HomeMy WebLinkAboutCST 29-12 City a0, Report To
Council
PICKERING Report Number: CST 29-12
Date: October 15, 2012
From: Paul Bigioni
Director, Corporate Services & City Solicitor
Subject: Veridian Corporation — Promissory Note Renewal
Recommendation:
1. That Report CST 29-12 of Director, Corporate Services & City Solicitor be
received;
2. That the maturity date on the Promissory Note in the amount of $7,095,000 owed
by Veridian Corporation to the City be amended to December 31 , 2015 at its face
value subject to the existing terms and conditions and bearing interest at the
greater of 6% or the Ontario Energy Board Deemed Rate as indicated on the
Note;
3. That a By-law in the form attached providing for the approval and execution of a
Note Amending Agreement be passed;
4. That the Mayor and Clerk be authorized to execute the Note Amending
Agreement on behalf of the City of Pickering in the form attached;
5. That the Director, Corporate Services & City Solicitor be authorized to undertake
any actions including negotiations or amendments to the terms and conditions of
the Promissory Notes and/or the Note Amending Agreement which may be
necessary in order to put the foregoing into effect; and,
6. That the appropriate officials at the City of Pickering be given authority to give
effect thereto.
Executive Summary: Veridian Corporation, at its meeting of Friday, September 28,
2012, approved renewing the Veridian Corporation Promissory Note of $7,095,000 for
the City of Pickering, subject to the existing terms and conditions, with a new maturity
date of December 31, 2015.
It is now appropriate for Council to approve the renewal of this Note and to provide the
Director, Corporate Services & City Solicitor the necessary authority to give effect
thereto.
Report CST 29-12 October 15, 2012
Subject: Veridian Corporation Prom Note Renewal Page 2
Financial Implications: The City currently receives $425,700 in interest from this
investment. Amending the promissory note maturity date will ensure that the City
continues to receive this revenue stream.
Discussion: Should Council approve staff's recommendations, the amount of
principal owing to the City of Pickering will remain unchanged at $7,095,000. However,
the Veridian Corporation Note will be extended for a further three years and two months
from October 31, 2012 to December 31, 2015.
At the stated rate of interest, this investment provides the City's highest yielding rate of
return on any of its corporate notes. At this time, there is no other form of investment
• with the same relatively low level of risk that provides this rate of return. The City also
owns approximately 41% of Veridian, providing an additional level of assurance that
the Note and all accruing interest will be repaid.
The decision by Council to merge Pickering Hydro with Clarington Hydro and Ajax
Hydro to form Veridian Corporation continues to benefit the Pickering taxpayer. Since
Veridian's inception, the City of Pickering has received $40.5 million in dividends and
interest payments, and these funds have been used to reduce budget rate increases.
The City's 2012 budget included $3.353 million in dividends and interest payments,
12.6% of which comes from the Veridian Promissory Note. Without this dividend and
interest revenue, the 2012 budget would have had to be increased by an additional
7.3%.
Details of the foregoing may be found in the attachments.
Attachments:
1 . Veridian Corporation Resolution #2012-VC32
2. Veridian Corporation Report — Recommendation on Renewal of VC — Shareholder
Promissory Notes
3. By-law to Approve and Authorize the Execution of a Note Amending Agreement
4. Fourth Amended and Restated Term Promissory Note
Prepared By: Approve- - ndorsed By:
r ` .
Stan.Karwowski Paul Bigio
(Acting) Division Head, Director, t orp•rate 4 ervices & City Solicitor
Finance & Treasurer
Report CST 29-12 October 15, 2012
Subject: Veridian Corporation Prom Note Renewal • Page 3
Recommended for the consideration of
Pickering Cit Council
L. ,!/ O %0 2.67/2,
i
Tony Prevedel, P.Eng.
Chief Administrative Officer
ATTACHMENT#J_ _TO REPO RT
ERIIAN
Veridian Corporation
Resolution #2012-VC32
Recommended By: Audit and Risk Management Committee
WHEREAS the Promissory Notes owed by Veridian Corporation to the municipal
shareholders mature on November 1st, 2012 and;
WHEREAS Veridian Management and Treasurers of the municipal shareholders
have met and agreed upon terms for renewal of Promissory Notes.
The Audit and Risk Management Committee recommends to the Veridian
Corporation Board the renewal of the Shareholder Promissory Notes as outlined in
the report prepared by the Vice President, Financial Services and Chief Financial
Officer as presented to the Veridian Corporation Audit and Risk Management
Committee meeting held on September 12, 2012.
ATTACHMENT#�rLTO REPORT#e -1 q
VE RI D IAN
Corporation
Submission To: Audit and Risk Management Committee
Route: Approval
For meeting to be held on: Submitted By: For:
September-12-12 Laurie McLorg Approval
Subject:
Recommendation on Renewal of VC—Shareholder Promissory Notes
CONTEXT AND RECOMMENDATION
It is recommended that a resolution substantially in the form set out below be approved by the
Audit&Risk Management Committee:
RESOLVED THAT:
WHEREAS the Promissory Notes owed by Veridian Corporation to the municipal shareholders
mature on November 1St, 2012 and,
WHEREAS Veridiari Management and Treasurers of the municipal shareholders have met and
agreed upon terms for renewal of the Promissory Notes
The Audit and Risk Management Committee recommends to the Veridian Corporation Board the
renewal of the Shareholder Promissory Notes as outlined in the report prepared by the Vice
President, Financial Services and Chief Financial Officer as presented to the Veridian Corporation
Audit and Risk Management Committee meeting held on September 12, 2012.
Summary
Veridian Corporation holds long term debt with its municipal shareholders in the form of
promissory notes. The current notes were issued on October 31St, 2009 and mature on November
1",2012. The interest rate is set at a rate equal to the greater of 6% or the OEB deemed long-term
debt rate.
The principal amounts of the promissory notes are as follows:
City of Pickering - $7,095,000
Town of Ajax - $5,550,000
Municipality of Clarington- $2,355,000
City of Belleville - $2,206,000
The various options available include redemption of the notes for the payment of the principal
balances, conversion of the notes to common stock or renewal of the notes for a specified term and
at a specified interest rate.
Report Name:Recommendation on Renewal of VC—Shareholder Promissory Notes
Date/Committee/Board Meeting September 12,2012/Audit&Risk Management Committee
Report Created:August 31st,2012 Page 1
Meetings have been held with the Treasurers of the municipal shareholders to review the options
available upon maturity. Pros and cons of the various options were presented.
Factors such as shareholders' requirement for mix of stable returns and liquidity, tax considerations
and total return to shareholders were all considered.
The Treasurers confirmed that they felt the shareholders had no interest in either redeeming or
converting the notes at this time and management's recommendation on renewal of the promissory
notes was accepted by the Treasurers.
Length of term and rate of interest rate were then considered for the renewed notes. The Treasurers
are in favour of changing the term ending date to December 3152 from November 1st to align with
Veridian's fiscal year and agreed with management's proposal of a 3 year term. As well, the
Treasurers wish to maintain the attractive and stable returns the current interest provisions provide.
Recommendation
Veridian management recommends renewal of the promissory notes with a maturity date of
December 31, 2015 with no other changes to the terms,including no adjustment in interest rate
provisions.
Next Steps and Timing
The new notes, amending agreement and required resolutions for the replacement promissory notes
are being drafted by legal counsel and will be distributed at the September 12th meeting. Subject to
this review, the Board would be requested to approve the resolutions. Councils for each shareholder
would pass by-laws. The notes would be in place for November 1, 2012.
Respectfully submitted,
Laurie McLorg
VP Financial Services, CFO
Report Name:Recommendation on Renewal of VC—Shareholder Promissory Notes
Date/Committee/Board Meeting September 12,2012/Audit&Risk Management Committee
Report Created:August 31St,2012 Page 2
ATTACHMENT#_3. _TO REPORT
The Corporation of the City of Pickering
By-law No. XXX/12
Being a by-law to approve and authorize the execution of a note
amending agreement made as of the 31st day of October, 2012 in respect
of fourth amended and restated promissory notes dated October 31, 2012
issued by Veridian Corporation in favour of The Corporation of the Town
of Ajax, The Corporation of the City of Belleville, The Corporation of the
Municipality of Clarington and The Corporation of the City of Pickering,
and to approve the issue of fourth amended and restated promissory
notes dated as of the 31st day of October, 2012.
Whearas the Electricity Act, 1998 authorized a municipality to make by-laws transferring
employees, assets, liabilities, rights and obligations of the municipal corporation and to
receive securities as consideration therefor and Veridian Corporation ("VC") issued
promissory notes (the "Original Notes") dated September 28, 2001 in favour of The
Corporation of the Town of Ajax ("Ajax"), The Corporation of the City of Belleville
("Belleville"), The Corporation of the Municipality of Clarington ("Clarington") and The
Corporation of the City of Pickering ("Pickering") due on the 31st day of October, 2006;
Whereas the Original Notes were amended and restated pursuant to a note amending
agreements dated as of October 1, 2006 and October 31, 2009 and the third amended
and restated promissory notes dated the 31st days of October, 2009 are due on the 1St
day of November, 2012 (the "Third Restated Notes");
Whereas VC has requested and extension of the maturity date of the Third Restated
Notes;
Now therefore the Council of the Corporation of the City of Pickering enact as follows:
1. That Council approves the extension of the maturity date of the Third Restated
Notes to the 31st day of December, 2015;
2. That Council approves and authorizes the note amending agreement (the
"Agreement") made as of the 31st day of October, 2012 amongst Ajax, Belleville,
Clarington and Pickering, as the holders of the Third Restated Notes and VC,
Veridian Connections Inc. and Veridian Energy Inc. in the form of the draft
agreement presented to Council and attached hereto as Schedule "A";
3. That Council approves the issue of the fourth amended and restated promissory'
notes (each a "Fourth Restated Note") by VC pursuant to the Agreement.
4. That the Mayor and the Clerk are authorized to execute the Agreement;
5. That the Clerk is authorized and directed to surrender to VC the Third Restated
Note in favour of this Municipality in the principal amount of $7,095,000 and to
receive a Fourth Restated Note in favour of this Municipality pursuant to the
Agreement;
6. That the Clerk is authorized to affix the Corporate Seal of The Corporation of the
City of Pickering to the Agreement.
7. This By-law comes into force on the date of its final passing.
By-law passed this 15th day of October, 2012.
Dave Ryan, Mayor
Debbie Shields, City Clerk
NOTE AMENDING AGREEMENT Schedule "A"
THIS AGREEMENT made as of the 31st day of October, 2012.
BETWEEN:
The Corporation of the Town of Ajax ("Ajax")
- and—
The Corporation of the Municipality of Clarington ("Clarington")
- and—
The Corporation of the City of Pickering ("Pickering")
- and—
The Corporation of the City of Belleville ("Belleville")
(Ajax, Belleville, Clarington and Pickering are referred to collectively herein
as the "Veridian Shareholders")
- and—
Veridian Corporation, a corporation existing under the laws of
Ontario ("VC")
- and—
Veridian Connections Inc., a corporation existing under the laws of
Ontario ("VCI")
- and—
Veridian Energy Inc., a corporation existing under the laws of
Ontario ("VEI")
(VC, VCI and VEI are referred to collectively herein as the "Veridian
Group")
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RECITALS:
A. VC has previously issued one promissory note to each of the Veridian Shareholders
(collectively the "VC Notes") issued pursuant to the applicable transfer by-laws enacted
pursuant to the authority granted under the Electricity Act, 1998, which VC Notes are
outstanding as of the date hereof;
B. The Veridian Shareholders wish to amend the VC Notes as provided herein;
C. The Veridian Shareholders have consulted with the Veridian Group in connection with
the proposed amendments to the VC Notes;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration
of the respective covenants and agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Amendment: The Veridian Shareholders will surrender forthwith to VC the existing VC
Notes (the VC Notes hereinafter collectively, the "Predecessor Notes") (descriptions of such
Predecessor Notes being set out in Appendix "A" attached hereto). VC will forthwith issue an
amended and restated promissory note to each of the four Veridian Shareholders (the "Amended
and Restated Promissory Notes") in the same principal amounts as the VC Notes in the forms .
attached hereto as Appendix `B". For greater clarity, the amendment and restatement of the
Predecessor Notes shall not extinguish the debt created pursuant to the transfer by-laws and
Predecessor Notes and such debt is continued as amended and restated in the Amended and
Restated Promissory Notes.
2. Counterparts: This Note Amending Agreement may be executed in any number of
counterparts, each of which will be deemed to be an original and all of which taken together will
be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF the parties hereto have duly authorized and executed
this Note Amending Agreement as of the day and year first above written.
THE CORPORATION OF THE TOWN OF AJAX
By: c/s
Name: Steve Parish
Title: Mayor
By: c/s
Name: Marty de Rond
Title: Clerk
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THE CORPORATION OF THE CITY OF
BELLEVILLE
•
By: c/s
Name: Neil Ellis
Title: Mayor
By: c/s
Name: Julie C. Oram
Title: Clerk
THE CORPORATION OF THE MUNICIPALITY OF
CLARINGTON
By: c/s
Name: Adrian Foster
Title: Mayor
By: c/s
Name: Patti L. Barrie
Title: Clerk
THE CORPORATION OF THE CITY OF
PICKERING
By: c/s
Name: Dave Ryan
Title: Mayor
By: c/s
Name: Debbie Shields
Title: Clerk
-4 -
VERIDIAN CORPORATION
By: c/s
Name: Michael Angemeer
Title: President
By: c/s
Name: Doug Dickerson
Title: Chair
VERIDIAN CONNECTIONS INC.
By: c/s
Name: Michael Angemeer
Title: President
By: c/s
Name: Doug Dickerson
Title: Chair
VERIDIAN ENERGY INC.
By: c/s
Name: Michael Angemeer
Title: President
By: c/s
Name: Doug Dickerson
Title: Chair
•
•
Appendix "A"
•
Four (4) VC Predecessor Notes described below.
Issuer Holder Date Principal Amount
1. Veridian Corporation The Corporation of the October 31St, $5,550,000
Town of Ajax 2009
2. Veridian Corporation The Corporation of the October 31St, $2,355,000
Municipality of 2009
Clarington
3. Veridian Corporation The Corporation of the October 31St, $7,095,000
City of Pickering 2009
4. Veridian Corporation The Corporation of the October 31St, $2,206,000
City of Belleville 2009
•
Appendix `B"
Four (4) VC Amended and Restated Promissory Notes attached hereto.
TOR01: 5000030: vl
ATTACHMENT#_ 1 TO REPORT#,&Si aq-i 2
FOURTH AMENDED AND RESTATED TERM PROMISSORY NOTE
Maturity Date: December 31St, 2015
Principal Amount: $7,095,000
This note amends and restates a Third Amended and Restated Promissory Note
(the "Predecessor Note") issued by Veridian Corporation to the Corporation of the City
of Pickering (the "Holder") on October 31St, 2009 for the Principal Amount. The
Predecessor Note was issued pursuant to By-law No. 6706/06 of the Holder.
This note amends the terms of repayment of, and does not extinguish, the debt
created pursuant to the transfer by-law (enacted'pursuant to the authority granted under
the Electricity Act, 1998) as set forth originally in By-Law 5586/99 of the Holder, as
amended by By-Law 6706/06, and the Predecessor Note.
FOR VALUE RECEIVED, Veridian Corporation (the "Corporation"), hereby
promises to pay to or to the order of the Corporation of the City of Pickering, in lawful
money of Canada, on December 31st, 2015 (the "Maturity Date") at the principal office
of the Holder, the principal amount of SEVEN MILLION NINETY-FIVE THOUSAND
Dollars ($7,095,000) (the "Principal Amount") together with interest on the unpaid
Principal Amount.
1. Interest Rate. Interest on the Principal Amount shall be calculated annually, not
in advance, for the period from November 1st, 2012 until the Maturity Date, at a
rate equal to the greater of: (a) six percent (6%), and (b) a rate equal to the
Ontario Energy Board ("OEB") deemed long-term debt rate as set forth on an
annual basis in the OEB's Cost of Capital Parameter Updates for Cost of Service
Applications, or as the deemed long-term debt rate may otherwise be established
by the OEB (the "Interest Rate"). Interest at the Interest Rate shall be payable
on November 1St in each year up to and including the Maturity Date. The
Corporation acknowledges that the Interest Rate payable pursuant to this note
shall be automatically amended from time to time to reflect the deemed rate
established by the OEB from time to time and this note shall be automatically
amended from time to time to reflect any change to the Interest Rate as
determined by the OEB provided that such deemed rate is greater than six percent
(6%). Notwithstanding that the Interest Rate pursuant to this note shall be
amended, the effective date of any change in the Interest Rate pursuant to this
note will be as of May 1St each year with interest payable at the previous Interest
Rate from November 1st of the previous year to April 30th of the next year, and
interest payable at the amended Interest Rate from May 1St to October 31St of the
current year provided that on December 31St, 2015 interest will be payable at the
then amended Interest Rate from November 1St, 2015 to December 30th, 2015.
2. Acceleration on Default. Upon default in the payment of any principal or interest
due hereunder, or if the undersigned shall become insolvent or bankrupt or make a
proposal in bankruptcy, the entire unpaid principal indebtedness owing by the
undersigned to the Holder evidenced hereby and all interest accrued thereon to the
- 2 -
date of payment shall forthwith become due and payable upon demand by the
Holder subject to any subordination and postponement to any other financial
institution or lender.
3. Ranking of this Note. This Note shall rank equally in all respects as to the
payment of principal and interest hereunder with promissory notes issued to the
Corporation of the Town of Ajax, to the Corporation of the Municipality of
Clarington and to the Corporation of the City of Belleville (collectively the
"Municipalities") described in Schedule "A" hereto (together the "Other
Notes").
4. Conversion of this Note. All (but not less than all) of the Principal Amount of
this Note is convertible into fully-paid and non-assessable common shares of the
Corporation based on the exchange ratio specified herein at the option of the
Holder, which option may be exercised by the Holder by notice in writing to the
Corporation on or before the Maturity Date. The exchange ratio for the
conversion of the Principal Amount of this Note shall be on the basis that, for
every $1,000.00 of Principal Amount, 1 fully paid and non-assessable common
share of the Corporation shall be issued to the Holder. The conversion of the
Principal Amount will be effected on the date determined by the Holder following
consultation with the Corporation.
5. Subordination. The Holder acknowledges and agrees that the obligation of the
Corporation to repay the Principal Amount and the principal amount of the Other
Notes is subordinated and postponed to the obligations of the Corporation from
time to time to any other financial institution or lender. The Holder will execute,
promptly do, deliver or cause to be done, executed and delivered all further acts,
documents and things as may be required to provide for the subordination and
postponement of the Holder's rights evidenced by this Note.
6. Revisions and Replacement. At the sole option of the Holder, the.Maturity Date
and any of the terms of this Note may be revised, changed or restated by the
Holder following consultation with the Corporation. If this Note is revised,
changed or restated, the Corporation may cancel and replace this Note in which
case, the Holder shall forthwith surrender this Note for cancellation.
7. Sale of Shares. In the event that the Holder transfers its common shares in the
capital of the Corporation (in accordance with the terms of a shareholders'
o n (
agreement among the Holder, the Municipalities, Veridian Connections Inc.,
Veridian Energy Inc. and the Corporation dated September 28, 2001, as amended
and/or restated from time to time) prior to the Maturity Date, the Note shall
remain due to the Holder in accordance with its terms.
8. Note Non-negotiable and Non-assignable. The Note shall be non-negotiable and
non-assignable.
- 3 -
IN WITNESS WHEREOF Veridian Corporation has caused this Note to be
signed under its corporate seal by its duly authorized officers as of this 31st day of
October, 2012.
VERIDIAN CORPORATION
By:
Doug Dickerson, Chair
By:
Michael Angemeer, President
•
•
- 4 -
SCHEDULE "A"
1. Fourth Amended and Restated Term Promissory Note issued by Veridian
Connections Inc. to the Corporation of the Municipality of Clarington in the
principal amount of$5,966,000 and dated March 30, 2010.
2. Fourth Amended and Restated Term Promissory Note issued by Veridian
Connections Inc. to the Corporation of the Town of Ajax in the principal amount
of$14,060,000 and dated March 30, 2010.
3. Fourth Amended and Restated Term Promissory Note issued by Veridian
Corporation to the Corporation of the Municipality of Clarington in the principal
amount of$2,355,000 and dated October 31, 2012.
4. Fourth Amended and Restated Term Promissory Note issued by Veridian
Corporation to the Corporation of the Town of Ajax in the principal amount of
$5,550,000 and dated October 31, 2012.
5. Fourth Amended and Restated Term Promissory Note issued by Veridian
Corporation to the Corporation of the City of Belleville in the principal amount of
$2,206,000 and dated October 31, 2012.
6. Fourth Amended and Restated Term Promissory Note issued by Veridian
Connections Inc. to the Corporation•of the City of Belleville in the principal
amount of$5,588,000 and dated March 30, 2010.
TOR01: 5000094:vl