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Home My WebLink AboutTR-19-92 VIZ, THE CORPORATION OF TT E TOWN OF NEWCASTLE REPORT Meeting: GENERAL PURPOSE & ADMINISTRATION COMMITTEE File# Date: March 16, 1992 Res. # By-Law# Report#: TR-19-92 File#: Subject: REVIEW OF TOWN'S INVESTMENT POLICY Recommendations: It is respectfully recommended that the General Purpose and Administration Committee recommend to Council the following: 1. That report TR-19-92 be received; and 2 . That the attached Schedule A along with it's supporting Appendix A, be approved as the current Investment Policy for the Corporation of the Town of Newcastle for surplus General Fund, Reserves, Reserve Fund, and Trust Fund monies . 3 . That the investment procedures (attached schedule B) be received for information. BACKGROUND AND COMMENTS: At the April 21, 1986 General Purpose & Administration meeting report TR-12-85 was approved (attached for reference) establishing the Town's current investment policy. Since 1986 the Town of Newcastle investment portfolio has steadily increased whereby it is advisable for Council to consider a revision of the current investment policy limits . The size of the Town's investment portfolio fluctuates during the year due to School Boards , and Region levies and scheduled debenture repayments . During 1991 the average balance of the combined Reserve Fund and General Fund investment portfolio was $20,402,290 ( 1990 - $18,729, 325) and the current balance of General Fund and Reserve Funds Investments outstanding as of December 31, 1991 was $18,409,707 . Interest earned on General Fund alone during 1991 was $988,000 and the Reserve Funds earned an additional $1,027,000 in interest. ( 1990 $2,756,773 combined General Fund and Reserve Fund) . 7 11 U U TR-19-92 Page 2 The existing investment policy placed limits of investments at $4 million with any one Canadian Chartered Bank or Trust Company. As the municipality continues to grow the need to deal with a larger range of investment portfolio values is possible as is also the mix of limits established. The present ranges established per Schedule A are designed to reflect the investment portfolio levels anticipated for the Town of Newcastle. Respectfully submitted, Recommended for presentation to the Committee �! ------------------- ------ - ---------------- Marie A. Marano, H.BSc . , A.M.C.T. Lawrence E Kotseff, Treasurer Chief A i strative Officer MAM/JR/ges Attachment I i it I SCHEDULE A (REPORT NO. TR-19-92) CORPORATION OF THE TOWN OF NEWCASTLE SHORT TERM/MEDIUM TERM INVESTMENT POLICY FOR SURPLUS GENERAL FUND, RESERVES, RESERVE FUND, AND TRUST FUND MONIES LEGISLATIVE AUTHORITY Section 169 of the Municipal Act R.S.O. 1980 provides the legislative authority to invest monies not immediately required for current operating purposes. Section 165 of the Municipal Act R.S.O. 1980 provides the legislative authority to invest monies raised for a reserve fund and its earnings in such securities as allowed under the Trustee Act. POLICY 1. TYPES OF INVESTMENT Operating Funds, Reserves, Reserve Funds and Trust Funds That the Town of Newcastle place short term investments in those instruments permitted under the Municipal Act and The Trustees Act of Ontario, and more specifically only those issued or guaranteed by the following institutions: (i) The Government of Canada (ii) The Provinces of Canada (iii) Ontario Municipal Governments as defined in the Municipal Affairs Act (iv) Schedule A and B Banks as named in the supporting Appendix A 2 . RATINGS The Corporation shall subscribe to and maintain a rating service and any investment being undertaken through this policy shall have a current rating with that service which complements the policy requirements . 3. PLACEMENT OF INVESTMENT That the Town be permitted to take advantage of investments offered by the financial institutions outlined in the Rating Schedule (Appendix "A" attached) as circumstances dictate. - 1 - 0 I SCHEDULE A (REPORT NO. TR-19-92) 4 . LIMITATIONS AND DIVERSIFICATION OF PORTFOLIO HOLDINGS That the following limitations be placed on investments with any one financial institution according to the rating supplied by the Dominion Bond Rating Service (or their equivalency) , per attachment appendix A, taking into account the overall value of the investment portfolio. VALUE OF PORTFOLIO MIX OF INVESTMENTS SINGLE INSTITUTION HOLDING WITHIN PORTFOLIO (i) When portfolio is - Min 20% R-1 high 30% but single greater than $10 Max 70% R-1 middle investment limit per million Max 10% R-1 low institution at time of placement: Maximum $3 million (ii) When portfolio is - Min 25% R-1 high 40% but single greater than $5 Max 70% R-1 middle investment limit per million but not Max 5% R-1 low institution at time greater than $10 of placement: million Maximum $2 million (iii) When portfolio is - Min 30% R-1 high 50% but single greater than $1 Max 70% R-1 middle investment limit per million but not institution at time greater than $5 of placement: million Maximum $1.5 million (iv) When portfolio is - Any combination of 100% but single is less than $1 R-1 high or R-1 investment limit per million middle institution at time of placement: Maximum $1 million 5 . TERM OF INVESTMENTS Operating and Capital Funds The Municipal Act R.S.O. 1980 limits investment in operating and reserve funds to those funds in excess of a municipalities immediate needs . 2 - / 0 r� SCHEDULE B (REPORT NO. TR-19-92) INVESTMENT PROCEDURES 1. The Deputy Treasurer or alternate under the direction of the Treasurer shall be responsible for the placement of short term investments . Subject to the limitations of this policy staff will invest at the highest interest rate available. 2 . The Deputy Treasurer or alternate under the direction of the Treasurer shall determine the amount of funds and terms for which placements can be arranged. 3 . Competitive bidding will be obtained, when possible, before the placement of any investment. 4 . All investments shall receive the approval of the Treasurer. 5 . For information purposes a monthly statement of investments outstanding shall be submitted to Town Council. - 1 - I APPENDIX A (REPORT NO. TR-19-92) Rating Schedule As Of January 31, 1992 (Dominion Bond Rating Services Limited) OWNERSHIP OF FINANCIAL INSTITUTIONS CANADIAN OWNERSHIP NON-CANADIAN OWNERSHIP R-1 (High) Government of Canada Morgan Bank of Canada Royal Bank of Canada Credit Suisse Canada Royal Bank of Mortgage Corp. Union Bank of Switzerland Toronto Dominion Bank (Canada) Swiss Bank Corporation (Canada) R-1 (Middle) Canadian Imperial Bank of Barclays Bank of Commerce Canada Bank of Montreal Fuji Bank Canada Bank of Montreal Mortgage The Bank of Tokyo Canada Corporation Industrial Bank of Japan Bank of Nova Scotia (Canada) National Bank of Canada Province of Ontario Province of British Columbia Province of Alberta R-1 (Low) Province of Quebec Bank of America, Canada Province of Saskatchewan The First National Bank Province of Manitoba of Chicago (Canada) Province of New Brunswick Province of Nova Scotia Province of Prince Edward Island Montreal Trustco Inc . National Trustco Inc . R-2 (High) Province of Newfoundland i ,7 1 1 i APPENDIX A (REPORT NO. TR-19-92) RATING CLASSIFICATIONS (Dominion Bond Rating Services Limited) R-1 R-2 R-3 U NR PRIME MEDIUM BELOW NOT OF NOT RATED CREDIT GRADE MEDIUM INVESTMENT CREDIT GRADE QUALITY R-1 A company having a R-1 rating is a high grade prime credit. Its ability to repay its current liabilities as they fall due is very high. The strength of the various liquidity ratios is unquestioned, and alternative sources of funds to commercial paper such as bank lines, ability to do long term financing and a strong parent exist. Furthermore, the outlook for future liquidity and the trend of these ratios should be favourable. The level of profitability has been reasonable and relatively stable with only modest fluctuations. No substantial qualifying negative factors exist, and the firm is of sufficient size to be a strong influence in its industry. We also indicate where within the rating classification the Company falls (upper, middle or lower) . By definition, it takes a very strong company to be classified as middle or upper R-1. R-2 An R-2 rating indicates a medium grade credit with the upper, middle and lower designations indicated. The liquidity ratios of companies in this classification are not as strong as companies in the R-1 group, and the past and future trend may suggest some deterioration in the strength of these ratios . Not as many alternative sources of funds may be available, the size of the firm may be smaller, and its relative position in the industry not as strong as an R-1. Profitability trends past and future, may be less favourable, earnings not as stable, and there may be some negative qualifying factors present. R-3 An R-3 credit is a below medium grade, speculative credit. Its liquidity ratios would tend to be below average, and the future trend of the ratios is unclear. Alternative sources of funds may not exist or be greatly limited. Earnings could be very unstable, and the level of over-all profitability of the firm may be low. The industry environment may be weak, and strong negative qualifying factors may also be present. This rating category is also divided into middle, upper or lower designations . U With a U rating, a firm is no longer of investment quality. Liquidity ratios and earnings, past, present and future, may be extremely weak. The firm may be small, and certain qualifying factors may exist which makes its future highly uncertain. 2 - °y II r � J APPENDIX A (REPORT NO. TR-19-92) RATING CLASSIFICATIONS (Continued) NR NR stands for "not rated" . Under certain circumstances we will include an editorial on a company without applying a rating. These include cases where a firm would have a wide range in rating, either R-1, R-2 or R-3, because of a significant qualifying factor, although numerical and other items may be positive. Secondly, where major recent events change the strength of a company, but it is unclear what effect these important factors will have. Thirdly, where another firm is a key factor in the rating, and it is impossible to secure the financial statements of this firm. Fourthly, in cases where we rate an entirely new area, we may initially introduce the ratings as NR. I 4 I - 3 - ATTACHED FOR REFERENCE TOWN OF NEWCASTLE REPORT File # r� Res. # t ?. By-Law # METING: General Purpose and Administration Committee DATE: APRIL 21 , 1986 REPORT #: TR-29-86 FILE #: SUBJECT: REVIEW OF TOWN'S INVESTMENT POLICY RECOMMENDATIONS: It is respectfully recommended that the General Purpose and Administra- tive Committee recommend to Council the following: 1 . That report TR-29-86 be received; and 2. That Committee endorse the Town' s present Investment Policy; or 3. That Committee adopt Report TR-12-85 and rescind the previous policy. BACKGROUND & COMMENT: The General Purpose and Administrative Committee requested staff to prepare a report on the Town's current Investment Policy and in this connection, staff have reviewed the existing policy which was adopted by i Council in November of 1984. This policy reads as follows: Resolution #iGPA-1023-84 Moved by Councillor Hobbs, seconded by Councillor Taylor That all short term investments of the Municipality be invested at a rate that is of the greatest advantage to the Town. "CARRIED" Based on this resolution Staff have invested excess funds with the financial j . . .2 i General Purpose b Administration Committee Meeting Page 2 TR-29-86 institution that pays the highest rate of return ( interest) , which in this case has been with the Continental Bank of Canada. During 1985, interest income earned on Current Fund investments was approximately $305,000 versus a budget projection of $230,000 and Reserve Funds investments generated $256,000 in additional income. Following adoption of the above resolution, Senior Staff prepared Report No. TR-12-85 (copy attached) which was a Policy for Short Term Investments. This Policy evolved from the Investment Policy Report presented by the Urban Finance Officers Association in 1983. The purpose of the Associations report was to identify some of the important components which should be considered when compiling an investment policy for an urban municipality. The report recognized that different municipalities have different portfolio requirements and that the policies presented are only guidelines, recognizing that there can be no guarantees but that the risks can be minimized by a sound investment policy. This policy was received- for information only per Resolution #GPA-176-85. Staff note that the recent policy does establish certain limits within which Investments may be placed with certain Financial Institutions and considering market uncertainty and at times confusion in the Financial Community, there may be times when a lesser investment rate must be accepted to stay within the limitation set In the policy. However, this could prove to be beneficial to the Town in that our risk would be spread among other financall institutions and Staff recommend that Report # TR-12-85 be reconsidered at this time. Respectfully submitted, i i J.R. Blanchard, Treasurer I ATTACHMENT: CORPORATION OF THE TOWN OF NEWCASTLE TREASURY DEPARTMENT K.CAMPBELL,C.A.,TREASURER 40 TEMPERANCE STREET TEL.(416) 623-3378 BOWMANVILLE, ONTARIO LiC 3A6 REPORT TO THE GENERAL PURPOSE AND ADMINISTRATION COMMITTEE MEETING OF MARCH 18, 1985 REPORT NO. : TR-12-85 SUBJECT: POLICY FOR SHORT TERM INVESTMENTS RECOMMENDATION: It is respectfully recommended that the General Purpose and Administration Committee recommend to Council : OP 1 . That this report be received, and 2. That the Policy for Short Term Investments be approved. , BACKGROUND AND COMMENT In the past, it has been the practice for the Town to ,place its money in the short term market with institutions having a business office within the Town of Newcastle, That practice limited our placements to the Royal Bank, the C.I.B.C. , the Bank of .Montreal , the Toronto Dominion Bank and Victoria and' Grey Trust Co. Although our returns on those investments were satisfactory, Council indicated by resolution that it wished the short term investments made at the most favourable rate without any preference for institutions located within the Town of Newcastle. Staff have assumed that implicit in that resolution is the continuation of our practice to be prudent in the institutions chosen for the placement of investments. We would propose that the investments placed be i X16 1 , 2 - TR-12-85 within the limits set in the policy. The institutions, which fall into the applicable rating categories, be canvassed on a rotating basis when investments are to be placed. In sel ecti ng an institution, consideration would be given to the effect any additional charges might have on the return. If the Town is to consider placements with institutions not generally known to us, then it would be appropriate to consider the the purchase of information through a financial rating service. This would ensure that investments were placed only with institu- tions which meet the policy guidelines. . The ratings provided by Dominion Bond Rating Service Limited , a Toronto based company, for Commercial Paper is $900 per annum. The ratings provided by Canadian Bond Rating Service, a Montreal based firm, for the Finance and Real Estate Manual cost $650 per annum. A schedule of the ratings of the Schedule "A" and Schedule "B" Banks, and Trust Companies as of January 25th 1985 is provided for your information. In addition, there may be times when it is more desirable to make placements through in investment broker. The costs associated with those transactions vary based on the size of the transaction and the instrument purchased. As an example the charge for a $200,000 placement is $25 and $1 million is 1/10 of a percent. The use of a broker would necessitate the entering into an agreement with the investment brokerage, but would then free staff frail searching the market to the extend we do now. i Both of the above noted costs would reduce the overall return received on our investments. Currently, no overhead costs are i 1 - 3 - TR-12-85 associated with the activity undertaken. Each placement made involves approximately 2-3 hours of staff time to determine the amount and tern to be placed, seek the bids, have the bids confirmed and evaluated, and then make the placement. In addition, if the policy as presented is approved, then there may be times when a lesser investment rate must be accepted to stay within the limitations set in the policy ie: current investments with the Continential Bank total $3,250,000, this exceeds the proposed limits in the policy by $250,000. The limitations do however, spread our risk among the financial institutions and therefore this is beneficial . Respectfully submitted , • Kathryn A. Campbell , C.A. , B.Comm. , Treasurer. attachments *g i I i 3 c� 4 - TR-12-85 Rating Schedule As Of January 25th 1985 r OWNERSHIP OF FINANCIAL INSTITUTIONS CANADIAN OWNERSHIP NON-CANADIAN OWNERSHIP R-1 (High) First Interstate Bank of Canada Morgan Bank of Cananda R-1 (Medium) C.I .B.C. Bank of American, Canada Continential Bank of Barclays Bank of Canada Canada Bank of Boston, Canada Bank of Montreal Credit Swiss Canada Bank of Montreal Mortgage The First National Bank of Corporation Chicago (Canada) Bank of Novia Scotia Fuji Bank, Canada Royal Bank of Canada Irving Bank, Canada Royal Bank Mortgage Corp. Midland Bank, Canada ' Toronto Dominion Bank Toronto Dominion Mortgage Corporation R-1 (Low) Montreal Trusts Limited National Bank.-of Canada National Trust Co. Limited Victoria Grey Trust Co. Ltd. I i R-2 (Medium) Bank of British Columbia Mercantile Bank of Canada Canada Permanent Mortgage ! Corporation i - 5 - TR-12-85 Temporary Investment Policy r 1. That the Town of Newcastle place temporary investments with Chartered Banks and Trust Companies in Canada, and with the Government of Ontario and Government of Canada. 2. That a rating , satisfactory to the Town of Newcastle be provided by a Bond Rating Service prior to any investment being placed. 3. That the Town be permitted to take advantage of investment through a qualified investment brokerage when practical . 4. That the following limitations be placed on investment with any one Chartered Bank or Trust Company, according to the rating supplied be the Dominion Bond Rating service: Canadian Owned Chartered Bank & Trust Companies Rating* Maximum Investment R-1 (High) $4.0 Million R4 (Medium) $3.0 Million R-1 (Low) $1 .0 Million R-2 (High) $0.5 Million R-2 (Medium) No Investment and lesser i *Note: The rating scale in the policy is that used by the Dominion Bond Rating Service. � C. U r,. - 6 - TR-12-85 TEMPORARY INVESTMENT POLICY - continued Foreign Owned Banks and Trust Companies (Chartered in Canada) Rating Maximum Investment R-1 (Nigh) $1.0 Million R-1 (Medium) $0.5 Million R-1 (Low) No Investment and lesser A summary of the various classes of ratings provided by Dominion Bond Rating Service and the categories of those financial institutions which have been rated is as follows: RATING CLASSIFICATIONS R-1 R-2 R-3 U NR PRIME MEDIUM BELOW NOT OF NOT RATED CREDIT GRADE MEDIUM INVESTMENT CREDIT GRADE QUALITY R-1 A Company having an R-1 rating is a high grade prime credit. Its ability to repay its current liabilities as they fall due is very high. The strength of the various liquidity ratios is unquestioned, and altern- ative sources of funds to commercial paper such as bank lines, ability to do long term financing and a strong parent exist. Futhermore, the outlook for future liquidity and the trend of these ratios should be favourable. The level of profitability has been reasonable and relatively stable with only modest fluctuations. No sub stanti al qualifying negative factors exist, and the firm is of sufficient size to i TR-12-85 TEMPORARY INVESTMENT POLICY - continftd be a strong influence in its industry. We al so indicate where within the rating 'classification the Company falls ( upper, middle or lower) . By definition, it takes a very strong company to be classified as a middle or an upper R-1 . R-2 An R-2 rating indicates a medium grade credit with the upper, middle and lower designations indicated. The liquidity ratios of companies in this classification are not as strong as , companies in the R-1 group, and the past and future trend may suggest some deterioration in the strength of these ratios. Not as many alternative sources of funds may be available, the size of the firm may be smaller, and its relative position in the industry is not as strong as an R-1 . Profitability trends, past and future, may be less favourable, earnings not as stable, and there may be some negative qualifying factors present. R-3 An R-3 credit is a below medium grade, speculative credit. Its liquidity ratios wquld tend to be below average, and the future trend of the ratios is unclear. Alternative sources of funds may not exist or be greatly i limited. Earnings could be very unstable, and the level of over-all profitability of the firm may be low. The qualifying factors may also be present. This rating category is also divided into middle, upper or lower designations. U With a U rating , a firm is no longer of investment quality. Liquidity ratios and earnings, past, present and future, may be extremely weak. The firm may be small and certain qualifying factors may exist which makes its future highly uncertain. i i - 8 TR-12-85 TEMPORARY INVESTMENT POLICY - continues NR NR stands for "not rated" . Under certain circumstances we will include an editorial on a company without applying a rating . These include cases where a firm would have a wide range in rating , either R-1 , R-2 or R-3 , because of a significant qualifying factor, although numerical and other items may be positive. Secondly, where major recent events change the strength of a company, but it is unclear what effect these important factors will have. Thirdly, where another firm, is a. key factor in the rating , and it is impossible to secure the financial statements of this firm. Fourthly, in cases where we rate an entirely new area, we may initially introduce the ratings as NR. i I i