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HomeMy WebLinkAbout04/05/2005, BUS 4 - REFINANCING 1996 LEASE REVENUE BONDS � 1 1 council D� 4-5-05 j ac,Enba nEpoRt = CITY OF SAN LUIS OBISPO FROM Bill Statler, Director of Finance & Information Technology Carolyn Dominguez, Finance Manager SUBJECT: REFINANCING 1996 LEASE REVENUE BONDS CAO RECOMMENDATION Adopt a resolution approving the refinancing of the 1996 Lease Revenue Bonds. DISCUSSION Background The 1996 Lease Revenue Bonds were issued to finance several capital improvement projects, including: Fire Station No. 1; City Hall seismic safety improvements; expansion and improvement of Mission Plaza ("Creekwalk" project); acquisition of the Mathews property; = purchase of the street lighting system from The City of San Luis Obispo Capital PG&E; and acquisition of the lot adjacent to the Improvement Board was established in April historical Bowden Adobe. 1986 as a public authority to implement financings for City facility and infrastructure improvements. The Council serves as the The San Luis Obispo Capital Improvement Board Board of Directors for this agency. issued the bonds and receives annual lease payments from the City equal to the annual debt Because the Board issued these bonds service amounts of the bonds. The bond issue is initially,there will be a companion item for not a "general" obligation of the City; however, Board action on the April 5,2005 agenda. the City does pledge annually to budget the lease payments necessary for the Board to meet its annual debt service requirements, which are currently about$521,000 per year. Refinancing the 1996 Lease Revenue Bonds Interest rates are currently at the point where significant savings can occur by proceeding with the refinancing. However, the changing market environment makes it imperative that we move forward with this financing now, before the rates increase any higher. Overall, the refinancing will result in estimated net "present value" savings of about $488,400 and annual debt service savings of$40,000 in the General Fund. Debt Management Policy Links The proposed refunding for these bonds is consistent with the City's adopted capital financing and debt management policies as provided in the 2003-05 Financial Plan. Most notably, the proposed refinancing meets the following key criteria: Refinancing 1996 Lease Revenue Bonds Page 2 1. 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 the 1996 bond issue: the maturity remains at 2026. 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. 4. At an estimated 8%, the net present value savings are significantly more than our policy "trigger," which states that refinancings should be undertaken whenever net present value savings of 5% can be achieved. While actual savings will depend on market conditions at the time of the sale, the savings will clearly be more than 5%. However, in the event that net present value savings are not at least 5% when we open the competitive bids, we will not proceed with the refinancing. 5. The refinancing will reduce the resources required to meet annual debt service requirements. Proposed Refmancing Structure The San Luis Capital Improvement Board will issue the 2005 Refunding Lease Revenue Bonds. To secure the bonds, the Board will lease Fire Station No. 1 to the City. The amount of outstanding bonds to be refinanced is $6,235,000. Including the costs associated with issuing the bonds (such as bond counsel, financial advisor, trustee, rating agency and bond insurance) that will be funded from the refinancing, the maximum amount of the new bond issue is estimated at$6.7 million. Professional Assistance In accordance with service agreements previously approved by the Council, bond counsel services will be provided by the law firm of Jones Hall and financial advisor services 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 proceed with the refinancing. Prepared by the City's bond counsel (Jones Hall), the following is a brief description of these documents, which are on file in the Council office: 1. Indenture of Trust. This document contains all of the terms and provisions relating to the refinancing bonds, including prepayment provisions, maturity schedules, rights and remedies of the bond owners and the trustee in the event of a default. 2. Official Statement. The Official Statement (OS) describes the financing for prospective purchaser's of the refunding bonds, and constitutes the primary marketing document for the financing. Refinancing 1996 Lease Revenue Bonds Page 3 3. Assignment and Termination Agreement. The assignment agreement is between the Capital Improvement Board and the trustee (U.S. Bank). .The assignment consists of the Board transferring certain rights to the trustee, such as collecting of the lease payments from the City and protecting the interests of the bond owners. This agreement also terminates the assignment originally made for the security of the 1996 Lease Revenue Bonds. 4. First Amended and Restated Lease Agreement. The lease agreement is between the City and the Capital Improvement Board. In order to secure the bonds, the Board will lease Fire Station No. 1 and release the other property pledged in the 1996 lease agreement (the Corporation Yard). The lease agreement also reduces the schedule of lease payments to reflect the savings resulting from the refinancing. Semiannual rental payments from the City Will be sufficient to pay principal and interest on the bonds. 5. Irrevocable Refunding Instructions. These govern the mechanics of refinancing the 1996 Lease Revenue Bonds, such as directing the Trustee (U.S. Bank) to open an escrow account and directing the deposit and use of bond proceeds. As reflected in the attached resolution approving these financing documents, the Director of Finance &Information Technology is authorized to make minor amendments to these documents as recommended by bond counsel and the financial advisor, and to execute the final documents. Competitive Sale of Bonds In accordance with our Financial Plan policies, the sale of these bonds will be a competitive process, with the award made to the lowest bidder. The attached resolution authorizes the Director of Finance & Information Technology to make this award based on the recommendation of our financial advisor. As noted above, if the proposed refinancing does.not result in net present value savings of at least 5%, we will not proceed with it. Project Financing Schedule The following outlines key dates in refinancing these bonds: Task Date Council . - Council and Capital Improvement Board approval of refinancing April 5, 2005 Bid opening April 21, 2005 Bond closing and receipt of funds May 10, 2005 1996 lease revenue bonds called June 1, 2006 FISCAL IlVIPACT Based on current market conditions, the average annual savings is estimated at $40,000 per year, summarized as follows: Refinancing 1996 Lease Revenue Bonds Page 4 Refinancing Savings Average Annual Debt Service Current. After Refinancin Savings General Fund $521,000 $481,000 1 $40,000 Over the remaining life of the bonds the net present value of this savings is approximately $488,400. ALTERNATIVE Do Not Proceed with the Refinancing. Interest rates are at the point where significant savings can still occur by proceeding with the refinancing. The savings that will result from the reduced debt service costs can be used by the General Funds for other purposes. As such, we recommend proceeding with the refinancing. ATTACHMENT Resolution approving refinancing the 1996 lease revenue bonds AVAILABLE FOR REVIEW IN THE COUNCIL OFFICE 1. Indenture of Trust 2. Preliminary Official Statement 3. Assignment and Termination Agreement 4. First Amended and Restated Lease Agreement 5. Irrevocable Refunding Instructions G:Debt Financing/2005 Lease Revenue Bonds/Council Agenda Report.Approve Refinancing i RESOLUTION NO. (2005 Series) RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO APPROVING DOCUMENTS AND ACTIONS RELATING TO THE REFINANCING OF OUTSTANDING 1996 BONDS BY THE CITY OF SAN LUIS OBISPO CAPITAL IMPROVEMENT BOARD WHEREAS, the Council of the City of San Luis Obispo (the "City") has previously adopted its Ordinance No. 1059 (1986 Series) on April 15, 1986 (the "Enabling Ordinance"), establishing the City of San Luis Obispo Capital Improvement Board (the "Board") for the purpose of assisting the City in the financing of public improvements; and WHEREAS, the Board has previously issued its 1996 Lease Revenue Bonds in the aggregate principal amount of$7,100,000 (the "1996 Bonds") under the Enabling Ordinance for the purpose of financing the construction of a fire station and headquarters, land acquisition, seismic and other improvements to the City Hall and the acquisition of street lighting facilities; and WHEREAS, the 1996 Bonds are subject to redemption in full on June 1, 2006, and due to favorable conditions in the municipal bond market, the City and the Board wish to realize interest rate savings by refinancing the outstanding 1996 Bonds at this time; and WHEREAS, in order to provide funds for that purpose, the.Board proposes to issue and sell its 2005 Refunding Lease Revenue Bonds in the maximum principal amount of$6,700,000 (the "Bonds") under the provisions of Enabling Ordinance; and WHEREAS, the Council has previously approved the 1996 Lease by ordinance as required by Article 9 of Chapter 5 of Part 1 of Division 2 of the California Government Code (commencing with Section 54240 of said Code); and WHEREAS, the Council wishes at this time to approve all proceedings to which it is a party relating to the issuance and sale of the Bonds and the refinancing of the 1996 Bonds. NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo as follows: SECTION 1. Approval of Financins Plan and Related Lease. The Council hereby approves the refinancing of the 1996 Bonds as set forth in the financing plan outlined in the recitals of this Resolution. To that end, the Council hereby approves the First Amended and Restated Lease Agreement (the "Lease") between the Board as lessor and the City as lessee, which amends and restates the 1996 Lease for the purpose (among others) of incorporating provisions relating to the Bonds and reducing the amount of annual lease payments required to be paid by the City thereunder to reflect the interest rate savings resulting from the refinancing. As provided in the Lease, the City shall lease certain real property from the Board thereunder, consisting of a fire station and headquarters facility, in consideration of the payment by the City of semiannual lease payments which are sufficient in time and amount to provide revenues to pay debt service on the Bonds as it comes due. 4 -S Resolution No. (2005 Series) Page 2 The Council approves the Lease in substantially the form on file with the City Clerk together with any changes therein or additions thereto deemed advisable by the Director of Finance and Information Technology, whose execution thereof shall be conclusive evidence of the approval of any such changes or additions. The Director of Finance and Information Technology 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 and affix the seal of the City to, the final form of the Lease. SECTION 2. Issuance.and Sale of Bonds by Board. The Council hereby approves the issuance of the Bonds by the Board under the Enabling Ordinance in the aggregate principal amount of not to exceed $6,700,000, for the purpose of providing funds to refinance the 1996 Bonds. The Council hereby approves the competitive sale of the Bonds by the Board in accordance with the resolution of the governing body of the Board relating thereto. As provide in said resolution, the Bonds shall be sold at such price, and at such rates of interest, so as to produce net present value savings to the Board and the City at least equal to 5% of the outstanding principal amount of the 1996 Bonds that will be refunded from the proceeds of the Bonds. SECTION 3. Official Statement. The Council hereby approves and deems nearly final within the meaning of Rule 15c2-12 of the Securities Exchange Act of 1934, the preliminary Official Statement describing the Bonds in the form on file with the City Clerk. The City Administrative Officer or the Director of Finance and Information Technology (each an "Authorized Officer") is individually authorized, at the request of the purchaser of the Bonds, to execute an appropriate certificate affirming the Council's determination that the preliminary Official Statement has been deemed nearly final within the meaning of such Rule. Distribution of the preliminary Official Statement by the purchaser of the Bonds is hereby approved. An Authorized Officer is hereby authorized and directed to approve any changes in or additions to a final form of said Official Statement, and the execution thereof by an Authorized Officer shall be conclusive evidence of approval of any such changes and additions. The Council hereby authorizes the distribution of the final Official Statement by the purchaser of the Bonds. The final Official Statement shall be executed in the name and on behalf of the City by an Authorized Officer. SECTION 4. Official Actions. The Mayor, the City Administrative Officer, the Director of Finance and Information Technology, the City Clerk, the City Attorney 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 all leases, assignments, certificates, requisitions, agreements, notices, consents, instruments of conveyance, warrants and other documents, which they or any of them deem necessary or appropriate in order to consummate any of the transactions contemplated by the agreements and documents approved under this Resolution. Whenever in this Resolution any officer of the City is authorized to execute or countersign any document or take any action, such execution, countersigning or action may be taken on behalf of such officer by any person designated by such officer to act on his or her behalf in the case such officer is absent or unavailable. I Resolution No. (2005 Series) Page 3 SECTION 5. Effective Date. This Resolution shall take effect immediately upon its passage and adoption. Upon motion of , seconded by , and on the following roll call vote: AYES: NOES: ABSENT: the foregoing resolution was adopted on April 5, 2005. David F. Romero, Mayor ATTEST: Audrey Hooper, City Clerk APPROVED AS TO FORM: Jo ath . Lowell, City Attorney "T �