HomeMy WebLinkAboutMemo - Mail Packet - 6/13/2023 - Memorandum From Adam Halvorson Re: Epic Loan Program – Interest Rates (3)
Utilities
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222 Laporte Ave.
PO Box 580
Fort Collins, CO 80522-0580
970.212.2900
V/TDD: 711
utilities@fcgov.com
fcgov.com/utilities
M E M O R A N D U M
DATE: May 26, 2023
TO: City Councilmembers
FROM: John Phelan, Energy Services Senior Manager
Blaine Dunn, Director of Accounting
THRU: Kelly DiMartino, City Manager
Travis Storin, Chief Financial Officer
Kendall Minor, Utilities Executive Director
Lance Smith, Utilities Finance Director
RE: Update to Interest Rates for Epic Loans Program
Bottom line
The purpose of this memo is to inform Council of changes to the interest rates for the Epic Loans
program. The new interest rates noted below become effective on June 5th, 2023. The current interest
rates have been in place since August 2022 and increases in Federal Reserve interest rates have resulted
in increased costs for program capital that require increased rates to customers.
Background
The Epic Loans program continues to be a successful component of the overall Epic Homes program that
provides resources to Fort Collins Utilities customers in making energy upgrades to their properties. The
loan program’s capital portfolio is largely funded through loans from commercial banks and
supplemented by lower cost capital to offer competitive interest rates for Epic Homes upgrades.
Utilities Energy Services and Finance and City Finance collaborate on the implementation of the
program’s capital stack management and debt service. Per the Financial Officer’s Rules and Regulations,
the program manager and Accounting Director evaluate the interest rates for the program no less
frequently than semi-annually. More context on this evaluation can be found in the attached memo.
Epic Loan Interest Rates:
Tier Term New Rate Prior Rate
Tier I: 3- and 5-year terms: 5.25% 4.55%
Tier II: 7- and 10-year terms: 5.55% 4.85%
Tier III: 15-year term: 5.95% 5.15%
Attachment: Epic Loans Interest Rates internal memo
CC: Gretchen Stanford, Deputy Director, Utilities Customer Connections
Adam Halvorson, Senior Treasury Analyst
Brian Tholl, Energy Services Supervisor
Glenn Pease, Energy Services Program Manager
DocuSign Envelope ID: CF918F27-4B5D-41DC-BF86-01C3DC81C068
Financial Services
215 N Mason Street, 2nd Floor
PO Box 580
Fort Collins, CO 80522
970.221.6770
970.221.6782 - fax
fcgov.com
M E M O R A N D U M
DATE: May 4, 2023
TO: Travis Storin, Chief Financial Officer
THRU: Blaine Dunn, Accounting Director
FROM: Adam Halvorson, Sr Treasury Analyst
RE: Epic Loan Program – Interest Rates
The purpose of this memo is to approve new retail interest rates for the Epic Homes Loan
Program.
Staff recommend the following interest adjustments to the program’s retail interest rates,
effective 30 days after approval:
Proposed New Retail Rates:
Tier I: 3- and 5-year terms: 5.25%
Tier II: 7- and 10-year terms: 5.55%
Tier III: 15-year term: 5.95%
Current Retail Rates:
Tier I: 3- and 5-year terms: 4.55%
Tier II: 7- and 10-year terms: 4.85%
Tier III: 15-year term: 5.15%
Interest rate structure and modification process
Interest rates are defined in the Epic Loan Product Guidelines as referenced in the Financial
Officer’s Rules and Regulations, which adhere to the legal parameters and objectives established
in the Fort Collins Municipal Code Section 26-720. The interest rates in the Loan Product
Guideline are a three-tier structure based on loan term as noted below. The current interest rates
have been in place since August 2022. As needed, but no less frequently than on a semi-annual
DocuSign Envelope ID: 156D406C-00E3-468A-B217-5FC00E4FDCEBDocuSign Envelope ID: CF918F27-4B5D-41DC-BF86-01C3DC81C068
basis, the program manager and Accounting Director will review the interest rates and make a
recommendation to the Financial Officer whether one or more rates should be modified. Should a
revision in the rates be determined necessary, this memo will be revised and approved by the
Financial Officer.
The Federal Reserve has continued to raise interest rates: 75bps in July, 75bps in September, 75bps
in November, 50bps in December, 25bps in February, 25bps in March, and 25bps in May. These
aggressive rate hikes have significantly pushed up the cost of the City’s long-term commercial
borrowing, which is an important funding source for the Epic Loan Program. As borrowing
becomes more expensive, staff must advocate the necessity of adjusting the program’s retail
interest rates accordingly to keep the target rate spread between our blended source cost of capital
and lending interest rates. The newly proposed retail rates aim to support the City maintaining a
spread of 100 basis points, which is within the target spread set as a guardrail for the program.
Staff believes this basis-point cushion will help the City cover the administrative cost and reduce
interest rate risk due to market volatility. With the potential of more interest rate increases initiated
by the Fed to combat the elevated inflation, staff will closely monitor the market conditions for
the City to continue offering attractive retail rates to customers, as well as stay on course to
establish a self-sustainable and evergreen revolving loan fund for the program.
Approved:
________________________________
Travis Storin, Chief Financial Officer
CC Lance Smith, Sr Director, Utilities Finance
Glenn Pease, Mechanical Engineer II, Utilities Customer Connections
Brian Tholl, Energy Services Supervisor
John Phelan, Energy Services Senior Manager
Tracy Brann, Senior Supervisor, Utilities Accounts Receivable and Billing
DocuSign Envelope ID: 156D406C-00E3-468A-B217-5FC00E4FDCEBDocuSign Envelope ID: CF918F27-4B5D-41DC-BF86-01C3DC81C068