proposal is made and then the home office,
Toyko, Sydney, etc., then reviews it for a tine TOvalaisyreit is ceived just prior
home
delivery of the bonds that final credit app cern, but at the
office. He added that tbis has always been a tauterrovalconHe explained hturcher
bas never failed to receive credit ePP problem with one of
Authority
that because of the West Coast situation where then is s Pr - faced
let ter
many
to e enter into ranlosses are y new transactio s. Tbi Ss have
! I the banks education
are o hesitant authorities
I of credit t
ctiaoged drastically from a year ago when there would have been a number of
proposals received, both solicited and unsolicited, and this year. only. three received have been received. this was an advised
that comfortable
banks who stated that
at the local office level, but wanted three or four weeks sofa to send it eve through the boat office. They were invited t`hed a voubeca be a s
eooplseof more
other financing needs occur for the Authority,
banks in the market with the appropriate inter s future. add credit apwlllal i plac;
to give the Authority morn choice* in yi
F{~ relationships sad contacts that will be cultivated.
based on a tofu of
I Mr. Hoffman reviewed the three proposals wtiihasspr p
osed a SO basis,
five years. Sueitoso Bank Limited, Houston Agency, e-at
point per an1 credit, and would trade directlyawith j
x
1 ' closing. Susitoso is a AAA bank, strong ~
the current 1481 transaction. ~kE
with 1/8 of one percent
The Swiss Bank proposes a
tee of 45 basis points transaction its. The Swiss Bank ties asperience in the market. Thar bave
completed a Utah transaction and a direct loan of $100 million to the a:-
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California Student Loan Authority (this Authority is not associated vi;b the
4 + ' ` problem in California). Mr. Koffman advised that be did check to see whether
h tba its could be negotiated down and that the Swiss Bank is to provide an
answer either tomorrow or Monday. „
A bid was also received from Sallie Has. Their proposal vas =obasis ionsr
discussion which coatains two significant problematic proposed p
Out of these was that the parity ratio, the ratio of assets liabilities at
closing, would need to be 1001 under this basis for discusston--
Boitaan J
non-asset bonds could not be financed under their proposal. Mr. 1
reported icash Mitchell Sisiths pricing increase
4 pre--parity to 40 basis points per annum until the bond issue reaches parity
appropriate pre-parity
and 35 basis points thereafter, it wilted suDlectleo finaance o yasset cash
bonds out of the bond issue. He also
flows, that premiums for loans can be paid for out of bond proceeds as
opposed to other resources of the Authority. It is felt that these two mat initial
i problems in their original basis for discussion can be overcome. The transaction tee is $50,000 which compared to the 1l8tb is $75,000 cheaper.
They propose a cap on expenses of $15,000 which would contain an allowance for
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gkxe~ using external counsel, but their practice has been to use internal counsel.
The final point is bow does Sallie Mae's proposal coapsre to the other
proposals from AAA banks. Mr. Hoffman noted that the Swiss Bank is a very
acceptable credit, but trades directly with other AAA Japanese sod European
i banks. There is no market differential one way or the other with the Swiss
Bank letter of credit. It has a very good name, but trades like Fuji. He
explained that a comparison was made between the South Texas Authority 1986
transaction being remarketed by Smith Barney and the North TexasAutbority
1987 transaction. The result was a 15 basis point differential wbich was
attributable to the perception to the market of Sallie Mae credit being better
than other credit. He explained that there is a strong probability of the
Authority realiting atolusingmillion next best savings If the letter
the Swiss
' is used as s opposed Bank.
i Mr. Hoffman noted that be is very mare of the concer have that regard hen a
f: # Education Servicing Corporation and the Authority may negotiating a transaction with Sallie Mae and entering into a business
relationship with them. Sallie Mae on the institutional side buys loans frIn '
j beaks the acne as the Authority does and they pay pr
I addition Sallie Mae has very etriogent standards as to the operation of those
with wboa they do business. Be added however that is the correct market
environment every bank making a proposal to do student loan revenue bonds is
going to have s heightened awareness of the potential servicing risk exposure, I`
management of portfolios, and financial statements, as well as ongotag
iaforeacion needs. The Authority has already seen this with Fuji hiring i`
Touebe Ross to audit and make oo-site visits.
Ms. Bryan advised that she has no problem with the stringent
requirements that Sallie Mae may have. The problem she bee is that Sallie Mae
on the institutional side is constantly and aggressively trying to.purebs"se ` j
loses from the Authority's lenders. She noted that a proposal frog Sollie Mae
was turned down once before even tbough it was the low.bfa ev.foe that very` r~l
' reason. She advised that as a natter of face they &ro c~i'rintly'tryiag to ;
urcbsse MBank Fort Vortb's portfolio right out from under the_kethority sad
s
ui. the MBsnk loans are a basis for the transaction being discussed. ' $be also . ~
pointed out that sbe recently bad to cone to the Board to ask for approval to
pay a higher premium to two banks that are the Authorli-j's customers because Sallie Mae had approached rhea and bid upgbeeaddedethattifetbe Authoro
the
ity
Authority had to meet the bigber price.
chooses Sallie was as its letter of credit bank and thetAutmoi ybhas t points
. ' tha'aa it did to George Kale of Fuji and ask to pay would
because Sallie Mae has bid up Usepton's questions Me. Bryonvadvised that
I approve it. In answer to Ms. Ft 1
Sallie Mae has boon asked before it they would stay out of the NT;ISA service
area if the Authority entered into a latter of credit with them and their
answer was no, because they are two entirely separate entities anire s not
interfere with each other's business. Ma.
Bryan 1 concern--one being that it is very difficult to accomplish student loan
consolidations with Sallie Mae. They appear to be more intcrasted in what is
workable for them rather than accommodating students in their efforts to bring
all their loans into one place.
Because of the current market environment for student loans, Mr. Boffman
agreed that choosing Sallie Mee as a letter of credit bank would probably not
i
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b
ti
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I i change what the institutional side of Sallie Mae does in its effort to j
purchase student loans from banks that do business with the Authority. The
only possibility of a positive change would be that there would be an ongoing
relationship on the other side of the house that does not exist now, and this
1 relationship might have some influence on the decisions of senior management.
j Mr. Jones added that that Is a slim hope and the only reason the proposal was
I brought to the Board was so that it would be informed of all possibilities.
I Mr. Hoffman advised that he has worked with Salltq Mae on two transactions for
the South Texas Authority very satisfactorily. Ms. Bryan pointed out,
however, that COSTEP is a servicer for Sallie Mae and that the South Texas
area does not have the number of large banks with quality portfolios that
NTHEA has, so Sallie Mae does not compete as heavily in that area. She added
that in addition to lenders not wanting to woe., with Sallie Mae, many schools
will cot even send applicants to lenders who do business with Sallie Mae
because of the difficulty students have experienced in trying to c,:nsolidate
their student loans. She pointed out that h"THEA sight even loose sore lenders
if they enter into a relationship with Sallie Mae because of the strong
feelings of the lenders and schools about Sallie Mae. She noted that wben it
was discussed, Sallie Mae was solicited with the knowledge that their proposal
would be the least expensive. She stated that the lowest bidder to not
necessarily the best bid and all factors must be considered.
Mr. Jones asked the Board for direction as to whether to pursue Sallta
Mae as a letter of credit provider along with the others. Dr. Tropeat asked
if other proposals would be forthcoming. Mr. Hoffmaa advised that be did not +.i
believe any other proposals would be coming in a tiately fashion and feels that ,
the written proposals to hand now are the ones that need co be considered.
r ~ ; 1
The meeting recessed at 6:35 p.m. fee dinner sad reconvened at 7:35 p.m.
Discussion resumed resardins the letter of credit providers.. Mr.
Roffman agreed that tbere are iestitutional and relationship considerations
which are negatives in using Sallie bas se opposed to using one of the other
' alternative, but that there are economic benefits that one might be able to
expect to obtain atlas Sallie Mae that are significant and even *ore
st rat significant today than in previous times what the Authority stay gave-.
considered using Sallie Has. go added that be did not want to put together a
t' transaction that the staff, members of the Authority Board or advisory council
could not teal comfortable with because of the institutional problems.
Bowever, to order to perform his function properly, he felt be must point out
the clear financially driven choice.
i.
Ms. Bryan related that Mr. Frank Shepard of R.B.S.C. was with the
Department of Education for many years and worked with the Department of -r
Educottoo in trying to get Sallie Mae to purchase loans in Texas and take care
of the lenders it Texas. Time and time again Sallie Mae refused to cooperate
and when they finally did, placed very stringent requirements on purchasing
loans In Texas. Because Sal *it Mae was not doing the job, the authorities
were created to provide secondary markets for Texas lenders. Now that the
authorities have developed the market, Sallie Mae is very anxious to do
business in Texas. Me. Bryan stated that for all of the reasons she has
pointed out, she is totally opposed to doing business with Sallie Mae unless
there were absolutely no other choices.
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Discussion ensued regarding the underwriting proposal and the proposals
from the letter of credit banks. Mr. Jones pointed out that after discussions
with the underwriters the proposed discount of $7.50 was reduced to $7,35.
Hr. Jonas advised that for all the reasons stated that it to the
recommendation of Hatcher 3 Company that the proposed group be selected as
uudervrlter.
The Presiding officer-noted that Dr. Heffer had to leave the meeting
during dinner, but would be returning shortly and that any action would have
to wait until his return. The Presiding Officer then asked Mr. Rupley to
update the Board on the status of MTrust.
Mr. Rupley advised that in January of this year MCorp took the trust
R departments in each of the MSaaka across the State and formed its own aatioaal
f backlog association. It is a second tier subsidiary; its parent is investmegt
i which is a first tier subsidiary of MCorp; and it is on the same level as the
MBanks, so therm is a double insulation. On Friday, MCorp asked on behalf of
j all of its underlying banks for FDIC assistance. As the process has unfolded
MTrust is now comfortable that it is a stand-alone organisation. MTrust has +
no lines of credit between any of the MBanks, it does not make loans, and dose"1 ?
€ not take deposits other than fiduciary deposits. MTrust has received an
opinion of counsel from Winstead McQuire. Mr. Barry Susaeu, the regional
counsel for the FDIC in the Dallas region, has been involved in over 100
transactions where the FDIC has done either open-beak assistance or shat-down,
and be has indicated that as he understands the structure now there is
absolutely nothing the FDIC can do to MTrust Itself. MTrust has complete
capability of doing all the transactions and handling all the money just as it s''{
nort.ally would and it will continue to have that. Oa the other aids, in
regard to Capital Markets, it must be understood what the FDIC can and cannot
do. For example, First RapublicEaak wate an insolvent institution at the time
that the FDIC case in, so the FDIC pretty such called the shots. to this case Tf
y " neither MCorp itself, nor its underlying banks or any of its entities is
insolvent. On that basis the FDIC has a limited amount of things it can do.
MBank Houston and MBank Dallas do not meet capital requirements currently
under the OCC regulations, but they do have excess capital and they are all
funded to this point. The OCC examination on the commercial side has just
boon completed and it has been widely reported that they have indicated that
t; the portfolio was weaker than anticipated. Mr. Auplay advised that that to
slightly misleading from the standpoint that OCC finished up its examination
of the real estate portfolio about four weeks into the examinatioa and left.
At that point they had approximately $100 million of loans that they were
going to move over to non-p4drforming. In the laterts, they were Soo* a week ti
and then rtcurned, the FDIC apparently decided that they were going to force
the issue of what was going to happen with MCorp and they came back and did a
review of the things that bad been done previously and basically rewrote the
collateral requtresents for every loan that they had in the real estate area.
This is how the additional $300-$400 million worth of bad loans cace about.
The basic premise is that at this point in time the only action that FDIC can
take since cone of the banks is insolvent is to simply say that MBank Houston
and MBank Dallas are not meeting their capital ratio requirements. The FDIC
could force the issue by filing action. Esttaates are that that action would
take anywhere from a year to a year and a half to resolve and by that time
there will be a solution to the problem. As far as MT'rust is concerned, it
will continue to operate on a day-to-day basis just as though nothing had
happened. MTrust would like to see the MCorp situation floaiited in a form
that v,_-?d allow it to remain a Texas holding company; but it that is not the
i case, •.:rust will still be the same entity, just owned by someone else.
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The Presiding Officer asked if the Authority bad any non-insured
investments wit,, Mtrq:st. Mr. Patterson advised that the Authority does rave
one investment agre,teent from the 1932A transaction with MBank Dallas but that
particular investment is collateralized so there is no exposure above FDIC
insurance or collateralization with Treasuries. He added that at the moment
the balance in the 1982A fund is zero, but as bonds come in 0-hat could build
up. For example, the balance was $700,000 when It was ltglt:dated a few days
ago. Ms. Bryan advised that those funds are liquidated every six months.
Mr. Rupley continued his report stating that when the news broke on
Friday, MT rust called all of its customer to make then aware of what was going
on. One of MTrust's largest customers, the Texas Housing Agency, has two
transactions pending and two more due to close in November, so Mrrust vent
through a long drawn out process on Friday and Tuesday (Monday was a holiday).
In that process Mrrust received confirmation from both rating agencies that
they bad no problem with Mrrust serving as Trustee, that the ratings oa•aay of
I the transactions would not be affected; and as stated earlier KTrust also t,
{ received the Information from Mr. Suemsa at Winstead Mc Quire that he foresaw
no problems in terms of MTrust operating as a Ttwstee on a continuing basis. k
The Presiding Officer thanked Mr. Rupley for the report. He advised ;
that since Dr. taffer has returned to the meeting consideration would now be
P.ivea to the selection of sn underwriter.
A motion was made by Hr. Schultz and seconded Dr. letter to engage the
underwriting group as proposed to prepare the financing for issuance this year
if cap allocation can be obtained or next year if not. Vote unanimoue.
The Presidiug Officer advised that consideration needs to be tads in
regard to pursuing a letter of credit provider in order that the Financial
Advisor d 5t have direction, especially in regard to the Sallie Mai proposal:;
g r
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9 At ibis time, Dr. Trapani asked for a short adjournment. Dt. Kefter 4Y,
a .t';,) < < tai ~ ~ E ><ovad that the meeting adjourn. Clots unanimous. The meeting adjournad tat.
MO p.m. and reconvened at 8:20 p.m. ,
After further dis,:ussion, the Presiding Officer advised that the
consensus of the Board was todirect the Financial Advisor to continue Y
' negotiations with all three entities, Sumitomo Ltd., Swiss Bank azd Sallie
` mast and more Specifically, try to aegotiste better bids teom'Suettoto and .51
3wtst Bank and to apprise the Board of their efforts in that area. He added
s=, ! that the Board is prepared to meet again as soot as necessary to make a final
I decision, but feels that at this point more negotiations are needed before s M
decision can be made. Mr. Jones advised that Hatcber i Corpsay would pursue
~ this mad apprise the lsosrd of their efforts. '
Agenda Item V - Engagement of Trustee for Proposed tax-Exempt
Financing. Hr. Jones reported that proposals were requested and received r;
from Yirat City Bank in Dallas and MTruat Corp. The proposals were reviewed
by Phyllis Brown of H.E.S.C. who is highly qualified, having worked for sway
years in Corporate Trust at MBank, fir. Jones advised, however, that Ma. Brown
l was unable to attend this meeting and that he would present bar report. Ra.
,
than expressed bit appreciation of Mr. Ruplay's attendance because there was
Eti some concern as to what effect HCorp's request to, FDIC assistance would have
k
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jj on the letter of credit providers,and the initial reaction points notr nod- EIg
added that the evidence that Mr. Aupley discussed-tbe three for the noting
the two rating agencies and the opinion are very strong support if MTruon
that the potential providers would have no difficulties. Obviously,
is chosen it will certainly be conditioned on the fact that if it becomes
apparent that M'trust is unacceptable as Trustee because of credit
considerations, the decision would have to be reviewed. Mr. Jones then
reviewed the comparison between XTrust and First City. The proposals re for
a five year period. The difference in cost for that period was saall. He
pointed out that !!Trust has agreed to fix its fees for the five year period,
so there would be no increases. First City will fix its teen for only one
year, and there would be some risk therq. Also, frog the servicer's concern
the experience of having two Trustees was very difficultien rregard egard toll c tion
of loans and reporting. Mr. Jones added, however, sole reason for selecting a Trustee. He then advised that after revieviog
r the neoffinaa Hatcher 6 Company that the
i both propcsals, it is athe s Tr recommendation
Authority engege MTrust A motion was made by Dr. Trapani and stcooded by Dr. &effer to select
MTrust Corp as trustee. Vote unanimous.
Due to the absence of so many members of the Board, the Presiding
officer suggested that Agenda Items VI and VII be tabled until the next
meeting. The Board agreed.
Mr. Geaeres asked how the time
iii Agenda Item VIII - Other business.
it will take for further negotiations regarding selection of credit provider
and bringing the recommendatiod back to the Board would affect the time
sebedule necessary to complete a financing this /ear, aoting that the credit
provider is an integral part of the fiarnettg and would be included in i
;f document sessions. Ms. Beer advised that it would depend on the credit
provider cbosea as to bow long it would take to bava.tbe documents ready, but
she added the there should be just enough time. She advipbd tbst since it
should be known sometime between October 21 and 26 if any, cap allocation is
available, the Board should be prepared to meat again on Octobar 23 or 261
allowing for the proper 72 hours posting time. Should something occur that could be called • She.notsd,
$i ,4 thats 20 daystfromtthe reservation data (should gcap allocation be recsi ed this
s~ year) the documents must be delivered to the Texas Department of Coameres, the,
bonds suet be delivered in 60 days add the closing must cost within the year
1988. Ms. Beer advised that in addition to the ■esting to select a credit provider I theta will need to be a Board seating to adopt the Bond Resolution.
The Presiding Officer noted that there was one other iteu thatHo=fded
attention, the possibility of expending the line of credit. Mr. advised that MBank Fort North is seeking assuvances from the Authority that
capacity is available to purchase a very large block of student loans, but
because of the present situation and the uncertainty of conpletiag a financing
this year, the Authority cannot offer that assuraoce. Fuji bank has indicated
that it would be willial to consider expanding the site of the 4erall i been
credit comaitmeat, assuming a participant
dirscussion, in regard to retaining another credit provider for an additional
$40-$50 million to insure the capacity to offer MBank Fort comsitsent coverage.
Mr. Hof han advised that during the discussions with the potential letter of
credit nornto ground work bat to chi
' credit oe islte h a this further possibility was
- i laid to a aag
existing Fuji tr •isactioa.
9
71
5t Mr. Hoffman advised that Cheatcal is prepared to work under at
angageseat which be has discussed with the Financial Advisor and Ma. Bryan k,t
whereby chemical would be retained for an accessed fee of $30,000 to negotiate
a $40-$SO million backup line of credit or find a participant sod negotiate an 1 14
increase in the sire of the Fuji Line and bring the results to the Board for R
r consideration. He advised that both options could be pursued simultaneously.
Me. Bryan pointed out that if the Authority enters Into a separate line of >'I
credit that is not an extension of the Fuji Line of Credit, there will be more
cost involved--approximately $100,000.
Discussion ensued and Ms. Bryan noted that the ex[saatoo of the Yuji
Line of Credit definitely needs to be pursued. Mr. Jones pointed out that
being able to provide MBank Fort Worth with the assurance of commitment that
it needs has been a major concern for Me. Bryan and is a very important matter.
He also noted the possibility that the financing might take plate before
negotiations of the tt+o 19tioas are complete, which would change the situation., {
In relation to that, Hr. Hoffman advised that Chemical's fee would be
' contingent upon acceptance of the transaction and successful negotiation, ,
f documentation and executtoo of the transaction.
The general consensus of the Board was that i:r. Boffua should Protted
with investigation of the two options, with priority ou the expansion of the
Fwj t proposal r
i Line of Credit, sad at the next anz•ttng present an engagement
for the Board's consideration.
Agenda Item VIII - Adjourn. !here being no furtbor business, De. +,'t
Uffer moved the meeting adjourn. The greeting adjourned at 8:58 p.m.
NO" APPROVED this the day of
Li, ^a . , {r* 9yt' Nei ant, oatd' factors
North Texas Education
, L A F
4., .t W 1,. Authority, Id
t+ rat
y j ATTESTt
10
Aasis t Secfetary, and of Directors
North Texas Higher F,ducation
? .<I
Inc.
Authority, y
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1
i. ."Cf":~~l~'1r'-04F7,-,.>^__.l^r~ ~?tiyr•., r:.y _ _ . ..s'I'~~r~y
MINUTES OF A SPECIAL METING l
OF THE BOARD OF DIRECTORS
i? OF THE NORTH TEXAS HIGHER EDUCATION AUTHORITT, TH. i
7A, `
A special meeting of the Hoard of Directors of the North Texas Higbee
Education Authority, loc. convened at 5:18 p.m. 'on the 20th day of October,
1988 io the City of Arlington, Texas with the following Directors preeentf
f Mr. Governor Jackson, President
Ms. Nets Stallings, Vice President
D
.:r. Wayne Duke, Director •
Mr. James !rock, Director
Dr. Lindsay Xeffer, Director
Kr. Jim D. Sebults, Director
Dr. John M. Trapani, Director
Hr. H. Eugene Walton, Director
The following Directors were absent: t'?
Mr. Michael Grandey, Director
f Kr. Ray Meyer, Advisory Director ,
Ms. Lyno Hampton, Ex-Officio Member
Mr. Jobe McGrane, E:-Officio Member '.i
Others in attendances '!I
;s Mr. Vic Blood* , h
i c; A
Ma Shelby Eelr ;4
.
.fj 1 rt ,3r
Ma. Phyllis own
Ks. r
Kathryn
1
Mr. Carl Genoros
r i. Mr. Robert Hoff"*
fir. Neal Jones t '
Ms. Sonais McCharea
Kr. Jtr Niederla
Kr. Robert Patterson
7 Me. Jerry Robinson Mr. John Ruplay
Ageada Item I - Iotroduetory Remarks. The Presiding Officer called z
the aeetiag to order add welcomed those present. y `
A=soda Ite■ II - Resolution Relating to Selection of a Letter of
Credit Facility,for the Proposed Tax-exempt load Issue.Kr. Jones stated ;w
that at the last mestiag the board requested that further aegotistions be''made a? ;
with the letter of credit banks that bad submitted proposals, and with the
i Swiss Ink in particular. Be advised that the Underwriter, Mr. Hoffssn, has
been in contact with the banks and would report on the aegotiatioas.
y Mr. Hoffman advised that after the last meeting the Sumitomo Sank, ;
E Liatted, withdrew its proposal, basically because the senior management r
decided against taking on any new student loan busiaess at this time for the
site reasons others declined to submit proposals. pq7,
}
~i.,.~rJ Nr.. wM \~r _ v .i f...l. .ra... ivaYH✓Mr._- - "+.r.. fiYYY
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The Swiss Bank cut its upfront fee from 12.5 basis points or $125,000
to 10 basis points or $1009000. The ongoing fee vas not cut--that remains at
45 basis points. The Swiss Bank also agreed to discuss sizing down the debt
service reserve fund to a size that would be approximately six -oaths worth of 1
interest at the rate to be negotiated. The discussion was that 102 would be
in excess of historical highs, but the Swiss Bank should be comfortable with
that which would leave the Authority with a debt service reserve fund of
approximately 52 of its proceeds as opposed to 10.
I ,
The competitive implications and relationship implications have been
discussed further in respect to using Sallie Mae. On the basis of those
discussions, .Hoffman advised that nr the r Authoroityy'sa lecte eu
be to select the Swiss Bank as the provider fo of
credit. Discussion.
The Presiding Officer asked, in light of the discussion at theust
Board meeting in regard to the difference in the cost of the Sallie Mae
!
and the Swiss Bank proposal, what the cost differential is at this
proposal
I $
point. Mr. Hoffman advised that the Swims Bank up-frOAC charge is 100,000
and Sallie Mae's is $503000. Uot4l the bond issue reecled parity, the
Authority would pay Sallie Mae 40 basis points and theresftcr 35 basis points.
With the Swiss Bonk the Authority would pay 45 basis points period. The
difference is five basis points for approximately three years--ten basis
points for the subsequent two years of the proposed five year ten, This
totals $400,000 in terms of the cost differential on the fees. Then there is
i the note qualitative judgment in regard to the historical gerceptioo of Sailit
Has as a better credit than Swiss Bank. A rough analysis was conducted based 1
on historic projections which concluded that there would be another ten to
` idered
amount 0iod
fifteen to $100-$150.00 per year. Thentotalisavi gs with all t ever Lon4 t would
the
would be npproxim:Laly out million dollar/. He added o •t 'and of Sallie Mae in the market place could shrine' could those.
calculations might narrow, but if things stay the steal the Dt Rr
t substaatitl over a period of time. He also pointed out that discussions with
the Higher Education Servicing Corporation and people is the field have been
sigoiticaut. They report that Sallie Mae it constantly mad aggressively
trying to purchase loam/ from NTHEA leaders and there is not such chance of
' that cbenging. Also, a number of students, colleges and lenders do not want
z to do business with Sallie Has for many reasons. If the Authority entered j
into a business relationship with Sallie !lass it sight seriously affect its i
relatiOnabips with the colleges and leaders. In light of these potential I
negative facts end that the sovioga is strictly a judgment calls idS bafelt
that the Swiss Bank should be selected as the credit provider.
~ points the Authority could still accomplish a competitive transaction the. i
would work well in the market place.
Mr. Jones also pointed out that Sallie Mao's proposal does not provide
for noa-asset bonds during the period of the transaction. He added that Mr.
Hoffua did have some discussions with Sailis Mae that led bin to believe
i there night be a possibility of this being changed, but no defiaite decision
was reached. This means that if the Authority selected Sallie Mass it would
have to pay all the costs of issuance of the boned uIsesuero out paid of on of the
premiums
fund on the day of closing; and it any any
,
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loans, which is the only way the Authority purchases loans, the cost would
have to be paid by the Authority because the bonds would have to stay at
parity at all times. Discussion.
A motion was made by Dr. Duke and seconded Dr. Keffer to approve Swiss
Bank as the letter of credit provider. Vote unanimous.
Agenda Item III - Resolution Relating to Directives to the Working
Group to Proceed with the Preparation of Documents for the Proposed Tax-exempt
Bond Issue. Mr. Jones asked Ms. Beer to update the Board on the legislation
and cap allocation. She explained that according to tb, news from Washington,
there
is a posalbtlity t at the tax bill will not be passed and that utter a ;
drug bill is considered tomorrow, the Congress will adjourn. Obviously, if
It does adjourn all pending legislation upon which no action was taken will be
dead--everything would have to be re-introduced next year. Ms. Beer added
that there is a slight possibility that they eight recess and come back after
the election. If that happens, the legislation is still pending and it would
be difficult to know what will happen. Adjournment would mean that the
Authority would be under the present law and that it would benefit the
Authority to co.piete the tiaavelaS by the end of the year.
Ns. Beer advised that the Authority's position is one of needing to hear
definitely about the legislation. She noted that there is a good possibility
that NTHEA might receive allocation for this year and added that if allocation 1
=h
is received next wank, the clock will begin toward completing tbs financing
in 1988. It the transaction is not completed this year, the work would not be y'"!
lost, but would be carried over for a financing to January 1989. Discussion.
Ms. Beer added that the Taus Departasot of Commerce bas indieated that
If allocation is received and the 20 day deadline is not ■et~ an Issuer' will
i
be penalised 90 days and not allowed; to withdraw. It is very important for'
the Authority to be to a position to go forward as quickly as poistble once
allocation is received.
Dr. Keffer moved that the working group be autborisad to proceed
with the preparation of documents for the proposed tax-exempt bond issue. No.
: Stalltogs seconded the wtion.•• Vote unanimous.
Agenda Item I9 - Resolution Relating to 6ngsgament of Chemical J
Securities, Inc, to Seek Additional Taxable Financing Capability for the A,
Authority. Mr. Jonas advised that this action is driven by the very real
fact that the Authority will soon be out of funds to purchase loans. It
Congress disallows the ability to issue tax-exempt bonds or if there is a
problem in regard to the letter of credit backing, the alternative is a
taxable financing, similar to the Fuji Line of Credit. He added that
unfortunately the major players that have provided this type of financing to s
the past are rel+ictant to offer letters of credit because of the current
market environment. Mr. Jones pointed out that MBank Fort Worth may.deold*
to sell its entire portfolio of student loans at any time. go added that aver ~.f
if MBank does not sell its entire portfolio, MBank has always required that
the Authority provide assurance that it could purchase MBaok's loans at say
T` time. As of this date the Authority is right on the line and by the and of
the year night not have enough funds. It is prudent therefore to pursue other i
^ I i
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.
, r
1
1
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i ~ i lyl:~'}>i•Ytin>]r~(.Minvl'. !t}kih',`!Ip. Y. n;w .T. taxable financings in order to have funds in place should the tsx-exempt #
financing not be possible. Mc. Jones advised that Mr. Hoffman of Chemical
Securities, Inc. has submitted a proposal to parsec taxable financing
possibilities for the Authority for s flat fee of $30,000, contingent upon the
completion of such transaction.
r' :tr. Schultz asked if the proposal was the same as discussed at the last
testing whereby priority would be placed on trying to find a partner to
supplement the Fuji Liae of Credit because of the cost involved in a new line
of credit. Mr. Jonei advised that that was correct, but failing that to seek
so additional line of credit. Be added that another concern is that the Fuji
lime will rum out in another two and one-half years and Fuji tight not be back
5 In the student loan business by then L
A motion was ride by Dr. Duke and seconded by Dr. Trapani to engage Mr.
Robert Hoffman of Chemical Securities, Inc. to seek additional taxable ,Y
financing--to seek first a joint venture with the Fuji Bank Line of Credit. and fit..
4 if that is not possible, another line of credit. Vote unanimous. 7
Agenda Item V - Election of an Individual L:. the Executive Coeiiittee
(Tabled October 13, 1488). Ns. Stallings coved that Mr, italton be elected
by acclamation to serve on the Executive Committee. Dr. Keffer seconded the L,
sotton. Vote unanimous.
1 ,I
f AEenda Item VI - Election of Two Individuals to the lltasce.Committee
,!!r. Brock mad
of the ITHRA,Board of Directors. A motion was made by
J
seconded by Dr. Xeffer to elect Mr. Schults and Dr. Trapani by s'ccleastlai to
' carve on the Finance Committee. Vote unanimous.
14, '
.4 01
;.VndaIt - being no other busiates e,
YII Other tuleNS There g "D
Duke moied t _ meeting ad}ouen. Mr. Brock saeoaded. The meeting adjoniae8 at
IS +
a c s 6:00 y.m.
5 ' r r r,
1 ?MffW APPROM this the day of ~Glrc ~ Ion. }^ti
0101,
f SfL ~ , r'• t W
r..
t.
resides , oar rectors
North Texas Sigh Education
M Authority, In
-P S ATTEST t ° 0 r r
Ass etant SEcretary, and of Directors '
ti
North ?exam Higher Education '
Authotity, Inc. }
t~
1.
i
Owl
MIL?UTES OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS
OF THE NORTH TEKA£ HIGHER EDUCATION AUTHORITY, INC.
A special meeting of the Board of Directors of the North Texas Higher
Education Authority, Inc. convened at 6:00 p.m. on the loth day of November,
1988 in the City of Denton, Texas with the following Directors present:
Mr. Governor Jackson, President
Ms. Neta Stallings, Vice President
Or. Wayne Duke, Secretary/Treasurer
Dr. Lindsay Keffer, Director
Mr. H. Eugene Wilton, Director
No. Lynn Hampton, Ex-Officio Member
Mr. John F. McGrane, Ex-Officio Member
and the following Directors were absent:
1t Mr. James Brock, Director ~i
4 Mr. Michael Cranday, Director I
{ v,4 Mr. Jim D. Schulte, Director
Dr. John M. Trapani, Director •
~S Mr. Ray Meyer, Advisory Director
Others in attendance:
13 4b
Ms Shelby Beer, fulbright b Javorski
r Mr. Vic Bloedes Hatcher d Company No. Phyllis Brown, Nigher Education Servicing Corporation' $11
` art Hr. Carl Generes, General Counsel
Mr. Meal Jones, Hatcher 6 Comp
asy
'
s..' , Ms. Bonnie McCharen, Higher Education Servicing CorrM v
ll rl i
1 ~1, l~I~ 1'a
ration `
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Agenda Item I - Iatroductory Remarks. The Presiding Officer called i"
r•~, .1• the meeting to order and welcomed those present,
Agenda Item It - Approval of Minutes of October 13, 1988 and October y. I
20, 1988 Meetings. Dr. Keffer moved that the Minutes of October 13 and
October 20, 1988 be approved as presented. Mr. Walton seconded the notion.
Vote unanimous.
? Prior to consideration of the resolutions relative to the proposed c i
tax-exempt financing, the Presiding Officer asked Mr. Jones and Ms. Beer to
date the Board on the status of the financing. `
? Mr. Jones advised that the Authority is in the
position of perhaps
receiving some cap allocation in time to accomplish a tax-exempt financing by
the and of the year. He added that, of course, if none is received for 19881
"
the Authority should be able to receive allocation the first of January, 1989.
He advised that he has been involved in getting a letter of credit bank in
place and that Ms. Beer has been monitoring the cap allocation -i
+ Process very ,
closely. Mr. Jones reported that the Authority has been offered $8 million in
j
cap allocation on two different occasions; bit because the amount was too
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small to be feasible and because of the uncertainty each time that any more
allocation would become avaitable to add to it, it was not accepted and was
i
passed on to another issuer. There is now a possibility that one of the major
issuers, the Dallas County Housing Finance Corporation, will not use all of
its $50 million allocation. The process of sizing their transaction is still
ongoing, but it appears that they will use approximately $35 million which
would free up $15 million (or lees depending on the Dallas County Housing
Finance Corporation's final decision) for reallocation. Mr. Bloods noted that
the Dallas County Housing Finance Corporation has requested a tvo-week
extension, to the final figure may not be known until the end of November.
Hr. Jones noted that when it was suggested that the Board get in line
for cap allocation it was because there appeared to be some doubt that one or
two other higher education authorities that were trying to accomplish large
transactions would be able to do so. In that event, NTHEA would be prepared
to accept the cap allocation returned. At this point, however, it appears
that those authorities fully intend and are pursuing the closing of their
transactions on time. They are both past the 20 days allowed for delivery of
documents to the Texas Department of Commerce (TDC). They must close around
the third of December unless they obtain ■ 15-day extetsion which. Is very
likely. If they receive an extension and are still not able to close, NTHEA +
would then be offered allocation in exeunt of approximately $100 million vhich l
is the site issue the Authority wishes to do. This would mean, however, that
NTHEA would have to close within a few days of receiving the allocation. Evan
if the other Authorities do not get an extension sad cannot .lose on Decerber , .
3 or 5 and allocation is offered to NTHEA, there is still not much time before
NTHEA would have to close. Mr. Jones pointed out though that for now it kooks
as if the best possibility for receiving cap allocation tieswith the Dallas
Count Housing Finance Corporation. He advised that the sionals working
i on the financing have been monitoring that situation closely and have been
;t
+ r trying to determine whet amount of allocation would be an economically
I feasible transaction for the Authority to enter into. He added that in light
of conversations with Kathryn Bryan and the ongoing awareness of the 'critical
%
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nerd for funds, it was decided that if there was a possibility of raising some
tax-exempt funds, it shoald be considered, which brought about the conference
call on Thursday.
The professionals had further discussions on Friday and a schedule
reflecting the estimated cost of issuance and viderwriter's discount at q
various issuance levels was prepared and was included with the resolutions Ms.
Beer forwarded to the Board meabers prior to this meeting. Mr. Jones then
reviewed Oe schedule. The Authority's estimated contribution for a 3l5
million transaction would be $91,100. This amount would decrease as the ,
amount of the transaction increased--for a $20 million transaction the f`
+ contribution would be $43,275, and the break-even point would be a $26 million Yr;i
transaction. These figures were calculated very carefully, but could vary
7 plus or minus $10,000.
The Presiding officer asked why the fees would exceed the It allowed for
recovery of issuance expenses and why could a transaction not be done within
the 22. Mr. Bloods explained that thert are soma fixed costs built in E
regardless of the size of a transaction--having the bonds printed, obtaining a '
rating on the bonds, the $501000 letter of credit counsel fee, etc.--which
i
amount to over $200,000. Some coats do vary with the size of the issue,
however, such as the Financial Advisor fee and the underwriter's discount
which are exactly in proportion to the site of the issue. Ms. Deer noted that r
structure has something to do with the cost also. Hr. Bloods noted that of
course the larger the transaction the mere reasonable the fixed costs become.
Discussion ensued.
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Mr. Walton asked how important it is for the Authority to accept a $15
V4""' million transaction now at this cost compared to waiting until January of 1989
f for a $100 million issue. Mr. Jones pointed out that the cost is recoverable,
but that it could not be recovered very quickly--it night take five to six f
years which is a long time to wait for $100,000. Mr. Jones stated that even
though a $15 million transaction is entered into now, it would not keep the
Authority from entering into a $100 million transaction in January. In other
words, it could be an incremental addition or it could be the first $ly
million of a $100 million transaction. Mr. Walton noted that would bring up
costs again for two transactions instead of one. At this time Ns. Beer
advised that Bond Counsel has lowered its fee in incremental amounts based
upon the site of the issue. Mr. Jones advised that it would be two separate
and distinct transactions for the most part and that it does appear that the
Authority would be able to accomplish a $100 million transaction in January,
1989. However, there are a lot of considerations. It appears likely, but it
is not certain that a transaction will be forthcoming in January for the
Authority. Mr. Bloede noted that there will be $380 million available cap
allocation on January 1, but that there is already a long line including NTHEA.
He added that it is unclear how those decisions are going to be made other
than who is physically standing in line first. Mr. Jones pointed out that the
tax law is more favorable this year; however, a small transaction would fill
up with loans so quickly that the longer arbitrage period would not actually
come into play.
Ms. Boor noted certain considerations--the cash flow on a small
transaction as opposed to a large one, the amount of contribution of the
Authority on a small transaction and whether the letter of credit bank will be
forthcoming on a smaller transaction which also depends on the cash flow. Mr.
Walton asked if the letter of credit was in place. Mr. Jones advised that the
Authority has received a firm proposal for ■ $50 million letter of credit from `k
Swiss Dank at 55 basis points which is the firmest offer to date. Ms. Seer 1,1
k 5:..
noted that if $100 million cap allocation were offered to the Antbority, it
would have. to accept the entire $100 r,iltion. Mr. Jones noted that a letter
of credit would have to be in place for the entire $100 million and ih,t the y
t; Financial Advisor is having discussions with Westpec, an Australian back, 3}
which seems very interested. A proposal has not been received from Vestpac
yet; but if one is received, it will probably be along the same pricing as
Swiss sank, but for $100 million,
Dr. Duke asked Ms. Brown when funds for acquiring loans would be
depleted, based on the obligations or commitments the Authority currently his.
No. grown advised that there will be enough 1941 Restricted Yield fund money
available to purchase loans through December or the first business day of
January 1989, if no further deliveries are received from the lenders. She
noted that the $41 million under the Fuji Line of Credit is conaitted to MBank
Fort Wnrth. Mr. Bloods stated that given MBank's current business problems
I there is certainly a possibility they vrwld use that comitmeot; sod given the !,4
importance. of MBank to the Authority, the Authority would Certainly vast to honor the commitment. Ms. Brown advised that the $41 million comoitmeat
to
MBank means that there will be no funds available in January to purchase loans }i
j> from NCNB Texas or the other leaders. Ms. Stallings noted that if MBank does 'i
decide to sell its $41 million portfolio, they %;ght shop around. Ms. Brown
a advised that MBank has made no cosmenta that would lead the Authority to
believe that they were going to negotiate with anyone else to get the best
price. She added that presently MBank Fort north is selling to the Authority
every month--in fact more than was originally anticipated.
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Dr. Duke noted that a $15 million transaction less closing costs would
not solve the Authority's problem. Ms. Brown noted that it would rovide
funds for the needs of the other lenders though and that January is usually
one of the largest acquisition months with 13 to 14 lenders participating.
She sated that merry are asking that their loans be purchased January l instead
of on the scheduled acquisition date, January 30. She added that acquisitions
in January usually total around $4-6 million.
Mr. Generes advised that it is his understanding from a conversation
with Ms. Bryan that she has a verbal understanding with Wachovia for a take-
out agreement in regard to the $41 million worth of loans from MBank Fort
Worth and that the Higher Education Servicing Corporation's position is that
if the Authority
be worth doing
the S15 million transaction would only
utilizes Vachovia's take out and then buys those loans back into the now bond
issue. He noted that Ms. Beer has been researching whether this can be done
and retain the tax-exempt nature of the bonds. Ms. Beer advised that this has
been done before and with the good working relationship between the Authority
and Vachovia, she feels Hachovis will agree to the take out agreement. She l
noted that Me. Bryan has been very concerned about timing, whether a
transaction is completed this year or next, in regard to the possibility of
` MBank Port Worth suddenly deciding to sell their loans and the Authority
having the funds in place.
Mr. Jones reported that be spoke with Swiss Bank again this morning and
their main concern is how a smaller transaction would cash flow. He noted -
that Chemical Securities, Inc. is preparing cash f1or3 now and indications are t
that the smaller. transaction will cash flow almost as well as a larger 01
transaction. He noted that two transactions might be made--one for $15 ' million now and one for either $85 million or $100 million in
January. The, ji
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Authority could easily request $100 million in sap allocation in January
Cities oof $85 f Arlington n; and however, Denton approval v wtd have to be received from the
/ since the Authority has authorisation for a
. 4,
total of 9100 million now. Ms. Beer advised that the Authority would also i
have to have a new TEFKA hearing. Me. Beer asked when parity would be reached q
on the small transaction compared to the large transaction. Mr. Jones replied
r}{5 that ,,e could not say for certain, but if a large transaction was completed
this year, Parity would be reached in approximately two years--it would be
i~ further out on a smaller transaction just because of the larger percentage of i
° nos-assn hoods. He added that herein lies the point that if the Authority
moves forward, there would be a small degree of risk that a letter of credit
• bank would not be forthcoming. If the Authority pursued a small financing I
this year and was not able to deliver the bonds, the Authority would receive a
penalty and would not be able to apply for cap at the beginning of 1989. `Ir.
Bloods noted that it appears that all of the allocation available January I,
1989 will be gone on the first business day,
Mr. Bloede stated that the student loan revenue bond msrket environment ?r,;
has changed drastically. There is a eav cast of characters and there is
concern over their lack of understanding of these transactions. The letter of
credit with Swiss Bank may not be certain until the bond issue closes, so it
is a business risk that the Board will have to decide. Thera is hope though
that things will be comfortable with the letter of credit bank before the
Authority actually accepts any cap allocation. Mr. Jones added that on the 1 I
positive side if the Authority does contribute $100,000 for a $15 billion ;
stand alone bond issue, it will finance approximately $30 million worth of
loans during the life of the issue because of recycling. The Presiding
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Officer noted that even if the letter of credit failed on the $15 million
issue, it would not preclude some type of taxable financing next year. r
x Me. Beer anted that the question is the size and issuer contribution and
how ready the Authority wishes to be if and when allocation is offered.
Hr. Jones pointed out that if all fails and the Authority does have to r
enter into a taxable financing next year, there will be some coat involved in
that type of transaction also and it will be approximately $125,000. it was
noted that the Fuji Line of Credit was an extremely economical line of credit
and it is no longer possible to negotiate a line as inexpensive. He also
noted that since it is probable that the letter of credit bank will take
another look at a tax-exempt financing in 1989 that it might be that the
Authority will have to pay some of the premiums on the purchase of loans in
1989 rather than the bond issue paying the 1% when it acquires these loans.
So with either a taxable or a tax-exempt issue next year, the Authority may
have to spend its own funds.
Me. Beer advised that because the Tax Reform Act of 1986 was not
changed in any way by the technical corrections, the six-month temporary
period goes into effect and the rebate exception ends. Because of this the
letter of credit banks will be looking at how fast the Authority acquires
;k loans--should all proceeds be spent within six months, the Authority vould not
have to rebate and all issuance costs could be recovered out of arbitrage
earnings, but of course six rionths is a fast track. The letter of credit
{ banks will also look at how soon parity will be reached, the budget and the f~
source of payment of premiums. -E
Ms. Beer stated that for tax law purposa-! a small transaction completed Nl
in 1988 and a larger transaction completed in 1989 would have to be two vt
different transactions because there would be different closing dates and
different issue dates, but hopefully, there would be a consensus of a combined
trust estate, so the Authority could have the benefits of the assets of both ;
jI transactions. This would depend upon whether the letter of credit bank wash
sane on both issues.
the
Mr. Ceneres noted that another consideration is that operating two
indentures is twice as much work--two sets of finaneisl:, etc. Ms. Beer noted
t - that as amended and restated it+anture could be rAde, but again only if the
same credit facility was used because all default Ptavisions, etc. need to be
similar; otherwise, there would have to be two indantur.a and two reporting
procedures. Mr. Generes also noted that Robert Hoffman of Chemical
Securities, Inc. woo ditected to investigate possibilities for a taxable line
of credit simultaneously with the, tax-exempt issue. He added though that he
feels the Authority will be able to accomplish a $100 million financing in
January.
,S No. Bear advised that she expects the Authority to be offered soavet
amount of allocation tomorrow or Wednesday, potentially the $15 million that
e►sy be returned by the Dallas Housing Finance Corporation and that the TDC
t; would expect an answer within the day. Hr. Walton asked how long it will take
to gat the letter of credit approved. Mr. Jones advised that if the Bard
gives direction to take the alloaattan when offered, then he vill go to Swiss .'i
Bank with the smaller transaction. The cash flow should be completed and 3?
would be presented to Swiss Bank for approval, if the cash flows are not
complete and the Swiss Bank could not give the Authority any more assurance
i.' than it now has, then he advised that he would be hesitant to accept
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meeting in nflicer asked ight of thew decisiodid not ns to bermade.ge Mr. Jones
allocation.
before this Presiding f
uch assurance as he could when he talked with
` assn
replied that he obtained as o
Swiss Bank again this morning.
i
i Dc. Duke stated that if it is fairly clg8g'the h he sees mot advantage
complete a $100 million transaction in January,
in trying to complete a $15 million transaction in December and then an S85
million transaction in January. Ka. Stallings agreed, especially if there are
funds to meet the commitment to MBank.
The possibility of the Authority receiving cap .allocation in January was
discussed. Ks. Beer advised that she understands m.ny issuers have applied
i and that the Authority will need to be ready on the first working day in
first-served basis.
~ January--it is on a first-co7e,
In regard to the smaller transaction before the end of 1988, Ms. Beer
is received November 30 or
advised that the documents are prepared, but if cap
f December 5th, there will be 20 days to file the bond resolution (Agenda Item
V). for that reason the board resolution was included on the agenda for this /
meeting io an effort to meet the requisites of the two regulatory bodies, Sthe
he eral Texas Department hou~snye ofnthehissurssobtain a 15-day extension,cit might
explained that offered :!location.
be close the end of the year before the Authority vas o roved t the be t
. by This might t mean the lasbe ceyDeeeobere23WlA bandhresolutioncepps on Saturday
so closing would have to
Board early would afford the Attorney General's office the ability to review
documents and at least put the Authority in line for either this year or next.
She added that the Boar necessary. She advisedr thmake at inaher experience sthe !Attorney
changes be General's office and e would ouch rather Treview the his wouldEreliere the aQuueese on time
only blacklined changes thereafter.
should allocation be received at the end of the year.
kse
Mo. Beer explained that if the Bdecides m et s in two n or three action on
bond resolution, it will need to be prepared ial tan be made.
depending on events, to approve the bond resolution so
atsthis meeting
' The presiding Officer asked if the revolution mere app
trl ('i' Ifs. Beer advised the would wait several days, at
when would filings be evade.
least until the fioal credit approval on the $100 million issue was in Place.
She added that she feels the Indenture represents the transaction and that any
` business changes would be brought to the Board for its decision.
4 tin$ to the Procedure for
j i
ebtIaaued
Ac Resolution
Agenda item II
Ecods solas to Allow obligations to b
nal Repenue Code 199, as
Volume C:p for Pr v
to be the Executive Committee and theEoff icers
Certain Pavers Under
to e
Amended; "Private
of the Auutthhoor Delegating rity; and Making Other Provisions Incident and Related to the '
L
Subject Matter. No action was taken on this agenda item.
Agenda item IV - Resolution Relating to Determinations Regarding Obli Obtaining VolumebC"PapriforvatPerivat
Bonds" nds Under thetInternal RevenuelCode of
ActieviActtyivity
19Lsaued t
1986, as Amended; and Making Other Provisions incident and Related to the
subject Matter. After further dis-ussion, Dr. Duke moved that the yoard not
million,
Vote unantiooue letter of
motion assuming
accept cap allocation for less than
credit is in place. Dr. Keffer seconded
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Agenda Item V -Resolution Relating to the Authorization, Issuance sad
r z Delivery of Its Student Loan Revenue Bonds, in an Aggregate Amount Not to
a Exceed $100,0009000 to Purchase Student or Parent Loam Notes Guaranteed Under
the Higher Education Act of 1965, as Amended; Fixing the Details and Providing i
for the Security and Payment of Such Bonds; and kothorising the Execution of
# the Indenture to further Secure the Rights of the Holders of the Bonds, the
Authority, and the Trustee; DelagatQd Certain rOther eYrovisions Executive
Committee and Officers of the Authority; 8
mad Related to the Subject Matter. Further discussion ensued and Mr.
and
Generes advised that he felt the resolution was highly premature
reco.smended tl.ct the Board not act upon it at this time because the working
group has not met to discuss the draft of the indenture, the letter of credit
agreement is not in place, and the bond purchase agreement has just now been
received for review. He added that the Board will need to meet again soon
anyway to -approve the letter of credit agreement and that this resolution
could be considered at that time.
Ms. Beer noted again the matter of time involved and that delay of
delivery of the bond resolution would perhaps give the Attorney General's
ars
i office only three .'.ays to review the documents for the first time. Mr. noted that it would be wuch better to have the documents to
the. Attorney
General as early cs possible. Ms. Beer explained that if the Attorney General
has an opportunity to review the documents ahead of time, then any zhanges can
be blacklined for quick final approval. Mr. Generes asked if a draft of the
document could eneral submitted
willt noth accept the document without^e tasolur on from
the Attorney y G ~
the Board.
After further discussion, Dr. Keffer moved that Ager:da Item V be tabled.
Mr. Walton seconded the motion. Vote unanimous.
5 A,en<a hest VI - other Business. 'there being no further business, i
t g
_ Ms. Stallicgs moved that the meeting adjourn. Or. Keffer secoidad. Vats f
' unaaizsous, ~
ri The meeting adjourned at 8:58 p.m.
MIIIITiES APPROVED this the day of wz" 1989.
`
2
Oectora
PresidtTie
North
AutATTEST:
Asf6tafoxas nt ecre ary, oard of Directors
NoHigher Education
Authority, Inc.
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' ~.rinwa4•.v•...n~. -fin
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1,
MINUTES OF A SPECIAL METING ~
rr OF THE BOARD OF DIRECTORS
OF THE NORTH TEXAS HIGHER EDUCATION AUTHORITY, INC.
S a
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A special meeting of the Board of Directors of the North Texas Higher
Education Authority, Inc. convened at 6:05 p.m. on the 22nd day of November,
1988 in the City of Arlington, Texas with the following Directors present:
Mr. Governor Jackson, President
Ms. Meta Stallings, Vice President
Dr. Wayne Duke, Director
Mr. James Brock, Director
II Mr. Jiu D. Schultz, Director
Dr. John M. Trapani, Director
Mr. H. Eugene Walton, Oirector
Ms. Lynn Hampton, Er Officio Member
The following Directors were absent:
Mr. Michael Grandey, Director
Dr. Lindsay Keffer, Director
' Mr. Ray Meyer, Advisory Director
Mr. John McGrane, Ex-Officio Member
I ,
Others in attendance:
Mr. Vic Bloede
Ms. Shelby Beer
Ms. Phyllis Brown
Ms. Kathryn Bryan
Mr. Carl Generee
Mr. Robert Roffman {
Mr. Neal Jones
Ms. Bonnie McCharen t
Mr. Jim Niederle
Agenda Item I - Introductory Remarks. The Presiding Cffieer called
the meeting to order and welcomed those present.
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Agenda Item It - Approval of Minutes of November 13, 1985 fleeting.
Ms. Bryan advised that approval of the November lath Minutes will have to be
postponed because they were not completed in time to be included in the agenda
packets due to the short period of time between meetings. r
Agenda Item III - Resolution Relating to Determinations Regarding J
Acceptable Amount or Amooints of Volume Cap for Private Activity Bonds to 1
( Accept to as to Allow Obligations to be Issued by the Authority to be "Private {
Activity Bonds" Under the Internal Revenue Code of 19861 as Amended;
Rescinding a Prior Resolution; and Making Other Provisions incident and
Related to the Subject Matter. Ms. Bryan referred to the Financing 1
Recommendations included in the agenda packets and advised that its purpose
was to explain the circumstances now facing the Authority and to provide I
specific recommendations from the Financial Advisor, the Underwriters and the
Higher Education Servicing Corporation. She added that there were some
misconceptions at the last Board meeting and decisions were made at that J
time which need to be reconsidered, She advised that the working group 1
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concurred with all the information included in the Financing Recommendations
k to provide a clearer picture of what the Authority needs to accomplish.
{ Dr. Duke stated that the best decisions possible were lade at the last
Board meeting based on the information made available and asked if
reconsideration of hatltimesor was because new informationhhasodevehopedt j
have
an advised that it was due to a little of both. Mr. ihesopportunity .S
Ks . Bryan
that the last Board meeting was not a loss by any means. presented at the time was an option that it was felt the Board should consider. y
He explained that at the time it was thought that the Authority would be
offered only a small cap allocation, but that it might be feasible for the
Authority to consider accepting it because it would supply
million. Since that time additional information has been received. Ks. Bryan
and Mr. Hoffman'recently attended the NCHELP conference sad received new
information about the student loamarket a ketamcoi,nitions, and additional
information has come to light with regard
explained that it now looks as though as such a $26-$27 miilliouersht be
i offered to the Authority due to the strong possibly
return portions of their allocations to the Texas Department of Commerce. He
added that Mr. Hoffman has run ■ cash flow on a $16 million transaction which
cash flowed just fine, to there is no doubt that a $26-$27 transaction will
cash flow fine as well. The cost of issuance at various levels was determined
and the breakeven point where no contribution would be required from the
Authority would be a transaction of $26 million or slightly less. '
Mr. Brock asked about the original $16 million amount of cap considered
at the last meeting. Mr. Jones explained that at the time that was the amount
it was thought that the Dallas County Housing Authority would re ty Housing
TDC from their $5D million allocation. ears that NTHEA will
Auhority has gone to marke toffered the $26 million capithathwill be returned by Dallas County Housing
be
Authoritye
Ms. Beer advised that right after the last Board meeting the Authority
was offered $2 million, but it was not accepted based on the the Board's
She advised that
previous decision. That amount was taken by other issuers.
any other amounts becme available
vi11 probablylbelthebendfof offered h before itris
added
first. Sha
u known what other cap will be available. This would leave only one month
to complete a transaction.
iii Mr. Jones noted that perhaps one of the things that may not have been hor made as clear as it should have at the last Board eetinhewas
the Autof Credit
financing need for 1989 through 1991. Other
! there are no financing funds available. Ms. Brown added that the banks have
been delivering far more loans than was projected. Mr. Jones then referred to
the NFinancial
in
on Rec mme lotion ionsag reed
the anticipated loan demand breakdown
this and it
rown
advised that h worked with Ks. B
basically $210 million will be needed over the next three years. It
was noted tat at MBank Fort the ability $75 isillion
purchase etheira entire
assurance th
portfolio if necessary. MBank Fort worth's portfolio 1d c Theneome~ henttstto
and growing. This has been dealt with for several years.
other banks bring.the funding total to $210 million. Funding tsources
the '
portion
clearly recycling from the 1987 transaction and the remaining
Fuji Line. The remaining portion of the Fuji Line is going to drop i
precipitiously when it is used for all purchasing. This leaves an unaet need
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1 capacity of $150 million. Mr. Jones stated that it is unfortunate that the
Authority did not receive $100 million in cap for a transaction this year; but
even if it had, it appears there would still have been a shortfall in E
purchasina power over a three-year period. He reminded the Board that it was
for the'. very reason Mr. Hoffman was authorized at a previous meeting to start
looking for taxable financing and that Mr. Hoffman has and is continuing to
do so.
Mr. Hoffman reported that in efforts to seek a letter of credit the
possibility of an interest in providing a line of credit was also discussed
with credit providers. The Swiss Bank corporation has agreed to the terms of
the commitment letter that is still outstanding through the 30th of this year
to back a $50 million bond transaction with a letter of credit, and there were
sore indications that they might receive approval on a line of credit as well.
Mr. Hoffman indicated that he would pursue this opportunity further pending
is currently in the process
' the outcome of negotiations with Itestpac. Westpac i Australia to provide a
of seeking approval from its committee in Sydney,
letter of credit for $100 million and possibly more. if a small transaction
is executed this year, it is clearly understood with Westpac that there is a
possibility that a $100 million transaction might be done in 1989 on a
tax-exempt basis, taxable basis or a mixture depending upon cap allocation and x
other factors that may affect the market in 1989. Mr. Hoffman noted that '
obviously there would be more flexibility in working with Kestpac.
Mr. Jones then asked Mr. Hoffman to address the issues affecting the
future financing. Kr'. Hoffman pointed out that it was discussed at the lost
Board meeting that there was no certainty of what problems, other than
receiving cap allocation, might develop. There are many issuers in line
behind the Authority waiting for cap, and there is even now an excess demand
for sap in January 1984. There is no assurance that the Authority will be
able to receive the amount of cap allocation needed. He, Bryan note t art7the
Authority may even have to have so,meona physically stand in line on 3 1989. Mr. Jones noted that there had been some talk of perhaps
being able to
make cap reservations by telephone. Mr. Hiederle advised that he had spoken i j
^j with Mr. Gary King of the TDC and that reservations will be done by the old
rule which does mean people will be hired to stand in line. Discussion. Mr.
4~ Hoffman noted that one of the things that may impede the Authority's ability
to issue tax-exempt bonds next year is that the Treasury Department has been
=cz directed under the Technical Corrections Act to write new regulations to
include special allowance payments in the yield calculation on student loans and for arbitrage purposes which would greatly restrict finaeB~~,ng noted
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would probably end tax-exempt financing altogether. Ms.
Congress has given the Treasury Department until July 1, 1989 to complete this.
The rebate exception also goes away next year; and if any other restrictions
on 'special allowance payments occur, it could make tax-exempt financing very
difficult. Mr. Hoffman advised that another factor now is that the General '
Accounting Office is conducting a spend-down audit on Authorities and to the
extent they find excess money and to the extent it is legal they ■re going to
of there is lot of scrutiny from
ask that
the federal level on returne. Therefore,
Mr. Hoffman also reported that the credit situation in the student an
program is under pressure. A major guarantor nationally,
large amounts of proprietary and vocational school loans in Texas pulled out
of the State leaving the Texas Guaranteed Student Loan Corporation to pick up
i the slack. Those are very high default rate students, so TGSLC's general
I default rate is going up dramatically; however, V SLC does expect to have the
4 problem moderated in the next two years. Dr. Duke noted that the net effect
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of this is the Texas student who uses TGSLC as a guarantor will pay more for a
student loan. Ms. Bryan advised that was correct and stated that TGSLC had a
workshop a few days ago and announced that they have had to raise the {
guarantee fees for that very reason--up to 3% on PLUS and SLS and up to 2.5%
on GSLs. Dr. Duke noted that TGSLC was already more expensive than most
guarantors. Mr. Huffman added that the Department of Education is under !
tremendous budget pressures and are looking for a lot of places to cut
costs.
Mr. Hoffman noted the trouble in California with a servicer and the,
lawsuits involved and advised that it does not appear the situation will be
resolved anytime soon. This has caused Japanese banks to get out of the
II student loan market and it does not appear they will return anytime soon. Mr. ~
Jones noted that for a while it appeared there was some comfort in the market
that the Department of Education would accept the loans from the California
secondary market and pay the claims, and the Japanese banks were beginning to
talk more positively about returning to the market. Then yesterday tha DOE,
announced they were going to hold fast to the cure procedures and requirements y,
of due diligence on those loans and will even return those already submitted s
that were incorrectly serviced and ask for the money to be returned if the
claims have been paid. This will really keep the Japanese banks from the
market for a long time and it makes finding a letter of credit very difficult. F
The few banks left that will look at student loan revenue bonds are making it
i very difficult to negotiate letters of credit. Mr. Niederle noted that there
i are 60 banks that have exposure in regard to the California situation. Mr.
Jones noted that that is the problem with Fuji ever entering into another
transaction with the Autbority--not that they were unhappy with the
' Authority--but because of the California situation. Mr. Hoffman stated that
this indicates how shakey things are. He advised that in Touche Ross's
presentation at NCHELP they indicated that in connection with Fuji tbey have
audited 14 third party servicers nationally and that at least five were }
substantially out of compliance. This means the chances of another California
situation could happen. Mr. Hoffman reported that H.E.S.C. and First Hachovia
were among those that were in compliance. Hr. Hoffman stated that this means I
,a that the available credit for student loans aver the course of the next year
to 24 months will not gat any better, but will probably worsen. For this
reason, he recommended that it would be in the best interest of the Authority
j to pursue financing cow while it has some offers to fund itself over the next
1 three years and guard against capital absolutely drying up in the market
i place. I
Ma. Hampton asked if the Authority had any excess money in its Ceneral
Fund. Hs. Bryan advised that there was not a large unencumbered
amount--approximately $1 million. Discussion ensued regarding the possibility
of pledging such funds if it appeared the Authority was becoming vulnerable. n
It was noted that if it were pledged, the Authority would be at risk for
another financing if it was needed because the funds would not be free and
clear.
Mr. Schultz noted that everything discussed indicates that actions need
to be made quickly now in order for the Authority to be is position to seize
an opportunity for financing before the market deteriorates. He asked if
there were any negatives to going forward with the financing. Mr. Jonas i
stated that if a transaction can be arranged this year of a tax-exempt nature
of reasonable size, he sees no reason why the Authority should not choose to
do it.
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Ms. Bryan advised that she felt perhaps one of the reasons the Board "
decided not to enter into a transaction of less than $50 million at the last
meeting was the likelihood of entering into two transactions--a small one in
r % December, 1988 and a large one in January, 1989. Also there was more
certainty at that meeting that a transaction could be accomplished in January. j
The Authority does not have the certainty now with so many issuers in line and
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t the other factors involved. Mr. Schultz noted there is also more uncertainty
i now about obtaining a letter of credit for a T:.nuary transaction. Ns. Bryan
agreed and added that if a $26 million transaction could be done now, that it, `
along with the $6-$7 million in recycling from the 1987 issue, would carry the
Authority through October of next year with tax-exempt financing and then the
Authority could be back in line for any cap allocation that becomes available
in October. She stated that if the Authority does not do thin, it might be i
stuck with a strictly taxable transaction. Dr. Duke stated that he felt the
sed6t million old
Board did not understand at the last BoNrsd, meeting athat
carry the Authority through October.
million plus the $6 million would total $32 million to carry the Authority ten
months sod that the total amount of loans purchased in the last year was $39
million. She advised that in regard to the MBank Fort Worth forward
commitment, there is the Fuji Line. Wachovia has agreed to a commitment to
purchase the loans the Authority has in the line now (not MBank Fort Worth's
l loans) of approximately $15-$16 million and hold then until the Authority is
ready to buy them back which would free up additional money for MBank Fort
Worth. This would buy the Authority some time and also provide tax-exempt
financing under the most favorable terms. Mr. Jones stated that at the last
meeting it was pointed out that the $26 million was a breakeven point;
however, it was felt that the Authority would only receive $16 million cap and
the amount of $26 million was not realistic at that time. He added that it is
confusing because the breakeven number turned out
County Housing to be Authority. amount the
Authority is going to receive from
Dallas Dr. Trapani asked if the $75 million takeout for MBank Fort Worth was a
normal service the Authority offers. Ms. Bryan advised that it was not, that
MBank Fort Worth first asked for this type of commitment in 1984. Sallie Mae
f had offered MBank Fort Worth a proposal for a three-year takeout of
approximately $20 million (at the time MBank did not have the volume it does
now). MBank Fort Worth then advised the Authority that unless it could
provide this type of commitment, they would have to sell to Sallie Mae. The
Authority obtained a $20 million line of credit with Wachovis which cost
$10,000 to provide, sod it was never used except to provide the commitment.
The precedent was set and MBank Fort Worth has asked for this comfort ever
a since. Dr. Trapani noted that the commitment and expense are becoming Jviable
ones
in the question of whether the Authority can finance bond issues. Mr. advised however that the Authority must consider that MBank Fort Worth sells
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the Authority excellent loans and is one of its largest leaders.
advised that MBank Fort Worth's average loan balance is $3,500, and they sell
to no one else. She noted that MBank is the only tender who requests a
forward commitment. She added that the Authority does provide First State
Bank of Denton with a commitment of approximately $1.5 million for a year.
Discussion. It was noted that the Fuji Line has proved to be vary beneficial
in providing funds for the forward commitment and other contingencies. Mr.
Bloede noted that MBank Fort Worth has become even more important since the
MBank corporation has begun to consolidate all of their system wide loans
through the Fort Worth operation. He added that the uncertainty of MBank's
financial situation may require them to call on the Authority's ability to
purchase the loaW portfolio on short notice. Ms. Bryan pointed out that the
Authority must have some taxable financing available also in that event
because the Authority cannot purchase loans with tax-exempt money and pay an 1
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t: excess of 12 premium, and it is likely that MBank rill require a higher
premium. Ms. Bryan advised also that it is doubtful MBank would sell to j
z another secondary market because one of the things MBank has touted with all
the schools is that MBank sells to only one secondary market, so students do
not have to be concerned that their loans will be scattered over several
secondary markets.
The Presiding Officer asked what would happen to the $15 million if
MBank did sell to a higher bidder. Ms. Bryan advised that the taxable
financing can be done away with at any time, but the Authority would have to
fiat enough loans to replace MBank's loans under the tax-exempt financing.
She added that if MAank did get out of the student loan program, loans would
still be available because the students would go to other local lenders from
whom. the Authority purchases loans, such as NCNB and First Interstate. Hr.
Hoffman advised that it would just mean that a large existing portfolio would
be gone, but the anticipated demand on an ongoing basis would there. There
would be some delay as to the utilization of the money and perhaps some of the
money the Authority planned to use over a period of time would not be used.
The Presiding Officer advised that the reason he brought that question up was
because the sponsoring Cities are becoming more and more sensitive to the
Authority's requests for funds and if the Authority did have excessive <
tax-exempt funds, it might create a problem. Mr. Jones advised that that
should not be a problem with the proposed financing because of the size of the
tax-exempt portion. He added that Ms. Hampton has outlined a plan for the
Authority to present an educational talk to the City Council of Arlington to
provide then with a better understanding of the Authority and its purpose.
The Presiding Officer stated that he felt that the City Council of Arlington
does not underctand why the Authority cannot do a better job of projecting its
needs. Ms. Hampton advised that she felt that if all the Board members from
Arlington, Goveror Jackson and any other interested parties do make a
presentation and express appreciation for the Council's concern, it will
provide the Council with the understanding it needs. Mr. Hoffman added that j
` the Council needs to understand that the State only allows a maximum of $100
million cap allocation per calendar year.
t Ms. Bryan advised that she and Ms. Beer discussed going ahead with the
TEFHA hearing which would allow time to find out how such cap will actually be
received. it might be that the Authority will not need to go back to the
Cities to request an additional amount. Ms. Bryan noted that a presentation
as outlined would be made to the City Council regardless of whether an i
additional request was made. Has Beer pointed out the importance of the city
Council of Arlington having a complete of understanding to that future delays
in considering the Authority's request would not happen, especially when the
time frame is so short.
Mr. Hoffman advised that all documentation is drafted exceot for the -
letter of credit and that a document session is scheduled for next week. Re
stated that if cap is received in the amount expected, the Authority should be
able to close the issue December 22, 1988.
Mr. Schulte moved approval of the proposed resolution which recinds the
previous resolution approved November 14, 1988, limiting the amount of
allocation under the cap it would accept to $50 million, and provides instead
that the Authority will not accept less then $26 billion in allocation and ?
that the credit enhancement for the bond issue must be in place prior to
i acceptance of the allocation. Mr. Brock seconded. Vote unanimous.
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Agenda Item IV - Discuss sad Take Necessary Action Related to TEFRA
and City Approval and Any Other Matters Incident and Related to a Tax-exempt
Bond Issues in 1988 or 1989. A motion was made by Dr. Trapani and seconded
x by Mr. Schultz to authorize Bond Counsel and H.E.S.C. to proceed with
F necessary action related to TEFRA and City approval in relation to a 1
j{ tax-exempt bond issue in 1988 or 1989. Vote unanimous.
Agenda Item v - A Resolution Relating to the Authorisation, Issuance
and Delivery of Its Student Loan Revenue Bonds in an Aggregate Amount lot to
Exceed $100,000,000 to Purchase Student or Parent Loan Notes Guaranteed Under
the Higher Education Act of 1965, as Amended; Fixing the Details and Providing r
for the Security and Payment of Such Bonds; and Authorizing the Execution of
the Indenture to Further Secure the Rights of the Holders of the Bonds, the
Authority and the Trustee; Delegating Certain Pavers to the Executive
Committee and Officers of the Authority; and Making Other Provisions Incident
and Related to the Subject Matter. (Tabled on November 13, 1988) Ms. Beer
advised that this resolution would enable the Authority to seize the crp
allocation and make the necessary filing. She added that time is very short
t and the Authority needs to be prepared. She noted that this resolution which
was tabled at the last meeting has been somewhat modified so that the
delegation would be quite specific that any changes that need to be made would
be wade to accommodate the Attorney General's office, the Texas Department of
Commerce, the rating agency, the market and the letter of credit bank. She
added that the motion was tabled partially on Mr. Generes's advice and she
asked Mr. Generes to speak to his comfort level. Mr. Generes stated that he
1 had reviewed the resolution and had seen the bond purchase agreement and a
draft of the preliminary Official Statement, and that the resolution is so r
drafted as to provide for an ability to interject substantial amendments and
final documents in order that draft documents can be submitted to the Attorney
General early. He did note that the cash flow analysis and trustee fees are
not attached. Ms. Beer advised that the Trustee fees were approved at the
a first Board meeting the new financing was discussed. She added that Ms. Bryan
I and Mr. Hoffman have cash flows and that a preliminary cash flow is always
attached with a transaction until the final Official Statement can he J
completed. Mr. Generes stated that if Ma. Bryan and Xr, Hoffman were
satisfied, it would have his approval also.
A motion was made by Dr. Duke and seconded by Dr. Trapani to remove the
„r resolution from the table and approve the resolution. as amended. Vote
uaaataoue.
Agenda Item VI - Other Business. Mr. Jones recommended that the
proposal from Chemical Bank to act as depositary be approved. He noted that
it was exactly the same proposal as the one for the 1987 bond issue.
Discussion. Mr. Generes advised that the resolution to approve the depositary
must be presented as an agenda item and that the resolution would have to
be placed on the agenda for consideration at the next meeting.
No. Hampton asked that the Board set a specific date to make the
presentation to the City of Arlington. The Board agreed to make the
presentation at the afternoon Executive Sessiu- of the Arlington City Council
on December 13, 1988.
Ms. Bryan reported that Mr. Ray Meyer, the advisory director, had
submitted his resignation and had apparently contacted the Metro Association
of Career Schools 'in regard to appointing someone else. She advised that in
the past this appointment has been made by the Authority Board. After
discussion, it vas noted that the Cities might wish to recommend som ones Mr.
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Schultz suggested that Mr. Ken Woods, President of the International Aviation i
and Travel Academy in Arlington might be considered also.
Mr. Hoffman advised that Westpsc expects to receive credit approval
tomorrow and documentation should proceed. He stated that lfestpac will
forward a commitment letter for the Board's review and pointed out the need to
negotiate the document as quickly as possible because it must be in place for
other things to be finalized.
Agenda Item VIJ - Adjourn. There being no further business, Ms.
Stallings moved to adjourn. Mr. Schulte seconded. Vote unanimous. The
meeting adjourned at 7:18 p.m.
" MIRMS APPROVED this the a27l~ day of 1989.
Presider, Board Directors
North xas Mig Mucetion
Authority, I t
ATTEST:
Ass scant S cretary, and of Directors
f North Taxes Higher Education
,
- Authority, Inc,
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)5L/~ 4 MINUTES OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS
OF THE NORTH TEXAS HIGHER EDUCATION AUTHORITY, INC.
A special meeting of the Board of Directors of the North Texas Higher
Education Authority, Inc. convened at 1:40 a.m. on the 16th day of December,
1988 in the City of Irving, Texas With the following Directors present:
Mr. Governor Jacksons President
Dr. Wayne Duke, Secretary/Treasurer 6
Mr. James Brock, Director
Dr. Lindsay Keffer, Director
Mr. H. Eugene Walton, Director
and the following Directors were absent:
Ms. Neta Stallings, vice President
Mr. Michael Grandey, Director
E Mr. Jim D. Schultz, Director
Dr. John M. Trapani, Director
Ms. Lynn Hampton, Ex-Officio Member
Mr. John F. HeGrane, Ex-OfEicio Member
1 Others in attendance:
f Me. Shelby Beer, Fulbright 6 Jaworski
Mr. Vic Bloede, Hatcher 5 Company
Ms. Kathryn Bryaa, Higher Education Servicing Corporation
Mr. Carl Ceneres, General Counsel !
Mr. Robert Hoffman, Chemical Securities, Inc.
t Mr. Neal :ones, Hatcher b Company
Ms. Bonnie Mecharea, Higher Education Servicing Corporation
t Mr. Elbert Morrow, Fulbright 6 Jaworski
Mr. Tots Spurgeon, McCall, Parkhurst 6 Norton
Agenda Item I ^ Introductory Remarks. The Presiding Officer called
the meeting to order and welcomed those present.
Agenda Item It - A Resolution by the Board of Directors of the North
Texas Higher Education Authority, Inc. Relating to and Amending a Resolution
Heretofore Adopted Which Authorised the Issuance and Delivery of Its Student
Loan Revenue Bonds, in an Aggregate Amount Not to Exceed 610010009000 to J
,f Purchase Studont or Parent Loan Notes Guaranteed Under the Higher Education 1
r!_ Act of 1965, as Amended; Fixing the Details and Providing for the Security and
Payment of Such Bonds; and Authorising the Execution of the Indenture to
further Secure the Rights of the Holders of the Bonds, the Authority and the f
Trustee Delegating Certain Powers to the Executive Committee and Officers of
the Authority; and Making Other Provisions Incident and Related to the Subject
Matter. The Presiding rificer asked Mr. Bloods to update the Board on the i
status of the proposed financing. Mr. Sloeds then reviewed the events of the
last two weeks. Earlier this month the Authority was granted $34 million in ;
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( State volume cap in order to undertake a bond issue. The Board had authorized
j proceeding with that issue as well as a $100 million issue early next year.
i when the $34 million cap was accepted from the State, it compelled the
Authority to deliver bonds by December 23 which is Friday. If the Authority
is unable to deliver bonds, it faces a 90-day penalty which precludes the
Authority from entering into a bond issue early next year when new cap will be t
made available. However, the Authorit± will have on opportunity for cap
allocation later on in 0.tober when additional cap may become available. Mr.
Bloede noted though that there is still the possibility the Authority might
not be able to go to market until January, 1990. r
On Monday, December l2, Weatpac decided to back away from their ;
agreement to provide letter of credit enhancement on the proposed $34 million
transaction. Several weeks before Swiss Bank had reduced and then withdrew
their offer to provide similar credit enhancement. This essentially has left
difficult choices and perhaps even no choices; however, Chemical Bank has
suggested an alternate structure for the $34 million transaction that does not J
require credit enhancement. It is an issue the Authority could do on a
non-rated basis, in fact on its own credit. Hr. Bloede then asked Hr. Hoffman
to describe the structure.
Mr. Hoffman explained that the structure devised is essentially to
take the existing indenture which contemplates variable rate bonds and
initially placing them with a single investor on a private placement basis
which would not be rated and not secured by a letter of credit. It would be
secured by the promise of the Authority to pay the bonds on the initial tender
date which would be approximately July 1, 1989. The security would
effectively be covered by a commitment from the Authority which would be
secured by the Fuji Line of Credit or if Sallie Mae were interested in buying
these bonds, they would probably not require the security of the Fuji Line,
but would rather give the Authority the right to liquidate the loans in the
event the bonds were not remarketed to the public.
Dr. Duke noted that the Fuji Line is already committed. Mr. BloedeI
advised that the Authority would have to ask l0ank Fort Worth to change their
' forward agreement. Mr. Brock asked if MBank Fort Vorth had been approached
' about this. Ms. Bryan advised that MBank Fort Worth has not been contacted
directly.
Mr. Hoffman advised that in order for tb?s to be an offering which is
comfortable from the standpoint of legal counsel, particularly from the
standpoint of the tax opinion, the Authority has to reasonably expect to be
able to obtain credit enhancement on this bond issue; however, the market for
credit enhancement for student loan revenue bonds has deteriorated to the '
point there are only three remaining providers--Capital Guarantee Insurance
Company on the Sleet Coast, AMBAC in New York and Sallie Mae. The terms now
+ required on non-asset bonds are that they be recovered fully prior to the
insurance company being at risk or in the case of Sallie Mae, non asset bonds
must be paid for up front or secured by a commitment fund in escrow. The
Authority has to reasonably expect to be able to meet the terms available. If
the requirement is that the transaction start at parity, and the Authority
does this transaction, it has to be prepared to inject approximately $600000.
Mr. Hoffman advised that all the professionals involved except his sales force
which would get a fairly nominal fee for placing the paper, will defer their
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' aid if credit enhancement is not pulled together and the ;
fees and will not be p
bonds are not remarketed. Mr. Hoffman advised it would cost W8,000 to ,i
complete the first half of the transaction and that from an economic
standpoint the earnings on the student loans and the anticipated arbitrage
during the six month period should fully recover the $158,000. If this
transaction is structured as now anticipated, it will fully recover all of its
costs and essentially be at 102 1/2Z parity within a three-year period, and
after the third year, put approximately $400,000 back into the General Fund.
Mr. Hoffman added that he feels it can be structured so that the contribution
of $600,000 could be pledged as a fund reducible dollar for dollar as the
indentured financing recovers its cost such that the transaction is always at
parity, but over the initial 2 1/2 year period, the $600,000 contribution will
be rolling back into the General Fund.
Mr. Sloede noted this would enable the Authority to finance
approximately $32 million worth of loans this year and over the life of the
financing an additional $30 million recycled proceeds totaliag as much as $60
million over the life of the bond issue.
Mr. Hof Ewan explained that if the market turned totally against the
transaction such that more than $600,000 would be required, the Authority
would not be obligated per advice from tax counsel. Mr. Sloede noted that
$600,000 is worst case and that a $400,000 contribution or leas might be
required, depending on the extent bond insurance is available and the results
of the negotiations with the letter of credit provider.
At this point Mr. Bloede distributed and reviewed a schedule of the
impact on the General Fund under various scenarios. A Lengthy discussion
ensued. Mi. Hoffman advised that the Authority should consider that if
$6000000 is put into this transaction, the Authority's flexibility and its
ability to seek future funding would be curtailed, as well as the ability to f
absorb payment of a portion of the premiums. He added that the Series 1988
issue is still there to consider, but after determining where that situation
would leave the General fund balance, the only prudent course at this'p'oint
5 - appears to be to seek a taxable financing in 1989 sufficient to fund th,e
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expected loan demand for at least 2 1/2 to 3 years. This would be leas
expensive and would leave enough in the General. Fund to continue purchasing
%t tba loans that need to be bougbt over the course of the pro`ram and, will put F'
io place a financing vehicle whereby loans can be warehoused so, that if things
gr well this year and a tax-exempt financing remains viable is early 1990,
Lbere would be a large volume of loans that could be permanently financed.
This would probably mesa $100 million worth of taxable financing with Sallie
Mae. Seventy-five banks have been contacted and at present liquidity lines
for student loans are unavailable from any other source. This line of credit
would cost a maximum of $250,000. Discussion.
Ms. Bryan proposed using the Fuji Line of Credit to purchase loans and ;
keep the Sallie Mae line as a standby for comitseots or unexpected large
144
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finance loans. '
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Mr. Brock asked how long the Authority could go without new financing.
Ms. Bryan advised that the Authority is essentially out of monay--only about
K $2 million is still available. She advised that there is no choice but to use ;
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the Fuji Line of Credit for the January 31 acquisition. She explained that
she is going to have to tell MBank Fort Korth that their $60 million
commitment will have to be reduced to $50 million because $10 million is
needed to purchase loans January 31. She added that $50 million does cover
MBank Fort worth's present portfolio and that MBank may know by the end of
January if they are going to sell their entire portfolio. She stated that the
Authority needs to get the Sallie Mae line in place just to be able to
issuecommitments--the Authority really has no choice. The plan would be to
I hopefully not use the Sallie Mae line and to refinance the Fuji loans as soon
as possible with a tax-exempt financing.
r Mr. Bloede advised that a $100 million transaction with Sallie Mae
would bring capacity up to $160 million and then perhaps the Authority might
be in line for cap in October. Discussion.
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Mr. Morrow advised that if the Authority enters into a line of credit
agreement with Sallie Mae, Sallie Mae will require that the Authority either
set up another corporation or that the servicing corporation become involved.
Sallie Mae will not do a taxable line just with the Authority because they
will not accept the 15% limitation on interest rates which the Authority has.
Sallie Mae will require that either the servicing corporation or a new
corporation have a back-up line so if the Authority reaches its maximum rate
of 15%, it can switch to another corporation that has a higher usury
rate. Basically there would be two different corporations to switch back and
forth depending upon the rate of interest. Mr. Morrow noted that there are a
lot of requirements to obtain a501(c)(3) or a 50l(c)(4) determination as a new
corporation for the internal Revenue Service to recognize it as a non-profit
corporation w;iich is the advantage of using the servicing corporation. Re
noted that if tye servicing corporation did not want to do this, the Authority
would need to act as soon as possible to establish a new corporation because q~
It could take months to obtain a determination. Tha*Presiding Officer stated
that he did not think that would be a problem for the servicing corporation.
Mr. Morrow advised it would be the most economical and logical'vay, but that
an interest rate differential should be run to show there would be no loss to
the servicing corporation.
The Pro aiding,0fficer notad that if nothing sore is done on' the 1988
issue, the cost to the Authority at this point is between $604701000. Ms.
seat advised that the $500 filing fee could not be recovered, but't6et the' ;
$150 fee for the Attorney General could probably be preserved ivA recoaaeoded r ;
that the board do so by approving the resolution under Agenda Item lit 'a' j
A notion was made by Dr. Duke and seconded by Dr. Keffer to approve the
resolution as stated under Agenda item it as presented. Vote unanimous.
Dr. Duke moved that the Authority return the $34 million cap allocation
to the Texas Department of Commerce. Dr. Keffer seconded the motion. Vote
unanimous.
Agenda Item III - A Resolution by the Board of Directors of the North
Texas Nigher Education Authority, Ise. Relating to the issuance and Delivery
of Its Student Loan Revenue Boadsi series 1988; Fixing the Details and
Providing for the Security and Payment of Such boadel Authorisiag the
Execution of Documents to Secure the Rights of the Holders of the Bonds, the
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Authority and the Trustee; Authorising Execution n;d Delivery of a Letter of
Credit and Reimbursement Agreement and/or a Commitment Agrae~eot, and a
Servicing Agreement in Connection with the Authority's Student Los* Revenue
Bonds, Series 1988; Making Provisions for the Execution of Additional
Documents and Certifications in connection with the Participation of the
Authority in the Student Loan Program sod the Authority's bonds; 'Entering into
Covenants as Prescribed by the Resolution and in the Indeaturel and Making
Other Provisions Incident and Related to the Subject Matter. No action was
taken.
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Ms. Bryan advised that steps would taken immediately toward pursuiaA a
line of credit with Sallie Mae. `
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Agenda Item IV Other busitiss. There being no frrther business, ti
I- or. Keffer moved the meeting adjourn. Dr. Duke seconded. Vote unanimous.
The meeting adjourned at 8:45 a.m.
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MINUTES APPROVED this the o77d!~ day of 1989.
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President, B and of Di ctors
North Texas Higher E ation {
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Authority, Inc.
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ar of Directors'
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Authority, Inc.
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MINUTES OF AN EMERGENCY MEETING OF THE
EXECUTIVE CMITTEE OF THE BOARD OF DIRECTORS
` OF THE NORTH TEXAS HIGHER EDUCATION AUTHORITY, INC.
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An emergency meeting of the Executive Committee of the Board of
Directors of the North Texas Texas Higher Education Authority, Inc. was held
at 1:05 p.m. on the 28th day of November, 19881 with the following members
present:
Mr. Governor Jackson, Chairman
Ms. Nets Stallings, Vice Chairperson
F, Hr. James Brock, Member
and the following members were absent:
Hr. Eugene Walton, Member
Dr. Wayne Duke, Member
R.
Others in attendance:
Ms. Kathryn Bryan
Mr. Victor Bloede
~ The Presiding Officer called the meeting to order and exploiaedthe
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was to eoasider rescinding a prior resolution authorizing scceptsnce
purpose
r~3 ti.< of state cap allocation in amounts of 950 million, or more 'sod"appr.orieg !4=
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acceptance of a lesser amounts
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Aganda Item I - Resolution Relating to Deteraiestiois Regarding
Acceptable Mount or Amounts of Volume Cap for Private Activity Gonda to
Accept to as to Allow Obligations to be issued by the Authority to be "prlirate
Activity Bonds" Under the Internal Revenue Code of 1985, as Aieadedl
Rescinding a Prior Resolution; and Making Other Provisions Incident asd
Related to the Subject !latter. The Presiding officer asked Mr. Dioede,fo --N
explain the circumstances surrounding the resolution. Mr. Bloede advised that
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the Texas Departueat of Commerce (TDC) had offered the Authority a $24 million
reservation for cap allocation and that we wet accept or reject the offer' by
9:00 a.m. toaorrov. It is the recommendation of his firm as financial
~t advisors as wall as the underwriters that the Board accept the lover amount
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for these reasons: (1) The issuance costs for the proposed bond issue have
been defined and are no longer estimates. The actual numbers are lower than
projected making a $14 million issue a breakeven issue to which no Authority
contribution would be necessary. (2) The $24 million would, together with
recycled proceeds from the 1987 issue, provide a year of funding for NTHEA as
- well as additional amounts of recycled funds for future years. (3)
Information has been obtained from the West Texas Authority indicating they
will be returning $10 million to TDC in the next few days which would
automatically be offered to the Authority as well. However, the committee's
decision must be based solely on the $24 million already offered. (4) There
is no certainty that cap allocation will be obtained in January since there is
about twice as much demand as there is cap available. It is now certain that i
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issuers' representatives will have to physically be in line on January 2 to
apply. This means hiring someone to begin standing in line days or weeks
ahead of time. There is no assurance NTHEA would be one of the first. (S)
The issue would fail under the more favorable arbitrage rules which go away
for 1989 issues.
Discussion ensued regarding the cap allocation process and reasons for {
the Board's original resolution which set a $50 Aillion qLiniaum on acceptantt
of the cap. Ms. Bryan explained that Carl Ceneres had misunderstood the
Iachovia commitment and miscommunicated it to the Board at the last meeting.
Nacbovis has agreed to purchase only the loans currently held under the Fuji
Line which is approximately $17 million worth. They vill not agree to ;j
purchase any MBank loans due to the uncertainty with the bank and its having
requested FDIC assistance. Ms. Beta Stallings then moved that the resolution
' be adopted, and the $24 million allocation be accepted. Mr. Brock seconded.
Vote unanimous. Presiding Officer noted that this. t
isted would that
ratifiedbythe full board at the next aseting, Hr. Brack' sun
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c clarification be made that approval of the resolution also provides for
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acceptance of the anticipated $10 million and any other amounts of[ered.
Agenda Item 11 - Other Business. Ms. Bryan explained that Mr.
Robert Hoffman has been talking with Westpac Banking Corporation of Australia
and they have agreed to provide a letter of credit for the bond issue for the
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full $100 million whereas the Swiss Bonk is only willing to provide a $55 million letter of credit. It is also M:. Roffman's understanding that
Westpac
4 is willing to provide a $100 million letter of credit in January in addition +,;a
to a smaller amount for 1988. Mr. Bloede explained that the terms are t
essentially the same as for the Swiss bank proposal except that there is a i
P~ smaller up-front fee of 10 basis points versus 12.5 basis points with Swiss {
Book, The annual fee is 35 basis points, the same as Swiss Bank's. Ma. Stye,
explained that in the interest of the board's time, it would save.having
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another board meeting in a fev days if the Executive Committee approves
k acceptance of Yestpac's letter of credit proposal. Discussion. Mr, Brock
moved that Vestpac's proposal be accepted at a 10 basis point up-front fee and
a 55 basis point annual fee subject to ratification by the full Board. Ms.
Stallings seconded. Vote unanimous.
Agenda Item III - Adjourn. There being no further business, the
f meeting adjourned at 1:35 p.m.
MINUTES APPROVED this the Ala day of 1989. i
CHAIR?lAl1, Executive ittee
of the Board of D'Y ctora
North Texas High Education Authority, Inca
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Nets tallinga, Member i
?Bows Brock, Member I
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I
MINUTES OP THE REGULAR MEETING
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OF THE BOARD or DIRECTORS
OF THE NORTH TEXAS BICKER EDUCATION AUTHORITY, INC.
The Regular sleeting of the Board of Directors of the North Texas Nigher f
Education Authority, Inc. convened at 2:71 p.m. on the 27th day of February,
1989 in the City of Denton, Texas with the following Directors present:
Mr. Governor Jackson, President
Ma. Nets Stallings, Vice President
Dr. Wayne Duke, Secretary/Treasurer
Mr. James Brock, Director ;
Dr. Lindsay Keffer, Director
Mr. Jim D. Schulte, Director
Dr. John M. Trapani, Director
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Mr. H. Eugene Walton, Director
Mr. John F. McGrane, Ex-Officio Member
and the following Directors were absent:
Mr. Michael Graadey, Director
Mr. Jack Eastwood, Ex-Officio Member ;F
Others in attendance:
Ms. Shelby Beer, Fulbright 6 Jaworski
Mr. Vic Bloede, Hatcher E Company
No. Phyllis Brown, Higher Education Servicing Corporation
Ms. Kathryn Bryan, Higher Education Servicing Corporation
Ms. Dona Sider, Mrrust Corp, M.A. ~t
Mr. Carl Generes, General Counsel
Mr. Robert Hoffun, Chemical Securities, Inc. f
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I Mr. Meal Jones, Hatcher i Company
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Mr.
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` Ms. EPhil oanieaMcCharen, Wilier Education Servicing corporation
f` Mr. John Upleye MTrust Corp,'M.A. {
Mr. Tom Spurgeon, McCall, Parkhurst i Horton
'L Agenda It** I Iatroduetory Remarks. The Presiding Officar,celled
the matting to order and welcomed thoas present.
Agenda Iten It - Approval of Minutes of November 140 November 221 add
December 16, 1988 and Minutes of Emergency E:eeutiee Committee Matting of
November 28, 1988. Mr. Contras advised that appropriate action would be for
the board to approve minutes of Board meetings only and not Executive
Committee meetings. The Presiding Officer noted one correction to the Minutes La?
"i of November 22, 1988 on page seven, first paragraph of Agenda VI, fifth line
(right margin), the word "be" was omitted.
$ The Presiding Officer noted that ratification of the action taken by the
Executive Committee on November 28, 1988 would be considered under Other i
t, ! Business.
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t Agenda Item III - Report from Peat Marwick Main. Mr. Phil Marshall ; y
of Peat Marwick Main reviewed the audited Financial Statements as of August i
31, 1988. He explained that the Auditor's Report has been changed to clarify
the responsibilities of Peat Marwick Main. Mr. Marshall advised that it is ■
clean opinion--the financial statements do present clearly the financial ;
position and results of the operations of the Authority for the year ending }
August 31, 1988, The Balance Sheet reflects an increase in cash and
marketable securities of approximately $41 million over last year, Mr.
Marshall explained that this was basically due to heavy funding of student
loans financed by the bonds issued in late 1987. The Statement of Revenue and
Expenses indicates a dramatic increase in the site of the Authority. Revenue
increased from approximately $7 million to over $11.5 million with expenses
increasing as well. The total revenue over expenses as of August 31, 1988 is
$511,000.
Mr. Marshall explained that the Financial Accounting Standards Board
recently replaced the statement used in prior years, Statement of Changes in
Financial Position, with s new statement, Statement of Cash Flows. Basically
it is the same information, just reported in a different format to provide a
clearer picture of the cash flow, He then reviewed the notes to the
financial statements.
Mr. Marshall advised that the Department of Education requires a
compliance audit of the Authority's Plan of Doing Business and that Peat
Marwick Main has provided the report. The report is a clean opinion. No
weaknesses in internal control and no instances of noncompliance with the Plan
of Doing Business were noted. He added that only one or two very minor items i
were brought to the attention of H.E.S.C. and did not need the Hoard's
attention. Dr. Duke asked how it is determined what items should be brought
to the Board's attention. Mr. Marshall advised that he determines whether an
item is a miaow mechanical problem or a major item that needs the board's
attention. These particular items were very ainor--one being the suggestion
that the investment schedules which were being done manually be automated.
Mss Bryan noted that the investment schedules have now been
automated, Discussion. The Presiding Officer asked for a'copy of Peat
a Marwick Main's report to the Department of Education* Ms. Bryan advised chit
copies of the report will be seat to the Board ireabsrs.•
ti Mr, Marshall reported that there is a new financial accounting standard
required for the current faecal year, Financial Accounting Standsrd',Ko. r'
for non-refundable fees and costs associated with origittiag
a 91, Accounting
or acquiring loans and initial direct costs of lasses. It requires
capitalisation and amortisation over the life of the loans of all costs
associated with acquiring loans. The Authority has always been very
conservatives and the loan transfer fees and other costs associated with
j acquiring loans have basically been expensed as a period cost at the time they
occur.' Now the Authority will have to capitalise those costs and asortisis
thes over the life of the loan. Mr, Marshall advised that Peat Marwick Main
is currently is the process of determining the life of the loan and
amortisation. Discussion. ~s
A motion was made by Dr. Xeffer and seconded by Mr. Brock to accept the
x report from Peat Marwick Main. Vote unanimous.
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Mr. Marsball left the meeting. r
Agenda Item IV - Election of Officers. The Presiding Officer
advised that the current slate of officers is as follows: Governor Jackson,
President; Neta Stallings, vice President; and Dr. Wayne Duke,
Secretary/Treasurer. A. notion was wade by Mr. Brock to re-elect the current
slate of officers by acclamation. Dr. Trapani seconded the motion. Vote
unanimous.
Agenda Item V - Election of Executive Committee. The Presiding
Officer advised that in addition to the President and Vice President the other
members currently serving on the Executive Committee are Jim Brock, Wayne Duke
i and Gene Walton. Dr. Trapani moved that the current members of the Executive
Committee be re-elected by acclamation. Dr. Keffer seconded. Vote unanimous.
i Agenda Item VI -Appointment of an Individual to Serve on the Finance
Committee. Mo. Bryan advised that Lynn Hampton has accepted the position of z
Finance Director of the Washington, D.C. Airport Authority and has resigned
Trmotion
from the NTHEA Board, leaving a vacancy on the Finance Committee.
was wade by Dr. Keffer end seconded by Mr. Walton to appoint Dr. John
to the finance Committee by acclamation. Vote unanimous.
Agenda Item VII - Discussion and Appointment of an Advisory Director
noted that this vacancy
'e
to the Board of Directors. The Presiding Officer
was created by Ray Meyer's resignation and asked what the board wished to do
in regard to filling the vacancy. He advised that this appointment is made by
the board and not by the sponsoring cities and that the position vas created
specifically to provide for representation of proprietary institutions.
Discussion ensued regarding the need to have someone from the proprietary
institutions on the Board. It vat noted that students attending these
institutions have the largest percentage of defaults. Has Bryan explained ;
that the Authority cannot discriminate against proprietary loans and must
purchase those loans if leaders wish to sell them. Mr. Schultz stated that,
perhaps it would be worthwhile for the Authority as well as the proprietary
institutions to continue to have those schools represented on the Board.
After discussing possible candidates, Mr. Schulte sa7red:that Mr: tan
Hoods of the International Aviation and Travel Aeadeny in 'ArI",ton be r
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nominated to serve as Advisory Director. Dr.. Duke seconded, Vora unaeimonss }s'
Mrs Schults was asked to contact tie. Woods in regard to acceptance of the
nomination and report to the Board.
Amanda Item VIII - Progress Report from the lligMT Education Servicing.
Corporations 1. Financial Report. Me. Bryon reviewed the December 31
financials and advised that the January financials will be available for y
distribution vary soon. She reported that the actual fund balance is ;i
approximately $5.2 million--this figure is the $6.6 million fund balance sbova
on the Consolidation Balance Sheet less unamortised issuance costs and bond yrj
discount. She advised that the 1982A bond issue is continuing to slowly lose r,
moneys Bonds were called on December 1, leaving $3,490,000 in bonds payable. k
The amount of student loan notes is $4,289,000. Nos Bryan noted that the
i ; 1982A bond issue would be discussed further under Agenda Item Xlli. The 1997
toad issue reflects a fund balance of $780,000 at present, but there are $1.2
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pillion is issuance costs and bond discount being carried which brings the
actual cash balance to a deficit of approximately $400,000. However, the
issue is doing well. The loan transfer fees and premiums expense has i
increased because the volume of loans purchased for this period of time was l
much greater than anticipated. Ms. Brown added that because funds were used
' much sooner than anticipated, it was necessary to use recycled principal to
purchase loans in December. Presently loans are being purchased with the Fuji
Line of Credit. it. Duke noted that it was his understanding that the funds
in the Fuji Line were committed to MBank Fort Worth. Ms. Bryan advised that
she talked with MBank Fort Worth and they agreed to reduce their commitment by
$5 million to allow the Authority to purchase from other lenders. She added
that when the Sallie Mae financing is in place the total amount of commitment
requested by MBank Fort Worth will be placed under that financing. In regard
to the 1987 budget Ms. Bryan advised that there vas an error in calculating
the budget that caused the income figures to be off by approximately $300,000. j
Ms. Brown explained that in preparing the budget the figures she used for
government interest were approximately two and one-half times more than the
amount thu Authority is actually realising. She added that it will be
necessary to amend the budget in August, 1989 to correct this and to allow for
payment of administrative expenses that were not known at the time the budget
was prepared--administrative expenses can anly be withdrawn to the extent they
are budgeted. A new expense is the $5,000 per year fee Moody's is going to
require to continue their rating services oa Series 1987. It was noted that
Moody's is going to require this fee on all variable rate issues. Me. Bryan
noted that the Higher Education Serrieiag Corporation's 3anuary
financials were also provided for the Board's information.
2. Acquisition Report. No, Bryan reported that since December, $7.2 1
,f million worth of loans have been purchased into the Fuji Line of
Credit--approximately $5 million was purchased from MBank Fort Worth. Ms.
Brown added that the Authority purchased another $2.1 million from MBank Fort 1'.
Worth last week. Me. Bryan pointed out that because of this very aggressive ;
{ acquisition schedule, it is urgent that the Sallie Mae financing be completed yi
as soon as possible.
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S. Portfolio Suwary Report. Ms. Bryan reported that as, of January 311
$106 million worth of student loans are being scrvica"d. The del"s tgnencr rate
sr is 20.61 for the month, and the default rate for the Eisea{ 7rar is 13,1x6 r
` Ms. Bryan noted that as discussed at a previous. meeting ibe maibod,tba"
guarantor uses to calculate the default rate is now being used in en effort to
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' get a figure more consistent with the nationwide and statewide default rates.
Mr. Roffman advised tbat the Texas Guaranteed Student Loan Corporation (TGStr:)
is adding collection and compliance audit personnel to try to improve the
default situation. Discussion.
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4. Miscellaneous. Me. Bryan updated the Board on the possibility of
H.E.S.C. bringing more servicing in-house. She advised that because the Fuji
Bank must approve any changes in the Servicing Agreement, she has been talking Y
with Mr. George [elms of the Fuji Bank regarding the ■reas of service that i,
H.E.S.C. might provide in-house. Mr. Kalas has indicated that Fuji Bank is
still rathet netvous because of its experience with the serviciag problem"io
California and it appears that H.!l.S.C, will be limited in the servicing it
can perform in-house for now. H.E.S.C. will hava a local lockbox and an $00
number to provide better service to students, and Nr. Kelso is considering the 'z
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possibility of allowing H.E.S.C. to perform the conversion process.
H E.S.C.'s purpose is to try to reduce costs and to increase service to the
Authority by performing some of the servicing now being performed by First
Wachovia. Discussion.
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Me. Bryan advised that the final report has been received from TGSLC on
the review conducted last August. She added that H.E.S.C.'s response and the
TGSLC report will be provided to the board. TGSLC mangled 100 loans and there
was one finding--the microfiche file copy of the disclosure statement did not 1
reflect a cancelled second disbursement. There was a letter to TGSLC in the
file requesting cancellation of the second disbursement, but H.E.S.C. had not
physically crossed out the second disbursement on the disclosure stateaeot.
TGSL had two comments. Oce was in regard to the backup for the quarterly
billing for interest and special allowance. First Wachovia provides these
figures to H.E.S.C., but they do not send the backup paperwork because of its
size. They did provide the information to TGSLC on microfiche. TGSLC
suggested that H.E.S.C. might need to work with First Wachovia to have this
information available in-house. Ms. Bryan advised that she is talking with
First Wachovia regarding this to try to resolve the problem. The other
comment, was in regard to a fairly new provision in the regulations that a
borrowers disbursement check must be cashed within 120 days or the loan is not
guaranteed. TGSLC has stated that in order to prove that the check vas cashed
within 120 days, the files must have a copy of the front sod back of the check
from the lenders. Presently the lenders send carbon copies of the
disbursement checks only. This will present a very large problem for lenders
and it bee not been resolved as yet. ;
A motion was made by Dr. Reffer and seconded by Ms. Stallings to accept
i the Progress Report from H.E.S.C. Vote unanimous.
Agenda Item IY - Executive Session. A. Legal matters with respect to
I pending or contemplated litigation, settlement offers, and matters white the t
it duty of a public body's counsel to his client pursuant to,,the Code of i„
Professional lasponsibility of the State bar of Tens, clearly couglicts with
Art. 6252-17 V.A.T.S. - under See. 2(e), Art. 6252-17 V.A.T.S. At AIOO p.m. •4
the board convened in Executive session and reconvened in regular session at
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Mr. Sebults left the meeting. '1?
Agenda Item X - Resolution Relating to payment of Certain Invoices in
Connection with a proposed I938 Bond Issue. A motion was made by Ms. j"
Stallings and seconded by Mr. Brock to table Agenda Item X. Vote unanimous. 1
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Agenda Item YI - Resolution legarding General pund. Ms. Baer
explained that it would be to !R'HEA', advantage and protection to docureet the 1
terms and conditions of the use of certain funds. She added that other
S Authorities have already done so and that Bond Counsel will require this
documentation for future tax-exempt financings. The proposed resolution
provides extra safeguards under the Tax Code and an additional funding
F mechanism whereby the Authority would have the ability to purchase student
loans into the General Fund if it wishes to do so. Ms. Beer pointed out that .T
in light of the recent events, it might provide a secondary source of funding. }
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Mr. Geaerea stated that the proposed resolution provides further
assurance that the interest on the outstanding bonds will remain tax-free.
recommended chat the Board take the advice of Bond Coun al and approve the
resolution.
After discussion, Dr. Duke moved that the resolution relating to the j
General Fund be approved as presented. Dr. Keffer seconded Lhe motion. Vote I!
unanimous.
Agenda Item Ei2 - Resolution Relating to Amendment of the Remarketing
Agreement of the North Texas Higher Authority
sane 1987 Bond Issue e. `
Mr. Hoffman explained that the proposed amendment I proposd
t for the 1988 Remarketing Agreement. He advised that it does not change the i
amount of compensation--it just structures it differently. In addition
Chemical Bank formed a subsidiary in March of 1988 called Chemical Securities,
Inc. which was formed in response to the Federal Reserve Bank giving Chemical
powers to engage in certain securities activities; therefore, the proposed
resolution is structured to accomplish two things: (1) change the
compensation schedule but not the amount, (2) make the agreement between
Chemical Securities, Inc. and the Authority, rather than Chemical Bank and the
Author ity--allowiog for its effectiveness to be coincident with Mr. Hoffman
certifying to the Trustee and the Authority that the necessary capital already
approved has actually been moved into the subsidiary and that the Remarketing
Agent is in compliance with the capitalisation requirements of the Indenture.
Mr. Spurgeon advised that approval of the amendment has been received
4 from Fuji Bank (the letter of credit provider), the Trustee, the depositary
bank and the remarketing agent. He pointed out two very minor changes to the
original proposed resolution. On page two, Section 3, the reference in the
} F first sentence should read S(b)(i) instead of 3(b)(i) and on page four*
ub-paragraph (iv) has been added which states that Chemical
Section iInc. is a nationally recognised municipal securities service or
1 securities, 8, a new s
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dealer authorised by law to perform all the duties imposed upon it as an, ti
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MY. agent,
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advised that be had review;+.d t'.,e original resolution aed
asked to see a copy of the minor changes noted by.itr. Spurgeon. After review
of the changes, he recommended that the Board approve the amendment. i +
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A motion was made by Dr. Duke and seconded by Mr. Balton to approve the
amendment of the Remarketing Agreement of the North Texas Higher Education
Authority 1981 Bond issue as presented. Vote unanimous.
At this time the Presiding officer introd~.jced Dona Elder, who along with
Mr. John Rupley was representing the Trustee in Robert Pattersoa's absence.
The meeting recessed at 5:29 p.m. for dinner and reconvened at 6:30 p.m. r.
At this time Mr. McGrane and Ms. Elder left the meeting.
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Agenda Item IIII - Resolution Relating to Proposal of Chemical tisn
' Securities, Inc. in Connection with Redemption/Defeasance of the Series 1982A ?
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+ bonds. Mr. bloede provided background on the 1982A issue. He advised that
it was a high coupon rate issue at 13.5% and has been losing money steadily
because of the relatively low interest rates that have prevailed over the last s•'
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tbr„a years. Because of the consistent losses, the Financial Advisors were
asked to investigate ways and means of doing away with this financing. About
a year ago, the Financial Advisor with the help of Texas Commerce Bank
undertook a cash flow projection. The projections indicated that the issue
would come to a successful conclusion three years hence with a substantial
cash balance in excess of $2 million. However, to minimise the losses and
perhaps put these funds to better use, the Financial Advisor has continued to
pursue ways to do away with the issue. 1{r, Bloede advised that Chemical
Securities, Inc. was asked to follow u on a suggestion
a possible tender offer or defeasance of this issue. they made regarding
Before Mr. Hoffman presented the proposed plan for the 1982A issue he
addressed the concern of many of the Board members regarding the failure of
the 1988 bond issue. He assured the Board that he and Chemical Securities,
inc. will work with the Authority and all those that were involved to see to
it that an appropriate understanding of the situation is reached. He added
that he is committed to is relationship with the Authority and that he will be
supportive in every way, r
` In regard to the 1982A bond issue, Mr. Hoffman advised that Chemical
f Securities, Inc. is proposing a two step approach to do away with the issue.
The first step would be for Chemical to make a tender offer to existing
born!holders. A price of 1165 of par would be offered. This price is
estimated to equate to current after-tax yield on bonds and is a price at
which bondholders might tender their bonds. The tender offer would cost
$5594022 in addition to the
per amount of the bonds $2,895,000 and weld '
e provide cash in the amount of $2,390,000 on June 1, 1989, if it is successful.
The tender offer will only succeed if it is accepted by 1005 of the
F bondholders. If it is not successful, the second approach could be taken
which is to defesse the existing issue to its 12/1194 premium call date. IE + :I
this approach is taken on June 1, it will still net the Authority more
available cash and more value than if nothing were done. If nothing is done
at all, there will be no cash available for three years; and the Authority iii
would not have the flexibility it would have had. In additioc~the value will y'
continue tc ecrease because of the anticssated undertaken lose afteir in
over
an the unissucscueessful
the next ciree years.
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will l debefeamosreance than if defeasance were dhosen in th'e
tender offer, beginning. The cost would increase $11,500 which is the sunk cost of the
tender offer. The Authority would realize a cash balance of approximately
$2,258,800 instead of $2,270,000.
Mr. Spurgeon explained Chemical's role in the tender offer and haw
tender offero have been done in the past. Mr. Hoffman then explained in ,
detail the process of the proposed tender offer. He advised that if the
tender offer is not successful and defeasance of the ie•ue is undertaken, a
defeasance analysis would be made to determine the sufficient quantity of U,S.
Government securities that must be purchased ■nd placed in escrow for future
payment of principal and interest. Mr. Hoffman pointed out that the
calculations in the analysis provided were made almost three weeks ago and
that interest rates have risen, reducing the costs of both the tender offer
and defeassnce. He added that he is aware that the Board wishes to have as
much background and detail se pocsiole and that was the reason for his update {
letter to the Board prior to the meeting.
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Mr. Hoffman pointed out that the financing environment continues to be F
uncertain and discussed some of the problems the Authority might have to
face, noting that availability of cash may determine the Authority's ability
to undertake future financings. A lengthy discussion ensued regarding various I
aspects of the tender offer. Mr. Bloede referred to the Summary of Redemption
options and reviewed the impact of each option. There was discussion
regarding defeasance alone, and Ms. Beer outlined the process of defeasance.
In regard to Bond Counsel fees, Ms. Beer explained that a tender offer would
not require as much of her time in regard to opinions, etc. as a defeasance
would. The fees of the Financial Advisor, Bond Counsel and Investment Banker
were discussed.
During further discussion of the options, Mr. Walton asked in regard to
a defeasance if there was any way to estimate for each change in governments
riiht now, and the increase in yield, how that would decrease the cost. Mr.
Hoffman advised that he did not have those figures available, but that be
could get the information by the end of the week. Discussion continued and Mr.
Brock suggested that perhaps a decision on the 1982A bond issue should be
postponed to allow time to receive the information Hr. Walton requested and to
determine what the market is going to do, Hr Hoffman advised that he would }
have the information requested calculated in terms of a fair market value in
what a tender offer scenario would be and what the estimated cost of
defeasance would be based on the latest published SLCS (State and Local t
Government securities) rates. A graph could then be prepared, using those
figures plus 50 basis points or whatever, toprovide some predictions for the
Board. He added that the Board will need to meet again within the next two
weeks to approve Sallie Mae documents and that this information could ,L {
certainty be provided by that time.
A notion was made by Mr. Walton and seconded by be. Trapani to table
Agenda Item XIII to provide time to receive the additional information from z
Mr. Hoffman and then reconvene in the next three weeks or whenever Sallie Mae
" documents are ready for approval and consider these items at that time. Vote
unanimous. Hr. doffaaa pointed out however that it is highly unlikely that
any change in interest rates up or down is going to change the bottom line
result which is if the tender offer works, it will likely be a ouch batter
y, deal than the defeasance--but defeasance would still be better then doing
nothing. The fundamentals will not change. Mr. Walton stated that be
understood that, but that he would like to sea what the net cost would be on
the basis of movement of whatever kind of securities that will have to be
" purchased to cover defeasance.
Agenda Item XIV - Update on Student Loan Marketing Association Taxable
Transaction. Mr. Hoffman advised that progress has been slow. He added that
there were some problems getting started due to a change in personnel at
Sallie Mae in January. In addition Sallie Mae was unable to locate the first
set of information forwarded to them, and it had to be re-sent. Mr. Roffman
reported that in late January negotiations started with 28 points of
disagreement or need for clarification, and there are only five points to
negotiate now.
Hr. Hoffman then reviewed the fundamentals of the
financing. It is a $100 million transaction, and the up-frontotransaction
costs will be approximately $11,000. Commitment fees to Sallie Mae are
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quarterly in arrears. As long as there is an unused portion of the lime of
credit, the Authority will be paying 1/8 of It per annum in quarterly
installments based on the average unused portion. There are two significant
points in regard to its operation. The minimum collateral isation level will
be 100.5% or 50 basis points--initially for every million dollars worth of +
loans purchased, $5,000 has to be added to the trust estate. This j
over-collsteralisat ion can be met one of two ways, leave the earnings in the
trust estate or add to the estate. So as loans go into the trust estate, they
begin to earn the surpluses. There should be a net spread of 75 basis points
in these transactions. As the surpluses are earned, the need to add
collateral fundamentally goes away. At the time of the first draw, under the
scenario whereby the MBank Fort Korth portfolio is sold and the commitment
exercised, because of the timing between the generation of the revenues in the
trust estate and the need to pay servicing expenses, there may be a need for
an additional outlay of approximately $25,000 which would be reimbursable by
the trust estate within a period of four to five months. The term of the
transaction is three years. The term of the effective spread over LIBOR
(London Interbank Offering Rate) is one year, and it is changed annually.
Sallie Mae insisted on this point--essentially the Authority has a commitment
for three years, but a price for only one year. Mr. Hoffman advised that it
was thought prudent to proceed on this basis because Sallie Mae is the only
available source for funds of this sire for student loans in Texas. Also the
pricing mechanism is going to be driven off market interest rates in order to
remain competitive because it is LIBOR based, Twenty-five basis points over
LIBOR can probably be expected. Mr. Hoffman pointed out that none of this is
guaranteed however and it is somewhat distasteful to have to along with it. ;i
He reported that he did pursue some interest from NCNB Texas who was seeking ~
to set up a similar line of credit with the Authority. They have been unable ;
to move very quickly on it, so negotiations have proceeded with Sallie Mae.
The transaction is very close to closing. Most of the 28 points have been
resolved in ■ manner that is acceptable to the Authority. Sallie Mae has been
r reasonable about accommodating the mechanics of how th,d Authority
operates--they have agreed to allow more time to produce reports that have to
be generated on a quarterly basis; they have agreed to how the Authority y
going to secure the investment securities and that they are to be valued at
par over market. The fund balances will be managed by immediately using them E
to buy new loans or the Authority will invest them itself pending 'eitbir the
Z +y: re
payment of interest on interest on payment date or the repayment of prineipal ;h
{ without cycling it through Sallie lee which was what they initially wanted.
The Authority has done surprisingly well on the number points it has
negotiated favorably. Mr. Hoffman added that the financing has gone fairly
well and that the Sallie Mae transaction plus the 1982A money that may be
freed up would provide resources to meet the Authority's funding needs for the
next three years.
Hs. Bryan noted that the Fuji Line has been & very profitable situation 4
and that the Sallie Mae financing will not compere with it, but the fact is
that the Authority is in urgent need of funds. She added that it will be a
sore troublesome situation in regard to reporting requirements. Also Sallie
Mae is going to require that an average borrower indebtedness of $2900 be
maintained, and it is going to cost $125,000 per year--$375,000 over three
years to have the line available even if it is not used. Mr. Hoffman advised
that the transaction is cancellable on any interest payment date at may time,
should the Authority be able to arrange alternate financing and no longer need a'
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it. Mr. Walton asked it perhaps 3200000 had been drawn down and new financing
became available, could the Authority leave the $20,000 worth of notes in the
5 Sallie Mae line of credit. Mr Hoffman advised that he was not sure that he
would have to check on that. Ms. Beer advised that it might actually be more
beneficial to move chose loans over into a tax-exempt issue--it is something
to be considered at the time. The difficulty of being able to enter into a ?
Ms. Beer advised that in
tax-exempt financing in the future vas discussed.
addition to the difficulty of cap allocation, the Internal Revenue Service is
expected to come out with proposed regulations in June or July of this year
that will include SAP (Special Allowance Payments) in the calculation of yield
for arbitrage purposes wbieh will make it very difficult if not impossible to
do a tax-exempt transaction.
Me. Bryan noted that no premiums can be paid out of the Sallie Mae
transaction--any premiums paid will have to be paid by the Authority. Mr.
Roffman advised that because of the California situation other parties that
are in the market to provide any kind of credit support for student loans are
requiring very similar reporting requirements and compliance audits to that of
Sallie Mae. The Japanese banks are still very nervous about student loan
transactions. Mr. Hoffman advised that he is working with his bank to
E•. determine whether it could help the Authority when it is in the position to go ,
back to market.
Agenda Item XV - Resolution Regarding Filing Application for Cap
Allocation for Calendar Year 1989. Ms. Beer provided an update,on
allocation reservations. She advised that even though there will be many '.a
issuers in line on October 1, there is always the possibility that some cap
night become available to the Authority. In order for the Authority to be in
line is would require a $500 application fee and the approval of a resolution
to apply for cap allocation. Ms. Beer stated that there is a new Texas
Department of Commerce rule requiring that Bond Counsel render an opinion on t.
the day the Authority files an application and that an opinion has been
prepared.. She added that Bond Counsel is required to render an opinion each
"n month until cap allocation frees up to certify that the information-in the E
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application is atilt true and correct. Discussion.
n~
The Presiding Officer asked about the legal fees required to filE the
application. No. Beer advised the fee would be on an hourly basis 'and that i
minimal time would be needed co file the application and rhea prepare monthly ,
updates.
A motion was made by Dr. Duke and seconded by Mr. Balton co approve the
expenditures necessary to file an application for cap allocation for the
calendar year 1989 and minimal legal fees. Vote unanimous.
At this time the Presiding Officer asked Mr. Bloede to provide a y,
~ Y breakdown of the fees of the entities involved in the 1982A proposal by the
r { next board meeting. Mr. Bloede stated that be would do so.
Agenda Item XVI - Consider and Take Action Relatiaq to the Payment of
Premiums and Transfer lees to MTHEA Participating Lenders. Me. Bryan
` advised that theta are only three leaders that do not qualify for the 12
premium. one is the First Interstate Bari: in Dallas who is entering into the *a
program and who will be building their portfolio to a substantial amount. ut
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l' They plan to sell the Authority over $1 million per year, If WMA does not
pay them the 12 now, they probably will do business with other secondary
mar'aets that will pay the It. Me. Bryan reminded the Board that it was
decided that only, those lenders selling $1 million or more to the Authority'
would receive the IX premium; however, it appears that in order for the
Authority to remain co"titive it will need to pay a It premium across the
board. In addition to the First Interstate Bank in Dallas there are
i~ considerations such as the First State Bank in Denton which sells
approximately $900,000 per year--just under $ 1 million and they do not
qualify for the premium. Ms. Bryan recommended that the Board expand the
payment of It premium to include all lenders.
No. Bryan advised that MBank Fort Worth has received a proposal from
Sallie Mae to pay additional money for their loans. In light of this sho
advised she has been researching what other secondary markets are paying for
loans. The Brazos Authority bases their premiums on borrower indebtedness of
$3,000. Those lenders who sell loans that have a $3,000 average borrower '
indebtedness are paid a premium of 1 1/41. Sallie Mae uses this method also..
She advised that the board might wish to consider basin
g premium, payments co
borrower balances. Those banks selling proprietary loans will not have the r
borrower balances that lenders selling loans from four year schools will have
and would probably receive less premium than in the past and others would
receive more. If a premium of 1 1/41; were paid by the Authority, 25, basis
points would have to be a transfer fee because the Authority is prohibited
from paying more than 1% premium. Discussion ensued and Mr. Brock indicated
he felt more information is needed in regard to the impact of paying'
additional premium.
Mr. Walton moved that Agenda Item XVI be tabled until additional
information can be provided. Dr. Trapani seconded the motion. Vote '
unanimous.
s Agenda Item XVII - Resolution Relating to Amendment of 'the Loan f
Purchase Agreements for the 1f"RA 1987 Bond Issue and Fuji 'Lima of Credit.
Ma. Brown explained that a minor change in the language of the Loan Purchase
se' ~^7 Agreement to provide for the premiuam and loan transfer fees:to'be included'in
s; )z 1 the purchase amount would simplify filling out the Lodo 0urcha84 Asrseieedt '
fora. Ma. Beer advised a change to the Loan Purchase Agreement requires`tba
consent of the Trustee and Fuji Bank and that she has prepared a resolution to
.
a. accomplish this. Ms. Brown advised that Fuji has consented co the change
verbally.
A motion was made by Dr. Reffer and seconded by Dr. Duke to approve the
77 resolution to change the language in the Loan Purchase Agreement as
presented.
Vote unanimous. f,
Agenda Item XVIII - Discussion Relating to Meeting Place. After
discussion regarding expense and convenience, Mr. Walton moved that future
meetings be held in conference centers in the general vicinity of the DTW
airport. Ms. Stallings seconded the motion. Vote unanimous.
Agenda Item XIX - Other Business. The Presiding Officer advised
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x that ratification of the action taken by the Executive Committee on November
28, 1988 should be considered. The actions taken were (1) the minimum cap r
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allocation the Authority would accept for a transaction was changed from $50
f million to $24 million and (2) the Hestpac letter of credit proposal was
accepted subject to ratification by the full Board.
A motion was made by Dr. Keffer and seconded by Mr. Halton to ratify the
actions taken by the Executive Committee on November 28, 1988. 'Voce
unanimous.
A=ends Item XX - Adjourn. There being no further business, the
meeting adjourned at 8:16 .m.
MIHUTSS APPROVED this the 09 9 day of /70P?Ab~ 1989.
- i
=i resident, Board Directors
North Texas Nig r Educetion
'1 ~ - Authority, Ia . - - - ,
ATTESTS
f~ sIL }
As i*taat Secretar3q board of Directors yi
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North Teiaa Highar Educati op
Authority, Inc.
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MINVfE3 OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS
OF THB 11ORTH TEXAS HIGHER EDUCAtYON AUTHORITY, INC.
A Special meeting of the Board of Directors of the Borth Texas Higher
Harsh, 1984
th day of
Education Authoritq, Inc. convened at 5:40 p.m, on the 27
in the City of Grapevine, Texas with the following Directors present:
' Mr, Governor Jackson, President
Mo. Nets Stallings, Vice President
Dr. Bayne Duke, Seccetarq/Treasurer
Mr. James Brock, Director
Mr. Jim D. Scbutts, Director s
Dr. John H. Trapani, Director
Mr. H. Eugene Halton, Director
Mr. Ken Woods, Advisory Director
Mr. Jack Eastwood, Ex-Officio Member
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and the following Directors were absent:
Mr. Michael Grandey, Director
Dr. Lindsay Reffer, Director
Mr. John F. McGrane, tit-Officio Member.
Others in attendance: E
" Ms. Shelby Beer, Fulbright 6 Jaworski
Mr. Vic Bloeds, Hatcher 6 Company
`t Ms. Phyllis Brown, Higher Education Servicing Corporation
Ms. Kathryn Bryan, Higher Education Servicing Corporation
Mr. Carl Ceneres, General Counsel
Mr. Robert Hoffman, Chemical Securities, Inc* r '
T ' Mr. Marion Jacab, Higher Education Servicing Corporation
Mr. Neal Jones, Hatcher 6 Company ,F
+ Ms. Bonnie McCharea, Higher Education Servicing Corporation
Mr. Elbert Morrow, Fulbright 6 Jar~r~ki
Ms. Stacy Nicodenue, MTrust Corp, A.
Mr. David Obergfell, MTrust Corp, N.
Agenda Item I Introductory Remarks. The Presiding officer called
He extended a special
' the meeting, to order and welcomed those present.
welcome to t new Advisory of Woodso and new Ex-Officio
Member represesnting the
Agenda Item II - Approval of Minutes of February 27, 1989• A
motion was made by Dr. Duke and seconded by Dr. Trapani to approve the Minutes
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of February 21, 1989 as presented. Vote unanimous.
! Agenda Item III - Executive Session: A. Legal matters with respect to
fi ! pens or contesplated litigation, settlement offers, and matters where the
duty of a public body's counsel to his client pursuant to the code ofk
= r.
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Professional Responsibility of the State Bar of Texas, clearly conflicts with
Art. 6252-17 V.A.T.S. - under See. 2(a), Art. 6252-17 V.A.T.S. At 6:00 p.m.
the Board convened in Executive Session and reconvened in regular session at
6:20 p.m.
Agenda Item IV - Resolution Relating to Payment of Certain Invoices
in Connection with a Proposed 1988 Bond Issue (Tabled 2/27/29). A motion
was made by Dr. Duke and seconded by Mr. Schultz to approve payment of the
Westpac Banking Corporation invoice in connection with the proposed 1988 Bond
Issue, based upon an agreement among Chemical Securities, Texas Commerce Bank
Houston and the Authority. Vote unanimous.
Ms. Bryan advised that Mr. Robert Patterson of MTrust Corp has ti
requested that the Authority also consider payment of an invoice from the
Trustee's counsel for work performed on the proposed 1988 Bond Issue in the
amount of approximately $2,700. It had been assumed that this fee would be on 7.
At contingency basis; however, it appears this is not the cue. After
discussion regarding the work performed, Mr. Ceneres advised that he had T
reviewed the invoice and that he felt the fee was very reasonable. Mr.
Schultz noted that this was an out-of=pocket expense to MTrust Corp who was
acting as the Authority's agent and*who was not paid because the bond issue
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was cot completed.
Mr. Schultz moved thatpsyment of the invoice from the Trustee's
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counsel be approved. Mr. Walton seconded. The motion passed.
Agenda Item V - Resolution Relating to Proposal of Chemical F~
Securities, Inc. in Connection with tedomption/Defeaaanee of the Series 1982A '
t Bonds (Tabled 2/27/89). Mr. Bloods referred to the revised analysis!
prepared by Mr. Hoffman in response to questions the Board had at the ,last
meeting. He noted that it was basically the sane transaction but computed at
different levels of Treasury Bills. He added that he felt the transaction was
beneficial at the Treasury levels used in the initial analysis and that it }
becomes even more beneficial as interest rates rise.
Mr. Roffman advised that because the general interest rate levels have
risen over the last month, the transaction is continuing to look better and
better. If the tender offer results in the expected value, it will yield not
cash of $2.427 million which is in improvement of approximately $37,000. If
the tender offer is not succes!,Eul, and the Authority approves the defeasaace
plan, it would yield $2.3 million at today's Interest rates, which is a
$50,000 improvement. Mr. Roffman noted that for the tender offer to be
successful, 1002 of the bonds must be tendered.
Mr. Bloede advised that as requested by the Board at the last meeting,
he has prepared a schedule of fees and services provided by the functionaries ,
who are involved in the proposed transaction. Re then distributed the
schedules.
Mrs Bloods then recommended that the Board move ahead with the tender
offera or the defeasaace plan if the tender offer fails. He pointed out that
the Board has had an Interest in doing away with the issue for some time and
to do so now would substantially enhance funds at s time when there are
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demands on those funds.
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Ms. Bryan noted that the original resolution has been divided into two
resolutions and asked Mr. Hoffman to explain. Mr. Hoffman advised that the
resolution was drafted by McCall, Parkhurst 6 Horton and that it was reviewed
by Ms. Deer and Mr. Ceneres. Upon recommendation by Ms. Beer, the resolution
was divided into two resolutions, one approving the tender offer and the other
approving the defeasance plan. Mr. Ceneres advised that he received the
resolutions just prior to the meeting and did not have an opportunity to
review them, but advised that if the business decision Is to approve the
tender offer that it should be approved subject to a definitive agreement
between the Authority and Chemical Securities. He added the tender offer does
appear to be a good business decision because it will provide the Authority
with additional funds. He advised that he did review the resolution provided
in the Agenda packets and that in regard to the portion which would pertain to >t,
a tender offer, the resolution mould be satisfactory up to Section 1. He
recommended that the Board adopt Section I and add the caveat "subject to the
Authority and CSI entering into a definitive tender offer agreement and any
necessary amendments to the Indenture and subject to the further approvals of
the Authority's boad and teneial counsels." j
Mr. Walton asked if there is only a 50-50 chance that the tender will
be received in a favorable manner, should the Authority spend the $12,000.
Mr. Hoffman advised that the economic reason favoring the tender offer is a !i
strong likelihood that 1002 of the tenders received will be at a substantially
lower price than would need to be paid if the bonds are defeated, the
Authority would be risking $12,000 in order to achieve the possible outcome of E
saving over $100,0,00 or ware based upon what it is felt the market's reaction r
to the economic value of the bonds will be.
a Mr. Schulte noted that Me.
Walton's point was well taken In that even if that savings Is
potentially
there, there is a one in ten chance the tender offer will be successful. Mr.
Jacob noted that the bonds are bearer bonds and there it no way to know who
owns them, lie added that there is i record of presenters, but the bonds may
r have traded since that time. Hr. Hoffman advised that there are two coupon
presenters--from trust departments at Bank of New York and Chase Manhattan
Dank. It is not known who they represent or how many individuals may be
involved. He added that he cannot present the tender offer as a certain
thing, but it is a reasonable proposition for a relatively malt amount of
money for a fairly large upside and that it should be attractive to the
bondholders if they evaluate these bonds and the offer. He then discussed the
the procedures involved In the tender offer and advised that even though it is
uncertain that 1002 of the bonds will be tendered, the upside looks good.
Provisions of the Trust Indenture were discussed, Mr. Hoffman noted
that it is a two-step process--if the tender offer is not successful, the
Authority can proceed with the defeasance as provided in the Indenture. It
would free the Indenture--the bonds would be outstanding, but defeased. .
Mr. Brock asked if the $12,000 cost for the tender offer would be
applied to the cost of defeasance if the tender offer failed. Mr. Hoffman
advised that it would.
Mr. Hoffman advised that if the tender offer it not approved and the
Authority elects to go straight Into the defeasance
program, the cost will be
cut by $12,000 because expenses for the tender offer such as publications,
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etc. would not be necessary. Defeasance, of course, is a guarantee and could
be done by June 1, but the opportunity to realize a substantial Bags would
be lost.
Dr. Duke asked about the tineframe if the tender offer i made and
i fails and steps to defease the bonds have to be taken. Mr. Roffern advised
that publication of the tender notice would be made Apri 5th and
approximately three weeks would be allowed for response. The deadline to
receive responses is May L. At that time determinations will be made: (1)
were all tenders received and (2) if all bonds were received, is the asgregste
price significantly less than what it would cost to defease the bonds. If the
` answer to both questions is yes, the tenders would be accepted i1d the
f transaction executed on June 1. If the answers to both those quests-aa are
not in the affirmative, the tenders will be returned to the bondholder . On
June L, the bonds would be defessed to December 1, 1997. Mr. Roffman a vised
that if the Authority is going to proceed with the tender offer, preparation 4`+
will have to begin next week tr be able to meet the June L date. Re awted
the Resolution and Bond Indenture will need to be amended to aLlov immediate J
redemption oa June 1. Discussion ensued and it was noted that the 1982A bad
issue is very costly. '
Mr. Ceneres advised that if the Authority decides to proceed with c2m
tender offer on Bond Series 1982A, the resolution to do to should be codified
to add "subject to the Authority and CSI entering into a definitive tender
offer agreement and any necessary Amendments to the Indenture approved by the ;.j
Authority's general and bond counsels" to Section 1 and delete the remaining
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sections.
A motion was made by Mr. Schultz and seconded by Dr. Trapani to approve
the resolution to proceed with the tender offer oa Bond Series 1982A, amending
Section 1 to add the lang'nage "subject to the Authority and Chemical
Securities, lace entering into a definitive tender offer agreement and any
necessary Amendments to the indenture approved by the Authority's general and
bond couasals" and deleting the remaining sections. Vote unanimous.
;
Discussion ensued regarding the resolution to defease the 1982A bond
issues should the tender offer fail. Mr. Jones pointed out that if the tender SL ,
offer fails and interest rates change unfavorably, the Authority is not bound
to defessing the bonds and incurring undue expense. Thera is a short period
of time before steps toward defeaeance have to be made to decide whether it
would be economical to do so.
Mr. Roffman noted that a decision by the Board in regard to defeaeance
should the tender offer fail would have to be made by approximately May L in
order to alloy time for him to take the actions necessary by June 1. Ms. Beer
advised that the Board will need to meet again soon either way because
documents will have to be approved if the tender offer is successful.
Dr. Duke asked what it would cost if the tender offer failed and the
Authority did not proceed with the defeasance. Mr. Hoffman advised that at ?1'
that point expenses would be at $69,800, but that it actually should be a
two-step transaction beca.+se it is reasonable and to the Authority's advantage
to proceed with defeasance. Mr. Roffman advised that he would need the^
~ Board's sense as to his authority to plan for defeasance if the tender offer
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fails and it is economically reasonable to #
ocean with defeasance because he
will have to take Steps immediately to meet the June I dace, Dr. Duke
asked
for if the tender offer does succeed would there planning the defeasance. ' any additional fees incurred
Mr. iiofEman Advised there would be #
do extra fee,
The effect of interest rates on the defeasance was discussed, Mr,
Schulte suggested that the board place a limit on how su rates
fluctuate in regard to planning the de Ch interest
feasance.
Prudent movement of 200 basis Mr, lhffman advised thataa
If at the time decisions have°cot~in either direction would be reasonable,
above or below today's rate (tone 's 91ade$ interest rates are 200 basis poi
DA T-1 rate I nts would mesa 7,40 below or above 11.40)Y
thelnumbers will be ravisit,idpproximately 9,40
Mr, Schultz moved that provided the tender offer is unsuccessful tad
provided that £aterest rates have not gone up or down b
points that the Board of Directors of the Authority he more than 200 basis
President and Secretary of the Board of the Authority arerhereby authorised the
execute, all ■greements y PProves, and thhe
certificates and other documents dewed
upon the advice and consent necessary counsel, of the Authority's general counsel and bond
redemption c on to d Jefunee1ase all 1982A Bonds to, and
Indenture or call all 1982A Bonds for
, • Provided, however
any , 1492, supplemental Indenture, and any any amendment to the
redeem day 1982A Bonds prior to asIndet y resolution to optionally
mad Secretary of'the Board of Directe'reay n t b1l executed
such amendment to the Indenture su of the Authori
ty uattletbe fo:meof
i Indenture supplemental re or mental indenture or resolution to the
indenture or resolution calling resolution
i redemption has been approved by the Board of Directors of the Authority, pry
Bonds for
Duke seconded the motion, Vote unanimous,
Agenda Item V1 - Resolution relating to f
and delivery of a Promissory Kota evidencing the authorization
k
ti and de is , l t Loan
g Association in an a Advances made by Student
purchase student or parent loan notesata amount not to exceed X100,000+800 to
Act of 1963 as guaranteed under the Higher Education
+ amended, fixing the details Sad providing
payment of such Notes authorising the execution of the Trusts renrity Sad w at-to
secure the rights of Student Loan Marketing Association, Higher Education
T 1 the hOrltYs and '
` the execution of additional documents andecertificationsk in connection with
f the participation of the 6 provision for
Authority In the Student Loan program and the
lssusdce of duck Note$ entering Into the covenants as prescribed b
resolution, the yinancing Agreement and the ?rust
this
provisions incident and related to the subject mjt~c~ regard to the
proposed Sallie Mae transactions Mr. Elbr t Morrow recommended that the
+ proceed with the transaction for two reasons:
p.m,
Genera! s office d aisinCOPy of a three-page letter from(lt) -43 het Ito
questions were business g questions about the traaetccion. Attorney
address those, points proposed b S Most of the
Mr, Generes and Fulbright ;1Jawo ksi will need will have to
some questions as wall. A transmittal letter and copies of the
to respond r
Certeral'I letter have been seat to Carl Generes add Ror Ka an
Sallie Mae, Attorney
Because it is not known ho Sell e y 6 ,Attorney for '
Attorney General's questions regrd£ngwtheiribusf4e till address some of the
the Authority should not proceed until the Attorney bust Points* Mr. Morrow
the transaction. One of the business feels
Genera! is satisfied with
points In question is that the
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f..+„ In case something
restricted tehl0 lookEtoathe Trust Esta~neral
eanlfieation would be Morrow advf.ea6
ind {
ccu,rrCds Sallie Mae would have cease. e the right i~•
he the Attor how
that is where theiorm ofmSallieaMas~ns vnoteouldband chathngaled-
has asked that theh . advised that ae already been difficult
that. Sallie Mae re ared a response
will react to this Mr. 'Morrow the matter was plap not cussed asking
ral's office this after n`resd andathe•At Seer
been Genernoal response
Attorney Gene ioae. There has
and telecopied it to Sallie re olve the quest
the response would help r, Morrow stated that Sallie
the Attorney General or Sallie M°E' M
yet needed to vOtIr, Salle
if e
frsre
from been called becous°Cr[oaryt esjon for entering
s mmitseat to
sa has sot discussed; (2) The b April L a forward eo
However,
' problem to b° was to be able to provide by
so quickly
Kee financing purchase $55 million worth otasb d loans.
completed
MBank Fort Worth to P spnk Fort wort s parent company,
i sot be the need for the traaaae atio are that hone third of MC or P's
there rs7 did
Indications ,ised that he
because of eveLts that
tercl[rtoday day• . . Morrow r,.
t MCorp filed for Chap o+Pital Mr bu- if it were sot
them, it would
Worth is solvent or insolvent,
z5 banks have exhausted their equity urchased student loans frog
olvent on not %3bjeet to the
eat know if MBank therAuthority Pure-
to insolvency
s the daY He noted that banks are
baakrupicy are subject to 'texas law t relating advised that is
be s fraudulent but they are type of defiaitioa• an7 uthority
code, but they action the A
t i
which happea+ to have the ae+ee osition to represent the
nd to M h rth's Einlaoebe tin a or
P Southwest for aaa7
Beak Fort Wo
- egae would k of the that he
r
might have against It'
his firm represented the Bas his part. HO adviive to theMr. i
Authority because
year, he will g fee! the
would be a conflict Chisa sicuat on which
s and it regardin
did gather the statutes wised that for the reasons stated he pesindicated it
ation is, but
Gonereso Mr, the Morrow ad Financing at this tire.
should go forward with the s to
Authority sot two or determine what the Situ
vent to complete the tr ansaction, the
Mill take at le thrrob probably
h the Authority Mill P sorrow advised that there is yould aot law
even thong er abate- Mr• be that the Authority known at
to aolong cd
urgency i e. It may this is aotthat-is +
uptcy judges but with the YDIC-01 a company
that tracks Che bankruptcy c is a subsidiary
dealing with a bankr gust CorP, orstions removed frog Corp normal
y resent. NTiMA's Trustee, so it is two eorp '
r wholl7-Owned subsidiary of MCorp.
asolvent. Mr. Morrow °porth to selltthe Authors 7aS55a°illf o t it not E and is not i for MBank Yoct lie added;
' I urse of b:siaese urchases $2-7 sill' worth of 1 closelynthl7
co looked at very is reasonably
The Authority normally p would probably be
then, so the traaeaetion time to determine if the Authority
that Mr. Gecee es will need
safe to P es of
addressed the fact that the Mbaveltea~other type are , for MBank
Mr. Obargfall ortfolios as COf
el student loan p
h the umouat being
sliag their
regularly basis and that this i6hoT ylevenpthoug bhe a have been
loans on as ongoing an* t rata. The MBaa to bet
Fort Worth to salt student theicnor<s+1 rontiQ7oae torn or °a osicsob7 being
discussed is larger trying to secure them prevent a run ea dep
packaging their assets' bank to p been var7 1
back into the osits and have {tors to
cash and secuaicollateral behind the public dep There is
'
able to Pledg doing that. He pointed out that it took tolitical put 1
he stele it is P
successful at
into baakruptey• Be added that
MCorp {
.c
b
J
1-
T.,r....
I
legislation 3}';
corporation, make 1them omove ealllththe eir acapital btoktheiinsolveb nkho ding
banks
render all the banks insolvent which was what ha
and
ppeaed to First Republic. '
Ms. Bryan advised that there is another problem In that the
Authority has an outstanding commitment at p to Mnk Port million. They had requested $60 million,ebuttthe Authority could only make
the commitment for $55 million and It is under the Fuji Line. Mr. Morrow
advised that she will need co contact MBank Fort north and make them aware of
the Attorney General's letter end the date it was received and indicate to
them that the Authority is working on resolving the problems, and there will
be a delay of a few days.
Mr. Morrow advised that the reason the Attorney General is scrutinising
the Authority's financing with Sallie Mae is because it is the first taxable
line that has gone through the Attorney General's office; they have been
approving bond transactions and this is a note. Statute (717[8) was effective
in September, 1487; ■nd since that time Fulbright 6 Jaworskl has taken the
position that a taxable financing note is a bond as described under that `i
statute, and therefore has to be approved by the Attorney General and is not
t 1 under the old Education Code. He advised that bond counsel will follow-up k
t~
4 E3 `with the Attorney General's office tomorrow and will then discuss the utter,
with Sallie Mae. ;Jr. Jacob noted that most of the questions favor the
Authority. Mr. Morrow agreed that they were virtually all in the Authority's
favor.
-nre indiat also out }
Mr. Go. eadin the-Sal
Mae trantsetioneinslightcofetheirecentedevelopm a
ts, pespecially within regard lto
4 i
the MBank Port Worth situation, He noted that the Authority would have "to be
comfortable that if MBank Fort North is is bactkruptcy, ,a
z # not be rescindable. He noted that Me. Bryan Is concerned , the traout to rious , I
'c commitment to MBank Fort North and has received on extension Ehcough Fridays`
F However, the situation has changed as of today and the situation has to be s'
ti
r
reviewed in light of that. At this point no one can readier an opinion. y,
Ms. Brown advised that a regular acquisition is scheduled for Wednesday
j to purchase $900,000 from MBank Fort North and that the documents are at'the
Trustee ands Line of Credit note has been f
prepared
borrower $600,000 (the difference in the amount In for rigG Surs today d
end t the F
he amount aeedeJ to Fuji LO Sur Ins
,tc purchase $900,000 student loses). p Pna
The consensus of the Board was that B,E,S.C, should not proceed with
soy transactions with MBank Fort north until comfort has been
received regarding the ramifications of the filing of bankruptcy of the parent
I 4f
corporation.
- till
A motion was made by Mr. Walton and seconded by Mr. Brock to table
Agenda Items VI and YII until counsel can reader an opinion advising the
Authority to eater into a transaction. j
ti
` Mr. Generes advised that the Board should understanct the ramifications ;
of advising MBank Fort Worth tomorrow that the Authority cannot give them the 1
$55 million commitment without a legal opinion. MBank Fort Worth might sell
to some other secondary market. The consensus was that the risk was too great
to proceed without comfort.
%
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Vote unanimous, j
At this time Ms. Beer and Mr. Morrow left the tweeting.
Aganda Item VIII - Consider and Take Action Relating to the Payment
of Premiums and Transfer Fees to MTBEA Participating Lenders (Tabled
2/27/89). The Presiding Officer advised that at the last meeting Me. Bryan
was asked to prepare a plan and documentation in regard to paying premiums on
a sliding scale, which she has done. Ms. Bryan then distributed a proposed
schedule for payment of premiums and transfer fees. She advised that the
first page is a proposal of a way to structure the premiums. She noted that
some other authorities and Sallie Mae base their premium on an average
borrower indebtedness. It makes economic sense to do that because the hither
the balance of the loan purchased, tho lower the cost for servicing. This
i provides as Incentive to pay a higher premium for a higher balance loan. Ms.
Bryan advised that tH proposed structure is fairly competitive with Sallie
Mae and other secondary markets. Y;
Me. Bryan then reviewed in detail the proposal. The pr:MOsal is based
on average borrower indebtedness and has three categories, Category I
f ° enrolled loans with at least six *oaths remaining to enrolled status, Category `
I { II - enrolled loans with less than six months remaining, grace and repayment
loans, and Category III - PLUS and SLS loans. She explained the structure of
each category and loan status--enrolled, grace and repayneat -and the loan -rT
' transfer fee and premium to be paid for each. She pointed out the value of , 41 purchasing enrolled loans. There are lower servicing
costs for enrolled loans
and there is a two-year period whereby the Authority has the opportunity to
S recover its cost. no. Bryan pointed out that paying a higher premium for
those loans encourages lenders to sell loans that are in enrolled status and
that in general the schedule will provide incentive for lenders to improve the
quality of the portfolios they sell.
Ms. Bryan pointed out that the schedule reflects a consistent transfer j
t fee of $10. She explained that federal regule lone provide that transfer fees t=
are to be reasonable and cannot exceed the actual cost of traasferrina the'
'
t notes. She advised that eves though some secondary markets have very
idg imam,
she does not feel that it costs more to transfer a loan for $3,000 than it,
does for one that is $10000.
Ms. Bryan also explained that First Wachovis has a servicing software
package that the Authority is offering to leaders for only the cost of as
annual maiatenenca fee, $750 for single user system and $19500 for iwulti-user
systems. Many small leaders feel they cannot afford this, so the Authority to
offering to pay their annual ■aintemance fee if they will commit to sell the
Authority enough loans for the maintenance fee to represent 45 basis points or
less which will make It worthwhile to the Authority and assure that excess
compeasation will not be paid to lenders.
The Presiding officer asked when the schedule would beeoms effective.
Ms. Bryan advised that May 1 would be a good date because she would like to
3
have time to notify all the leaders before the cbaage goes into effect and
answer any questions they may have. She pointed out that this premium and
i; transfer fee policy can always be changed if it does not work out
satisfactorily.
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A motion was made by Dr. Duke and seconded by Mr. Brock to adopt the
the Premium and Transfer Fee Schedule Based on Average Borrower Indebtedness.
The vote was five "fors" none "against," with Ms. Stallings and Mr. Walton
abstaining. The notion passed.
Agenda Item IX - Other Business. For everyone's convenience, Mr.
{ Brock suggested that the meeting date and place be set for the upcoming
meeting. The next meeting was tentatively set for May 2, Tuesday, at 5:30
p.m. at the Hilton Conference Center, Grapevine, Texas.
A notion was made by Hr. Walton and second-ad by Mr. Brock that the `
General Counsel review the Authority's legal authority to purchase loans from
MCorp and/or its subsidiaries and what the ramifications are of those
purchases. Discussion ensued in regard to the upcoming scheduled acquisition Y`
sad forward commitments, and Mr. Walton noted that counsel should require
enough documentation on that sale to satisfy that the Authority is in .fact
, J
purcbasing valid notes that are not subject to contest.
Me. Brown noted that the Fuji bank will probably, also want am opinion
of couasel regarding the upcoming acquisition. Hr, Brock advised 'that they
~<< should be contacted tomorrow regarding the situation and Ms Brown'stated she ,.G
would do to. She added that there is also a scheduled acquisition from the
Mid-Cities MBank'soon. It was noted that any purchase from any MBank 'should
j
be on hold until a legal opinion is received, a;
Vote unanimous.
r .i . h'r
Agenda Iten' Z - Adjourn. There being no further business, Dr. f~
Duke moved and Mrs Brock seconded that the meeting adjourn. The seating."
t~= adjourned at 8:3D p.m.
r a. MINUTES APPROVED this the ✓ day of
f
1989,
r ~y
r F
V M'4'
ksc•`. President , hoard o D rectors
North Texi Highs Education v
Authority, Inc
ATTEST:
As istant 'Sec retar board of D r~ectori
North Texas Higher Education
Authority, Inc.
9
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4
FF /
MINUTES OF A SPECIAL MEETING
OF THE DOARD OF DIRECTORS r
Or THE NORTH TEXAS HIGHER EDUCATION AUTHORITY, INC.
t , 3
i
A Special meeting of the Board of Directors of the North Texas Higher
Education Authority, Inc. convened at 5:35 p.m. on the 2nd day of may, 1989 in
' the City of Grapevine, Texas with the following Directors present:
Mr. Governor Jackson, President
Ms. Nets Stallings, Vice President
Dr. Wayne Duke, Secretary/Treasurer
t Mr. Jim D. Schultz, Director
Mr. H. Eugene Walton, Director
Mr. Ken Woods, Advisory Director
and the following Directors were absentt,
Mr. James Brock, Director
Mr. Michael Crandey, Director
Dr. Lindsay Keffer, Director
Dr. John Mo r. Ja k Eastwobd,iErOfficio Member
2 M
Mr. John F. McCrane, Ex-Officio Member fgi,
i i
others in attendance:
i Me. Shelby Beer, Fulbright A Jaworski Y
Mr. Vie Bloede, Hatcher A Company
t Me. Phyllis Brown, Higher Education Servicing Corporation
' Ms. Kathryn Bryan, Higher Education Servicing Corporation
ua Mr. Carl Coneres, Ceneral Counsel
Mr. Robert Hoffman, Chemical Securities, Inc.
t e
al Jones, Hatcher A Company.
Mr. Meal Jones, Hatcher & Company,
Me. Bonnie McCharen, Higher Education servicing Corporation.
Mr. Robert. Patterson, XTrust Corp,,M.A. '4.
!!r. John Supley, MTrust Corp, K.A.
Agenda Item I - Introductory Remarks. The Presiding officer called
the meeting to order and welcomed those present.
Agenda Item II - Approval of Minutes of March 27, 1959. A motion
was made by Mr. Schultz and seconded by Mr. Walton to approve the Minutes of
March 271 1989 as presented. Vote unanimous.
Agenda Item III - Discuss and Take Action Upon Items Relating to
Defaasance of tha 1982A Bond Issue. Mr. Hoffman reported that the tender r~
T'. offer failed. He advised that he was able to determine through the custodial Si
r' agent that there were four bondholders and that the tender offer was made
j,.
directly to the bondholders without having to publish notice. However, no ,
tenders were received from the four bondholders and Mr. Hoffman explained why.
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Mal
I
The bonds are held largely by unit investment trusts--vehicles whereby the
loans of several issuers are put together under a separate indenture and then
units of that indenture are distributed to individual investors. Those
indentures have language providing that assets cannot be changed unless it is
clearly in the best interest of the unit holders. Mr. Hoffman explained that
it is very difficult for a sponsor to determine vhether a transaction is is
fact in the beat interest of unit holders and they feel they might be inviting
potential liability if they were to act on a tender offer. For this reason
they tend to avoid tender offers. Mr. Hoffman added that the good news is
that the Authority did not have the expense of publishing the tender offer
which would have been approximately $6,000.
Mr. Hoffman noted that at the last meeting the Board had agreed to go
forward with defeasance of the 1982A Bond Issue if the tender offer failed,
provided interest rates did not move more than 200 basis points in either
direction from the 91 day T-Bill rate as of that date which was 9.43%, and if
tatereat rates did move 200 buss points, the Board would reconsider
~
proceeding with defeasance. Mr. Hoffman, report ' r',at the 91 day T-Bill rate
has not moved more than 200 basis points and uu rate was 8.93% at the close
yesterday which is within the range to proceed with defeasance. Fie advised
that a defeasance analysis was prepared based on the SLG rates that were
published by the Bureau of Public Debt yesterday. The !larch 27 analyais
reflected a net to the Authority of a tittle over $2.3 million and the recent
analysis reflects just under $2.3 million because interest rates have dropped
some since March 27. At the present SLG rates, the net available assets of
the Trust Estate on June 1 are estimated to be $2,297,000. Mr. Hoffman
explained that the defe a aace analysis has been sent to Peat Marwick Main. i
Peat Barwick Main will provide a letter stating they are prepared to confirm
that the purchase of these SLGs will in fact defense the 1982A Bonds. When
: - that confirmation is received, application for the SLGs can be made. Mr.
Hoffman advised that if everything goes as planned, the application will be
made within the next week to ten days--no later than a week from Friday. Mr.
Hof fun advised there is some work to be done in terms of the Escrow Agreement
between MTrust Corp and the Authority, and Bond Counsel will need to render a
'r defeasance opinion. He noted that everything must be in place by June 1,
Mr. Walton moved that the Authority proceed with the defeasance of the
1982A Bond Issue. Mr. Schultz seconded. Vote unanimow
The Presiding Officer advised that Agenda Items IV and V which wre
tabled at the March 27, 1989 meeting should be considered simultaneously, A
motion was mode by Dr. Duke and seconded by Mrs Schultz to bring Agenda Items
IV and V off the Table. Vote unanimous.
l Agenda Item IV - Resolution relating to the anth,)risation, issuance
and delivery of a Promissory Note evidencing Advances ma-'s by Student Loan
Marketing Association in an aggregate amouat not to e:ce•d $1000000,000 to
purchase student or parent loan notes guaranteed under the Higher Education
Act of 19651 as amead•d; fixing the details and providing for the security and
payment of such Note; authorising the execution of the Trust Agre neat to i
secure the rights of Student Loan Marketing Association, Higher Education j
Servicing Corporation, the Authority, and the Trustee; making provision for
the execution of additional documents and certifications in connection with
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the participation of the Authority in the Student Loan Program and the
issuance of such Note; entering into the covenants as prescribed by this
j resolution, the Financing Agreement and the Trust Agre sent, and making other
provisions incident and related to the subject matter (Te.bled 3127/89); and,
Agenda Item V - Resolution Relating to Adoption of a Servicing
Agreement Among Nigher Education Servicing Corporation, North Texas Higher
Education Authority, Inc. and MTrust Corp, N.A. as Trustee (Tabled 3127/89).
Ms. Bryan reminded the Board that these items were tabled at the last
meeting because the Attorney General had asked several questions regarding the
Sallie Mae transaction and because the bond counsel, Mr. Elbert Morrow bad
advised that execution of the financing documents should be postponed due to
the bankruptcy filed by MCorp on that date. Since that date the bankruptcy
situation has been resolved. The FDIC has taken over 20 of the MBanks,
including MBank Fort Worth, which was the main concern of the Authority.
MBank Fort Worth is now Deposit Insurance Bridge Bank, N.A. and is an eligible
lender.
' The Presiding Officer noted that the Authority had requested that thr.
General Counsel provide assurance in regard to conducting business with MBank i
l omit Insurance Bridge Bank. N.A. Mr. Genera advised that
I
Fort Worth, now Dep
~
pursuant to the board's direction, calls were initiated not only to the
M-~
Department of Education but also to the Texas Guaranteed Student Loan
=7 ! Corporation (TGSLC). Mr. Ceneres noted that at the time of the last board
meeting the FDIC had not formally taken over MBank Fort Worth and that
insolvency was still very much the issue. Both the Department oUEducation ij
and TGSLC have orally assured that the Bridge Bank is in fact an eligible
lender and that tht loans that would be sold to the Authority and are being
sold to the Authority ■re eligible loans as defined in the Act. Mr. Geneva*
advised that there is still one unresolved question and that is in regard to '
recoursing any of the loans if or when Bridge Bank is sold to another entity.
The Authority's position of course would be that the Loan Purchase Agreement;
I provides for recourse to any successor. Ha added that only one loan in the
tee year history of the Authority has been recoursed, so the risk is small. r
He explained, however, that the situation is new in terms of what happens to a
K national bank when the FDIC takes over and then sells the assets. Mr. Generes
r
stated that he is satisfied that the loans the Authority is purchasing from Bridge Bank are eligible loans as defined in the Authority's
various trust
indentures. He advised that No. Beer has suggested (and be agrees) that if '
the Authority approves the $50 million purchase from Bridge Bank that an
opinion of counsel be obtained from their lawyer verifying that the Loan
Purchase Agreement is an enforceable document validly authorised and executed.
Ns. Bryan asked Me. Beer to address the changes to the Sallie Mae
transaction requested by the Attorney General. Ms. Beer advised that
basically everything that the Attorney General requested was quite favorable
to the Authority and that after quite a bit of discussion Sallie Moe agreed to
most all of the changes. One specific change which is very such to the
advantage of the Authority is that the right to receive payment is limited to
the Trust Estate. Ms. Beer advised that provisions have been made for all the
registrations and the note is drafted and ready for execution. The documents
were received Monday from Sallie Mau; and if the transaction In approved and
t
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t
E Fn
rd, they will be t forwarded to Sallie Mae for execution and i
executed by the Boo
return to the Authority for closing y
Ms. Hear advised that provision for a reduction in the mount of the
line of credit was requested from Sallie Mae in light of the current student
loan situation all over the State and the possibility that commitments could
possibly fall off significantly at some point. Sallie Mae has agreed to
reduce the line to $50 million after the first year should to Author ity
request it. Ms. Bryan advised that the Authority is paying the ongong
commitment fee based on the amount available to it, and this gives the
Authority some flexibility.
Discussion seamed regarding the fact that the main reason for entering
into the taxable financing was to be able to provide for the $50 million
commitment requested by Bridge Bank. It was noted that the Bridge Beak might
possibly decide to sell the entire portfolio to the highest bidder which
perhaps might be Sallie Mae. Ms. Bryan explained that the Authority and
Bridge Bank have always had a good relationship and that from discussions with
Bridge Bank's financial people, they feel Bridge Bank has a commitment to the
Authority. The only exception i+ould probably be if thecfi~; Authority could
the
Mr. Schultz noted that
even cows close to a higher bid from Sallie Mae.
r local financial people are the same, but the people that would sake the
ultimate decision are not the same. Mr. Rupley explained that each Bridge
Bank location has an individual who was previously with MBank who has now been
given FDIC authority to act on behalf of the Bridge Dank.
Bryan had called his and expressed bar contern as to whether Brides Bank would 7
honor its commitments to the Authority. He than talked to Mr. Mike Detrich
who we$ CEO at MBank Fort Worth and is now CEO at Bridge Bank. Mr. Detrieh
was unaware of the commitments but consulted Mr. Randy Freeman of the Bridge
Bank and learned of the situation. Mr. Ostrich has indicated that, whether
l verbal or otherwise agreed upon, if the bid for the portfolio were reasonable
(it would not have to exceed the highest bid) it would be taken into account
that an agreement was in place and that Bridge Bank would honor that agreement
to the best of its ability. Me. Bryan advised that Bridge Bank lass indicated .v,
it does not want to sell the loans to Sallie Mae--they have always made
i represents tione to all the schools and borrowers that they sell Asir-loads to
y only one secondary market, NTHEA, and that athe oans i lsetayin thundred r matter of + She indicated she felt it would have
to be
thousand dollars before Bridge Bank would consider selling to Sallie Maa.
Mr. Schultz expressed concern that Sallie Mae is not only completing a V,
f transaction with the Authority to provide funds to purchase loans, b"ut is also '
Ms. Bryan advised that the
competitively bidding on the bridge Bank o`os unaware of the activitiaa
Public Finance Department of Sallie Mae appear .
Of the student loan secondary market and there is evidently no comsuoicatlon
nor negotiations between the two. Mr. Schultz suggested that perhaps the
Authority should seek a written agreement from Bridge Bank to allow the
Ms. Bryan advised that
Authority the opportunity to match the highest bidder.
the planned approach was to offer a bid and ask for the right of first refusal.
She added that she felt Bridge Bank would honor its verbal agreement in light y'
of the good working relationship it has always had with the Authority. The {
Authority has always honored the Bank's requests for forward commitments. Mr.
Hoffman pointed out that for the Authority to be able to make a boas fide '
offer, there must be financing in place. The need for funds to continue
~.e+.~. purchasing loans in addition to the Bridge Bank portfolio was discussed.
Timing in regard to finalizing the Sallie Mae financing was discussed.
It was noted that Sallie Hie is expecting approval and receipt of executed
in light of negotiations and agreements i
documents as a result of this meeting
up to this point. Hs. Bryan pointed ouh had asked Sallie iMaer be originally to
been anxious to close the financing and able to
V
finCl the ttequestcby gBridgerBank (MBankaFort rWorthe th attthetime) toprovide a
y April 1. The financing did not of course
mee commitment b
$5 ward if the Authority
p million Eor an noted that
„
progress as quickly as planned. Mr. Noffm
there could be a risk of the
delays finer approval of the financing, transaction changing unfavorably or r perhaps ore~discuss haasale l of its
Bryan advised that Bridge Bank is meeting a loans portfolio ar.d they might dc:ids to hold td
certain. ifEicultfforbtheo Au90 dayS4 thority l to keep
She added that it would be very
the transaction pending for that length of time.
.ri
Ms. Beer advised that as : general principle, the Authority could not
offer a good faith bid without having the funds with which to purchase. She
added the only war it mhe hbid andcmakeathatwbiddcontiaganteupoaehaving
regarding the amount of t
` financing is place. L;l
Duke sad seconded by Mr. Schultz to approve
Sallie Mae and the associated
A lotion was made by Dr' Agreement with
the Financing Agreement'and Trust "for," node "against," rith lSs.
Cenares advised that
Servicing Agreement. The vote was three
:f Stallings and Mr. Walton abstaining. At this point Mr.
`i
a
there night be nt uvasivoalid aItlegal
was agreedtthatdtheexecutedldocuments e,
determine if the o
t. escrowed to Ks. Beer for release tomorrow after the legal question is
would be
3 - Mr. Geaeres advised that be would review the State law governing
S resolved. this situation and ■ake the determination by tomorrow.
Amanda Item V1 - Discuss and Take Action Relating to Pnrehase.oi
eposit insurance Bridge Bank, N.A.. Mr. Schultz moved that the
Loans From D
Authority take acdo the purchase of tones from Deposit Insurance
e
a to
a relative of premium god
s was discussion
a premium which
s :
} Bridge Bank, N.A. iher
advised; t ate2~1%4Xt
transfer foes paid in the put. Ms.
included a transfer fee was paid to First RepublicBank for $8 million worth of ;r
She aad.that
it sad that the Bridge Bank Is aware of that. r,
the six of
student loans
` i Bridge Bank feels its portfolio is equally as valuable; howrse,.
tbq portfolio is different and the Authority cannot justify payid6 ? 114X. ,
Plus transfer fame up
fh~ cash Eloxs prepared by ltr. y 2%. moffman support premiums to 1.75,1 above par and possibly 2X. The length of time It would take to
recover costs was discussed. Me. Bryan indicated that the Authority could
probably recover up to 22, but not 2 1/42.
Mr. Sloede referred to the premium schedule and advised that if the
.bats had bean purchased under the normal course of business, aid 1% pr premium and
premium'
$10 transfer fee (approxinately 1.38x} would have been p
fee of 1.75% is paid, it will coat an incremental $138,000
plus transfer
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out-of-pocket expense. Payment of 2% would be an extra $126,000 totaling
j $309,000 and 2 114% would be another $126,000 or $435,000 out-of-pocket
expense. He pointed out that these loans represent 40-50% of the loans the
Authority had expected to purchase over the next two years. Ms. Bryan advised
that acquiring a large amount of enrolled loans at one time would make the
transaction more valuable, but that she cannot be certain how such more
valuable to the Authority because the cost of money is higher under the
taxable financing. Ms. Stallings noted that the relationship with Bridge Bank
will no Longer be the same as it was. Has Bryan agreed, but pointed out that
the schools and borrowers still plan on the Authority purchasing their loans
rather than Sallie Mae and that bridge Sank would like for that to be the case
also. Ms. Bryan pointed out that the Authority can provide support to the
bank--copying documents, packaging loans, etc.--which Sallie Mae does not
provide.
Mr. Hoffman advised there is a 50-50 chance that tax-exempt financing
will be available to refinance the loans at some point in the future. He
discussed this possibility and also the use of recycled funds from the 1987
Bond Issue to refinance the loans which would make paying up to 2% and perhaps. !
even 2 1/42 ecoaooi.aLly feasible. 'Mr. Schults asked how Mr. Hoffman
determined tax-exempt funds might be available in the future. Mr. Hoffman
x advised that the 1987 Bond Issue will, over time, generate $8-$10 trillion a
year, so right away the portfolio over the first five years of its life could
be roiled into tax-exempt financing, vhich means that for more than ode-half 'i
' of the life of the loans, the loans would be financed on a tax-exempt basis. s I
New tax exempt financing is uncertain, but one significant thing has happened
with respect to the new regulations regarding inclusion of Special Allowance
Payments (SAP) in the arbitrage calculations. The Treasury Department has
received a letter from 11 members of the Senate Finance Committee (which
represents a majority) signed by all stating that the intent of their
instructions to the Treasury to write these regulations was not to to so in t.
rl'o y
order to prevent viable tax-exempt financing for student loan, revenue bonds.
After further discussion, Mr. Schults amended his original motion to
take action relative to the purchase of loans from Deposit Insurance Bridge
Dank N.A. to include capping the amount of the premium plus transfer fee to
be offered at 22 and providing that if competitive bids exceed 22,
recalculations will be made and presented to the board for consideratioa. Dr.
Duke seconded the motion. Vote unanimous.
Aganda Item VII - Discuss and Take Action Regarding Submitted invoice
` for Costs Related to Permissible Activities for One or More of the Purposes'.
Specified in Section 1 of the Authority's PLan of Doing Business and in
Accordance with Section 4911(d)(2) of the internal Revenue Code of 1986, As
Amended. He. Bryan referred to the report in the last Progress Report
regarding the various meetings in Austin among the higher education
authorities' representatives and Mr. John D. Reffaelli, whom COSTEP has
retained to represent the South Texas Authority in Washington, D.C. for the
last couple of years to track legislation beneficial or detrimental to the
authorities. It was discussed at the Last Austin meeting that Mr. Raffselli's
! fee would be $80,000 for the coming year and that it would be feasible for the
authorities to share that cost with COSTSP because all of the authorities will
stand to benefit. The representatives agreed to take the suggestion to their
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Boards for consideration. Mr. Raffaelli has provided an invoice (a copy was
included in the agenda packets) for consideration. There are eight
authorities and the amount to be paid by each would be $10,000. Ms. Bryan
advised that COSTEP has retained Hr. Raffaelli for the last five years and
have alone paid for his services. The major purpose for his services is to
educate the legislators as to what kind of costs the authorities have in
servicing loans so that they understand it is not like mortgage and other
types of loans and how certain legislation affects the authorities. Dr. Duke
asked if Mr. Raffaelli will provide reports. Me. Bryan advised that Mr.
Raffaelli has not only agreed to provide written reports, but has offered to
meet with the Board periunally.
{ Hr. Walton moved that payment of the invoice from Mr. Raffaelli in the
amount of $10,000 for servicea in regard to representation in Washington, D.C.
3 be approved. Mr. Schultz seconded.
;i
Mr. Generes suggested that approval be in the fore of a definitive
contract between Mr. Raffselli's firm and the Authority outlining the services
to be provided. He also stated that there is prohibition against a 501(c)(3)
j organization lobbying for legislation. The Presiding officer noted that the
Authority will only be receiving information and not giving Mr. Raffaelli a
charge to do a specific thing.
Upon advice of General Counsel, the notion was amended, to approve
engaging Mr. Raffaalli's firm subject to a definitive contract between the r'1
first and the Authority and asks payment of $10,G00. Vote unanimous. ti
Agenda Item VIII - Other Business. Ms. Bryan advised that Wachovia
is being sued by one of the Authority's borrowers and the Authority will have
{ to defend the suit. She explained that the borrower claiae that Wichovia
} mistreated bar and did not give her a deferment to which she 'was entitled.
` lie. Bryan advised that from everything she has learned about the situation,
r the borrower was not entitled to the deferment. It was a temporary disability
deferment to which a person is not entitled unless he/she is usable to attend
school or work. The borrower was attending school on a lose than kale-time':
basis, so she did not qualify for an in-school deferment, but thought she ,
Y qualified for a teeporar;i disability deferment. When she was inforied that
the was not eligible for this deferment, she became upset and filed snit
against Wachovia. ,
Mr. Generes advised that she is alle=ing is her suit that Wachovia
violated certain of the, prohibitive policies in debt collection under, the
Texas Deceptive Trade Practices Act and slandered bar credit; and therefore,'
she has been damaged severely. Under the Authority's contract, the Authority
+ must indemnify Wachovia unless Wachovia committed illegal practices or
unlawful practices. Wachovia's chief general counsel in Winston-Salem, Me t
indicated they have reviewed their records and they have not done anything
illegal. The Authority's obligation to indemnify, of course, is immediate;
but if it is found that Wachovis did act unlawfully and without due care in
treatment of this student, then the Authority does not have to indemnify and
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will be reimbursed costs. Mr.
i Geaerea advised that the Authority has a good,
relationship with W4chovia and this is the first instance in ten years in
which they have been sued.
There being no further business, the meeting adjourned at 7106 p.m.
MINUTES APPROVED this the .V a day of d 1484.
President , and of rectors;
North Texas Bi;her ucation
Authority, Idq.
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! MINVIES OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS
OF THE NORTH TEXAS HIGHER EDUCATION ATRHORITY, INC.
` A Special meeting of the Board of Directors of the North Texas Higher
Education Authority, Inc. convened at 5:30 p.m. on the 25th day of May, 1989 is
Low) the City of Irving, Texas with the follcving Directors present:
aFr " ~ r
Mr. Governor Jackson, President
` Dr. Wayne Duke, Secretary/Treasurer
Mr. James Brock, Director
Mr. Jim D. Schultz, Director Y7
Mr. N. Eugene Walton, Director
Mr. Jack Eastwood, Ex-Officio Member r' ;1 Y
and the following Directors were absent:
1 Me. Nets Stallinga, Vice President ?
Mr. Michael Grandey, Director
{ Dr. Lindsay Keffer, Director
Mr. ten Woods, Advisory Director r,
1 Mr. John F. McGraae, Ex-Officio Member
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Others is attendance:
Ms. Shelby Beer, Fulbright 6 Jaworski i
t Mr. Vic Bloede, Hatcher 6 Company
Ma. Phyllis Brown, Higher Education Servicing Corporation
Me. Kathryn Bryan, Higher Education Servicing Corporation
Mr. Carl Generes, General Counsel
'y Mr. Neal Jones, Hatcher i Company
Ma. Bonnie McCnarea, Higher Education Servicing Corporation
Mr, Robert Patterson, MTrast Corp, t:. A. v,
Mr. John Rupley, MTrust Corp, N.A. 1
Mr. Ernest Williams, University'of Texas at Arlington '
Agenda Item I - Introductory Remarks, The Presiding Officer called
the meeting t) order and welcomed those present. He then advised that the ,
meeting would receas briefly for dinkier. ` c
The meeting recessed at 5:34 p.m. and reconvened at 6:09 p.m.
The Presiding Officer advised that Dr. John Trapani has resigned as a
member of the NTI{EA Board of Directors and will be moving to New Orleans where s,
he has accepted the position of Associate Dean for Executive and International a
Programs At Tulana University. The Presiding officer expressed appreciation for
Dr. Trapani's service and the Board agreed that a formal resolution of y
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appreciation to Dr. Trapani would be appropriate.
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Agenda Item II - Approval of Minutes of May 2, 1989. A notion was
node by Dr. Duke and seconded by Mr. Walton to approve the Minutes of May 2, 1
1989 as presented. Vote unanimous.
Agenda Item III - Progress Report from the Higher Education Servicing
Corporation. 1. Financial Report. Ms. Bryan reviewed the April financials
which were distributed earlier. The overall fund balance is $6.8 million. The
1982A Bond Series has a fund balance of $3.1 million; but when the issue is
defeased, unamorti:ed issuance expense will have to be deducted from that amount.
The issue has done better than expected and has lost only $73,000 overall since
September 1. Bond Series 1987 reflects a fund balance of $1.1 million; however,
after unamortiaed discounts and issuance costs are extracted, the balance is a
minus $100,000. The issue is doing well though and is expected to break even
sooner than anticipated. Series 1987 income for the month, after deducting
premium payments, is a positive $12,000, and totals $520,000 for the year. Ms.
Bryau reported that the Authority has been trying to place 1987 investments with
participating tenders as much as possible, but branch banking has brought new
requirements. In the past investments wero made in individually insured
Certificates of Deposit, but now on investments of amounts over $100,000 branch
banks will rF:quire collateral isation. Discussion. In regard to the Fuji Line
of Credit, Oi re has now been $29 million worth of loans purchased into the line
which leaved approximately $30 million available. This amount should be
sufficient to meet the regularly scheduled acquisitions through the end of the
"i year and perhaps into next year. If that is the case, then the Authority would I
not have to draw on the more expensive Student Loan Marketing Association (SLMA)
Line of Credit. The Surplus Fund was reviewed. Me. Bryan noted there is $1.5 !
million is investments and that the Income Statement reflects additional
expenses due to the failed financing, the new SLMA transaction and the bond
redemption costs for the old escrowed bond issues. ;
2. Acquisition Report. He. Bryan reported that over $13 million worth }
of loans have been purchased into the Fuji Line of Credit since December, 1988.
The $3.8 million in 1982A loans will also be purchased into the Fuji line. The
1987 Bond Series reflects $43 million worth of loans purchased. <<
3. Portfolio Summary. The number of loans now being serviced is 55,000,
totaling $114 million worth of loans. Delinquency for the month is 17.7X.
The default rate is 12.81. Discussion ensued regarding the default situation.
Mr. Walton asked that a month to month comparison of the delinquency and i
default rates be included in the Portfolio Summery Report. Ms. bryan advised
that this would be done. She added that defaults will peak in May and June "
because of students who graduated last May and go into default. They have six
months of grace and then six months to pay before the loan goes into default.
4. Miscellaneous. Ms. Bryan reported that Bridge Bank (formerly MBank
Fort Worth) boo put a hold on selling its student loan portfolio and the z
Authority did not have to submit a formal bid. However, bids are being taken to
sell the MBanks, and a decision is expected some time this month. The plan Lad
i' been to have all the MBanks sold by the first of July. At this point Bridge
Bank does not think it will sell the student loan portfolio.
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Ms. Bryan reported that the SLMA financing did finally close, but that no
I formal function was held. ;j
} Ms. Bryan advised that Mr. Generes did look into the legality of the vote
approving the SLMA financing at the last meeting which was three "for", none
"against," and two "abstentions," and determined that it was a legal vote.
Ms. Bryan updated the Board in regard to the person who is suing First
Wacbovia. She advised that Mr. Generea has talked with the Dallas attorney who U
is representing First Wachovis and that the Dallas attorney is questioning the
jurisdiction of tLe district courts in Fort north over First Wachovia and is
going to litigate that anyf will try to settle the matter. Me. Bryan added that
it has been learned that the plaintiff has a history of other credit problems as
S well.
Ms. Bryan advised that the Authority has not received a contract yet from
John Raffaelli who is to provide representation in Washington, D.C. for the
Texas Higher Education Authorities.
Ms. Bryan reported that the legislation that would have helped the
s Authority as far as buying loans from schools that have high default rates did
not get to the Education Committee. Assurance from the staff had been given
that it would be put on the agenda; however, the chairman, Mr. Carl Parker, made
j the decision dot to receive any more bills for consideration. j
Agenda Item IV - Report from Financial Advisor. Mr. Bloede advised
that the point has been reached to prepare Ear defeasance of the 1982A Bond s'
Issue, He added that as discussed at the last meeting, the defeasance will '
- result in almost $2.3 million becasing available to the Authority--$2.1 million j
will be in the form of cash and government securities and $200,000 in
receivables on student loan notes. Mr. Jones advised that they did go ahead,aad
' subscribe for State and Local Government Securities (SLGS) shortly after the
meeting at which the Board approved doing so, and the SLGS will be delivered on
June 1. He added that by not waiting until the next week, $18,000 was saved,
Y Agenda Item V - Resolution Providing for the Redemption of "Rom TIM
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w HIGHER SDDCATION A0tHORITY, IIIG. STDDENT LOAM REVENUE REFUNDING BONDS, SERIES
1982A1" and Resolving Other Matters Incident and Related to the Redemption of t.:
Such Obligations. Ms. Bear advised that Agenda Items V and VI represent the
items that coed to be completed in relation to the Board's decision to defaase
1982A. As stated the SLGS are due to be delivered on June 1, which is the ;y
deadline. The resolution for the redemption provides that between now and June
1, or as soon as possible, a notice of redemption will be published to call all
outstanding bonds by December 1, 1996. It also provides for the forms of notice'
+ of redemption that the trustee will use as trustee and successor paying agent
and that once published, the redemption notice will be irrevocable.
Me. Beer then reviewed the resolution for Agenda Item VI stating that it
provides for the form of the Special Escrow Agreement which 1s the agreement
entered into between the Authority and the escrow agent, MTrust Corp, M.A. K
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Subscription forms are attached and, is conjunction, a special report from the
auditors, Peat Marwick, which shows that there is cash sufficiency based upon
the subscription.
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Mr. Patterson edvised that Mr. Tom Spurgeon of McCall Parkhurst 6 Horton
was brought into the transaction yesterday to be trustee's counsel due to the
potential conflict with MTrust's counsel being Mark Westergard of Fulbright 5
Jaworski. Mr. Patterson advised that Mr. Generes requested that Mr. Spurgeon
review a specific provision of the Indenture as it relates to redemption. After
reviewing the provision, Mr. Spurgeon concluded that perhaps the Indenture'
requires that the Bonds be redeemed on December 1, 1989 and not December 1, 1994.
Mr. Spurgeon has indicated that he is villiog to discuss this, but that it is `
his opinion that the Indenture provides that the bonds ■
ust
be called
on
"~.December 1, 1989 it the loans are sold on June 1, 1984.
The difference of opinion between bond counsel and trustee's counsel was
discussed and it was agreed that it would be prudent and cost-effective for ;
general counsel, bond counsel and trustee's counsel to review and discuss the
provision in question, especially since the trustee's counsel is new to the i
situation and not as familiar with the transaction as bond counsel, not having
reviewed all of the 1982A documents.
Mr. Generes recommended that the Board approve the resolutions to defense
the 1982A Bonds because of the short time before the deadline, but approve them
contingent on the trustee and its counsel becoming comfortable with the .j
redemption date of December 1, 1994.
The Presiding officer stated that steps should be taken to improve
communications among the functio+aries so that any differences of opinions is
the future will be known and resolved before a Board meeting is scheduled.
y A motion was made by Dr. Duke and se;onded
by Mr. Schulte to approve the •
resolutions relating to defeasance of bot1J Series 1982A as Presented under .F
Agenda Item V and VI. Vote vaanimous. "
Agenda Item VII - Other Business. The Presiding officer referred to s
the invoice in the amount $7,300 from Hatcher 6 Company for their work oo the
SLMA transaction. He explained that when the original vorkin
. ! group was formed, ,
s Hatcher 8 Company was not engaged by the Authority because At that time several
of the Board members had extreme conce s about trying to streamline the process, $x
; Mr. Robert Roffman of Chemical Securities, Inc. was asked specifically if be
could handle all financial processes involved, and he indicated Chemical could.
Subsequent to that ties, however, Hatcher A Company did review some documents
and based upon that and the time spent, have submitted a bill for approval. The ~s+
Presiding Officer noted that Higher Education Servicing Corporation was also
involved in the transaction but has decided not to bill the Authority for those
services. ;f
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After discussion Mt. Schulte moved that payment to Hatcher b Company in fff the amoui.c of $7,569 be approved for vork performed on the SLMA
transaction.
Mr. Walton seconded the motion. Vote unanilaoua.
tlf Agenda Item IX - Adjourn. There being no further business, tha"
{ meeting adjourned at 6:55 p.m.
1 MIMES APPRMD this the day of 1989.
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president, rd of rectors
-Vii North Tezee `her ueation'
Authority, Inc.
ATTUT zw~ 1-7
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istant ecretary, oard of Directors
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Authority. Inc.
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MINUTES OF THE SPECIAL MEETING
OF THE BOARD OF DIRECTORS
OF THE NORTH TUAS BIGNER EDUCATION AUTHORITY, Ilk-
A special meeting of the Board of Directors of the North Texas Nigher f
Education Authorit inc. was held at 7:40 a.m. on the 30th day of May, 1989, j
4 in Irving, Texas, with the following members participating:
Mr. Governor Jackson, President
Dr. Wayne Duke, Sccretery/Treasurer
r Director
hu1t.
Mr. Jim D S
Dr. Lindsay Keffer, Director
Mr. H. Eugene Walton, Director
and the following Directors were absent!
-a
Ms. Nets. StallCags, Vice President
Mr. James Brock, Director
Mr. Michael Gvandey, Director
} Mr. Ken Woods, Advisory Director
Mr. Jack Eastwood, Ex-Officio Member ,
Mr. John F. McGrone, Ex-Officio Member
other participants:
Ms. Shelby Beer, Fuibright b Jaworski
Me. Phyllis Brown, Highsr Education Servicing Corporation
Me. Kathryn Bryan, Nigher Education Servicing Corporation
Mr. Carl Creneress General Counsel
i Ma. Bonnie McCharea, Nigher Education Servicing Corporation
Mr. Robert Patterson, MTrust Corp, N.A.
Mr. Tom Spurgeon, McCall Parkhurst & Horton
a
} Agenda Item I - Introductory Remarks. The Presiding officer called °i
the meeting to order and welcomed those present.
Amendment Resolution Relating to Approval of P;°anon
Agenda Item It
to special Escrow Agreement with MTeust Corp, National Assoc ation j.
y"' •
N4 ,1 and Resolving Other Matterr Incident Thereto. Ms. Beer advised that at the 4
last Board meeting there was some concern regarding structure. She reported
that Fulbright 6 Jaworski, Bond Counsel, is still very comfortable with tbb^i
structure sad that it has not been changed. She, advised, however, that in,
light of the concern expressed by the Trustee, several conference calls were
conducted and a lot of information was disseminated among different parties. x
(page 13) as
As a result, an amendment has Wen mode to the Escrow Agreement to what the Trustee believed would address their concern and still provide
the
Authority with the ability to go forward with the present structure. The
amendment basically indemnifies the Trustee as to the actual redemption date
of December 1, 1994. This is the dote upon which a 1 1/2i premium must be
paid to bondholders and what the Peat Marwick Cash Sufficiency Report was
based upon. Ms. Beer stated that it is highly unlikely that anyone would want
„ his/her bond taken away now at par when he/she can get 1 1/2% in 19949 but the
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Trustee requested this comfort level. A provision in the Escrow Agreement
provides that if someone did want to redeem his/her bond in 1989 at pail.tb'e.
Authority could purchase the bond with funds from the General Fund. turn it
' over to the Trustee and have it cancelled. When the escrow is complete, there
is would be more money in escrow than planned, so the excess would be returned to
the Authority.
Mr. Spurgeon, Trustee's Counsel, advised that in reading the Indenture,
it was felt that the redemption date of December 1, 1994 Right be read by
someone as December 1, 1989, pursuant to a mandatory, redemption operation as
opposed to the optional redemption operation. He added that the Trustee is
zl governed to comply with the Indenture and that because there may,have,bee*
,
some other types of history regarding the 1982A transaction that are not fully
j reflected in the Indenture, the issue is clouded somevhat. For this reason,'
Spurgeon
it was felt that the practical indemnification in was nece s today's sar market However Mr enviornment' . it seems
stated that as a highly unlikely that anyone would want to turn in a 13 1/21 bond at pa
1 r' at
this juncture or be upset that the bonds are going out 'another five years at i.
+ 1i 13 1/22. Discussioi.
A motioa was aide by Mr. Walton to adopt the Escrow Agreement with the
amendment as presented on page 13. Mr. Schultz seconded the lotion. 'Vote'
unanimous.
Agenda Item III - other Business. There being no further business,
the meting adjourned at 7:46 a.m. ;
MINUTES APPROVED this the ~ do of
Y x:1989. f
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Pr s dent, board'af tori
; , " _ , - North Texas Higher ucition : • -
s Authority',, Inc. '
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4 ATTEST::.
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A istaat ecretary Boa of f Directors
Ho h Texas Higher duration
Authority, Inc.
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F
}E MINUTES OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS
OF THE NORTH TEXAS HIGHER EDUCATION AUrHOkITY, INC.
A Special meeting of the Board of Directors of the North Texas Higher
Education Authority, Inc. convened at 6:02 p,m. on the 14th day of August, 1989
in the City of Irving, Texas with the following Directors present:
I Mr, Governor Jackson, President
` Me. Nets Stallings, Vice President
Y Dr. Wayne Duke, Secretary/Treasurer
Mr. James Brock, Director j
{ Mr. H. Eugene Walton, Director
t
' Mr. Ken Woods, Advisory Director
Mr. Jack Eastwood, Ex=Officio Member
( and the following Directors were absent:
Dr. Lindsey Keffer, Director
Mr. Jim D. Schultz, Director "s
Hr. John F. McCrane, Ex-Officio Member:
Others in attendance:
Mr. Vic B1
• cede Hatcher d Company r
Ms. Phyllis Brown, Higher Education Servicing Corporation
Ms. Kathryn Bryan, Higher Education Servicing Corporation '
Mr. Carl Generes, General Counsel
No. Bonnie McCbsren, Higher Education Servicing Co'rporetion
etia f
Agenda as Introductory to order and welcomed those Remarks. The Preaidi"n Oificer'.c'aled ti
the au
present. g
Agenda Item II Approval of Minutes of May 25 and Kay 30 ' Xs.
the
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Bryan advised that the vote was cot reflected in the Minutes of,May"•25,for•the
resolution to approve payment to Hatcher 6 Company in the amount of ,$71506 for q
vork performed on the Student Loan Marketing Association transaction and that/ '
the Minutes should be amended on „ 11 page five, first paragraph; to "show that the
I vote was unanimous." A motion was made by Dr, Duke and seconded by Mr. Walton
` to. approve the Minutes of May 25 as amended and the Minutes of May 30 as
1 presented. Vote unanimous.
Agenda Item III - Resolution of Appreciation to Dr.
his service and contributions to the Authority. The Prei ding.Officeriread
the proposed resolution of appreciation to Dr. John M. Trapani who resigned from the NTHEA Board in May. Mr. Walton moved to approve the resolution
as presented.
Me, Stallings seconded. Vote unanimous. The Presiding Officer noted that. the
resolution should be prepared in a suitable form and mailed to Dr. Trapani who r;
has moved to New Orleans.
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Agenda IV - Resolution Relating to Nominations of Individuals to the
" E City Council of Denton, Texas to Serve in Places 6, 8 and 9 of the the HTHth
Board of Directors. The Presiding Officer advised that Places 6 and 9 are
4 occupied by Dr. Kaffer and Mr. Brock respectively and that both have agreed to I
serve another term. He noted that Place 9 is an at-large position and is
{ approved by both the cities of Denton and Arlington. Mr. Grandey who occupies
Place 8 has submitted his resignation. The Presiding Officer advised that the
Mayor of Denton has been notified and is seeking a replacement for Mr. Grandey.
He then asked if the Board had any recommendations for a replacement at ibis
time. There were none. He then indicated that he may have someone to recommend
to Mayor Stephens.
Mr. Walton moved that Dr. Keffer be nominated for Place 6 and Mr. Brock
for Place 9. Ms. Stallings seconded the motion. Motion passed. The vote was
EOLr "for, and none with Mr. Brock abstaining. <<..
u "against,"
Agenda Item V - Resolution Relatino,, to Nominations of Individuals to is
the City Council of Arlington, Texas to Serve in Places 5, 71 and 9 of the NTHIA'
Board of Directors. The Presiding officer advised that Dr. Duke occupiesi
Place 5 and Mr. Brock occupies Place 9 and both have agreed to serve another
term. Place 7 is vacant due to Dr. Trapani's resignation in May. i
Dr. Duke recommended a candidate for Place 7, Dr. Carl D. McDaniel, Jr.,
_,11 Ile Professor end Chairman of the Marketing Department at the University of Texas.
A motion.vas made by Mr. Brock and seconded by Mr. Walton to nominate Dr.
McDaniel to serve in Place 7. Vote unanimous.
Mr. Walton moved that Dr. Duke be nominated for Place 5 and Mr. Brock be I
nominated for Place 9. Motion passed. Vote was three "for," and none ) API
r "against," with Dr. Duke and Mr. Brock abstaining. k 1
A Agenda Item VI - Appointment of Advisory Director to the MCA Board of
Directors. The Presiding Officer advised that Mr. Woods correctly servei as
r, ? Advisory Director and has indicated that he would be willieg to iarve another
term,
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r`; Mr. Brock moved that Mr. Ken woods be appointed to serve as Advisory Director for the term ending September 30, 1991. Dr. Duke seconded
the motion. z
Vote unanimous.
` Agenda Item VII - Progress Report from the Higher Education Servicing
r. Corporation (H.S.S.C.). 1, Report on Comparative Delinquency and Default
Rates. Me. Bryan advised that this report reflects the monthly comparative 11
information that the Board requested. The Texas Guaranteed Student Loan
Corporation's (TGSLC) fiscal year, October 1 thru September 30, was used as the ti
basis for comparison because HTHEA's default rates are continually being
compared to TCSLC's. Default rates are higher among proprietary schools, but
many lenders have ceased to make loans to those schools which should improve `
default rates. Me. Bryan explained how the delinquency and default rates are t"
calnulated. Dr. Duke asked what TGSLC's statewide dr.fault figure was. Ms.
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Bryan advised that last year it was 9.52, but that this year's figure has not
been published. She added that the 9.51 rate includes the claims TGSLC is able
to recover whereas NTHEA's default rate does not include claims recovered, Last
year the amount of defaulted loans was $10.5 million. This year, if the trend
continues, there will only be approxiwately $e million worth of defaults overall
even with a larger amount of loans in repayment. Last year there were 866
million worth of loans in repayment--this year there are $89 million. Ms.
Stallings asked if NTHEA has to purchase the loans from high default rate
i schools. Ms. Bryan advised that if an eligible lender offers the Authority an
eligible loan, the Authority is obligated to purchase it if there are funds
available. It is the lender that can refuse to take applications for loans from
those schools. Me. Bryan advised that the Texas Authorities were trying to get ;
State legislation enacted that would allow the Authorities to refuse to purchase
loans from schools with default races above 302, but time ran out and they were
not successful this session. The Authorities plan to try again in two years.
In addition the new premium schedule approved by the Board earlier this year
will help in that the lenders will not receive as much for the lower balance `
accounts from proprietary schools as they will from the two and four-year h;
schools where students usually have multiple loans. This should discourage
lenders from making those types of loans. Mr. Woods stated that in two years
those proprietary schools that have fraudulent practices will probably be out of :F
business because of legislation and Department of Education regulations that are
! being put in place. ri
2. Report on Contract with McAuliffe, Kelly, Raffaelli. S Siemens. Ms,
Bryan reported that Mr. John Reffaelli has not responded to Hr. Generes' letter,
concerning the contract. Copies of Mr. Raffselli's contract letter and Mr.
w ! Generes' response were included in the agenda packets.
i 3. Miscellaneous. Ms. Bryan reported that there have apparently been
some changes at Fulbright 6 Jaworski and NTHEA has been assigned a new
representative, Ms. Kathleen Ellison of the Houston office. Ms. Ellison has }
worked with the Authority in the past and comes highly recommended. Discussion
ensued regarding the change and the possibility of increased travel expenie to r+
fti` the Authority. Mr. Walton stated that he felt the Authority should not have to
y incur additional travel expense and the Board agreed that this should be
clarified with Fulbright d Jaworski. j
y
%
Ms. Bryan advised that the General Counsel for the Greater East Texas;
Higher Education Authority (GETHEA) contacted her last week and requested that
NTHEA consider warehousing approximately $10.5 million worth of PLUS and SLS
loans. GETHEA has purchased these loans into one of its issues in error.
Apparently someone in the GETHEA operation was not aware that that particular '
issue had a stipulation restricting the purchase of PLUS and SLS loans. Me.
Bryan indicated to GETHEA's General Counsel that NTHEA night consider
warehousing the loans depending upon the loan information. She reported that ;i
information on the loans was supplied to her. She reviewed the loan information
and discovered that the average borrower balance was only $2,200. After
amortising the loans, it became evidtnt that in 18 months they would begin to
lose money. No. Bryan advised that she contacted GETHEA's General Counsel and
told his that she would like to help but that she could not recommend that NTHEA
~ r..
3
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`f
I
owl
I 1
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{•fi...,.
She t him hi
nter into a agreement that not NTHEAiwarehouselthe~ losnswouldbei
e
the only way GETHEA could not guarantee that
GETHEA could repurchase the loans in 90 days.
they would repurchase the loans in 90 days because the funds would have to come
Dvary E and
of a contwingtothers for
from a now fin nc g in GETHEA is intheeprocess to
successfully cplete one.
assistance. Discussion.
Bank One in Fort {forth (formerly MBank Fort Worth) has advised that it
bank
t
has been designated the regional lender for student loans is seven states.
One'a relationship with NTHEA is very good and the~antvtosbesabledtohsell all
want to work with any other secondary market:. They group, Ms. Bryan noted
their loans to one secondary market and work w r°blegto purchase Bank One
to
I
a
that the possibility of H. E.S.C. Lakin steps
loans that N"HEA cannot purchase was discussed at the HTHEA retreat--y v
HTHEA cam only purchase Texas loans. H.E.S,C. discussed this at its meeting
this morning and is willing to assist HTHEA in this effort if it can work this
something out Ei~:+ncially. Ha. Bryan advised that at present the amount of
out-of-state loans held by Bank One is not large, approximately $1.2 million.
It was pointed out that Bank one is NTHEA's largest lea ar.deoncern
to try to accommodate their needs. Dr. Duke expressed
important it is
the Authority being so dependent on one bank and asked if there has been an r
No. Bryan advised that it is
s` effort to recruit new lenders into the program.
wthe hat he cant toenenvicroournmeageatt but that Dr. Joe
the lenders that are
difficult to recruit new lenders in
Henry of C. going to 1
in the program to increase their volume. She added, however, that the Authority
does have other good lenders. First Interstate Bank and NCNB Texas are
student loans statewide and will be increasing the number of loans j
marketing ,
xappto they sell to HTHEA. First State Bank of Denton BrYa breported that
million Hely enry
million worth of student loans next year. Ma' have spored to sell HTHEA the J
} visited Texas Commerce Bank in Houston, and they
t I
loans they ove the Authority as result of a commitaent during the 1997 Bond
Issue, They also indicated they would like to sell the loans that are+ cha
the local
originated is this area to E and now that ituno longer o receives the local
_
Texas Commerce Dank for years
loans, the serial borrowers are b•.ginaYket other elare•moreeprohlemsrover's loans
R. i are sold to more than one secondary
special allowance
The Treasury did issue the regulations to include the
Efforts are
yield calculations as it was tbought they wo
} 'I
try to get Congress to change this. NCHELP has asked for a1lCtheiseeondarY
?
roviding information on costs, servicing, bond
market transact fill out a survey P to run cash flows to show that the
,
transact ions , e tc . NCHEL P is going
dory
regulattoos will rake it extremely difficult for secon markets to operate.
to Topics Discussed at the July ,
4+, l
Agenda Item VIII - Resolution Relating
The Presiding officer advised that the retreat was very ~ 'k,
28 Retreat.
successful. It presented an opportunity for a lot of informative discussion and F
development of comradery and focus as n group. During discussions at the
it was determined that an additional director should be added to the rl
retreat, '
Finance Committee and that the role of that committee should be expanded to r
4,
T 1
' t.
function more from an advisory standpoint than it has in the past. Currently,
only two members ■re serving on the Finance Coamittee, No. Stallings and Mr.
Schultz.
j Mr. Brock nominated Mr. Walton to serve on the Finance Coamittee. Me,
r Stallings seconded. There were no further nominations. Vote unanimous.
The Presiding officer advised that one of the things that the Board would
like for the Finance Committee to move on immediately is to study and report
recommendations to the Board concerning all advisors, accounting firms and the
designation of significant items of financing reporting. He added that he would
like for the directors to be able to assess the financial statements
" independently and make their own conclusions. It would be beneficial to have a
guide, as to the items of importance from a fiscal standpoint so that there woule
be some focus to the Board's analysis of the financials. At this point Ms.
Bryan advised that an unsolicited proposal was received from Mr. Neal Jones to
act as financial advisor. The proposal was delegated to the finance Committee.
A motion was made by Mr. Brock and seconded by Dr. Duke to charge the
Finance Committee to proceed immediately with the studies outlined above and
report to the Board their recommendations. Vote unanimous. '
The Presiding Officer advised that a time limit would not be set for
recommendations from the Finance Committee, but that the committee should
f proceed with deliberate speed. He noted that the previous chairman of the
Finance Committee is no longer a member of the Board and that a, new chairman
will need to be selected by the comoittee at is first meeting. 'i
i !
f Ms. Bryan advised that she did talk with TGSLC regarding a report that
will indicate which lenders make loans to which schools and they are in the <
processing of preparing one. TCSLC did provide the lender volume and school
volume.
Agenda Item IX - Resolution Relating to Adoption of Operating Budgets
for the Fiscal Year Ending August 31, 1990. Ms. Bryan advised that operating
budgets have been prepared for 1987 Bond Series, Fuji Line of Credit and`the' '
Surplus Fund. She then proceeded to review the budgets. Because'the 14M
x`y issue'has been defeased and the other two financings cannot support, all of, the
expenses, some have been tranaftrred to the Surplus Fund. Ms. Brown advised
that until a surplus of $2.5 million is reached in the 1987 good Series, the budgeted operating expenses are limited to 1.752 of the loans
outstanding. For
the Fuji Line of Credit the requirement is a percentage of. 102 1/2X 'of ease" %
over liabilities before more than 1.75% can be budgeted for operating expensese' x
' Ms. Bryan advised that neither the $2.5 million nor the 102 1/2% surplus has
Ir been reached.1
The Presiding Officer noted that another item discussed at the retreat in
regard to the Finance Committee was that at some point in the future the
cooniittee needs to look at usage of the Surplus Fund and assist the Board in ,y
formulating some type of long-range plan. Because the Surplus Fund is a source
of future commitments for certain kinds of taxable financings which nay f;
is
5
f rF
i
s
{ more attention to that fond is
E ultimately affect the future of the Authority,
needed than in the put. Ms. Bryan then explained the expenses reflected in the
Surplus Fund.
k asked what the amount of the D 6 O Liability was and Ks. Bryan
F }
i r. Broc
N
advised that coverage is $1 million. She added that obtaining coverage has been
difficult in the past, but that the insurance situation may ba changing.
atated t rove ig tedrates for a higher
'stock suggested that perhaps Ma s. Bryan
amount of D S 0 Liability.
Ms. Bryan added that H.E.S.C.'s fees are the same as last year.
A mottos was made by Dr. Duke and seconded
31, 1990, Motion l Operating Budgets for the fiscal year en with Mr. August abstaining.
I Vote was four "for," and none "against,
The Presiding officer reported that in the H•E•SEC.Board meeti a more
i morning he requested that at some point in the futyre that s
information regarding its budget structure to the NTHEA Board. lie informed
he made the request in order for the NTHEA Board to be appropriately
K,, Walton suggested
and knowlecgeable regarding the servicer and its fees.
that this could be delegated to the Finance Committee and the Board agreed. Me.
Bryan advised that detailed information rFinancegCothe H.E mmitteeSfor review ■t
available and that it will be provided to the
its first meeting.
j satin
' Agenda Item X -Resolution Relating to Adoption of Revised
adv~sed that ~E
Budgets for the Fircal Year Ending August 31, 1989. Ms. t,
expenses at August. 11 will be $20,000 more expthen the lained that m o the budgets need to be
fiscal year ending ,august 31., lags. ~t
revised to include the $10,060 because only expenses that are budgeted can be
drawn from the trust estates. '
{F'
11 . A motion was toads by Mr. Walton and seconded by Ns. Stallings to adopt
i the Revised Operating Budgets for the afnidscal year iding Aviu Nr,1Jsc 99. 3`1
Notion passed. Vote was four for, son
_ abstaining. -
Agenda Item XI - Other Business. Me. Bryan advised that B.E.SiC. has
just completed a nailing announcing NTHEA's consolidation program "Easyloan"
Authority
15,000 students who have at least one loan that is owned by the makes it
(copies of the brochure were distributed earlier). The program ,s
possible for st consolidate bthose ,loans educational lone lanloans d ■ake hole apaymenvr cedT~ + j
e her other lenders to
minimum loan mount is $%.000. The interest rate charged i.z 9x or an average of ave. the rates cu m n_t)v being paid on all loans nds beneficial
to the sMs. B e as 4
poiate4 out that th ate very goodhI
Board informed on the result of the
well. . She advised that at she would keep ep
nailing and the number of consolidation loans processed.
> t
6
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Ms. Bryan reported that the cap allocation procedures were changed in the
special legislative session. The law provides now for a lottery system whereby 111
only $50 million will be allocated to any one issuer if more than one issuer
applies in a category. Those who do not receive allocation will be eligible
again September 1 and the minimum allocation will be $100 million at that time.
Discussion.
Agenda Item XII - Adjourn. There being no further business, a motion
was made by Dr. Duke and seconded by Mr. Brock to adjourn. The meeting
adjourned at 7:32 p.m.
1
MINUTES APPROVED this the J day of 1989.
J
resident, oard rectors
North Texas High/re cation
Authority, Inc
ATTEST:
- _ll ~ /Lc~CLIC r
As 'stant 'Secretary Board of DirectorF r7
s<.
North Texas Higher Education Authority Inc.
3
ice..
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f Ohl !
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MINUTES OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS
OF THE NORTH TEXAS HIGHER EDUCATION AUTHORITY, INC.
i
A Special meeting of the Board of Directors of the North Texas Higher
j Education Authority, Inc. convened at 5:1.0 ?.m, on the 5th day of October, 1989
in the City of Irving, Texas with the foi'.owing Directors present:
Mr. Governor Jackson, vresieent
Me. Nets Stallings, Vice Pr%sident
Mr. W. Jay Anderson, Director
Mr. James Brock, Director
Dr. Lindsay Xeffer, Director
Dr, Carl D. McDaniel, Jr., Director
Mr. Jim D. Schultz, Director
Hr. H. Eugene Walton, Director
Mr. Ken Woods, Advisory Director
.f
and the following Directors were absent: f
i
Dr. Wayne Duke, Secretary/Treasurer I
Mr. Jack Eastwood, Ea-Officio Member !
i
Mrs Cohn F. McGrane, EX-Officio Member f
others in attendance:
~I
Hr. Vic Bloede, Hatcher 6 Company
Mrs Barry Gray, Hatcher 6 Coapany
! Ms. Phyllis Brown, Higher Education Servicing Corporation I
Ms. Xathryn Bryan, Higher Education Servicing Corporation
Mr. Carl Geceres, General Counsel
Ms. Bonnie McCharen, Higbee Education Servicing Corporstion
Mr, Robert Patterson, MTrust Corp, N.A.
J
Agenda Item I - Introductory Remarks. The Presiding Officer called , I
the meeting to order and welcomed those presents He extended it special welcome
to two new Board members, Mr. W. Jay Anderson, investment broker with A. G.
Edwards 6 Cos in Denton, Texas, and Dr. Carl D. McDaniel, Jr., professor and
Chairman of the Marketing Department at the University of Texas at Arlington.
Mr. Anderson and Dr. McDaniel were sworn in as members of the Beard and
introductions veee made.
The Presiding Officer advised the new members that Me. Bryan would be
contacting them coon for an orientation session. He noted that orientating new
board members as soon as possible is one of the things the Board has committed
to do in order for new members to be as well informed and comfdrtable as
possible from the very beginning of their terms. E
Agenda Item III - Progress Report from the Higher Education Servicing
Corporation. 1. Acquisition Report. Ms. Bryan reported that $47,5 million J
worth of loans have been purchased into the 1987 Bond Series through August 29.
The original acquisition fund was $34 million, so approximately $13.5 million
1 ;
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a
fir„• September purchases
funds.
r urchased with recycled
ed foods it has been used
north of loans have been Put,
r cl. The Fuji Line of Cred
h August 29, and commitment
have also been made with recy
to purchase $21.1 million north of loans through
roximately $11 million. sank one requested h
requests for October total app purchased, most
million of that amount•iETill oftthe $llumillioo loansc+mderytheFujieLine will
F 1ji Lime of Credit, ri aR new 1
axount wader the line may not
the $l8 million available for rchs
a fully a tax-exempt fi^aaciag
as Lime
of be used. He. Bryan inu~caemtents huntilMarrcchtwhen hope
to med et teq have to draw down on its Sallie M to
be n complete. The Authority ■aY funds available in December which,
can be be of eCnroediugh t, but there will be recycling be sufficient until s new
combination with the remaining Fuji LOC funds, may
financing is possible.
requests
ndicated that
Ns. Bryan reviewed the report on NTNfA's c°naolidation program
wi ochure mailing recently and i
as a result of the "Easytoaa", brochure
At this point it cannot be deCht10~aiting~ mNs
response Y
has been good. tusll result from borrowers
is offering this program to he P
conrolidetioa looms , "Eeayloans, payment, Authority
Bryan pointed out that th ll ac Y 1 bo
consolidate their loses for easier, more coaveniencorCadiscussed at the Retreat in
are at the end of the year with
At this point, Mr. Brock asked about a rep
Ns. Bryan
regard to how the Authority's default rates come
ration's (TGSLC Yates.
the Texas Guar~mteed student Loan Corpo soon as she
advised that TGSLC's fiseal year hen compari [sonembecar n 10 be and prepared that , ar
receives TGSLC's year-end report,
Of the National Council of High"
siOston, DC a couple of weeks 80 to
Ms. Bryan advised that ma members rrs (most every secondary market in the
Fduestioa programs (NCNSLY) net in Plans to do is
discuss support for secondary markets, Mae
country is a member of NCNSLY). One rata the versus us other the sgroupecondaPry
overameat has always favored Sallie Mae
compile data oa Sallie Mae'a default rates
rove that it ;
ax Bryan indicated that the federal of default rates Witt p have lover
somewhat, and it is felt that a comparison markets active because they extra due
is important to have the other secondary
default rates than Sallie Mae. Sallie Mae does not perform say
he
eedures to avoid 6efaults--only the minimw &AOunt of due diligence
with the regulations it performed. Other sryan Ad s t all
diligence p ro
to comply to Prevent defaults. Ns. Bryan advised d that the
i some extra due dilige^ca to try uarantors across the
default race he will provide thatoiaformatiomoto t e Board also-
country and that t s
2, portfolio Summary. Ms. Bryan reviewed the August Portfolio Sv►a<ary•
Board
eneefu►3 default is 11,1%, She re which fer the red to
delinquency rate it 18.41 and the
The comparisom of delinquency Cumulatively, there are
the monthly reason for
requested mad noted that rater have year. improved Ms. this Year- advised that One o rietary
$800,000 less defaults than last y loans to two p p
ament is that lenders that were making
the improv school (both of which had veh!
to P b a,
schools, Delta Career College mad a truck driving school
lcane and,
I rates), are ao longer making tar. Me. Bryan referred to
high defaut
has ^ot purchased say of those loans this 7 urea are based on
Authority school and advised that these fib per school. The
the report of defaults by f
the re s portfolio only and nut the entire aaovat o defaults a
rt n months
tt reflects the Percentage of NINBA's defaults per school for eleve
'
thr rough Augwt, 1989.
1
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F?FF( Hr. Ce neres asked Ma. Bryan to
For the benefit of the new Board members,
an explained explain the Authority. Ms.
defaults
student loanseareol 0% insured againstrdefault, death that
the g
disability by the Texas Guaranteed Student Loan Corporation and reinsured by the foroted federal government. for As
reimbursement for principal and accrued interest.
claims may y b be filed
Mr. Woods asked Ms. Bryan about the Dept. of Education 1987 Default Rate
Report recently published which indicated that only 12 borrowers attending the at could
be. Ms. University advised thatcitpbadsto betannerror. She se did not
have a copy of the report but would request one and see what she could find out t rate calculated h b figure. She of borrowers who defaulteversusuthe
dollars amounnow ethe
'hort by repayment and
dollar amount
"cohort rate." In other words if there 6,0calc00 in
3,000 defaulted, the rate would be
er d"eto varying byoborrover~m°°ntain order i
could be quite different usually lower
added that it is necessary to also keep calculations
to know the actual cost to the government.
Me. Bryan referred to the "Area Schools Volume Report" distributed
breakdown of the
patingIn theeNTHEA
earlier andexplained report
dollar four-year ~
program and by non-participating leaders as well for area two-year,
ityeoftForthATexas°loan, buts only 37%
and proprietary o1 of Schultz
Authority is s purchasing 62%
of the University of Texas at Arlington (UrTex~~a°se[Ce BBayk°~d4irst hCity ~
good portion of UTA's loans are being made by 4
recently centralizedatheipastudenttloaneprogresstat
Bank and that
that the Authority probably did
report because both have I
their Houston banks. She noted, however,
Ks. Bryan added that
purchase some of those loans before the changes were made.
work # j
?exam Commerce Bank istieadedaichoo haadbthatistepsnareabei ngttheakearneastwhere
Y:
the students l lived and 1
out a simimiara iiag m a good with first Cit Back noted
percentage ofythe lo,anssorigi atedtlocally~98.81
x
Authority i p
loan ~ a 46.42 of four-year and 8.381 of proprietary. The Board
of twos-edyear apprreectciaa, tion to me. Bryan for the very detailed, informative report.
Ms. Bryan advised that this information will be provided at leant once + year
and also noted that copies of another report are available for
School as i tional
an Portfolio by of August
7g2 are
information, "Analysis of NTHEA Student Lo
24, 1989." This report breaks dove H?NBA's portfolio by school type, mix.
four-year school loans, ll2 two-year and 122 proprietary, which is a good
3. Financial Report. Mo. Bryan reviewed the unaudited fiscal year ended
August 31 financials and that ethesaudited inancialsishould belavailableiin
the annual l audit and s all approximately Fu in Line f Credit, l Bona Seriesa 1987,e Surplusuand clearing
financings, the e the fund
Funds, as well as the 1982A Road series escrow funds. At August 31,
balance was $6.3 million. TEev 1982A Bond Series ?&Lane* Seetofasically
reflects investments and only liabilities, For the benefit the new
Board members, Ms. Bryan explained that the 13 1/22 1982A Bonds were recently
a
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defeased. The 1987 Bond Series had $7$.8 ■ili{oa in loans at August 11 and
1
$93.3 million worth of Bonds. The fund balance is $L.4 million. The issue is
doing very well and has reached parity. Net income for the year was $862,000.
Ms. Bryan explained to the new Board members that the Fuji Line of Credit is a
taxable line entered into with The Fuji Bank, Ltd in 1986. It is a five-year
revolving line with very favorable terms. The Authority has had to use these
taxable funds because the tax-exempt money has been exhausted. Hopefully, a new
tax-exempt financing can be completed in January, and these loans can be taken
out of the line and placed into a new tax-exempt issue to help get it started.
The Authority has drawn down $41.2 million of the $50 willion line as of August
31. The Surplus Fund reflects the expenses for the retreat and the Sallie Mae
Commitment Fee. Mr. Walton asked the reason for investiog in the federal
National Mortgage Commercial Paper Master Notes at 5 1/22. Ms. Brown explained
that the rate has actually been higher than 5 1/22, but that 5 1/22 is simply C
the constant, conservative figure used for daily accounting purposes. The
actual amount is then recorded when received. The Surplus Investment rand is !
basically invested with participating lenders.
4. Report on Area Loan Activity. Ms. Bryan pointed out that the ;
information under this item was discussed earlier.
5. Update on Legislative Matters. Ms. Bryan reported that the comment
period on the Treasury, regulations that allows only 22 spread between yield on
loans and yield on bonds has been extended. For the benefit of the new board
members, she explained that none of the secondary markets feel 22 is going to be G
adequate--more like 2 1/2 or 32 would be realistic in regard to the cost of
servicing student loans. When the secondary markets recently met in Washington,
DC, an Internal Revenue Service representative attended the meeting and
indicated to the secondary markets that the Internal Revenue Service's
understanding was that the secondary markets had agreed to 22, so initially
there has been a misun8e-stsading in writing the regulations. He j.dvioed he
would relay to the Treasury Department that 2 1/2 to 32 is actually needed and
+t will hopefully have some influence. NCHBLP has people working on the
CocgressioasL side as well, through the Ways and Means and Senate Finance
{q Committee, to get a Congressional fix. At least a year is needed to compile
more up-to-date information. The data the federal goverment has been using is
from 1986 when secondary markets were accumulating large surpluses due to
{ fixed-rate bond issues at a time when there was a tremendous increase in the
3 Treasury Bill market. Things have changed significantly since then, and it is „
no longer possible to accumulate large surpluses.
f
' At this point, Ms. Bryan noted that there was another report in the agenda ,
packet that was overlooked earlier. It is the Texas Guaranteed Student Loan
(TGSLC) Volume Report which show which schools and leaders have the soot
student loan volume.
6. Miscellaneous. Mr. Generes provided an update on the status of the
proposed contract with Mr. John Raffselli's Eire, McAuliffe, xelly, Raffaelli 8
Siemens, to represent NTHEA sad the other Texas Higher Education, Authorities in
Washington, DC. Mr. Generes indicated that he felt Mr. Raffselli's original
proposal did not provide the protection or terms necessary for the Authority to i
be able to engage his firs. He, therefore, sent a copy of the proposal to the
Authority's Bond Counsel, Mr. glbert Morrow of Fulbright d Javorski, who in turn
y has drafted a proposal which will protect the Authority and its 501(c)(3) status
4
`I
WWI
f
(copies of the proposal letter were distributed to Board members at the
beginning of tht meeting). Discussion ensued as to the services Mr. Raffaelli
! provides. Ms. Cryan explained that Mr. Raffaelli know bow the student loan
program works very well and can communicate that to people in Washington, DC who
do not have it an vaderstending of how student loan financings work and how
important the Higher Education Authorities are to students in Texas. Mr. Bloede
noted that Hr. Raffaelli is very knowledgeable and apparently has a lot of
insight into the Washington, DC process which would be valuable to the Authority.
Mr. Ceneres noted that at least two Authorities do not plan to engage Mr.
Raffaelli, the West Texas Authority which is not financially able to do so and
the Greater East Texas Higher Education Authority which has indicated they will
probably not do so, Ms. Bryan advised that regardless of how many others engage
him the charge to NTHEA will be $10,000 to be paid quarterly for services for a
period of one year ending December 31, 1990.
' A motion was wade by Dr. Keffer and seconded by Mr. Brock to engage Mr. J
Raffaelli's firm, McAuliffe, Kelly, Raffaelli d Siemens, for the period of one
year ending December 31, 1990, according to the terms in the proposal letter
drafted by Mr. Elbert Morrow of Fulbright S Jaworksi. Vote unaninrwa.
Ms, Bryan advised that per the Board's request regarding the cost of
increasing the amount of the Directors and Officers Liability insurance, a quote
has been obtained from the Authority's current insurance agent for con-.Aeration.
The premium for NTHEA's current coverage of $1 million is $8,200. The premium {
for $2 million coverage would be $11,861, $3 million $15,815 and $5 million
$22,348. Discussion ensued regarding actual potential risk to directors. Mr.
Schultz suggested that perhaps an insurance expert should be contacted regarding
otber options, possibly some self-insurance, higher deductible, etc. Me. Bryan
rdded that one of the risk managers of the Cities of Arlington or Denton might
also be contacted. Mr. Ccoeres noted that H.E.S.C. just increased its coverage
to $2 million. Indemnification by First Wachovia Student Financial Services and
H.E.S.C. was discussed. At this point Mr. Schultz noted that the D60 liability
insurance to cne of the agenda items of the Finance Committee which was not 1
reached at its first meeting. The consensus of the board was for the Finsoce
J I Committee to research Di0 liability coverage and report is recommendations to
the Board by the end of the year.
r r { Ms. Bryan advised that in an effort to match premiums to risk, TGSLC has
changed its schedule of insurance fees for future student loans. The risk is
the greatest in the first two years, so the premium is 32 for the first two
years. The premium goes down to 22 for three, four and five year students; and
for graduates and above, the premium is only 1%.
Ms. Bryan reported that because Congress has not reconciled its
differences on the budget, Gramm Rudman will probably be implemented which will
+ cause the origination tee charged to the borrower on student loans to increase
1/2x and cause lenders to receive 25 basis points less special allowance. There
is no way to know it this will be permanent, but everyone is prepared for it.
Agenda Item IV - Report from Finance Committee. Mr. Schults advised
that during discussions at the Retreat, it was determined that certain
professional relationships should be revisited periodically. With the addition
of new members to the finance Committee, it was felt that it would be an
opportune time to begin. He then reported that the Finance Committee met on
September 7, 1989 and that he was appointed chairman.
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It war determined that one of the first recommendations of the Finance
Committee i-i order to accomplish the goals set at the Retreat would be to
re-evaluate the area of Financial Advisor. Because the Authority's financial
advisory contract with Hatcher 6 Company required a 90-day termination notice,
it was decided that notice should be given right away, which has been done. Mr.
Schultz explained that this action was taken not because Hatcher 8 Company would
not be considered for re-appointment, but in order for the Authority to be
postured to stake a selection on a timely basis once the process began. A list
of suggested firms has been compiled. The Finance Committee also feels the
underwriter situation should be re-evaluated; but because the Financial Advisor
should be involved in that selection, the Committee recommends that this
evaluation be done after the Financial Advisor has been selected. '
In regard to Bond Counsel, it was determined that tha Authority would be
very adequately represented by the new representative from Fulsright b Jaworski,
Ms. Kathleen Ellison, who has workid very well with the Authority In the paec
and comes highly recommended.
The Finance Committee also recommends reviewing other accounting firma to j
perform the Authority's annual audit. The 1989 audit is already in progress, so j
any change would be for 1990. Mr. Schultz pointed out that no one is unhappy
with the services of Peat Marwick Hain; but as discussed at the Retreat, certain
re-evaluations should be made periodically. Therefore, the Committee recommends j
that RFPa be sent to four accounting firms including Peat Marwick Main. The
Committee felt it was in the best interest of the Authority to solicit proposals +
from only national Big tight firms, given the potential exposure of the.
Authority and the excellent reputation of these firms.
Mr. Schultz advised that another item that needs review is the Authority's f~f
Investment Policy. One of the Finance Committee ■embera, Mr. Gene Wilton, is i
currently drafting a new investment policy for consideration. The Committee
alio feels a summarised version of the financial statements whicl: will be more
comprehensive and easier to understand is another item for consideration. A
y summary would perhaps shorten the reporting portion of the Authority's ■eetiogs.
Mr. Schultz advised that the agenda for the September 7 meeting was quite
ambitious and that not all Items were covered at that time. The next meeting is
planned for October 25. '
Ms. Bryan advised that Mr. Generes did talk with Mr. Elbert Morrow of
Fulbright b Jaworski regarding travel expenses for the representative from
Houston. Mr. Morrow advised that the Authority would not be charged for either
No. Ellison's travel expense or travel time and that the Authority was not j
charged for this in the past when she represented the Authority.
The meeting recessed for dinner at 7:05 p.m, and reconvened at 7:50 p.m.
Agenda Item V - Executive Session Involving the Appointmeat, Imploymeat,
Evaluation, Reassignment, Duties, Discipline or Dismissal of Employees or
Consultants of the Authority Pursuant to See. 2(g) of the Open Meetings Act and
Agenda Item VI - Resolutions Relating to Recommendations from finance
Committee, The Presiding Officer stated that because there will be discussion
of contractual relationships with consultants which is not covered under Section
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2(g) of the Open Meetiars Act, the Board would not meet in Executive Session.
- He did suggest though that the non-Board members excuse themselves from the
I meeting, excluding staff, until they are recalled. He also informed there that
they were oot required to leave the meeting and could remain during the
discussion if they chose to do so.
The following persons were oot present during consideration of Agenda
item V and VI: Mr. Vic Bloede, Mr. Carl Ceneres, Mr. Barry Cray and Mr. Robert
Patterson.
The Presiding Officer stated that recommendations of the Finance
Committee would be considered at this time. Mr. Schultz anted that as mentioned
eartier Me. Bryan has researched and identified some candidates for Financial
Advisor and has drafted an RFP letter which looks very appropriate. me advised
that it is the Fiance Committee's recommendation to proceed with circulating
s RFPs for responses as soon as possible, if the Board approves. No. Bryan I
suggested that responses be requested by Friday, October 70, in order for the
Finance Committee to have time for evaluation before its meeting on Tuesday,
October 25.
After discussion, ■ motion was made by Dr. Keffec to authorise the
Finance Committee to proceed with the requests for proposals for financial
advisor, underwriter and accounting firms, to evaluate the proposals for each ,
category and bring its recommendations to the Board. The motion was seconded by
Dr. McDaniel. Vote unanimous.
j In line with the review of other professional relationships of the
Authority, it was agreed that it would be appropriate at this time to also
revisit the area of Ceneral Counsel. A notion was made by Dr. McDaniel and
seconded by Dr. Keffer to authorize the Finance Committee to review the nature,
` t scope, role and compensation of the Ceoersl Counsel and to report its
recommendations to the board at its text meeting. Vote unanimous. + +
Mr. Walton pointed out that the Board's experience with the professionals
y} overall is trgard to the failed 1488 bond issue was very unfavorable.
Finance Committee then asked Ms. Bryan to invite Mr. filbert morrow to attend its
meeting on October 25, She advised she would do so.
The Board commended the Finance Committee for its excellent work and
appreciation for the progress toward accomplishiag the goals outlined
expressed at the Retreat.
Mr. Schultz then moved that Mr. Anderson be included on the Finance
Committee, given his investment banking background and financial expertise, if
he would agree to do so. Mr. Anderson indicated he would be willing to serve.
The notion was seconded by Mr. Walton. Vote unanimous.
! At this point, those persons who bad excused themselves from the meeting
were invited to rejoin the meeting.
The Presiding officer then summarized the actions taken by the Board
during discussion of Agenda Item VI for the non-Board members, advising that
motions were entertained and approved to re-evaluate rye contracted services of
the financial advisor, underwriter and general counsel. He explained by
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re-evaluate the Board simply wishes to look into the role and scope that these
f individuals are playing and the compensation structures the Authority is
j currently operating under to determine whether any restructuring or adjustments
are needed. The Finance Committee has been directed to report its
recommendations to the Board at a future meeting. He added that Hr. Anderson
` has been appointed to the Finance Committee also.
Agenda item VII - Discussion Relating to Use of Surplus Fund for Student
Loans. Ms. Brown advised that presently investment rates are approximately 81
and the Authority is getting shorter on funds available to purchase student
loans. For this reason, she asked that the Finance Commtime be authorised to
}E look into the feasibility and cost of perhaps using general surplus money and/or
1982A surplus money to buy student loans. She added that if the Authority
funded the "Sasyloans," it would probably realise 91 minimum return. Discussion
ensued and the Presiding Officer asked what level of participation Ms. Brovn
feels would be needed because of the possibility of the Authority needing
" surplus funds to fund costs of future taxable financings. She explained that it
would only be a temporary investment in "EasyIoans" until they could be
purchased by a taxable line or tax-exempt line as needed.
Dr. Reffer moved that the Finance Committee be authorised to study the
feasibility and cost of using the surplus fund to purchase student loans on a
temporary basis and report its recommendation to the Board. Mr. Schultz E
seconded the motion. Vote unanimous.
Agenda Item VIII - Other Business. Ms. Bryan reported that the
Authority had received another request from the Greater East Texas Higher
Education Authority to purchase $500,000 in loans for then and hold the loans
l for 60 days. Me. Bryan advised that upon review, 401 of the loans were i
+ proprietary and also GMEA could not guarantee it could repurebase the loans in
60 days. She discussed this with Governor Jackson and they decided against
purchasing the loans for GETHEA. Dr. Eeffer expressed concern that an authority 1{
continues to have purchasing problems of this nature.
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Agenda Item IX - Adjourn. There being no further business, the
meeting adjo-sraed at 8:29 P.m. I - ~
• MINUTES APPROVED this the day of 1989.
! i
Pres dent, nerd D rectors
North Texas High r Education
Authority, In .
ATTEST:
I !
Ae 'scan Secret , board of Directors I
North Texas Higher Education Authority, Inc.
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j MINUTES OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS '
OF TER NORTH TEXAS HIGHER EDUCATION AUTHORITY, INC.
j
A Special meeting of the Board of Directors of the North Texas Higher
Education Authority, Inc. convened at 5:05 p.m. on the 9th day of November, 1989
in the City of Irving, Texas with the following Directors presents
Mr. Governor Jackson, President
Ns. Nets Stallings, Vice President
Dr. Wayne Duke, Secretary/Treasurer
Mr. W. Jay Anderson, Director
Dr. Lindsay Keffer, Director
Mr. Jim D. Schultz, Director +
Mr. H. Eugene Walton, Director
Mr. Ken Woods, Advisory Director
Mr. Jack Eastwood, Ex-Officio Member
and the following Directors were absent:
Mr. James Brock, Director
Dr. Carl D. McDaniel, Jr., Director
Mr. Johu F. McCrane, Ex-Officio Member
Others in attendance:
Ms. Phyllis Brown, Higher Education Servicing Corporation
Mo. Kathryn Bryan, Higher Education Servicing Corporation
f Ms. Ronnie McCharen, Higher Education Servicing Corporation
' Mr. Elbert Morrow, Bond Counsel
i, Mr. Carl Genres, General Counsel
L Mr. Robert Patterson, MTrust Corp, N.A.
Mr. John Rupley, MTrust Corp, N. A.
Mr. David P. Dresbach, Evensen Dodge, Inc.
! Mr. Don Wyasynaki, Evensen Dodge, Inc.
Mr. John M. Lemmon, Government Finance Associates, Inc.
E Mr. Peter D. Dilks, Public Financial Management, Inc,
Mr. Brendan Meyer, Public Financial Management, Inc.
0 Agenda Item I - Introductory Remarks. The Presiding Officer called
the mestiug to order and welcomed those present. He then introduced Mr.
Anderson, a new Board member, to those members and guests who were not at the ,
last meeting.
Agenda Item II - Approval of Minutes of Meeting Held October 5, 1989.
A motion was made by Dr. Keffer acid seconded by Mr. Walton to approve the
Minutes of October S, 1989 as presented. Vote unanimous.
W" 0 Agenda Item III - Progress Report from the Higher Education Servieias i
Corporation. Ms. Bryan advised that the Progress Report would be brief to
conserve time. She reported that one important item that should be noted is tht
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availability of acquisition money. The Fuji Line of Credit is being spent down,
f and the only other financing in place at this time is the Sallie Mae Line of
Credit. The amount remaining in the Fuji Line is $11.8 million, and there will
be approximately $2 to $3 million in recycled money from the 1487 Bond Series
which should meet the commitments through March if purchases remain stable.
This would allow time to complete a new financing, if cap is received in
January, and avoid using the more expensive funds from the Sallie Mae Line.
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Ms. Bryan advised that Mr. Rupley would give a short report on the status
of the sale of the Trustee, MTrust Corp, N.A. Mr. Rupley reported that three
weeks ago MCorp r^nounced that it hid agreed in principal to sell MTrust through I
the bankruptcy court. MTrust is part of the MVestment group which also includes
MRealty, MPetroleum, MSecurities, all of which MCorp plans to sell to AmeriTrust j
which is headquartered in Clevoland, Ohio. Mr. Rupley explained that it is his
understanding that the transaction will be one in which MTrust's organizational
fora will remain entirely in tact. The Chairman of MVestment will report i
directly to the Chairman of AmeriTrust rather than consolidating the trust
functions of AmeriTrust in Cleveland with MTrust. Basically the combinations of
the two in terms of size will give AmeriTrust approximately the 5th largest
trust entity in the country. Mr. Rupley advised that AmeriTrust will be a
strong, aggressive parent from the standpoint of acquisitions, as well as trust f
business across the country. The process should be completed by the end of the f
year, with a definitive agreement by January, or early February at the latest,
and at that point s name change will occur.
Ms. Bryan reported that the Department of Education is holding ,
Reauthorization hearings around the country (six to eight in all) to find out j
what cbanges need to be made in the student loan program. She advised that she
attended the hearings held in Dallas for the last two days and that it was very
interesting. Of the 57 people who signed up to testify in Dallas, 2F were from
proprietary schools and the rest were from two and four year schools except for
two banks and the Consumer Bankers Association. There are a lot of concerns
from different people wanting different things. Proprietary schools are wanting
to make sure Title 1V funds remain available to their schools. The two and four
year schools are concerned that there is too much of the SLS money out there and
j want to restrict SLS money to second or third year students and give more grants
I for the first couple of years or even the first year alone. Everyone had a
voice, and it will be interesting to see what comes out of this. Dr. Joe Henry
testified for Nigher Education Servicing Corporation, voicing concerns regarding
how defaults a-e affecting the authorities, the guarantor sod others and what
steps might be taken to improve the situation. Ms, Bryan added that she would
keep the Board informed on the results of the hearings.
Agenda Item IV - Report from Finance Committee. Mr. Schults, the 1
Chairman of the Fiisoce Committee, reported that the Committee met October 25
for the privary purpose of evaluating the proposals received for Financial
Advisor. He noted that a list of all the firms that were solicited and the
status of their responses was included in the agenda packets. Mr. Schultz
advised that a lot of thought and time was given to identifying just what the
Authority's expectations of a financial advisor should be. The Committee did
narrow the firms to be considered down to three, and representatives from each
one will be making presentations later in the meeting. Mr. Schultz noted that
the Authority's bond counsel attended the Committee meeting at no cost to the
Authority and provided some very valuable input regarding his thoughts as to 1
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what is important in regard to a Financial Advisor. Mr. Schultz added that i
there are many things the Authority is looking for, but one of the primary
thrusts will be to engage someone who can function as a "quarterback" for the I
Authority. Someone who is very knowledgable regarding student loan bond
financing and can take charge, construct a transaction and coordinate the
underwriter and other parties in order that the Authority's business can be
performed in a more efficient manner. Ms. Bryan pointed out that after
reviewing all of the respunsfs to the RFP, it became apparent tbit there were
many other services that can be obtained from a Financial Advisor that the
Authority has not.been receiving from the current one. This is one of the
reasons the current Financial Advisor vas not selected as one of the final
three. !
Mr. Schultz advised that the Committee also spent some time evaluating i
the Authority's Investment Policy. The Committee is not prepared at this time
to make any recommendations to the Board, but will continue its evaluation at
the next Committee meeting.
Agenda Item V - Presentation of Proposals to Serve as Financial Advisor
to the Authority. At this time the Board heard presentations from
representatives of the three fires selected for consideration. The
presentations were made by the following:
A. Mr. David P. Dresbach, Vice President
Mr. Don tlysaynski, Senior Vice President and Principal 1
Evensen Dodge, Inc.
222 South Ninth Street, Suite 3800
s Minneapolis, MN 55402
B. Mr. Brendan Meyer, Senior Managing Consultant a
Mr. Peter D. Dilks, Managing Director {
Public Financial Management, tne,
~R Tvo Logan Square, Suite 1600
x 18th and Arch Streets
t Philadelphia, PA 19103-6933
! C. Mr. John M. Lemmon, Vice President and Manager '
Goverment Finance Associates, Inc.
44 Montgomery Street, Suite 500
San Francisco, CA 94104 {
The representatives of the three firma were present only during their , i
individual presentations and question and answer periods.
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At this time, Mr. Elbert Morrow advised that he had news regarding the '
Texas Guaranteed Student Loan Corporation (TCSLC) that would be of interest to {
1 the Authority. TCSLC filed a restraining order to keep the Department of
{ Education from offsetting approximately $3 million that TCSLC bad been asked to
i return from the advances made to TCSLC when it was first organised. Lost
l Thursday the federal court refused the restraining order--and on Friday the y
Department of Education proceeded to make payment to TCSLC on an $11 million
insurance benefit claim, but deducted the entire $3 million. TGSLC had stated
in its pleadings that if the federal government offset the $3 million, TCSLC
would be in breach of their contractual obligations to maintain a It reserve j
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I with the Authorities and others. TGSLC did not ask for declaratory judgment, } ~Al
f they just sought to restrain the Department of Education. Mr. Borrow advised
that he has talked with Mr. Joe McCormick of TGSLC who indicated that there
should not be too much concern that TCSLC was in default on that agreement due !
to the growth in TGSLC's reserve funds during 1989. Mr. McCorwick advised that
TGSLC is solvent. Mr. Morrow reported that he asked Mr. McCormick what he
proposed to do because an event of default as guarantor is an event of default I
under trust indentures and is subject to cure provisions for 30 days. Mr.
McCormick advised that TGSLC has a sufficient amount of assets that could be
sold to cover the lx guarantee, but he did not say that this would be dine, only
that TGSLC had the capability. Mr. Morrow advised that a Financial Advisor for
anotht. 'uthority suggested that TGSLC should meet with the approximately seven
banks .nst currently provide liquidity and letters of credit to the authorities
and explait that TGSLC does have adequate reserves and is financially sound.
Mr. McCormick has agreed to such a meeting. Mr. Morrow suggested that HTHEA ;r
might wish to have its new Financial Advisor involved in this process.
Mr. Generes asked Mr. Morrow if this means the Authority has been
officially notified that TGSLC has breached the reserve agreement to which the
Authority and Fuji Bank are parties, and is the Authority obligated to notify
Fuji Dank. Mr. Morrow stated that it was not uecessery at this point, but
recommended that someone from the Authority contact Mr. McCormick to see if
TGSLC has cured the default. If it has been cured, the Authority has no further
,17 obligation. Mr. gupley stated that the Trustee would probably wait the 30 days I
before any action since apparently TGSLC will take steps to cure the default '
within that length of time and no action will be necessary,
Mr. Morrow noted that the TGSLC situation will have an impact on the
Authority as discussed by the financial advisory firma in their presentations at 1
this meeting. They talked very straight forward about the credit received by
the Authority being based in part on the financial solvency of the guarantor,
TGSLC. Discussion.
t The meeting recessed at 7:30 pan. for dinner and reconvened at 7:46 p.m.
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Agenda Item VI - to olntion Relating to Acceptance of a Proposal from a i
,i Firm to Serve as Financial Advisor to the Authority. Kra Schulte opened the ,
discussion regarding the proposals to serve as Financial Advisor to the
r Authority and suggested that each person express their observations regarding
. , - each.
After opinions were stated and discussed, Dr. Reffer moved to approach
Government Finance Associates, loc. to serve as Financial Advisor to the
Authority and to authorise the Finance Committee to negotiate the terms of the f
contract. The motion was seconded by Drs Duke. Vote unanimous.
Dr. Duke and other members of the Board expressed their appreciation for I
the excellent work of the Finance Comittee.
Kr. Schulte asked Ma. Bryan to contact each of the presenters and notify
them of the board's decision in regard to Financial Advisor and to inform
Government Finance Associates, Ioc, that the Authority is interested in
negotiating a final contract. Discussion ensued regarding representation and
fee structure. Ms. Bryan was directed to request a proposed contract from Kra Y
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S Lemmon of Government Finance Associates, Inc. as soon as possible. Mr. Schultz
advised that as soon as the proposed contract is received, the Finance Committee
will meet to review it for final negotiation. Mr. Schultz also asked Ms. Bryan
% to advise Mr. Lannon that if a contract is entered into with Government Finance
Associates, Inc. that step one will be to begin the RFP process for underwriter.
Agenda Item VII - Other Business. Mae Bryan reported that she net
I with Bank one in Fort North, and they are very interested in providing a letter
of credit for the Authority and would like to discuss this with the new
Financial Advisor when appropriate. The Board expressed appreciation for Bank
One's interest.
Mr. Woods advised that be serves on the Proprietary School Advisory
Commission and that the Commission has just submitted to the State Department of
Education for third reading changes to the rules for proprietary schools. He t:l
added that there has been a lot of tightening in that area which he feels will
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improve the situation. It will increase Texas Education Agency's authority to +
sake more changes and help everyone. Ms. Bryan thanked Mr. Woods for that good
1 news regarding proprietary schools.
Agenda Item XII - Adjourn. There being no further business, the
meeting adjourned at 8:31 p.m.
tit
MIMES APPROVED this the 4 day of , 1989.
r
t resident, rd of rectors 1
North Texas Higher dueatlon
Authority, Inc.
7
ATTEST-3
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, Directors
o,thtTeYaseliighir EdueationfAuthority, inc. F
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MINUTES OF A SPECIAL MEETING
OF THE SOAP.D OF DIRECTORS
OF THE WORTH TEXAS HIGHER EDUCATION AUTHORITY, INC.
{
A Special meeting of the Board of Directors of the North Texas Nigher
Education Authority, Inc. convencd at 5:34 p.m. on the 21st day of December,`
} 1484 is the City of Irving, Texas with the following Directors present:
E Mr. Governor Jackson, President
I Me. Nets Stallings, Vice President
Dr. Wayne Duke, Secretary/Treasurer
Mr, W, Jay Anderson, Director
Mr. Jim D. Schultz, Director
Mr. H. Eugene Walton, Director
and the following Directors were absent:
i Mr. James Brock, Director ,
Dr. Lindsay Keffer, Director
Dr, Carl D. McDaniel, Jr., Director
Mr. Yen Woods, Advisory Director
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Mr. Jack Eastwood, Ex-Officio Member
Mr. John F. McGrane, Ex-Officio Member
others in attendance: {
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Ms. Phyllis Brown, Higher Education Servicing Corporation i
1 Ms. Kathryn Bryan, Higher Education Servicing Corporation
Ma. Bonnie McCharen, Higher Education Servicing Corporation
- Mr. Carl Generes, General Counsel ,
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Mr. John M. Lcmmon, Government finance Associates, Inc.
No. Kathleen Ellison, Fulbright 9 Jaworski c
r Mr. Mark Thompson, Bank One, Texas, H.A.
Mo. Sharon Bryant, Bank One, Texas, N.A.
*
Mr. Tao Joaey, City of Denton, Texas
Mr. Phil Marshall, Peat Marwick Main
The.Presiding Officer called
r a, Agenda Item I Introductory Reaar=went. He then introducid• tie.
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the meeting to order and welcomed those p t;
Kathleen Ellison of Fulbright 6 Javorski, Mr. Phil Marshall of Peat NTrv?e~
Ma k
in, Mr. Mark Thompson and Ms. Sharon Bryant of Bank One, Texas, N.A.,
Joaey of the City of Denton, Texas; and Mr. John Lennon of Government Fieanee
. Associates, Inc.
• Agenda Item II - Approval of Minutes of Meeting T3a1d November 9, 1984.
k motion was made by Ms. Stallings and seconded by Dr. Duke to spprove the.
Minutes of November 9, 1989 as presented. Vote unanimous. a~
1 Agenda Item III - Audit Report for Fiscal Year Ended August 31, 1989 by
Peat Marwick main BCoualified opinion, stating that h theufina cial and U Mr. Marshall presented that it was :clean, un4
; present fairly the financial position as s result of operatioaHes odf the
thatian
in accordance with genitally accepted accounting principles.
additional paragraph (page 2) has been added to the report this year to
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highlight the changes in accounting principles as a result of Financial 1
Accounting Standards No. 91, adopted in 198!. The Balance Sheet reflects a
I ' alight increase is cash and cash equivalents. Marketable securities decreased s
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1 substantially as detailed in the Statement of Cash Flows. The fund balance
decreased approximately $24,000 which was very slight. Each issue does have {
a positive fund balance, and there is approximately $4.5 million in surplus
funds. The total fund balance is $6 million. Total revenues increased $1.3 1
Mr. Marshall pointed out that
million, ;nd expenses increased $1.85 million.
the loss reflected on extinguishment of debt (defeasance of 1982A) in the amount
of $817,503 was due to the high rates on the bonds which required the use of
more cash.
I Mr. Schultz noted that Miscellaneous expense increased substantially and
asked what items ore included. Mr. Marshall explained that a breakdown of
Miscellaneous Expenses is not included in the Statements provided in the agenda
packets, but is provided in detail in the Statement that is issued to the
j Department of Education. Ms. Bryan explained that all of the costs of the E
Sallie Mae financing, the Sallie Mae commitment fee, and the legal fees for the 1
failed 1988 bond issue (which were substantial) make up the major portion of
~ Miscellaneous Expense. Mr. Schultz noted that perhaps in the future such items
should be broken out into a separate line item, particularly as it relates to
the Surplus Fund. Mr. Marshall agreed and stated that that would be considered
next year. Hs. Bryan advised that the internally prepared financial statements
Miscellaneous Expense also.
breakdown of
for August 31+ 1989 provide a
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Mr. Marshall explained that loan acquisition premiums/transfer feet are
{ now being capitalized in accordance with a new statement of tccountThese ing stsnddrds
are
that the Authority was required to adopt this fiscal year.
being amortized now basically over the life of the loans. He noted that $2.3 ^i
million was transferred from the 1982A issue to the Surplus Fund which was
basically the cash left over after the defeasance. The end result of operations
is a virtual break-even in 1989 compared to $500,000 of excess revenues the year
before. Mr. Marshall pointed out that the Authority still has $6.4 million in
fund balance assets over liabilities and is in a good financial position., tie a
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advised that the Statement of Cash Flows reflects a net hincrease in ere cash of
a $it~o.n.
million. He them reviewed the foot notes s and ad noted there was s one ne exception in
'
r the special report on compliance that is issued to the De rtmitt of
/ He advised that in accordance with the accounting principles it ;was necessaryEo
mention the Arkansas loan that was inadvertently purchased, but otherwise there'
were no exception*. There were no heat that,aeeded to be brought to the Y ~
Board's attention. The audit went very well, and there were only one or two r.
minor control items recommended.
Mr. Schultz suggested that even though there were no material weaknesses
r found that Peet Marwick Main should provide a standard letter to evidence that
there were no weaknesses, simply for the Authority 'a records. Mr. Marshall to i
noted.
Agenda Item IV - Progress Report from the Higher Education Sbriefit Corporation. Ms. Bryan advised that the Progress Report would be
,
conserve time. Acquisition Report. Through December 5th, $29.6million .
purchased into the Fuji Line of Credit; and through
worth of loans have been
December 1, $54.7 million into the 1987 Bond Issue with recycled funds. ;
2. The Portfolio Summary. No. Bryan referred to the November sumary x
which was distributed earlier and noted that the October report was in eluded in fjt
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the agenda packets. She explained that the ~~ovember report became available i]
just prior to the meeting. As of November 30, there were $125 million worth of
loans in the combined portfolios of the taxable and tax-exempt financings. The
delinquency rate is 6.512, and the default rate is 11.29x, Ms. Bryan noted that
the default rate is calculated only from September, 1989 forward--as it is
annualised the rate will decrease. The last fiscal year default rate was just
slightly over 11%.
j 3. Financial Report. Ms. Srysa reviewed the October 31, 1989 financial
statements. The consolidated fund balance is $6 million. Overall for the
month, there was excess revenue of $89,000, and for the year, $230,000. Ms.
Bryan noted the operating account for the defeased 1982A will not be transferred
to the Surplus Fund until the last Trustee fee billing is received and paid.
Bond Series 1987 fund balance is $1.7 million. The Fuji Line is doing very well
and Ms. Bryan reported that she talked with George Kalas of Fuji Bank recently
who commended HTHEA for the fine performance of the Fuji Line which is doing
much better than two others Fuji has out that are similar. Ms. Bryan explained
that Phyllis Brown monitors the line very closely and is responsible for its
good performance. The balance in the Surplus Fund is $2 million.
Ms. Bryan added that one of the items on the agenda of the Finance
Committee in very near future is to determine the significant financial items
that should be reported at Board meetings and recommend a procedure for
i presentation.
4. Miscellaneous. No. Bryan reported on the public hearings in
Washington, D.C. in regard to the new proposed regulations, advising that she
did not attend but that she understands the Treasury Department listened to all
of the comments and that the story was well-told by z number of people from j
across the country. Essentially though, no one made any commitment to postpone
? the regulations, they just advised they would consider all the comments and t~
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M1 _ information. -
Mr. Schulte reported
Agenda Item V Report from Finance Committee
that the Finance Committee met on December 12 sad finalized the revised
C investment policy for presentation to the Board. The underwriting proposals;
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were reviewed, and Mr. Lemon's recommendations were discussed thoroughly 'With
him by telephone. Mr. Schultz advised that Mr. Leamon will report on the
t .t~~1 f
underwriting recommendations later. Lamely, the Committee spent some time going J
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through the structure of the proposed finr.nciag to put taxable loans into a
vehicle whereby they can be rolled into a tax-exempt issue after year-end, and
the committee is comfortable with the proposed structure.
Agenda Item VI - resolution Relating to the Acceptance of a Contract y ,
witb Government Finance Associates, Inc. to Serve as Financial Advisor to the
Authority. Mr. Schultz reported that the Finance Committee has reviewed the
revised contract and recemmeads approval. A notion was made by Mr. Schultz and
seconded by Mr. Walton to accept the contract with Government Finance I
Associates, Inc. as presented to serve as financial advisor to the Authority. ; I
Vote unanimous.
Agenda Item VII - Resolution gelatins to the Approval of a Revised
Investment Policy. Mr, Schultz advised that Mr. Walton, Mr. Anderson and Ms.
r Brown were mainly responsible for drafting the proposed policy, and each spent a `j
~V great deal of time and effort. Mr. Anderson advised that the policy is
basically the same, but that the provisions of the policy have been more clearly
r.
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advised that a change in public law now requires that an
stated. Ks. Brown
address
policy be in writing and must several items. The Authority's
prior investment ti od~ican~ woo short
policy houldlsatisfy thetState elaw.
investments to be ■ compared to policies of two other
Hr. Walton reported that this policy was c ~ tax-exempAuthorities
ic the pathe st. low. It simply clarifies procedures
adas the hered [oupdates
haves bee awell
k A notion was made by Dr. Duke and seconded by Kr. Anderson to adopt the
revised Investment Policy. Vote unanimous.
Agenda Item VIII - Resolution Authorizing Delivery oCredStAgreement vith Reven
Issuance and Bank Ones
Authorizing ue
,
One, Tessa, N.A.,
Bond or Promissory Note in an Amount not to Exceed $50,000,000 to
Loans to be
Trust v Texas, N.A., Authorising Execution and Delivery Pledging Indenture of
Association as Trustee, the Student
Servicing be
NTrusc Corp, National
oviding for the Purchased with Higher cEducecionhServicing Corporation and First Wachovia Student
such Loans by
and he Other
coasiderednaadeadvised that
to s be in
Financial Services, •of t
Ellison distributed copies esterday to finalise the documents for the proposed
the working group met only y the documentation to the Board
' transaction which prevented her from providing ,
for review prior to [hiteissuen fortearlysnext,yearnwere hoping
have been working on • possible tax-exempt 6 would be
as poss
that the Treasury regulations
that reason they vantdetofwaitlaa January
and fo
ded or delayed transaction.
before ible
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doing very much work toward this kind o Ns. Ellison advised that he proposed ransaction should place the
Authority is the best possible position
has concluded that according to the
Hr. Greg Jones of
regulations, Fulbright 6 JawoeQkobligatioa next year which was issued
if you are refunding
Ir previous to the January 6 deadline!, ieneyou a ntial entitled to h vEyt isassue j
treated cater the old regulations. ,
tax-exempt issue according to Mr. Lemmon and other financial advisors. Because
the cash flows are tight, it is also essential to have the issue funded with
i loans immediately rather than using it as as acquisition tool which is normally
' f r done.
Ks. Ellison advised that the Finance Committee discussed the best ways to {
has worked
structure t credit facility todthbecause a markets theyt felt ethenewtax-exempt lfiaanciog
very economical comp ehicle, Student loans in the count
should be,used as a permanent financing v
of $50 million would be movewailableefor Fuji iacquiaittoas new She xadvised
financing, making the Fuji 1Y ,
that Mr. Lemmoo had been looking at various credit facilities is regard to
short-tens taxable financing to serve, as a bridge financing to a tax-exempt
` issue early in 1990. Bank One t•.en came forward with a commitment letter #
offering $50 million worth of ere dig which has been reviewed i taXh~t~odpoiat i
Committee and a copy vas included in the agenda packets. t
etabe _ refunded inoa
t, is van felt that ,amount that would %f the l principalh ~
' t would be $49'000 This because 1al0l1ow the Authority to refund $50 million work 1
u I! y
I of loans which is the maximum amount of cap allocation that can be received. < .A
All of the money vould be takes down before January 1. '[hen when the tax-exempt r
is completed, this issue would be gone and the loans would go into the
~ j financing
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G permanent tax-exempt financing at a better rate which should support the loans k
in repayment. 1
Ms. Ellison explained that because of the time limitation to complete the
transaction before year-end which was necessary for the Authority as well as
Bank One, the Bank agreed to use similar documentation to that of the Fuji Line,
a credit agreement and an indenture of Trust with MTrust Corp, N.A. Mr. Lemmoa
is preparing the final cash flows; and the final documents are prepared for
execution. If the Board approves this transaction, it could be closed next week
which is the deadline.
Mr. Lemmon pointed out that when the idea first came up a thorough survey
of the market was made. Fuji Bank was contacted first; but because of the
Japanese situation in regard to student loans right now, they were not
interested. The existing Sallie Mae Line was considered also, but it was
determined that it should be preserved for future liquidity borrowing. Also
there are many complicated requirements in regard to using the existing Sallie
Mae Line. Bank One's proposal was similar to Sallie Mae 'a and within a few
t
the Authority
basis points cost vise. They are providing he ability to finance
and capitalise the cost of doing the line of credit as well as the unamortized
premium and transfer fees which Fuji permitted in the past, but Sallie Mae would
not. The ability to amortize the cost of issuance and still capitalise them
into the long-term financing was a very beneficial option. The Bank One Line
differs from the Fuji Line in that they require the Authority to maintain
available credit separate from this facility in an amount that would enable this
k line to be taken out upon its maturity. Mr. Lemmon noted that he felt it was
I important that the Board be made aware of this one material change, but that he
does not feel that from a financial perspective it is adverse given the purchase
` structure and the existing lines of credit. He noted that the document session
I{ vent well and that the cash flow is looking good. He added that it is actually
a break-even transaction given the sets of fees and income o%-ected from the
loans. Evec. though the Authority will not sake any money wl 'he loans are in
the taxable line, it will not lose any either. He advised ,i by completing
the transaction in time to be under the previous Treasury regulations, the
Authority will realize more income when the tax-exempt issue is completed than ~s
if it had 'gaited because the new regulations will cut surpluses significantly. i;
i' Me. Ellison briefly reviewed the provisions set forth is the formal
resolution which provide for a promissory mote in the amount of $49,505,000, the
credit agreement, indenture of trust with MTrust Corp, N.A. and a servicing.;
agreement with Higher Education Servicing Corporation. She advised that Bank
Qua is also requiring that first vachovia Student Financial Services, Inc. be
used as a rub-servicer of the loaaa during the time the Bank has a security 11
interest in the loans which was already the Authority's plan. she added that
many people are more concerned now about servicing requirements then in the
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past.
Dr. Duke asked who all were involved in the working group. Ms. Bryan
advised that it was composed of she and Phyllis Brow of HESC; Kathleen Ellison, 1
i bond counsel; Carl Generes, general counsel; John Lemmon, financial advisor;
'i
Mark Thompson and Sharon Bryant of Bank one and their counsel, Tom Spurgeon of
i;
{ McCall, Parkhurst, as well as Robert Patterson of MTrust Corp. Ms. Bryan added raj
that the Finance Committee has reviewed the structure and recommends the
transaction which will enable the Authority to accumulate surplus funds it would
otherwise not be able to accumulate.
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A motion was made by Mr. Balton to adopt the resolution as structured and
1 presented by Counsel. Mr. Schulz seconded the motion. Vote unanimous.
Agenda Item IX - Resolution Relating to Acceptance of a Proposal from a
Firm to Serve as Underwriter for a Tax-exempt Financing. Mr. Lemr;on advised
3 that if tap allocation is received January 10, it will be necessary to take
i` action very quickly to complete a transaction in 60 days. It is important,
therefore, to have the financing teas together for that date, and a majortheplayer
re is
is the underwriter. Because the issue will be a current refunding,
k some.complexity involved; so it is important to have an underwriter that is
experienced is that type of financing as well. A request for proposal was sent
to 16 firms across the country in an effort to canvass the market. Proposals
were received from nine firms.
Mr. Lemmon explained the process involved in reviewing and rating the
proposals. A recommendation for an underwriting team was made to the T position,
Committee which was to include two banks in the senior underwriting Manufacturers Hanover Securities, Inc. and Chemical Securities, Inc.
Manufacturers Hanover exhibited a very vide base of knowledge and came highly
recommended. Chemical Securities, inc. was selected primarily because of Robert
Hoffman's experiential knowledge of the Authority which is helpful when entering
into a somewhat complex financing. Robert Hoffman also has extremely good
The two banks would be ,
I I technical ability and also come highly recommended.
co-seoior managers. At the second tier, the recommendation was that Bank One be
one of the co-senior managers and NCNB Texas, the fourth member of the team.
Both of these banks are very interested in getting more experience in the
student loan arena. The Finance Committee approved the recommendation at its
meeting, and later that day it was learned that Chemical Securities had decided
to remove itself from the student loan business and by doing so had removed all
the people who were going to be on the Authority's underwriting team. Mr.
Lemmon advised that he was uncomfortable about going with Manufacturers. Hanover
without Robert Hoffman because Manufacturers Hanover has no previous experience Hof J with the Authority. Then it was learned that Roberth
d man had re urnedto {I
Chase Securities where he had worked before, j
Mr. Lemmoo advised that he discussed this with No.
c ~ proposal
concerns about conflicts of interest if Chase
<
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r s Bryan who advised that there were
were involved in regard to their other clients in Texas. s
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Mr. Lenaoa advised that he talked directly with Chase regarding these,
S rr';I. 1 concerns. Chase indicated that they did not feel there would be a conflict.
at } Mr. Leamon advised that he pointed out two instances to Chase where, thereleould
be conflicts: (1) Chase may learn of a portfolio available in the'State `and;
'+y? mention it to one client before another, and (2) two clients could"be iq,the r
marketplace looking for letters of credit and if only one is available--who
Y would get it. As a result of these conversations, Chase has covenanted to
release information to all clients simultaneously and have indicated that NTHBA
has superior credit quality and would be more likely to receive a letter of I
credit. Chase pointed out that this scenario could happen with any bankers
particularly with one that has 10 or 12 national clients. Mr. Lemmon noted that
that is a good point. He reported that Chase did covenant otter oftcredit '
,
was distributed earlier) that the 1
, . ,
December 14 (the memorandum
will be decided on the basis of credit quality and that information would given j
to all clients at the same time. Mr. Lemmon added that he will actually be
playing a more active role i:. securing a letter of credit for the Authority as
well.
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p~*c• Mr. Lemmon advised that after reviewing the underwriting situation again,
Again there would be two
the recommendation is a slightly restructured team.
senior managers, Manufacturers Hanover and Chase with Bank One and NCNB, Texas.
Mr. Lemmon added that he would be monitoring all of the players. j
Hr. Schultz commended Mr. Lennon for his thoroughness and advised that
the Finance Committee was very impressed with his ability to organize all of the
proposals and to rank them. He ranked all nine of the proposals not just the
top two and pointed out the best attributes in all scenarios in order that the,
Authority could be well informed as to what services can be obtained. Mr.
Schul u added that it was also very interesting how quickly the Authority was
able to move when the facts changed abruptly and felt it was very creative of Mr.
Lemmon co accomplish this. Mr. Schultz then stated that despite the potential
I" be feels on the team that on each one e will keep
the other in check. He then asked Ms, Bryan for her thoughts potential
conflicts.
Ms. Bryan reminded the Board of the recent lebad o experiEnceregardthis
credit provider for the faired 1988 issue. She a
particular transaction, there could be a conflict in regard to a letter of
credit provider and that hopefully Chase will abide by their covenants at stated
in their memo. She added that 'wo co-managers will provide outurtuissuesor
ach ones performance in regard t any
the Authority to evaluate e
,
Dc. Duke noted that an added dimension is that it appears the Authority
has a Financial Advisor that will look out for the best interests of the ki
Authority.
Discussion ensued. Ms. Bryan advised that one point she would like to
)I,
make in regard to the point made by Chase--that if a banker has 15 other clients
across the country, there may be only one or two letters of credit they could
F
recostmeod--and that is Texas is a different situation. As_everyone „knows; the I
guarantor does not stack up as well as some other guarantors, and if as
L 14
underwriter has only one client in Texas' it sakes a difference. ` Chase does
' have two other Texts clients; And Manufacturers Hanover may hsva a lot of
clients nationally, but they have no clients is Texas. Me. Bryan added that the
was"not necessarily advocating using one underwriter, but she just felt this
~n
needed to be mentioned. She indicated also that she did think it was probably"d
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L., good idea to keep Robert Hoffman is the transaction at this point. j
The Presiding Officer advised that a point he would like to street is
r ; t that the Authority does want to rely more on the financial advisor to pursue
these credit facilities rather than just the undetiwritetis to 'order that the y
types of scenarios the Authority hat experienced in the past can be avoided.
A motion was made by Mr. Balton and seconded by Dr. Duke to approve'
Manufacturers Hanover and Chase Securities at co-senior managers as well as sank
One, Texas, N.A. and NCNB Texas to serve as underwriters is the structure
proposed by the financial advisor for the 1990 tax-exempt issue. Vote ,
} unanimous.
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Me. Ellison advised that in terns of • r~
Agenda Item I - Other Business. ,,tom
~ for ca allocation
the tax-exempt issue authorization is needed to (1) apply hearing which' to n
with the Texas Department of Commerce, (2) set up a public
requirement for a tax-exempt issue, and after the public hearing (3) request
approval from the Cities of Arlington and Denton.
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A notion was made by Mr. Valton to authorize the procedures to apply for
i cap allocation with the Texas Department of Commerce, take the necessary steps 4
to hold a public hearing and request approval from the Cities of Arlington and
Denton to enter into a tax-exempt financing. The motion was seconded by Dr.
Duke. Vote unanimous.
Agenda Ites RI - Adjourn. There being no further business, Dr. Duke
moved to adjourn. The meeting adjourned at 7:55 p.m.
MINUTES APPROVED this tbe,59tZ day of , 1990. r.
President, Boa d of ectors
North Texas Higher ucstion
Authority, Inc.
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ATTEST:
'I
Assi teat See etary, Soar Directors Y
north exas Higher Educate Authority, Inc.
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MINUTES OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS
OF THE NORTH TEXAS HIGHER EDUCATIOM AUTHORITY, INC-
A Special meeting of the board of Directors of the North Texas Higher
Education Authority, Inc. convened at 5:40 p.m. on the 30th day of January, 1990
in the City of Irving, Texas with the following Directors present:
{ Mr. Governor Jackson, President
Ms. Nets Stallings, Vice President
! Dr. Wayne Duke, Secretary/Treasurer
1 Mr. W. Jay Anderson, Director
Mr. Jim D. Schultz, Director
t Mr. H. Eugene Walton, Director
f Mr. Ken Woods, Advisory Director
I Mr. Jack Eastwood, Ex-Officio Member
` i
and the following Directors were absent:
Mr. James Brock, Director
Dr. Lindsay Keffer, Director '
Dr. Carl D. McDaniel, Jr., Director
Mr. John F. McGrane, Ex-Officio Member
Others in attendance:
ai
Has Phyllis Brown, Higher Education Se+vieieg Corporation
Ms. Cathryn Bryan, Higher Education Servicing corporation: I
4 Has Ronnie McCharen, Higher Education Servicing Corporation {
Mr. Carl Geaeres, General Counsel f
Mr. Jobe M. Lesson, Government Finance Associates, Inca ;
t a
Mr. Elbert Morrow, tUlbrfgtit i Jarorski r'
INTO Robert Patterson, MTtiust Corp, X.A.
, Mr. Jobn Rupley, MTrust Corp, M.A. :i
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y; Agenda Item 1 - introductory Remarks, The Presiding Officer called i-
' the ■eetiag to order and welcomed those present.
4 Agenda Item It - Approval of Minutes of Meeting Held December 210-
1989. A motion was made by Dr. Duke and seconded by Ms. Stallings to approve .
I the Minutes of December 21, 1989 as presented, Vote unanimous.
Agenda Item III - Progress Report from the Higher Education Servicing
Corporation. Ma. Bryan reported that Mr. Murray Watson of the Brazos
Authority is seeking to foes 14 additional authorities which would greatly s
-04
improve his chances of receiving cap allocation. She explained that when Mr.
Watson's plans first became known just prior to the cap allocation (at that time t
fire or six now authorities were mentioned) that Mr. Bill Davis of the South
Texas Authority and she immediately began trying to determine what could be done y
and contacted the other authorities regarding a coordinated effort. It was felt >a
that a latter to Mr. Watson from the other Texas Authorities addressing the
situation and requesting a response regarding his inventions should be the first t,
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approach in an effort to resolve the problem among the authorities. Then Mr.
Paul Sheldon of Chase Securities who serves as underwriter for the Brazos
Authority at well as NTREA talked to Mr. Watson and advised that Mr. Watson was
t not filing more than one application this time; therefore, there should be no
concern regarding this particular cap allocation. In the meantime, all of the
other Texas authorities except two had agreed to sign the letter drafted to Mr.
Watson. Creator East Texas Authority advocated contacting State agencies i
I directly about the situation, and the Abilene Authority was uncertain about the 4
wording of the letter. Because all were not in agreement, the letter bad not
been sent when it was discovered that the actual number of new authorities Mr.
Watson was attempting to fors was 14 which would just about kill the chances of t
i
other existing authorities receiving cap allocation under the lottery slatem.
Ns. Bryan advised that the latest suggestion that Mr. Davis and she have is for
i all of the existing authorities to sign off on a letter to the Texas Department
I of Commerce recommending that in the future higher education authority
applications for cap be accompanied by approved plans of doing business. It
would be very difficult for Hr. Watson to get a plan of doing business approved
for all 14 new authorities, and it is felt this would prevent him from carrying
out his plans. j
Mr. Rupley advised that another entity that is not a higher education j
authoritY+ San Antonio Housing, has filed for 21 applications for allocation,
.
but the emergency ruling which vent into effect stopped them. Ms. Bryan
explained that the Texas Department of Commerce did pass an emergency rule that
any issuer had to be in existence as of January 1 for 30 days, and only one
application per issuer would be accepted.
J Mr. Wilton expressed deep concern about the Brazos Authority's actions 4
and recommended that MU SA take immediate action to prevent the Brazos i
Authority or any others from attempting this type of thing. Re added that f,
perhaps the situation should be brought directly to the Caveroor s attention or l i
perhaps a lawsuit should be filed against the Brazos Authority. Discussion
ensued ■s to what course of action should be taken to combat this problem. Ns.
Bryan noted that there will Fe at least a few months to work on this before sap'. ~
is allocated again in January of next year; however, it is posiible Wit Mrs f
1 Watson might apply for whatever cap becomes available in September of this year.
' y Mr. tupley suggested that perhaps the special session of the legislature
could be approached about the situation. It was mentioned that one of the items
the special legislation is scheduled to consider is asteadi'ng the education cods,
and perhaps one way to resolve the problem would be to arrange having an
amendment that would take care of it attached to a bill that is to be
introduced. All of the authorities, of course, would need to agree on the
language for the amendment. Discussion ensued regarding the fact that the plan 1
of doing business is mainly a federal government requirement ■nd that
clarification in the State law relating to allocation of cap would accomplish
the purpose. If that approach is not successful, then more drastic action might
r be taken as discussed. It was suggested that Mr. Genres, Mr. Bob 2i4mski of f
COSTEP and its general counsel might draft the language for the amendment.
A motion was aide by Dr. Duke to approach the special session of the
state legislature regarding legislation to clarify the law relating to cap
allocation to order to prevent as entity from establishing additional ;
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corporations for the purpose of improving its chances of receiving cap
allocation. The motion was seconded by Mr. Walton. Vote unanimous.
1
Me. Bryan asked if all of the board received Peat Marwick Main's response
to the Authority's request for a no material weakness letter and if they were
satisfied with 6e response. Peat Marwick Main has pointed out that a statement i
evidencing there were no material weaknesses found is included in the audit
report. The- Board indicated they were comfortable with the response.
Hs. Bryan reported that in a recent visit with one of the Authority's
largest lenders, NCNB Texas, she learned that they have completely changed their
strategy on holding their student loans and intend to put the entire portfolio
of $40 million out for bid. She advised that the Authority needs to be ready to
respond, but she has not received any information from them yet and cannot
recommend what the Authority could bid at this point. Mr. Walton asked what the
Authority's maximum capacity for purchasing loans was assuming the $50 million
tax-exempt financing is completed. Ms. Bryan advised that the $100 million
Sallie Mae line of credit is still in place; and after the 1990
transaction, there will be approximately $53 million in the Fuji Line. She
noted that the sur lu's fund would of course have to be used to a
above 11. Ms. Bryan advised that she should have more information on this l by
the annual meeting on February 26.
Ms. Bryan then asked if the Board had any questions in regard to the
Progress Report which was recently mailed to them. There were no questions.
J Agenda Item IV - Report from financial Advisor. Mr. Leamon reported
{ f that on January 23 the Internal Revenue Service released the final rules
relating to arbitrage calculation methodology for student loan revenue bonds
issued after January 5, 1990, but explained that the new regulations will have '
i no impact on the upcoming refunding of the outstanding Bank One taxable i
} obligation because the rules still permic utilizing the old arbitrage
calculation methodology when refunding obligations issued prior to January 5.
The new regulations require the inclusion of'special 'allowance Pi*dbts
i ($A?) in the yield calculation of the loans. Historically, SAP has been
excluded to allow some margin for up-front costs, etc. The new rsgulatieoa do
permit an increase in the loco yield permitted over the adjusted bond yield from.
1.501 to 21, but the inclusion of SAP will probably exceed the .51 increase and
make transactions very difficult. Excess earnings above 2% must be put into a
rebate account; however, there is a benefit that was not available under the old
regulations--the rebate payments only have to be made at the ten-year mark
instead~of the five-year mark and then only 501 of the amount calculated has te.
be paid. This is supposedly to allow for years of gain and years of loss to
negate each other. Another good point is that since all parties in the industry
have been complaining about what was being included in the new regulations, the
Internal Revenue Service has reserved the right to change thes if it appears
that these new rules are in fact onerous regulations. Also if an issuer can
substantiate that part of the yield above the 21 is required to meat operating
expenses for the bond issue and loan portfolio, then that part of the rebate can j
be used to meet those expenses. What expenses will be allowed, however, is
still a little ueelear, f
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Mr. Lemmon reported that the $49,5050000 Bank One, Texas taxable line of li
j credit was successfully closed on December 28, 1989. He added that the !
` time frame co complete the transaction was very tight and commended everyone
involved for their cooperative effort, Bank One vas extremely cooperative
especially being new to the field and allowed the Authority to capitalise
issuance expenses in the line of credit, so they will not have to be paid out of
the Authority's surplus funds. By capitalising those expenses into the line,
they can then be folded into the tax-exempt line to the extent ■ credit provider -
t approves.
If this had not been done initially, these expenses certainly could
not have been recovered from the tax-exempt issue.
The expenses totaled $74,000 which is appropriate for this type of
financial, especially given the tight time frame and the amount of time that had
to be spent on it. Me. Brown noted that one item not included in that total ris
the comitment fee of $14,000 paid up front to Bank One for the first quarter
which is non-refundable. Mr. Lemmon stated that was correct which brings the
total to $98,000. Me noted that $13,000 is a typical up-front commitment fee
for these types of transactions and advised that the fees for all parties were
reasonable, and some were actually quite conservative. The maturity date is
December, 1990, but the plan is to refund the issue with a tax-exempt financing.
The Authority did receive $50 million in cap and plans are to complete a
tax-exempt financing by the deadline of March 19. According to direction by the
Board at the last meetiil, an agreement with the recommended underwriting team
of Manufacturers Hanover Securities, Chase Securities, Bank One, Taxes add NCNB
Texas was pursued. Through the coordinated efforts of the Financial Advisor and
Kathryn Bryan, a reasonable agreement has been negotiated as followas
Management Fee- $125,000 ($2.50 "i
per hoed), Take-down $125,000 ($2.50 per bond), ~r•
and estimated Expenses - $60,000 ($1.20 per bond); totaling $310,000 ($6.20 per
bond). Mr. Lemmon noted that the management fee is a little higher naturally
than if there were only one underwriter involved, but it is actually very -;J
reasonable considering the knowledge and experience of the four managers.
_ The Authority's 1987 variable rate bonds have historically been
remarketed by Chemical Securities and now that Chemical has dissolved its
student loan banking group, it is not advantageous to leave them with Chemical
r f for remarketing. The Financial Advisor is suggesting that the remarketing of
the 1987 Bonds be moved in conjunction with the 1990 bonds to a new remarketing
slant. 'secause the best investment back may not necessarily have the beat
trading desk, separate bids have been requested for the remarketing agreement
and the investment banker. Froposals should be received by February 2.
Proposals for Trustee/Depositary Services were requested from four
i banks/trust corporations, and bide were received from MTrust Corp, N.A.; First
City, Texas; and SEQDOA National Bank, Texas. The proposals will be considered
under Agenda Item VI.
Mr. Lemmon reported that requests for proposals were sent to 25 potential
credit providers. He added that it is still very difficult to find credit S4^i
enhancement and that the entire underwriting team, the Financial Advisor and
f Kathryn Bryan have all played an active part. Bids were due yesterday, and two
proposals were received on time, one from Sallie Mae and one from Marine Midland, f
' Sallie Mae's proposal vita a little more responsive than anticipated, but still j
r not responsive enough. The working group was pleased that Marine Midland
e V.
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` f submitted a bid and are looking at the terns that sight be negotiated. There
were a couple of other banks that could not meet the deadline, but their
t proposals will be considered if they cone up with something beneficial,
Manufacturers Hanover has been playing a very active role is getting Toronto
t Dominion bank to, look at the transaction. Mr. Lem-on advised that he has been
j in touch with a French bank that is interested but has not done this type of
j'
transaction before. It might be
possible
Dominion and the French bank. The National AustraliabBankomayfalso Toronto
interested. Mr. Lemon
noted that hopefully there will be a front runner and a '
backup runner by the end of the week, and a decision can be made quickly.
The regulation which permits the refunding of the taxable obligation with
tax-exempt funds allows the issuance of refunding bonds at 1011 of the taxable
obligation being refunded. Because a $50 million cap allocation was
anticipated, the taxable obligation was sized at $49,505,000 to allow a full 11
or $500,000 in issuance costs to be recovered. Any mount above that must be
paid out of pocket. It is anticipated that expenses above that amount will be
$100,000 to $200,000. Mr. Lemrmon advised that all parties in the working group
are making an effort to keep expenses down to a minimum. He added that he would
keep the Board informed. Ms. Bryan pointed out that this transaction will be I
more expensive percentage wise than if it were a larger transaction because a
$50 million transaction does not have the economies of scale that a $100 million
transaction does. There are certain fixed costs whether it is $50 million or
$100 million.
Mr. Lamson noted that once the present transaction is finalised, the r.i
feasibility of refunding the Fuji line of credit under the same refunding i~
statute sight be researched.
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After cap was received, the working group held a "kick off" Weetinl oa °January 19. Certain aspects of the financing and the financial schedule
were
discussed and responsibilities were assigned. Mr. Lamson reported that everyone
involved was very cooperative and very interested in doing everything possible
;t to assure the smooth and successful completion of the financing and sake cereals
? that the interests of the Authority are
preserved.
i Agenda Item Y - Resolution Eagaling an Vaderwriting Croup, Bond Counsel
r and General Counsel to Structure and Prepare Documents for the Series 1990 Bond
Issuance. Mr. Lemmon noted that the estimated expenses and fees of the
underwriting groups were discussed earlier. He then briefly reviewed the f
proposals from bond counsel and general counsel, both of which reflect the need
to control expenses. The estimated fees and expenses for bond counsel,
Fulbright 4 Jaworski, ■re $126,000. The general counsel, Carl Ge n res, proposed
fee for the opinion, assuming a $50 million issuance of bonds, is $25100 0 and a
fee of $150 per hour for services other than the opinion. Mr. Genres advised E
the estimated other fees would probably not be more than $15,000. The fees
proposed by band counsel and general counsels along with the $310,000
underwriting fees, bring the total for this transaction to approximately j
$476,000. Discussion. }
s A motion was made by Mr. Schultz and seconded by Dr. Duke to engage the
underwriting group of Manufacturers Hanover Securities, Chase Securities Bank
One, Texas and NCNB Texas, bond counsel, Fulbright i Jaworski; and general
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documents for the Series 1990
counsel, Carl Ceneres, to structure and prepare Bond Issuance. vote unanimous.
Agenda Item VI - Resolution Relating to Selection of a Trustee for the
Series 1990 Bond Issuance. Mr. Lemmon referred to the proposals distributed
earlier and advised that Ms. Brown prepared a very iY,orough analysis of the
different kinds of fees and activities that the Trustee/Depositary would have to
perform from the first through the fourth year. He advised that f►om a start-up
point of view, the proposal from First City, Texas was the less. expensive,
He explained however
SEQUOR National Bank was second and MTrust Corp third.
that there is a fee in the existing Trust Agreement for holding the loans that
oust be factored in. When a loan is put in or taken out, there is& fee MTrust
taken from
to cover the service required to do this. if the loans
and placed with either First City or SEQUOR, the cost would be approximately
$52,500. When this amount is factored in, the lowest bidder is Miruac. Mr.
Lemon pointed out that the Authority has been working with MTrust for eo.Ae time
and is familiar with the good quality of service provided by MTrust, whereas
there has been no recent experience with First City acd none with SEQUOR.
Mr. Lemmon advised that charging this type of -fee is common prance,
but, of course, the amount varies with transactions and trustees. SEQUOR
proposed a charge of $1.00 versus MTrust Is $2.50 to take loans outs and lrirst
City's bid did not reflect a charge, but No. Bryan advised that First City would
probably also charge a service fee if the loans were removed. Mr. Schultz
pointed out that the primary difference in the proposals is that MTrust's annual
trustee fee is such higher than either First City or SEQWR and indicated that
perhaps this point should be negotiated with KTrust. Mr. Lemmon noted that the '
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l Authority's documents do require s vary active trustee rota. Me. Brown poioted
out that SEQ WR and KTrust's proposal overall included all activity under oat
annual administration fee whether there are 50 or 5,000 transactions (other than i
the in and out of student loan notes) whereas the First City propoeal,is an.
activity or transaction driven fee. There was a question regarding whether $2.50 ,i
ris on the high side, and Mr. Lemon advised that he would have to research this
i because the transactions he has previously been involved in did not require that
parfee ticular, should for fladdressed regard
the Trustee
to future d finthe aociags`.taxable added fioancogs t in this
After ■ lengthy discussion, Mr. Lesson advised that, given existing
agreements and what has been proposed, !!Trust Corp would be the moat
cost-effective trustee and recommended the selection of MTrust Corp as Trustea.
Mr. Schultz indicated he felt it would be appropriate for the Authority to
discuss with MTrust their administrative feetand howiait compares with te with MTrust others.
s r oa 8 to see
be would
d that
to
and eta
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Ee
Mr. Lemur
if any of the fees are flexible. He added that because of the good relationship
the Authority has with MTrust, he feels MTrust will be villiog to discuss any %
concerns of the Authority. Mr. Schultz added that the
obemas Trustee, essage to bMTr uts because
be that the Authority thinks MTrust has done a goo
of the competition that the Authority has seen through the proposals that it I.
ham fiduciary responsibility for reconciliation.
Dr. Duke moved that the Authority retain MTrw t Corp, as Trustee for the
1990 tax-exempt finsocing. Mr. Schultz seconded. The vote was five "for," none i
r., "against" vith Mr. Walton abstaining. The notion passed, i
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(+c~•~• i Agenda Item VII - Re.%ol1stion Relating to selection of a Letter of
Credit Provider for the Series 1990 bond Issuance and Agenda Item VIII -
Resolution Relating to Selection of a Remarketing Agent for the Series 1990 bond j
Issuance. Mr. Leamon reported that recommendationsi for a credit provider
could not be provided to the board for this meeting because negotiations are
f still ongoing. He added that the timing of the transaction is very short, and
it will be necessary for a credit provider to be involved as soon as possible.
For reason, Mr. Lemmon recommended that the Board authorise the Finance
~a of the Authority to vote on the recommendations. He added, however,
the may wish to hold another meeting to make this decision. If to, the
Board wii', 3ed to meet again on or near February b.
' A mot. was made by Dr. Duke and seconded by Mr. Walton to authorise the
Finance Commit; i to make the selection of a letter of credit provider for the
Series 1990 bo,i issuance with the selection to be ratified by the Board at its
next meeting. Vole unanimous.
Mr. Walton moved to amend the motion to also include the selection of a
remarketing agent as discussed earlier. The motion was seconded by Mr. Schultz.
` The amended motion passed unanimously.
Agenda Item IX - Resolution Authorizing the President of the Board of
Directors to Make a Report Relating to the Series 1990 Bond Issuance to the ,
Texas Department of Commerce. Me. Bryan advised that bond Counsel bas
requested that the board suthorizo, the President to sign the newly required 'j
' report to the Texas Department of Commerce which must state the principal mount
of bonds being issued and list the financing team with their addresses and phone
E numbers. f
A motion was made by Mr. Schultz and seconded by Mr. Walton to authorize {
f the president to sign the report relating to the Series 1990 bond issuance to
the Department of Commerce. Vote uaanimous.
ty Agenda Item X Resolution Relating to Adoption of,a budget for the
bank One Line of Credit. Ms. Brown advised that under the terms of the credit
agreement with soak One, a budget muse be adopted by ?rlHEA and approved by bask
One Texas before any expenses can be paid other than the closing costs. She
q ',L briefly reviewed the budget and noted that she purposely prepared a very
conservative budget. Ms. Bryan advised that Bank One has indicated no problem e-
, with the proposed budget but that a formal approval has not been received.
Mr. Walton moved to approve the Bank one line of credit budget ■s
presented, subject to approval by Bank One, Taxes. Mr. Schultz seconded the
motion. Vote unanimous.
4 Agenda Item RI - Resolution Providing for the Appointment of Higher ii
Education Servicing corporation as Investment Agent for Various Funds and
Accounts of North Texas Higher Education Authority, Inc. and Resolving Other
Matters Incident and Related Thereto. Ms. Bryan advised that the Finance
Committee reviewed the proposed resolution at its last meeting and vas
comfortable with it. The resolution formally authorizes Higher Education
stion (HESC) to be the Authority's agent in investing funds to 1
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Servicing Corpor
take the place of Hatcher i Co. as agreed upon by the Board at the last skating.
She noted that this resolution should actually have been on the agenda for that
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.ase. j meeting, but it was overlooked. Ka. Bryan advised that there would be ao.
[ ! additional fee from NESC for this service. !
5 nt HESC .
A motion was made by Dr. Duke and seconded by Mr. Schultz to appoi ~
as investment agent. The vcte was five "for," none "against,r' with Mr. 3ackoon
abstaining. The notion passed.'
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i Agenda Item XII - Other Business, There being no further bsaineaa,
Mr, Schultz moved to adjourn. Mr. Nalcon seconded the notion. Vote unanimous.
The meeting adjourned at 6:50 p.m.
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HINVIES AYYIOVED this the let-. day of 1440.
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Yrestdent, Bo d of rectors
North Te)les Higher ucation
Authority, Inc. it
ATTM:
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A slant star , board o Directors
North Taxas Higher Education Authority, Inc.
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MINUTES OF THE REGULAR MEETING
OF THE BOARD or P!11 I0R8 4
OF THE NORTH TEXAS HIGHER EDUCATION AU RORITTO INC. 1E
The Regular meeting of the board of Directors of the North Texas Higher
E Education Authority, Inc. convened at 4:42 p.m. on the 19th day of March, 1990
in the City of Grapevine, Texas with the following Directors present:
1 .
Mr. Governor Jackson, President
_ Ms. Meta Stallings, Vice President
Mr. W. Jay Anderson, Director
Dr. Lindsay Keffer, Director
Dr. Carl D. McDaniel, Jr., Director
Mr. N. Eugene Walton, Director
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i and the following Directors were absent:
Dr. Wayne Duke, Secretary/Treasurer
Mr. James Brock, Director
I Mr. Jim D. Schultz, Director
Mr. Xen Woods, Advisory Director a?
r Mr. Jack Eastwood, Ex-officio Member {z?
Mrs John F. McGrane, S:-Officio Member
Others in attendance:
Ms. Phyllis Brown, Higher Education Servicing Corporation
Me. Xathryn Bryan, Nigher Education Servicing Corporation ;
Me, Bonnie McCharen, Nigher Education Servicing Corporation
Ms. Xathleen Ellison, FLlbright A Javorski
Mr. Andy Bye"$ Fluibright 6 Javorksi
Hr. Carl Generes, General Counsel ,i
r _ 1 Mr. John M. Lemon, Government Finance Associates, iae.
+ Mr. Robert Patterson, Ameritrust Texas National Association
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Agenda Item I - Introductory Remarks* The Presiding Officer called
k f the meeting to order and welcomed members and guests. Introductions were
made.
Agenda Item It - Approval of Minutes of Meeting geld January 30, 1990.
9 A motion was made by Dr. Keffer and seconded by Hr. Halton to approve the
Minutes of January 30, 1990 as presented. Vote uvanimouss
Agenda Item III - Election of Officers. A motion vas made by Drs r.
Keffer to rs-elect the currant aiets of officers by acclamation. Mr. Walton
seconded the motion which passed unanimously. The Officers are Mr. Governor
Jackson Presidents Ms
~ , Nets Stallings, Vice President; and Dr. Wayne Dukes
' ' Secretary/Treasurer.
Agenda Item IV - Election. of Executive Committees Drs Xeffer moved
that the existing Committee be re-elected. Mrs Anderson seconded the motion. f;
Vote unanimous. In. addition to the President and Vice President, the members of
the Executive Committee are Mrs James Brock' Drs Wayne Duke and Mrs Cane
Waltoe. ' y'r
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Agenda V - Progress BlPOrC trove the Hi=her Education Servicing
Corporation (HESC). Ms. Bryan advised that the report would be brief in the
interest of tine. 1. Acquisition Report. Mi. Bryan reviewed the annual
{ e wul:tire purchase report. She explained that in the future it will be
1 provided quarterly to provide up-to-date information on leader activity. The
report reflects the amount of purchases from current,participatiog lenders,
M - the total amount of prior purchases from those lenders no longer participating
and consolidation purchases. There was discussion regarding the serial loans
that were to have been received from First City Bank-Arlington (the banks
student loans are now being originated through First City Bank-Houston).
Houston
with the
is contact
Bryan advised that Dr. Joe Henry of H ESC has been
bank regarding the loans but to date none have been received. She advised that
she would ask Dr. Henry to contact the Houston bank again regarding these loans.
2. Portfolio Summary. Ns. Bryan reviewed the February portfolio summary
was 9.86%
the January rfito the gures. meeting. The defa It rote for January there
which little echange available
and 9.68% for February.
Bryan noted the January financials were
3. Financial Report. Ys.
enclosed is the agenda packet. She advised that in order to preserve time she
would not verbally review them but offered to answer any questions the Board
might have.
f 4. Update on Legislative Matters. Has Bryan referred to the discussion
` at the last Board meeting regarding the Brazos Authority's attempt to establish
additional authorities is order to increase their chances of receiving cap
allocation. She reported that as directed by the board she has been trying to
contact Mr. Bob tiemski of CDSTEP, Sarricer for the South Texas Higher Education• F. ,
Authority, to assist her and Carl Ceaeres in drafting laaguage for some
legislation which would prevent this kind of action in the future. Mr. Lietski,
has been out of town, however, and has not been available. Ms. Bryan advised
{ I that she would try to reach him again this week. She advised she would keep the
Board informed.
5. Miscellaneous. Ms. Bryan reported that Deloitte Touche, formerly
Touebe Ross, would be in the HESC offices in the next couple of weeks to conduct
the compliance review for The Fuji Back. She advised that she has also
approached them about the possibility of conducting the compliance review which
is now being required by the trustee. This should cut costa as well as the time
it takes the HESC staff to prepare for the audit. Deloitte Touche has provided
an outline of their due diligence reviews which John Rupley and Robert Patterson
of Ameritrust Texas National Association, Trustee, are now reviewing. If it
meets with their approval and depending upon the cost, Deloitte Touche will
probably be engaged to perform the audit for the Trustee along with the Fuji
audit. Ms, Bryan added that she did discuss the Trustee audit with Peat Marwick
Main, the auditors for the Authority, but no one in their Dallas office was
familiar with this type of review. They advised, however, that their
Washington, D.C. office could provide this service for approximately
530,000-540,000. Another possibility is Arthur Anderson 3 Company who has
proposed to perform the audit for approximately $20,000.
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Agenda Item VI - lapore from the Financial Advisor. Mr. Lennon
reported on the progress of the Series 1990 Refunding Bonds. He advised that
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the Authority did receive a 15 day extension on the 60 day deadline imposed by
the State on cap allocations which has provided much needed time to complete the
transaction. The deadline is now April 3, 1990. ;
Mr. Lesson reported that the Finance Committee was empowered at the last
meeting to select the remarketing agent and the credit provider for the 1990
` bonds and that requests for proposals were solicited. The proposals received
were reviewed by Ms. Bryan and the Financial Advisor, Recommendations were made
to the Finance Committee. The Finance Committee selected Manufacturers Hanover
Securities Corporation as remarketing agen. and the Student Loan Marketing
Association (Sallie Mae) as credit provider. The complete working group has now
been assembled as follows: Corporation Counsel - Carl Ceneres; Bond Counsel -
Fulbright b Javorski; Financial Advisor - Government Finance Associates, Inc.;
Underwriting Team - Manufacturers Hanover Securities Corporation; Chase
Securities, Inc.; Sank One, Texas, N.A.; and NCNB Texas National Bank; Credit
Provider - Student Loan Marketing Association; and Rating Agency - Standard 6
Poor's.
Mr. Lemmon advised that the transaction is progressing toward completion
in a timely manner and that no major problems are anticipated. In regard to the
selection of the credit provider, he explained that proposals were requested
J. from 20 credit providers. The proposals were narrowed down to five realistic
providers which were Marine Midland, Bank One, Sallie Mae, Toronto Dominion and
MBIA. Uafortunately, because of the 60 day deadline MBIA and gook One
determined early that they could not meet the time frame to prepare a commitment.
Toronto Dominion offered the most appealing package over all. It was their
first student loan package, and they had to ask for an extension to try to got
it through their credit committee. They worked down to the last day that could
be allowed, but were unable to complete a commitment by that data. During that
time Marine Midland's credit rating was lowered which removed then as a usable j
credit provider. Basically this left choosiag Sallie Mae in order to be certain j
t,
the transaction could be closed on time which the Finance Committee had
authorised should Toronto Dominion, the first choice, be unable to complete a
commitment in time.
Mr. Lemmon advised that the initial meeting with Sallie Mae went well and
that a strategy was prepared to obtain the beat transaction possible. No then
reviewed certain details of the proposed Sallie Mae Letter of Credit. The
up-front fee is $40,000; basis point cost per year is 42.5 basis points on the J
bonds outstanding plus 108 days of interest; the term is five years with a
renewal review date one year before expiration. At closing a parity level of `
981 is required which weans that some capital contribution will be required. f
The most recent calculation is set at $325,000. Mr. Lemnoa advised, however,
that this was better tbsa some proposals which required 1001 parity and all the '
capital up front. Sallie Mae does require that parity be reached in IS months. I
If not, a capital contribution will be required to bring parity to the 1001
level. Mrs Lemmon pointed out that it has been his experience that bond issues
usually perform better than the closing cash flows indicate because they are run
on a worst case basis. The total cost of issuance is estimated to be between
$700-750,000. There is a tax law that Limits the amount of cost of issuance
that can be funded with bond proceeds to 11 of the bonds which in this case is
$5000000. Therefore, a little more than $200,000 will have to paid
out-of-pocket up front, Sallie Mae also requires a quarterly collateral test by
which as improving financial condition each quarter must be maintained. to
addition Sallie Mae has decided that loans with average borrower indebtedness I
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(ABO below a certain point should not be valued at full par. For the
collateral test they have a scale which rates down to 982. For instance, ■ loan
of $2600 might only be valued at 992 of its full face value. Mr. Lemsom pointed
F out that the Authority is fortunate in that its loans have very high Alit; I
however, this average mvst ba maintained in future purchases and consolidations
in order to meet the quarterly collateral test.
Mr. Lesuon advised that everything possible has been done to make sure
the information provided to Sallie Mae in relation to this transaction vilL not
be information that Sallie Mae could use against the Authority in Sallie Mae's
secondary market program. Sallie Mae has actually agreed in the documents not
to use the informationin this manner; however, there is do guarantee. Mr.
Lesuon added that overall the structure of the issue is one that should benefit
the Authority.
Ms. Bryan pointed out that as principal is recycled in this issue, Sallie
Mae has agreed to allow payment of premiums up to lx. A dollar amount per year
which cannot be exceeded will be determined based on the cash flows. No
transfer fees can be paid, but the Authority is fortunate in that Sallie Kee'
E normally does not allow payment of premiums in these types of transactions.
Mr. Lemmon advised also that Sallie Mae had requested that the Authority
limit the percentage of two-year and proprietary school loans to 252 of the `
portfolio. Has Ellison, bond counsel, via very clear, however, to stating that ,
j this would likely be in violation of the Education Act sad would put the satire
portfolio is danger of losing the Special Allowance Payments (SAP). Sallie Mae k
wanted the 252 limitation stated in the docusenta, but agreed to also state that
if counsel selected by the Authority is not able to make a statement that
! limiting the number of these types of loans to 252 of the portfolio would not,
endanger receiving SAP payments, then the requirement would be waived. Counsel.
cannot state this; therefore, that limitation will not apply. Sallie Mae has,
`r limited the percentage of PLUS and SLS loans to 182. Their concern is the.
slightly higher default rate experienced with these loans in the past, but the
` - new credit review procedures instituted by the different providers around the.
State have lowered the default rate on these loans dramatically. Mr. Leftmoa ri
( indicated that it is not anticipated that the 18% limitation will be a probleis,'
l ; but it would have been better to have had freedom in that area. The 182 can
only be surpassed with Sallie Mat's approval.
Has Bryan noted that Sallie Mae also has the right to audit twice a year
at the Authority's expense of up to $3000 for each audit.
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Discussion ensued regarding the ADZ requirement and other details of the
transaction.
Mr. Lemmon noted that the Finance Committee had also been given authority
to select a remarketing agent for Series 1987 add did so at the same time the
proposals were reviewed for the Series 1990. The Finance Committee selected
Smith Barney 6 Company ■e remarketing agent for Series 1987. He explained that
the change from Chemical Securities was felt to be advisable in light of the
fact Chemical has closed its student loan banking group. Mr. Leumon added that
the actions taken by the Finance committee in regard to the Series 1987
remarketing agent as well as the selection of the credit provider add
remarketing agent for the 1990 Series was subject to ratification by the full a
Board according to the resolution passed at the last meeting. "a
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E Mr. Geanres advised that it would not be necessary for the Board to
ratify the selection of the credit provider and the remarketing agent for the
f 1990 series because the proposed resolution which will be considered later
includes approving the execution of the documents for all contracts. In regard
to the remarketiag agreeneat for the 1987 issue, Mr. Generes suggested that this
be placed on the agenda for the next meeting, but that the documents could be
executed at this time with the general consensus of the Board. Mr. Lemmon
advised that he would look at the 1987 Indenture which had with him to be
certain of the procedures necessary to change the remarketing agent.
Agenda Item VII - Resolution relating to the authorization, issuance
and delivery of its bonds to be known as "North Texas -Higher Education
Authority, Inc. Student Loan Revenue Refunding Bonds, Series 1990;" fixing the
details and providing for the security and payment- of such bonds; authorising
the execution of the Indenture to further secure the rights of the Holders of
the bonds, the Authority and the Trustee; making provision for the execution of
additional documents and certifications in connection with such bonds, including
a Credit Agreement, Remarketing Agreement, and a load Purchase Agreement;
entering into covenants as prescribed by this resolution and in-the Indenturel
providing for prepayment of the Authority's Student Loan Revenue load, Series
1989, and making other provisions incident and ralated to the subject
matter. Me. Ellison distributed a slightly revised resolution from the one
included in the agenda packets. She advised that the resolution authorizes the
E issuance of the series of bonds as described by the Financial Advisor and that
the documents are present for review should sayons viah to do so. She then
summarised briefly the main terms of the bond issue. The amount of the issue is
$50 ,million which is the limit under the new cap procedure. The purpose of the
issue is to refund the Bank One Note which the Authority eatered into on J1
December 29, 1989. All of the money from the issue will be essentially used 'to
} pay off the Note, and the student loans and extra cash in the Trust Estate for
the sank One Note will be transferred to the Series 1990 Trust Estate. Oa day
one, the 1990 Trust Estate will have approximately $47 millioa worth of student 1
j K loans. Ms. Ellison pointed out that this is one of the reasons the Authority
was able to engage a credit provider. They were looking at a known portfolio of
excellent student loans. The bonds will be issued in denominations of $1000000
and are variable rate toads, meaning, that the interest rat't will cltadge eVlry'
seven days. The remarketing agent, Manufacturers Hanover will determine the
market interest rate each week. There is a provision that, if the Authority
should wish to do so and if cirumatences are right, the bonds can be converted
to a fixed rate; however, interest rates would have to go down a great deal for
it to be profitable. Thera is a limitation under State law that the interest
rate can never exceed 151. Ms. Ellison then briefly revieved the provisions of
each document to be approved. She noted that a promissory note was one of the
items Sallie Mae wanted the Authority to sign in connection with one of the
documeatss the Tinaacies Agreement, which may or may not be used, and it was
decided that the Authority should sign the note only when and if the Financing
Agreement to actually used.
Ms. Ellison advised that $9 million worth of bonds will mature in 1999
and the test astute is 2005. This is because it is a refunding issue whereby
maturity can only be 17 years past the date of the original issue, and some of
the loans are originally from the 19821 issue.
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Ms. Ellison advised that the proposed resolution authorises the president
to set the date on which the Authority will pay the dank Ono Note which will
1 need to be on the anticipated closing date of April 2 or the very latest April
3.
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Discussion ensued. Ms. Bryan noted that should the Financing Agreement
be used, HESC would be a party to the agreement exactly the same as under the
Sallie Mae Line of Credit completed in 1989.
Mr. Genera* noted that the documents are basically in final form but that
if any a;ights last minute modifications are necessary, the resolution does
I authorise the President and/or Vice President to sign the definitive agreements
at closing.
A motion was made by Mr. Walton and seconded by No. Stallings to adopt
the resolution relating to the HTHEA Student Loan Revenue Refunding Bonds,
Series 1990 as presented. Vote unanimous.
Mr. Ceneres advised that a resolution authorising disbursement of
additional foods necessary to complete the transaction as outlined would be
appropriate. A motion was made by Mr. Walton to approve a resolution to empower
the officers of the Board of Directors to contribute a maximum of $4000000 from .
i available Authority funds to the Series 1990 Bond issue, Dr. Xeffer seconded
the notion. Vote unanimous. the President noted that normally the Authority E
does not like to be in the position of having to contribute to a bond issue
' since over a period of time the surplus could be greatly depleted, acid it is,oo
longer possible to accummulate surpluses. Disc w mina. '
Agenda Item VIII - Resolution Relating to Approval of Aiaandaeat to
Credit Agreement and indenture Relating to the Authority's Student Lose Revenue
Bond, Series 1989. Ms. Ellison advised that this resolution would not be lei
y necessary since the 1990 Series will not close before April 2. (F
M1 Agenda Item IX- Other Business. Mr. Ganeres advised that the Series.
1987 Indenture does require a resolution by the Board to re-appoint a' f,
i remarketing agent and indicated that because of the Open Meetings Act, the
appointment of Smith Barney as remarketing agent should be placed on the agenda i'
for the next meeting and execution of the documents postponed until that time.
Agenda Item X - Adjorn. A motion was made by Ms. Stallings and
seconded by Dr. Keffer to adjourn. The meeting adjourned at 500 p.m.
MINVLES APPROVED this the ~f day of 1990.
:Pre sident, Board of D etors of :ha
th Texas higher E stioo Authority, Inc. ;
ATr99Tj a
As istadt ecrstary Board of Directors j
Nor h Texas Higher Education Authority, Inc. F
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MINUTES OF A SPECIAL FETING
OF THE BOARD OP DIRECTORS
OF THE NORTH TEXAS HIGHER EDUCATION AUTHORITY, INC.
41
A Special meeting of the Board of Directors of the North Texas Higher
Education Authority, Inc, convened at 5:40 p.m• on the 11th day of April, 1990
In the City of Irving, Texas with the following Directors present:
Mr. Governor Jackson, President
Ms. Nets Stallings, Vice President
Dr. Wayne Duke, Secretary/Treasurer '
Mr. W. Jay Anderson, Director ! J
Dr. Lindsay Keffer, Director j
Mr. Jim D. Schultz, Director
1 Mr. H. Eugene Walton, Director
Mr. Ken Woods, Advisory Director
A f t and the following Directors were absent:
Mr. James Brock, hirector
Dr. Carl 9. McDaniel, Jr., Director
Mr. Jack Eastwoodi Ex-Officio Member tit''I
Mr. John F. McGcane, Ex-Officio Member
!°,4
Others in attendance: s
`r.E J
Me. Kathryn Bryan. Higher Education Servicing Corporation
Ms. Bonnie McCharen, Higher Education Servicing Corporation { {
Mr. Carl Generes, General Counsel
'F
s Mr. Robert Patterson, Ao<eritrust Texas National Association
Mr. Kelvin Dick; Amerltrust Texas National Association
r k Agenda Item I - Introductory Remarks. The Presiding Officer called;
the meeting to order and welcomed members add
Mr. Kelvin Dick who will be assuming the reguests. Mr. Pattrso sponsibility ofethe,North?exas
t Authority relationship. Mr.'
Patterson advised that he has accepted a transfer L4
~ to the Trustee's Austin n office.
r
,
Agenda Item It - Approval of Minutes of Meeting Held !larch 19, 1990,:
t'+ A;aotion was made by Dr. Ke,ffer and seconded by Mr. Walton to 'approve the.' I t}
!Minutes of March 19, 1990 as presented. Vote unanimous.
+ Agenda Item III - Progess Report from Higher Education Servicing ,
Corporation. 1. Report on Series 1990 Bond Issue. Ms. Bryan reported that
the 1990 Bond iraue was successfully closed on April 2. She noted that et the
last meeting when the Financial Advisor, John Lemmon, explained the coat of Issuance, he indicated that because the Student Loan Marketing
Association
(Sallie Mae) is requiring a
parity level of 98t that the Authority might have to
make a capital contribution of approximately $300,000. However, because there
was more cash available from the Bank One transaction than anticipated and the
operating expenses were not funded for the first two months in the 1990 j
1 ^ ;o,
ei~
FF
.
transaction, the Authority only had to contribute $65,000. The only expense 1
anticipated between now and June 1, when expenses can be withdrawn, is the First
Wachovis billing which will be approximately $30-35,000. There is still ,
approximately $15-20,000 resaining in the Bank One Administration Fond that can j,
be used to offset that amount which deans the Authority may only have an ,
additional expense of 115-20,000. Ms. Bryan advised that Phyllis Brown has '
indicated that the Authority will probably recover that money on June 1. She
added that the Authority is in gocd condition considering it has just completed
a bond transaction. She pointed out that NTHEA's initial interest rate was 6.4%
which was better than the 6.5% received by its two competing authorities, the
Brazos Authority and the Greater East Texas Authority. NTHU's•rate held the
next week, but has risen to 6.5% this week. The rate, of course, changes weekly.
Mr. Generes noted that the closing was held in Austin and that Ms. Bryan, Mr.
Jackson and he attended,
2. Financial Report. Ms. Bryan reviewed the February financials. The
1982A Series is actually a surplus fund at this point. Series 1982A is still
earning $12,000 a month, netting expenses. Ms. Bryan explained that last year
Phyllis brown budgeted a small percentage into 1982A for expenses to provide an
additional source of funds. The 1987 Series is also doing very well. The
r; assets now exceed the amount required in order to be able to withdraw the 2%
allowed for expenses should the Authority elect to do so. The fund balance is ,
$162,000. Hs. Bryan noted that the Authority now has co amortise premium and
transfer fees because of the new accounting standards. The fees are netted
' < <F against interest income from the student loans, and these figures are indicated
in footnotes on the Income statement for each financing. The tack One
1' '1
transaction was paid off with the proceeds from the 1990 Series. This financing
was, of course, temporary and everything has been transferred including the :
unamortized premiums on the loans. Sallie Mae allowed the Authority to include
the premiums as part of its assets. The Fuji Line of Credit is recovering. All
< of the loans except the 1982A loans were transferred, and the 1982A loans are
very costly to service. Another $7 million worth of loans has been purchased
ka into the line and there is now approximately $10 million worth of loans in"the~
line. The fund balance is $157,867. The Surplus Fund has s fund balance of $2
million. The Clearing Account which holds the claim payments until they can be
transferred to the various financings does earn interest which is divided among the various financings as well.
The Presiding Officer asked if the money in 1982A is true surplus or Is
thare some expense that will gradually deplete the fund. Ms. Bryan advised that •1 there are some expenses that were budgeted into 1982A,
but there is enough
income that the expenses barely affect it. She did point out that 1982A•has,
over $1 million invested in State and Local Government Securities (SLGS) at
y. 13.86% which at that rate should be held until they mature. The SLGS mature
3 ,
yearly.
3. Miscellaneous. Ms. Bryan advised that at the last meeting there was
i discussion regarding whether First City Bank Houston was going to sell NTHEA the
serial loans from the First City Bank Arlington. She reported that that Dr. Joe
! Henry of HESC has been in touch with the person in charge of the program at the
Houston bank, Mr. Aomero Ponseco. Mr. Fonseco advised that his de?artment has
been understaffed and extremely backlogged and unable to resolve t'nis. He did
egree to discuss this further with Dr. Henry at the upcoming TASFA.I meeting.
1
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Ms. Bryan referred to the discussion at the last meeting concerning the
problem with the Brazos Authority creating 14 other authorities. She reported
that she has talked with Bob Zieaski of COSTEP about the matter but only briefly
because of his busy schedule. He did advise that he felt It is not likely that
t
a legislative solution is possible this session because apparently Governor +
Clements is not planning on anything being considered but the education Issue. I
He said he would call this week to discuss this further.
Mr. Walton expressed concern that If there is no relief from the
legislation, the authorities need to be prepared to take more drastic steps
to prevent these new authorities fray receiving any cap.
A lengthy discussion ensued. Me. Bryan noted that as mentioned at
a previous meeting a letter to the Brazos Authority regarding their actions was
drafted by Bill Davis of the South Texas Authority with the thought of having }
all of the other authorities in the State be signstors to the letter, And the ! sl
letter was circulated to the other authorities for their comments and
suggestions. A few changes were suggested and all but two authorities were
prepared to sign it. In fact Governor Jackson did sign it, but it was never
finalised by all parties. Mr. Walton advised that he would be willing for tiTHBA
to sign such a letter on its own or with any other authorities that might wish
to do so, and that
perhaps a sample could be circulated for the Board's review. He added that be felt a time licit should be set in regard to whether the ocher
authorities wish to participate. He added that he felt copies should be sent to ~
.h' the Governor of Texas and other top officials, as well as to the other
ti r authorities, to put h"THEA's feelings on record.
Ms. Bryan advised that she would circulate the draft of the letter to i
the Brazos Authority to the Board for review and further action. {
Agenda Item IV - Resolution Relating to Selection of Accounting Firm
to Conduct Due Diligence Audit. Deloitte Touche agreed to perform the
compliance audit now required by the Trustee in conjunction with the Fuji audit
for s fee of between $9-12,008 and the only written proposal was from Arthur F
Andersen for a fee of $24,000. Ms. Bryan advised that she discussed this with
%
Governor Jackson at the Series 1990 closing in Auctin since there was only a
short time before Deloitte Touche would begin the Fuji audit and a decision was rr yl needed uickl He q y agreed that Deloitte Touche
should be engaged since they had
the lowest fee and that the engagement could be ratified by the Board at its
r p°' next meeting, Ms. Bryan added that she did have a call from Pest Marwick today
that they were sending over a proposal with a fee in the teens (probably a" Ilk
$15-19,000)9 but that she informed them that YMA had already decided to engage
Deloitte Touche in conjunction with the Fuji audit that vould begin next week.
Mr. Patterson advised that John Rupiey of Ameritrust and he have reviewed
Deloitte Touche's proposal thoroughly and are satisfied that they are capable of
providing the level of service required.
A motion was made by Mr. Walton and seconded by Dr. Duke to ratify the
engagement of Deloitte Touche to conduct the compliance audit required by the
Trustee. Vote unanimous.
1
3
r"Fr
y'
Agenda Item V - Resolution Relating to Remarketing Agent for Series 1987
r Bonds. Ms. Bryan advised that Kathleen Ellison of Fulbright 6 Jaworski called
today to advise that if this resolution is approved it should be approved j
subject to reasonable fees for Bond Counsel to provide an opinion for Smith '
Barney. Otherwise, since Smith Barney has not been clear as to the opinion they 114
need from Bond Counsel and should it prove to be a large project, Bond Counsel
might have to charge a large sun, i
i
The Presiding Officer asked who will determine if the fee is f j
reasonable, and Ms. Bryan advised that the working group could do that and brine I
it to bin for approval. She added that from what Ernesto Pena of Smith Barney
told her the opinion should not require such time.
Mr. Schultz moved that the Authority approve Smith Barney as its new 1
remarketing agent for the Series 1987 Bonds subject to the reasonableness of the If
fees that are incurred to regard to any opinion letters that have to be given
and that the President be authorized to make that determination. Mr. Walton
seconded. Vote unanimous. '
Agenda Item VI - Resolution Relating to Purchase of Loan Portfolio from
NCNB Texas. Ms. Bryan advised that apparently NCNB Texas has changed its
policy on selling student loans. They have been originating and holding the
loans until the borrower separated from school and entered grace. NCF& sold i
their whole portfolio in 1988 when they were in a crunch and needed liquidity.
Now apparently management has heard about the California situation'and has
decided that these loans should not ba held so long and that they should be sold
every seven or eight months. These loans, therefore, will still be enrolled
with a good period of enrollment left which is excellent for the Authority
because the; are a lot less costly to service. In addition most of these loans i
are from excellent two and four year schools. The Authority could be facing a
large purchase every year or seven to eight months. NCNB is putting the
portfolio out for bids even though they primarily sell to NTHEA and the Brazos
Authority. Ms. Bryan added that she does not think they will actually sell the
loans to any authority except Brazos and NTHEA because they know the schools and
borrowers will be very upset if their loans get separated. It is `not likely
{ that NTHEA will receive the entire amount of loans, however. Ms. Bryan then f
provided history regarding NTHEA's purchase of NCNB's loans to 1988 for the
be•+3fit of newer mashers.
4 Ms. Bryan explained that she did not receive the average borrower balance
on the portfolio until 3:30 p.m. this afternoon and did not have time to prepare ~'i 11
a schedule before the meeting. She advised that she did come up with some quick ~h 1
numbers to compare paying 22 (combined premium and transfer fees) 'versus 2 1/41,
She added that NTHEA will probably have to pay at least 2%. If the loans are
purchased into the Fuji Line of Credit, Fuji would allow the Authority 'co pay a
1% premium plus a $10 transfer fee and surplus money would not have to be used.
F ,
The total portfolio is $49,356,000. Based on purchasing one-Ralf of the loan y`
portfolio, it will take 18 months to recover the cash if 22 is paid and 20 1/2
months if 2 1/4X is paid. At 22 the cash out of surplus would be $153,160 and 2 i J
1/42 would require $214,850.
In regard to being able to put these loans into a tax-exempt financing
should the Authority receive cap next year, Bond Counsel advises that the S
I
j
,Ci'r. r.u\.w:u.rs bye. !
7 n •
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Authority cannot do that until the premium has amortized down to 1% because no
more than 1% can be paid with tax-exempt money. Ms. Bryan explained that
amortization versus cash are two different things. The Accounting c hating Standards
t amortization takes less time than act•ial cash recovery.
loans would probably be amoritzed in time to be put into a tax-exempt
transaction next year. Kathleer. Ellison advised that if cap is received next
year and amortization is not reached in time for the transaction to be closed
on April 1, the Authority could proceed with the transaction and put the loans €
into it in a south or two when it reaches 12. Me. Bryan advised that the,
-
current available capacity in the Fuji Line of Credit is $50 million and the
amount available in the Sallie Mae line is $100 million. ;
Ms. Bryan noted that the bid must be at the bank by April 16 which is a i
very short time. She added that she feels the Authority should not bid more
than 2 1/4x because it would be hard to recover in time to get the loans into a
financing next year. She pointed out that the Fuji financing goes sway KAY' 1,
1991, but that Fuji will consider extending the line once the due dilig'aace
audit is completed and they have an opportunity to review it and make a decia'on.
She added, of course, if the line is full of loans, it will be easier for Fuji
to consider extending it. Mr. George Kalas of Fuji Bank has indicated thst the
A,
NTBEA line is doing very well, much better than some. However, Fuji has been
out of the student loan business for awhile because of the California situation.
and may not decide to renew this line. Ms. Bryan reminded the Board that should
the Fuji line not be extended, any unasortized premiums in Fuji will have to be sl
~f.
made up out of surplus because Sallie Mae will not allow them to be put into the
Sallie Mae Line of Credit.
Mr. Walton moved that the Authority approve bidding 2 1/4x on the
entire portfolio subject to the Financial Advisor running cash flows that cr
` conclude the premiums will be amortized to 1% in 15 months; and if they do not. Vii{
amortize to M in 15 months, a lesser bid is suthorized, conditioned upon the
Financial Advisor's opinion that it is reasonable to expect that the Authority
" will be able to meet its commitments for the next 24 months based on the volume
t
of loans purchased in the lest three years and assuming that the Fuji Lina will
not be extended and that the Sallie Mae Line will have to be' used into 1992 If
cap is not received in 1991. Dr. Duke seconded.'
Me. Bryan pointed out that there may be other choices, such as Bank One
who night be willing to enter into another short-term financing with the. ~r
E Authority.
Me. Bryan then asked the Board to clarify the amortizatioo,being
discussed for this bid--amortization according to Accounting Standards that will i,
zxt.
allow for the loons to be put into a tax-exempt transaction or actually
recovering the cash. The Board agreed that it should be amortization accordingF
* to Accounting Standards.
The Presiding Officer then called for a vote on the proposed t`7
resolution, and the vote was unanimous.
5
Ft
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t
Agenda Item VII - Other Business. There being no further business,
Dr. Reffer moved for adjournment. The meeting adjourned at 603 p.m.
MINUTES APPROVED this the day of 3990,
+ 1
1
President, oar of cctors
North Tax as Ni her cation
' Authotitq, Inc.
ATTEST:
i" Secretor , board of Directors s
North ss Higher Education y
Authority, Inc.
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Mass" 'aaast
WELECTRrc
January 16, 1994 !
City of Denton,
Attached for filing please find a Petition and Statment of
,
Utiislitties ies Electric ectric Company (TU Electric).
IThisntent rate for request Texas
Identical to those also being 'filed
today with other regulatory authoritieti and aftec,ts all custoeer!'
U t
r I I served trans~oittedwith this letter ng
y Y filing package oontainingthe 'testimony of
rate ~
ar~didata luponiMhich
the proposed rates are based. The entire rate tiling packagewi
consists of twenty-four (24) seriarately numbered .volumes andl
contains a copy of TU Electric's Petition and Statement of'4446t'
before the Public Utility Commission of Texas !or ` your r~
information. E
Should you have any questions concerning the rata tiliriS, please t;
r .
give me a call.
sf
via tru
'14 James V"
Mans r ,
rc Ack le By:
Title: G 1, jr 'r;
Dater
~r Fr
rte./" i
P, O. Boa 119 Decuw. Texas 762-44139
e
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BEFORE THE ti
GOVERNING BODY OF THE CITY OF DENTON
i S
RE: APPLICATION OF TEXAS POCKET NO.
UTILITIES ELACTRIC COMPANY S r 1 ,
FOR AUTHORITY TO CHANGE RATES S
i PETITION AND STATEMENT OF INTENT
,
TO THE HONORABLE SAID GOVERNING BODY:
COMES NOW Texas Utilities Electric Company MU Electric"), a corporation
organized and existing under the laws of the State of Texas and a public utility as that
,t f
term is defined in the Public Utility Regulatory Act, Artlelo 1446c, V.A.T.& (the "PURAv)
and files this its Petition and Statement of Intent, respectfully showing unto this
2.i 1 r 7',, 7 Y,q1
j
f ll
Honorable Governing Body the o ow Rgi
4 u,!
The most recent rate increase received by any portion of the TU Electric system ~.i
1 4,
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h was in January 1984, when Dallas Power do Light Company, one of TU Electric's corporate;
" predecessors, was granted a rate increase In Docket No. $758. TU Electric's only rate '
r " tr case, Docket No. 5840, resulted in an October 1984 order reducing rates by some
r Ff.
million. TU Electric has waked diligently to improve productivity, and control costs,
D) which not only has enabled it to forgo rate relief for some six years but which also enables
f1 w
~ - ~r ~ ` ' TU Electric to bring Comanche Peak Unit l into rates and, yet, hold the line on this
necessary rate Increase to 10.2%. TU Electric's ability to forgo rate relief for so long 'end
gg
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its aggressive efforts to take advantage of declining natural gas prices have benefited
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customers to the point that, currently, the average cost of a ki'owatthour Is about what it
ryas In 1982. With the increase sought hereby, the average cost of a kilowatthour t,olds ;
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;G PETITION AND STATEMENT OF INTENT - Pagel
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steady at about the level it was In 1984. This, despite the facts that, between January I,
s
1984 and June 30, 1889, TU Electric has added 330,000 new customers, has invested $7.2
billion in additional plant and equipment, and has seen the effects of inflation increase its
f
non-fuel operating expenses by almost $300 millIon,
{ The rate increase sought hereby Is the minimum rate relief required to maintain TV
Electric's financial Integrity and to permit It to attract the capital necessary for it to
continue to fulfill its public service obligatlons of providing reliable electric service to
its customers at reasonable costs. Moreover, the rate Increase sought hereby Is the minimum
rata relief required to r
permit TU Electric a reasonable opportunity to earn a reasonable
return on its Invested capital used and useful In rendering service to the public over and s above Its reasonable and necessary g' operating
expenses. z
i TU Electric, In accordance with Substantive Rule 23.23(bX2) of the Public Utility i&
Commission of Texas, is requesting final reconciliation of Its fuel costs and fuel'revenues
I during the period April 1, 1983 through June 30, 1989, and the approval of revised fuel
'factors reflects TU Electric's known or` reasonably predictable..fuel ..costs and
kilowatthour sales for the period from May 1990 through April 1991. 7
_ . , This Honorable Governing Body has jurisdiction over TU Electric and the subject
matter of this Petition and Statement of Intent by virtue of Section 17(a) of the \PURA,
In, keeping with the provisions of section 43ta) of the PUl#A and in order to
' assure
\1.IK ~^f41~ + ill ,I l s the timely availability of the needed rate relief In the event that this Honorable
Ooverning Body suspends the proposed effective date of the proposed rates, TU Electric
proposes that the proposed change in rates be effective on February 20, 1990.;
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PETITION AND STATEMENT OF INTENT - 2
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IV. Ili
f The proposed revised tariffs and schedules are set forth in Yo]ume XVIII of this
} filing and statements specifying In detail each proposed change are set forth In
Volumes XXII and XXIV of this filing.
V.
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The proposed changes are expected to Increase TU Electric's adjusted test-year
operating revenues 10.2%, or $442,353,715, which Includes the effect cf the proposed
reduced fuel factors. The test-year upon which this Petition and Statement of intent is
based Is the twelve-month period beginning July 1, 1988, and ending June 30, 1989. ?
VI.
All of TU Electric's customers and classes of customers In areas over which this j E
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Honorable Governing Body exercises original jurisdiction will be affected by'the proposed
enanges.?
Vll.
Attached and made a part hereof for all purposes, In twenty-four. (24),volumes, :
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numbered I through XXIV is a complete rate filing package setting forth such' other
Information required by the Public Utility Commission of Texas, Including testimony . ' '
t i't
" supporting the proposed changes In T'U Electric's rates. j
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t Virtually Id~:,tical Petitions and Statementsof Intent (together with alz pertinent
t °
information filed herewith) are being filed with the Public Utility Commission of Texas 4f {j
,'r and with the appropriate officer of each municipality that exercises original jurisdiction ?
K over TU Electric's rates, operations and services. s+
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PETITION AND STATEMENT OF INTENT - Page 3
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i IX. •
The business and mailing address of TU Electric Is.,
Texas Utilities Electric Company
2001 Bryan Street
( Dallas, Dallas County, Texas 75201 i
TU Electric's business telephone number, Including area code, Ist,
(214) 812-4600 L
t,
TU Electric' authorized representatives arei
T. Mlchael Ozymy f
Vice President
Texas Utilities Electric C'xnpany
2001 Bryan Street, Suite 1900
Dallas, Dallas County, Texas 75201
(214) $12-4632 t
and
Robert A. Wooldridge
Dan Bohannan '
Worsham, Forsythe, Sampels lit Wooldridge
r: 2001 Bryan Street, suite 3200'
s
Deltas, Dallas County, Texas 75201
} (214) 979-3000
General Inquiries concerning this Petition and Statement of intent should be directed to
Mr. Ozymy at the above-stated address and telephone, or to the management of TU rY'rt
` q, I `y Eleetrlc'a focal office serving this municipality.
WHEREFORE, PREMISES CONSIDERED, TU Electric respectfully prays this f `=E
} 'r Governing Body to approve and authorize the changes in its rates proposed':
Honorable. }J
y t
T e herein, and to grant and award such other and further rellaf to which TU Ekatrie may be ,
justly entitled. t1-
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Syr
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PETITION AND STATEMENT OF INTENT - Page 4
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Respectfully submitted,
WORSHAM, FORSYTHE, SAMPELS &
.F +
j WOOLDRID,)E
Robert A. Wootdridge
State Bar No. 21984000
J. Dan Bohannan
State Bar No. 02563000 `
2001 Bryan Street, Suiht 3200
Dallas, Texas 75201
Telephoner (214) 979-3o00 }
.
By,
} Robert A. Wooldridge
ATTORNHYS FOR TEXAS I7TIIJITIES }
•
` ELECTRIC COMPANY
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PETITION AND STATEMENT OF INTENT - Page 5
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