Loading...
HomeMy WebLinkAbout2008-03-25 - Finance-Accounting Committee Meeting Agenda Packet• OL w YORBA LINDA WATER DISTRICT FINANCE - ACCOUNTING COMMITTEE MEETING Tuesday, March 25, 4:00 p.m. 913 S. Richfield Road, Placentia - Tel: (714) 701-3020 AGENDA • COMMITTEE: Director Michael J. Beverage, Chair Director John W. Summerfield Alternate: Director William R. Mills STAFF: Michael A. Payne, General Manager Ken Vecchiarelli, Asst. Gen. Manager Diane Cyganik, Finance Director Sandi Van Etten, Senior Accountant INTRODUCTION OF VISITORS AND PUBLIC COMMENTS: Any individual wishing to address the Committee is requested to identify themselves and state the matter on which they wish to comment. If the matter is on this agenda, the Committee Chair will recognize the individual for their comment when the item is considered. No action will be taken on matters not listed on this agenda. Comments are limited to matters of public interest and matters within the jurisdiction of the Water District. Comments are limited to five minutes. ACTION ITEMS: This portion of the agenda is for items where staff presentations and committee discussions are needed prior to formal committee actions. Status report on Wells Capital portfolio investments as of March 24, 2008. Recommendation: That the Finance-Accounting Committee provide direction to staff. DISCUSSION ITEMS: This portion of the agenda is for matters such as technical presentations, drafts of proposed policies, or similar items for which staff is seeking the advice and counsel of the Committee Members. This portion of the agenda may also include items for information only. 2. Status report on the Orange County Commingled Investment Pool. ADJOURNMENT: The next Finance-Accounting Committee meeting is scheduled for April 8, 2008 at 4:00 p. M. • Accommodations for the Disabled. Any person may make a request for a disability-related modification or accommodation needed for that person to be able to participate in the public meeting by telephoning Michael A. Payne, District Secretary, at 714-701-3020, or writing to Yorba Linda Water District, P.O. Box 309, Yorba Linda, CA 92885-0309. Requests must specify the nature of the disability and the type of accommodation requested. A telephone number or other contact information should be included so the District staff may discuss appropriate arrangements. Persons requesting a disability-related accommodation should make the request with adequate time before the meeting for the District to provide the requested accommodation. -2- ITEM NO. 1 YORBA LINDA WATER DISTRICT Statement of Cash Flows/Earnings for February 2008 I - Beginning Period Balances Total Original Cost + Net Amort/Accr to Date =Adjusted Book Value: + Accrued Interest Receivable + Unrealized Gain/(Loss) = Total Market Value Plus Accrued Interest II: Period Income Earned + Ending Accrual - Begininning Accrual + Interest Received - Interest Paid at Purchase + Interest Received at Sale = Interest Earned in Period + (Amort)/Accr This Period = Monthly Portfolio Income + Contributions - Withdrawals + Realized Gain/(Loss) - Fees Paid This Period - Prior Period Unrealized Gain/Loss + End Of Period Unrealized Gain/Loss + Net Receipts/Deliveries in Kind + Adjustments = Net Change to the Portfolio =Total Market Value Plus Accrued Interest III: End of Period Balances Total Original Cost + Net Amort/Accr to Date = Adjusted Book Value + Accrued Interest Receivable + Unrealized Gain/(Loss) = Total Market Value Plus Accrued Interest Reconciliation Difference: As of 1/31/2008 18,433,787 73,469 18,507,255 132,298 4,869 18,644,422 37,162 (132,298) 144,831 49,6951 9,666 1 $ 59,3611 (3,193) 4,869 (6,554) 0.00 0.00 (4,949) 18,689,168 As of 2/29/2007 18,584,735 73,825 18,658,560 37,162 (6,554) 18,689,168 Wells Capital Management Holdings Report Securities Held as of 2/29/08 on a Trade Date Basis Identifier Credit Ratings Par Value Security Description Coupon Final 0 0.00 0 0 0.00% Maturity Moody's S&P Filch 11.960,047 63.99% 3.29% I. Cash & Cash Equivalents (Original maturity of 90 days or less) 11,960,047 44.80% Cash 0.00 99.647 398,587 U.S. DOLLARS (0) PENDING CASH 0.20 99.206 694.441 (0) 266 0.06 Money Mkt Securities 645184 645,696 161 Agency Discount Note 99.586 448,135 449,017 Commercial Paper 0.16 99.995 699,963 Money Market Fund 178 0.14 VP7000038 11,934,998 WF ADV MONEY MKT TR #645 3.287 Cash & Cash Equivalents Total 11,934,998 II. Marketable Securities (Original maturity greater than 90 days) NA: Short Tenn Securities (Remaining maturity ofless than 365 days) Corporate Securities Corporate Obligation 073902HB7 A2 A A+ 400,000 BEAR STEARNS CO INC 3.456 04/29/08 38141EKG3 Aa3 AA- AA- 700,000 GOLDMAN SACHS GROUP INC 3.406 07/29108 40429CCU4 Aa3 AA- AA- 400,000 HSBC FINANCE CORPORATION 5.824 09/15/08 52517PJ28 All A+ AA- 400,000 LEHMAN BROTHERS HOLDINGS 3.115 05129/08 59018YVZ1 Al A+ A+ 700.000 MERRILL LYNCH & CO 3.168 08/22/08 617446A82 Aa3 AA- AA- 650,000 MORGAN STANLEY 3.151 11121/08 7591EPA86 Al A A+ 450,000 REGIONS FINANCIAL CORPORA" 3.208 08/08/08 929903AQ5 Aa3 AA- AA- 700,000 WACHOVIA CORP 3.301 10/28/08 4,400,000 Govt Securities Gov Agncy Obligation 4,400,000 Money Mkt Securities Agency Discount Note 313588YRO AGY AGY AGY 1,450,000 FNMA Commercial Paper 50285LO43 P1 A -1 F -1 900,000 LAFAYETTE ASSET 2,350,000 Short Term Securities Total 6,750,000 118: Long -Term Securities (Remaining maturity greater than 365 days) Corporate Securities Corporate Obligation Yorba Linda Water District 18611500 Effective Days Duration Market Price Market Market Value Holdings as YTM at Maturity to Eff Value +Accrued Percentage of Purchase Maturity Interest Account or Reset 03/01/08 04129/08 07/29/08 09/15/08 05/29/08 08/22/08 11/21/08 08/08 /08 10/28!08 (0) (0) 0.00% 0.00% 0 0.00 0 0 0.00% 0.00% 1 0.00 100.000 11,934,998 11.960,047 63.99% 3.29% 1 0.00 11,934,996 11,960,047 44.80% 3.67% 60 0.17 99.691 398,765 399,994 151 0.17 99.803 698,619 700,738 199 0.04 99.268 397.072 401,926 90 0.00 99.647 398,587 398,621 175 0.20 99.206 694.441 694,933 266 0.06 99.259 645184 645,696 161 0.19 99.586 448,135 449,017 242 0.16 99.995 699,963 701,953 178 0.14 4,380,765 4,392,879 2.14% 3.46% 3.75% 3,41% 2.13% 5.82% 2.14% 3.12% 3.72% 3.17% 3.46% 3.15% 2.40% 3.21% 3.75% 3.30% 23.49% 3.49% 178 0.14 4,380,765 4,392,879 23.49% 3.49% 0.000 06/27/08 06127/08 119 0.32 99.220 1,438,690 1,438,690 7.71% 5.26% 0.000 04104108 04/04/08 35 0.09 99.728 897,552 897,552 4.81% 5.43% 87 0.23 2.336,242 2,336,242 12.53% 5.33% 146 0.18 6,717,007 6,729,121 36.01% 4.13% The above information is an estimate of certain investment calculations and does not represent your audited statement of record. Page: 1 Of 2 Holdings Report Securities Held as of 2/29/08 on a Trade Date Basis identifier Credit Ratings Par Value Security Description Coupon Moody's S &P Fitch Long Term Securities Total 0 Marketable Securities Total 6,750,000 18,664,999 Final Effective Days Maturity Maturity to Eft Maturity 0 146 53 Yorba Linda Water District 18611500 Duration Market Price Market Market Value Holdings as YTM at Value +Accrued Percentage of Purchase Interest Account or Reset 0.00 0 0 0.00% 0.00 0.18 6,717,007 6,729,121 36.01% 4.13% 0.06 18,652,006 18,689,168 100.00% 3.59% The above information is an estimate of certain investment calculations and does not represent your audited statement of record. Page 2 of 2 Account Overview Yorba Linda Water District Funding Date: 10/25/2005 Portfolio Statistics as of: 2/29/2008 Account Characteristics: Portfolio Yield to Maturity 3.59% Total Unrealized Gains/(Losses) - Current: (6,554) Total Net Realized Gains/(Losses) - Since Inception: 496 Total Long-Term Investments: - Total Short Duration Investments/Money Market Secs: 18,652,006 Total Market Value: 18,652,006 Total Number of Issues in the Portfolio: 11 MARKET DATA Overnight Fed Funds Rate: 3.00% 6-Month T-Bill Yield: 1.82% 12-Month T-Note Yield: 1.57% WELLS CAPITAL MANAGEMENT Portfolio Summary Report 1'orha Linda Water District For the period : 02/01/08 to 02/29/08 18611;00 Portfolio Characteristics 4.8% 0.60 Portfolio Breakdown Market Value: 18,652,005.94 Aa /AA 13.1% Unrealized G /L: (6,553.85) 10.4% Agency Discount Note Baa /BBB 0.0% Commercial Paper Yield To Maturity: 3.59% Other Corporate Obligation Portfolio Duration: 0.06 Years 64.0% Money Market Fund 0.30 Pending_Cash Avg. Days to Maturity: 53 Total Avg. Portfolio Credit Quality: Aa1 Market Data 02/29/08 01/31/08 Yields: 6 Month Treasury Bill: 1.82% 2.06% 2 Year Treasury Note: 1.63% 2.17% 5 Year Treasury Note: 2.50% 2.82% Fed Funds Taraet: 3.00% 3.00% Credit Quality* Effective Maturity Distribution 0.70 P1 /MIG1/VMIG1 /A -1 4.8% 0.60 Aaa /AAA 7.7% 4.81% Aa /AA 13.1% 0.50 A/A 10.4% 0.00% Baa /BBB 0.0% 040 Other 0.0% Cash /Overnights 64.0% 0.30 Not Rated 0.0% 100.0% 0.20 Moody's Ratings - Primary 0.10 S &P Ratings - Secondary Fitch Ratings - Tertiary 000 o/n 2 to 90 91 to 180 181 to 1 year 1 to 2 years The above information is an estimate of certain investment calculations and does not represent your audited statement of record. Market Value % of Account 1,438,690.00 7.71% 897, 552.00 4.81% 4,380,765.35 23.49% 11,934,998.48 63.99% 0.11 0.00% 18, 652, 005.94 100.00% > 2 years WELLS CAPITAL MANAGEMENT VFV Mr. Michael Payne General Manager Yorba Linda Water District 4622 Plumosa Drive Yorba Linda, CA 92885 RE: Exposure to debt of financial companies Dear Mike, 03/21/2008 The purpose of this letter is to provide you with a formal review of the corporate obligations that Wells Capital Management has purchased and holds on behalf of the Yorba Linda Water District portfolio. Since July 2007, the fixed income market has increasingly become disorderly leading to significant concerns about an economic recession. The catalyst was a combination of the housing bubble and sub-prime mortgage lending, which has resulted in a liquidity crisis and recessionary fears. During this time the fixed income market has experienced an enormous flight to quality. The Federal Reserve and other departments of the U.S. Government have been challenged to keep the economy supplied with capital through aggressive easing of monetary policy, expansion of direct lending and, most recently, easing the excess capital requirements at FNMA and FHLMC.. Additionally, they have also implemented additional facilities to assist the broker/dealers in accessing liquidity. These facilities include the Term Security Lending Facility (TSLF) whereby the Federal Reserve will lend up to $200 billion for up to 28 days accepting agency and private (AAA) mortgage debt as collateral. They have also introduced the Primary Dealer Credit Facility ( PDCF) which allows dealers access to the Federal Reserves Discount Window. The Federal Reserve has agreed to accept any investment grade collateral with no limit to the amount that can be borrowed. These measures, along with the Term Auction Facility, available to banks, are going a long way toward preventing a systemic "melt-down' in the U.S. financial system. As of March 19, the YLWD portfolio bad exposure to the following names: Issuer Morgan Stanley Wachovia Bear Stearns Goldman Sachs Regions Financial Merrill Lynch Lehman. Bros. HSBC Finance Moody's/S&P Aa3/AA- Aa3/AA- Baal/BBB Aa3/AA- A2/A Al/A+ Al/A+ Aa3 /AA- Earlier this week it was announced that Bear.' Stearns was purchased by JP Morgan. The transaction is expected to close within the next 90 days. Given. the terms of the sale, Bear Stearns will have access to liquidity either through. JP )Morgan or the Federal. Reserve's Primary Dealer Credit Facility for operating purposes and to pay off existing debt prior to the close of the sale. We remain. confident that the Bear Stearns bond in. the portfolio will mature as expected on 4/29/08. Wells Capital. Management prides itself on its credit research capability. These efforts have been paramount to the success of our investment philosophy and process during an unprecedented market disruption, and dislocation,. At this time, we do not view any of the above credits as possessing significant risk characteristics outside of the reflected rating. If you have any questions regarding this material or if there is any other information we may provide, please feel free to call me at (213) 253-3184 or Michael Rodgers at (415) 396-6911. Sincerely, Kei.tb Khorey Principal Wells Capital Management I Michael P. Rodgers Managing Director Wells Capital Management 0 0 THE ORANGE COUNTY REGISTER • WEDNESDAY, MARCH 19, 2008 County stands to lose $80 million investment A bankrupt company must pay dozens of creditors before O.C. By RONALD CAMPBELL THE ORANGE COUNTY REGISTER A British court order could threaten all or most of Orange County's $80 mil- lion investment in a complex security. The order requires Whistlejacket Capital to pay senior creditors in the or- der their notes come due, meaning at least 75 creditors would be paid before the county gets a penny. Supervisor John Moorlach said in a written statement, "Assuming this court judgment stands on appeal, the Whistlejacket assets will be exhausted long before the county's note would be paid." A spokesman for County Treasurer IM Chriss Street, Keith Rodenhuis, said, "We disagree with their conclusion that the as- sets will be long -ex- hausted, especially be- cause they're overcol- lateralized." Chriss Street The receiver for Whistlejacket, ac- counting giant Deloitte & Touche, has said it will appeal, Senior Deputy County Counsel John Abbott said. County Treasurer Chriss Street, who bought Whistlejacket notes last year, said Tuesday that the company is sitting on $6.5 billion in assets, including $1 bil- lion in cash. The court decision is the latest in a se- SEE BANKRUPT* PAGE 3 BANKRUPT FROM PAGE 1 ries of problems for Street, who has twice beaten efforts by Moorlach to strip him of his investment powers. Moorlach and • Supervisor Pat Bates both scolded Street on Tuesday for not alerting them to a critical article about the Whistlejacket investment in The Orange County Regis- ter last week. Street said he disagreed with parts of the sto- ry but apologized for leaving the supervisors "flat- footed." In American bankruptcy courts similar creditors are treated the same way: They are paid simultaneously, and if there is too little money to pay them in full they all take an equal percentage "haircut." The receiver wanted to run Whistlejacket the same way. But Chancery Court Justice Terrence Etherton ruled that the Whistlejacket receiver must "pay as you go," paying each senior creditor when its notes mature. He issued his ruling March 5. Moorlach an- nounced it Tuesday. The Whistlejacket receiver went to court after two cred- itors demanded immediate re- payment of $370 million. The receiver warned in court that if it had operated on a "pay as you go" basis, the C J NO first few creditors in line would have snapped up all of Whistlejacket's cash by Feb. 29. That would force Whistle- jacket to sell its remaining as- sets, more than half of which are collateralized mortgage obligations, mortgage- backed securities and student loans - all unpopular investments now. That could create "a fire - sale situation," said Mario Mainero, Moorlach's chief of staff. Whistlejacket could have to sell assets at bargain prices to pay creditors at the front of the line, leaving little or noth- ing for later creditors. "The court's saying without consideration of the next cred- itor in line, you have to pay the most senior creditor 100 cents on the dollar," Mainero said. Street bought two Whistle- jacket structured investment vehicles, or SIVs, in January and July 2007. They mature Jan. 25 and Jan. 26, 2009. The investments were part of a larger plan to diversify the county's portfolio away from the U.S. mortgage market. Whistlejacket went into re- ceivership Feb. 12 and stopped paying creditors Feb. 15. The county is struggling to learn British receivership law. The list of creditors - normally among the first pieces of infor- mation provided in American bankruptcy - has yet to be is- sued, Abbott said. M 9 Z O N • Market Value Cost Certificates of Deposit: $ 100,000 100,000 $ 100,000 $ 100,000 Cash & Checking Accounts: $ 163,602 $ 163,602 1,200 1,200 $ 164,802 $ 164,802 Monev Market Accounts: $ 757,518 $ 757,518 317,914 317,914 $ 1,075,432 $ 1,075,432 Yorba Linda Water District Investment Portfolio Report January 31, 2008 Percent Investment Maturitv % Institution Yield Date Date Pacific Western 4.05% 0.36% Total Certificates of Deposit 4.05% Wells Fargo Bank Imprest Cash 0.59% Total 0.00% Wells Fargo Money Market 1.89% Wells Fargo MM/Annexation 1.89% 3.84% Total 1.89% $ 1,340,234 $ 1,340,234 4.79% Sub-total 1.82% Co Commingled Investment Pool: $ 131,657 $ 131,657 0.47/0 Orange County Commingled Fund 4.97% California Arbitrage Mgmt. Program: $ 6,501,313 $ 6,501,313 23.24% California Arbitrage Mgmt. Program 4.50% Monev Market Account: $ 1,496,677 $ 1,496,677 5.35% US Bank/Revenue Bond $ 9,469,881 $ 9,469,881 33.85% Sub Total Investments Individual Management Account: $ 18,512,124 $ 18,507,255 66.15% Wells Capital Management $ 27,982,005 $ 27,977,136 100% Total Investments 02/04/05 02/04/08 N/A N/A N/A N/A 1.75% N/A 3.69% 4.33% 4.11% N/A Per Government Code requirements, the Investment Report is in compliance with the Yorba Water District's Investment Policy and there are adequate funds available to meet budgeted and actual expenditures for the six months. Sandi Van Etten, Senior Accountant 1/31/08 OFFICE OF THE TREASURER-TAX COLLECTOR CHRISS W. STREET TREASURER-TAX COLLECTOR PAUL C. GORNIAN, C.P.A., CTP CHIEF ASSISTANT TREASURER-TAX COLLECTOR WALTER DANIELS ASSISTANT TREASURER-TAX COLLECTOR TAX COLLEMON ROBIN RUSSELL ASSISTANT TREASURER-TAX COLLECTOR A UMINIS'TRAHON CLARISSA ADRIANO-CERES ASSISTANT TREASURER-TAX COLLECTOR INFORMATION TECHNOLOGY HALL OF FINANCE & RECORDS 12 CIVIC CENTER PLAZA, SUITE G76 POST OFFICE BOX 4515 SANTA ANA, CA 92701 www.ttc.ocgov.com Request for Correction/Retraction Orange County Register article "Did County Treasurer Bet on a Nag" dated 3/14/08 Statement: "Orange County will probably lose some of the $80 million it sank into a defaulted investment, financial experts say." FACT: The introductory sentence leads readers to believe that Orange County made an investment in a vehicle that had already been placed in default (we received several calls from people believing as such). The securities referenced were purchased on January 25, 2007 and July 25, 2007. At the time of purchase the investments were not in default. A default did not occur until February 21, 2008. Statement: "The structured investment vehicle (Whistlejacket) has lost most of its value since July." FACT: Whistlejacket has not lost most of its value since July. Whistlejacket reported a portfolio net asset value of 93.96% on February l 1..On February 21, Moody's stated that the over-collateralization ratio of senior debt was 105%. This means the County's holding continue to have significant protection. To state that most of the SIV's value has been lost is factually incorrect. Statement: "First it (Whistlejacket) started trading assets to junior creditors for cash... junior creditors were claiming assets ahead of senior creditors such as the county..." FACT: Vertical slices do not take senior investor's assets and give them to a junior investor. The story leads the reader to believe pristine assets were cherry picked by junior creditors to the detriment of the Senior Note holders such as the County. The term vertical slice describes the purchase of a Pro rata share of the portfolio. This means that if 4% of the portfolio is security XYZ, then 4% of the assets the Junior Creditor (also known as Capital Note Holder) purchases will also be XYZ. Statement "You've skimmed off all the good stuff, and what you've got left is the sludge at the bottom of the barrel." FACT: Junior Creditors receive a pro rata share (see above). They receive no preferential treatment and do not get the "good stuff." FACT: The rating agencies require a substantial portion of the holdings to be in highly liquid or cash equivalent assets, These assets are referred to as Liquidity Equivalent Assets are not to be sold or otherwise encumbered. These , are of sufficient quality to attract bids in the market place. Again, after significant asset sales from October through December 2007, the portfolio net asset value was still above 95 cents on the dollar. Statement "tie (Treasurer Chriss Street) did so, he has said, to diversify away from the troubled 11.5. mortgage market where the county traditionally has invested..." FACT: The County does not "traditionally place its portfolio in the troubled U.S. mortgage market." It is true that the decision to invest in SIVs was a part of an overall strategy to diversify away from the U.S. mortgage market. Each investment has always been weighed on its individual merit. There is no sector, including investments tied to the US Mortgage market that the Treasurer's office has "traditionally" invested in. The County has been investing in SIVs since 2002. "SIVs are private, unregulated investment funds..." FACT: SIVs are regulated legal entities. SIVs are reegulated by the FSA (Financial Service Authority) and Securities & Exchange Commission (SEC) in the UK and USA respectively. SIVs have external and internal auditors and are required by law to issue annual reports of financial condition. SIVs must meet rating agency conditions and have strict operational governance. These well-defined conditions of operation are the very reason why Whistlejacket went into enforcement and is now being operated by a Receiver, Deloitte & Tonche. Statement: "...SIVs carry assets that banks don't want on their own balance sheets ...By dumping these assets, banks free up money for the loans..." FACT: SIVs are not the "dumping" ground of bad assets unwanted by sponsoring banks. SIVs' assets were never predominantly the assets of the sponsoring bank. They bought assets on the open market. Unlike ABCP conduits which were set up for regulatory capital relief, (assisting banks in freeing up capital) SIVs were not. Statement: "The vehicles are financial black boxes. Investors like Orange County have only a vague idea of the SIVs' holdings." FACT: Per regulatory guidelines, financial reports from SIV are frequent and adequate to perform a proper analysis of the investment. Monthly updates on geographic exposure, product type, ratings, liquidity, foreign exchange exposure, interest rate limits and other compliance matters are reported to the investor. The largest holdings are identified by name even though investors do not generally receive granular level information. Additional information is obtained by dialoguing with the investment managers.