Agenda - Council Work Session - 05/28/2013

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and capitalized interest account. The contractor will also be providing a $2 million letter of credit (LOC) in favor of the Agency and the Trustee that can be used to cover administrative expenses and other items in the event of a mandatory tender. The Bonds are not secured by payments made by the Surety. TRANSACTION SUMMARY Pursuant to 334.30(1), Florida Statutes, FDOT is accelerating the I-95 road widening project within Brevard County and also in a portion of Volusia County. Total project costs are estimated at $118 million, of which approximately $78 million have been appropriated and are included in FDOT's 5-year work plan. The remaining $40 million will be provided near -term with $38.9 million in premium bonds that generate $2.6 million in premium and $37.9 million in proceeds. The bonds will be repaid by future appropriations, beginning in 2015. To accelerate projects, FDOT has allowed contractors to procure their own financing. However, the financial crisis significantly increased the cost of obtaining funding for contractors, slowing down progress. In addition, the gap between project completion and FDOT payment has also increased, making the cost to contractors prohibitive. To help alleviate this issue, FDOT will enter into a DBF agreement with the contractor that commits to a set payment schedule subject to the amount being earned by the contractor and to future appropriation by the Florida Legislature where the project is scheduled in future years. The Agency has agreed to advance funds to the project via the bond issue through the Funding Agreement with the contractor that pledges the future payments from NDOT in the Design -Build -Finance Agreement. As long as the contractor fulfills its obligations to construct the project pursuant to a fixed price date certain design build contract, then FDOT agrees to pay FDOT Contract Payments pursuant to an agreed upon schedule, subject to appropriation. Bond maturities are structured to match this schedule. The contractor is required to have a surety bond that covers 100% of the project cost plus a cushion for a 25% increase. Pursuant to the contract, the DBF contractor submits monthly draws to FDOT. Upon acceptance of the work and approval of the draw by FDOT, FDOT will make a Contract Payment pursuant to an agreed upon schedule in the trust indenture and funding agreement. The scheduled payments are such that FDOT Contract Payments will first be used for interest payments and then to fund Contractor draws for work completed. The gap in the schedule will be covered by bond proceeds and then FDOT Contract Payments will commence again and retire the bonds. Separately, the Capitalized Interest account will be used to cover interest on the bonds during the period when FDOT is not providing contractor payments. A slow -down in construction progress will slow down FDOT payments while accelerated work will only be approved at a level equal to FDOT's Cash Availability Schedule. Pursuant to sections 4.01 and 5.01 of the indenture, a default by the contractor and surety will result in a tender of the bonds, as will a reduction in the contract price exceeding $250,000 or 15 consecutive or cumulative months of failed FDOT work certifications. A LOC equal to $2 million will be provided to cover the use of bond proceeds for issuance costs, administrative expenses, and interest costs during the delay should this situation occur. Bondholders are isolated from contractor risk through several features of the DBF contract, which includes by reference State of Florida DB specifications and also the DBF RFP issued by 1-'DOT. In particular, the trustee will not disburse funds in the FDOT Contract Payment account or the Bond Proceeds account of the Project Fund without an FDOT engineering certification that the work meets FDOT standards and has been accepted. There is no retainage under this framework as PDOT normally retains funds in the final quarter of payment. However, in the DBF arrangement, project completion will have already occurred well before. In addition, pursuant to the RFP which becomes part of the final DBF contract, FDOT indicates that once an approval has been granted, no offsets can be made against that payment. It can only be applied to the approval of future payments. Thus the Trustee will only disburse funds for approved work and pursuant to the RFP, section 337.145 of the State of Florida Statutes regarding offsetting payments is not applicable. The project is relatively straightforward and consists of adding one lane in each direction on I-95 in