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HomeMy WebLinkAbout05-08-2012 b3 refi 2001 lease revenue refund in d bonds series c~ counci ljac,Enda aEpoat 5-08.1 2Meeting Date Item Number B 3 CITY OF SAN LUIS OBI SP O FROM : Charles Bourbeau, Director of Finance & Information Technolog y SUBJECT : REFINANCING 2001 LEASE REVENUE REFUNDING BONDS, SERIES C RECOMMENDATIO N Adopt a resolution approving refinancing of 2001 Lease Revenue Refunding Bonds, Series C . DISCUSSIO N Backgroun d The 2001 Lease Revenue Refunding Bonds, Series C were issued by the City of San Luis Obisp o Capital Improvement Board in the aggregate amount of $7,285,000 to refinance 1999 Lease Revenue Refunding Bonds which were used to fund various land purchases and improvements a t the Damon-Garcia Sports Fields . Based on the existing Indenture of Trust, the City has the right to redeem the 2001 Bonds, Serie s C in full on any business day at a redemption price equal to 100% of the principal amoun t outstanding, without premium . This makes it possible to pay off existing bondholders and reissue replacement bonds at a lower interest rate . Purpose of Refinancing the 2001 Lease Revenue Refunding Bonds, Series C Interest rates are currently at the point where significant savings can occur by proceeding with th e refinancing . However, the changing market environment makes the refinancing time sensitive a s rates could increase . Based on current market conditions the refinancing will result in approximately $62,000 in annual savings to the General Fund with a total "present value" o f about $385,000 over the remaining term of the bonds . The resulting savings can be used by the General Fund for other purposes . Debt Management Polic y The proposed refunding for these bonds is consistent with the City's adopted capital financin g and debt management policies .Most notably, the proposed refinancing meets the following ke y criteria : The projects useful lives are equal to or greater than the original term of the financings . It is important to note that the refinancing will not extend the original time period of th e 2001 bond issue : the maturity remains at 2029 . 2.The proposed refinancing will continue to support an investment grade rating and will be conducted on a competitive basis . 3.Current market conditions present favorable interest rates for the refinancing . B3 .1 Refinancing 2001 Lease Revenue Refunding Bonds, Series C Page 2 4.The estimated net present value savings of the refinancing meet the City's polic y "trigger," which states that refinancings should be undertaken whenever net present valu e savings of 5% can be achieved . The current net present value savings of this refinancin g are 6 .93%; however, the actual net present value savings will fluctuate slightly based o n the market conditions on the date the bonds are sold . 5.The refinancing will reduce the resources required to meet annual debt servic e requirements . Proposed Refinancing Structur e The San Luis Obispo Capital Improvement Board will issue the 2012 Refunding Lease Revenu e Bonds . To secure the bond repayments, the Board will lease the Damon-Garcia Sports Fields t o the City for the same annual amount as the Board's debt service payments . In turn, the Cit y covenants to annually budget and appropriate an amount sufficient to make lease payments to the Board and with which the Board will make debt service payments on the 2012 Refunding Lease Revenue Bonds . The current principle amount of outstanding bonds to be refinanced is $5,555,000 . The cost s associated with issuing the bonds (such as bond counsel, financial advisor, trustee, ratin g agencies) that will be funded from the refinancing is estimated to be approximately $125,000 . The bonds are expected to sell at a premium,meaning for more than face value . As a result,a lesser amount of bonds will have to be issued .Based on the expected premium pricing for the bonds, the par amount of the new bond issue will actually decrease and is currently estimated to come in at approximately $4 .71 million . Professional Assistance In accordance with service agreements previously approved by the Council, bondand disclosur e counsel services will be provided by the law firm of Jones Hall and financial advisor service s will be provided by Fieldman Rolapp . For trustee services, the City contracts with U .S . Bank . Description of Financing Documents The attached resolution approves a variety of documents that are required in order to procee d with the refinancing . Prepared by the City's bond counsel (Jones Hall), the following is a brie f description of these documents, which are on file in the City Clerk's Office and the Counci l Reading File. 1.Indenture of Trust.The Indenture of Trust is signed by the Trustee, the Board and the City . It sets out instructions to the Trustee for the deposit, investment and disbursement of th e proceeds from the sale of the Bonds . The Indenture of Trust also sets forth the terms of th e Bonds and regulates the Trustee's actions vis-a-vis the Bond Owner . The Indenture of Trus t may be viewed as the mirror image of the Lease described below,in that it sets forth th e terms which translate the Lease obligations into Bond rights and obligations . 2.Site Lease.This document sets out the terms of the City lease of the Damon-Garcia Sport s Fields to the San Luis Obispo Capital Improvement Board (the "Board"), in consideration of B3-2 Refinancing 2001 Lease Revenue Refunding Bonds, Series C Page3 the payment by the Board of an upfront rental payment which is sufficient to provide fund s for the prepayment of the 2001 Series C Bonds . 3.Lease Agreement.This document is the main legal document . It sets out the business term s of the financing and all other documents are supplementary . Under the Lease, the Boar d agrees to lease the Leased Property to the City and the City agrees to make semi-annual leas e payments to the Board which are sufficient to provide revenues to pay debt service on th e Refunding Bonds . 4.Assignment Agreement.Under the Assignment Agreement, the Board assigns certain of it s rights under the Lease to the Trustee . Specifically, the Board assigns its right to receiv e Lease Payments, its right to receive the proceeds of certain insurance on the Leased Propert y and its right to enforce remedies under the Lease . 5.Preliminary Official Statement.The Official Statement (OS) describes the financing fo r prospective purchasers of the refunding bonds, and constitutes the primary marketin g document for the financing . As reflected in the attached resolution approving these financing documents, the Director o f Finance & Information Technology will be authorized to make minor amendments to thes e documents as recommended by bond counsel and the financial advisor, and to execute the fina l documents . Competitive Sale of Bond s In accordance with the City's Financial Plan policies, the sale of these bonds will be a competitive process, with the award made to the lowest true interest cost bidder . The attache d resolution authorizes the Director of Finance & Information Technology to make this awar d based on the recommendation of the City's financial advisor . Project Financing Schedule The following outlines key target dates in refinancing these bonds : Tas k Council approval of refinancing Dat e May 8, 201 2 Bid opening May 24, 201 2 Bond closing and receipt of funds June 7, 201 2 Lease Revenue Refunding Bonds, Series C called June 25, 2012 FISCAL IMPAC T As discussed above the average annual debt service savings to the General Fund as a result of th e refinancing are estimated at approximately $62,000 per year from 2013 to 2029 . ALTERNATIVE Refinancing 2001 Lease Revenue Refunding Bonds, Series C Page4 Do Not Proceed with the Refinancing .If the refinancing is not pursued, the savings achievabl e by taking advantage of current low interest rates would not be obtained and thus not be availabl e to the General Fund for other purposes . As such, this alternative is not recommended . ATTACHMEN T Resolution approving refinancing the 2001 lease revenue refunding bonds, series C AVAILABLE FOR REVIEW IN THE COUNCIL OFFIC E 1.Indenture of Trust 2.Site Lease 3.Lease Agreemen t 4.Assignment Agreemen t 5.Preliminary Official Statemen t G : Debt Financing/2012 Refunding Lease Revenue Bonds/Council Agenda Report, Approve Refinancing B3-4 RESOLUTION NO . RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUI S OBISPO APPROVING DOCUMENTS AND ACTIONS RELATING T O THE REFINANCING OF OUTSTANDING 2001 BONDS BY THE CIT Y OF SAN LUIS OBISPO CAPITAL IMPROVEMENT BOAR D WHEREAS,the City of San Luis Obispo Capital Improvement Board (th e Board ) has been formed for the purpose of providing financial assistance to the City o f San Luis Obispo (the City ) in financing its public capital improvements ; an d WHEREAS,in order to provide financing for various public capital improvements , the Board has previously issued its City of San Luis Obispo Capital Improvement Boar d 2001 Lease Revenue Refunding Bonds, Series C in the aggregate original principa l amount of 7,285,000 (the 2001 Bonds ); and WHEREAS,the City and the Board have determined that it is in the financial interests of the City and the Board to refinance the outstanding 2001 Bonds at this time , and in order to provide funds for that purpose the Board proposes to authorize th e issuance and sale of its City of San Luis Obispo Capital Improvement Board 201 2 Refunding Lease Revenue Bonds in the aggregate principal amount of not to excee d 5,000,000 (the Refunding Bonds ); an d WHEREAS,in order to provide revenues to pay debt service on the Refunding Bonds, the City has proposed to lease certain land and facilities which previously hav e been leased in connection with the 2001 Bonds, consisting of athletic fields know n generally as the Damon-Garcia Sports Fields (the Leased Property ), to the Boar d under a Site Lease and the Board has proposed to lease the Leased Property back t o the City under a Lease Agreement, in consideration of the payment by the City o f semiannual lease payments ; NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Sa n Luis Obispo as follows : SECTION 1 .Issuance of Bonds by the Board .The City Council hereb y approves the issuance of the Refunding Bonds by the Board in the principal amount o f not to exceed 5,000,000, for the purpose of providing funds to refinance the 200 1 Bonds . SECTION 2 .Approval of Related Financing Agreements .The City Counci l hereby approves each of the following agreements required for the issuance and sale o f the Refunding Bonds in substantially the respective forms on file with the City Cler k together with any changes therein or additions thereto deemed advisable by the Cit y Manager or the Director of Finance and Information Technology (each, an Authorize d Officer ), and the execution thereof by an Authorized Officer shall be conclusiv e evidence of the approval of any such changes or additions . An Authorized Officer is hereby authorized and directed for and in the name and on behalf of the City to execute , and the City Clerk is hereby authorized and directed to attest to, the final form of each o f the following agreements : •Site Lease,between the City as lessor and the Board as lessee , under which the City continues to lease the Leased Property to th e Board in consideration of the payment of the Site Lease Paymen t which will be applied by the City to refinance the 2001 Bonds . Lease Agreement,between the Board as lessor and the City a s lessee, under which the Board continues to lease the Lease d Property back to the City and the City agrees to pay semiannual leas e payments which are sufficient to provide revenues with which to pa y principal of and interest on the Refunding Bonds when due . •Irrevocable Refunding Instructions,among the Board, the City an d U .S . Bank National Association, as escrow bank, relating to th e refinancing of the 2001 Bonds . SECTION 4 .Leqal Authority .The City Council hereby finds and determines tha t it is authorized to enter into the documents which are approved pursuant to Section 3 under the municipal affairs powers of the City as a charter city of the State of California , subject only to the limitations of Section 906 of the City Charter . SECTION 5 .Sale of Bonds bvthe Board .The City Council hereby approves th e competitive public sale of the Refunding Bonds . The Refunding Bonds shall be sold i n accordance with the Notice of Sale in substantially the form approved by the Board . SECTION 6 .Official Actions .The Mayor, the City Manager, the Director of Finance and Information Technology,the City Clerk and all other officers of the City are each authorized and directed in the name and on behalf of the City to make any and al l assignments, certificates, requisitions, agreements, notices, consents, instruments o f conveyance, warrants and other documents, which they or any of them might dee m necessary or appropriate in order to consummate any of the transactions contemplate d by the agreements and documents approved under this Resolution . Whenever in thi s Resolution any officer of the City is authorized to execute or countersign any documen t or take any action, such execution, countersigning or action may be taken on behalf o f such officer by any person designated by such officer to act on his or her behalf in th e case such officer is absent or unavailable . SECTION 7.Effective Date .This Resolution shall take effect from and after th e date of its passage and adoption . On motion of , seconded by and on the following roll call vote: AYES : NOES : ABSENT : The foregoing Resolution was passed and adopted this 1St day of May, 2012 . Mayor Jan Howell Mar x ATTEST : Sheryl) Schroede r Interim City Cler k APPROVED AS TO FORM : s J . Christine Dietrick J . Christine Dietrick City Attorney B3-7 Page intentionally lef t blank .