HomeMy WebLinkAbout10/16/2001, BUS 3 - REFUNDING 1999 LEASE REVENUE BONDS council. '�°°s°io, 6-01
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C I T Y OF SAN L U IS O B I S P O
FROM: Bill Statler,Director of Finance a
Prepared By: Linda Asprion, Revenue Manager
SUBJECT: REFUNDING 1999 LEASE REVENUE BONDS
CAO RECOMMENDATIONS:
Adopt a resolution approving the refunding of outstanding 1999 Lease Revenue Bonds.
DISCUSSION
Background
The purpose of the 1999 Lease Revenue Bonds was to accomplish the following:
1. Series A. Refund the 1988 Water Fund Certificates of Participation(COPS).
2. Series B. Refund the 1990 General Fund Certificates of Participation(COPS).
3. Series C. Fund property purchases in the amount of$3.1 million, consisting of the athletic
fields, police station expansion (1016 Walnut Street), historical museum (Old Carnegie
Library) expansion, and the pocket park on Marsh Street. An additional $3.0 million is for
the development of the athletic fields, bringing this portion of the bond sale to $6.1 million.
These three series were combined into one bond issue known as the 1999 Lease Revenue Bonds.
The San Luis Obispo Capital Improvement Board issued the bonds and receives annual lease
payments from the City equal to the annual debt service amounts of the bonds. The bond issue is
not a"general" obligation of the City; however, the City does pledge annually to budget the lease
payments necessary for the Board to meet its annual debt service requirements.
Refunding of the 1999 Lease Revenue Bonds
Current market conditions have reduced interest rates to the point that significant savings can
occur by proceeding with the refunding. The savings resulting from the reduced debt service
costs can be used by the Water and General Funds for other purposes. Below is a description of
the proposed refunding for each bond series.
1. Series A. These lease revenue bonds were originally issued in the amount of$3,105,000 to
refinance the 1988 Certificates of Participation (COPS). The original 1988 COPS were
issued in the amount of $5.0 million to fund the improvements to the City's water system.
All principal and interest payments have been and will continue to be made from the Water
Fund. The principal amount to be refunded will be $2,525,000. Refunding Series A, which
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is much like refinancing a home, will reduce total payments made by the Water Fund by a
present value of approximately $112,400, or $42,000 annually for the remaining term (7
years) of the bonds. The refunding will not increase the term of Series A: the bonds will
continue to mature in 2008.
2. Series B. These lease revenue bonds were originally issued in the amount of$3,245,000 to
refinance the 1990 Certificates of Participation. The original 1990 COPS were issued in the
amount of $4.5 million to fund improvements to the recreation center and purchase the
Emerson Park site and open space. All principal and interest payments are made from the
General Fund. The principal amount to be refunded will be $2,785,000. Refunding Series B
will reduce total payments made by the General Fund by a present value of approximately
$159,600 or $44,000 annually for the remaining term (9 years) of the bonds. The refunding
will not increase the term of Series B: the bonds will continue to mature in 2010.
3. Series C. These lease revenue bonds were originally issued in the amount of$6,745,000 to
purchase four properties and develop the athletic fields. All principal and interest payments
are made from the General Fund. The principal amount to be refunded will be $6,560,000.
Refunding Series C will reduce total payments made by the General fund by a present value
of approximately $454,000 or $30,000 annually for the remaining term (28 years) of the
bonds. The refunding will not increase the term of Series C: the bonds will continue to
mature in 2029.
Benefits of the Refunding
Refundings are generally considered cost effective if the net present value savings is 5% or
higher. This is 6.3% for Series C and 5.9% for Series B. It is somewhat lower for Series A
(4.6%) because there are only seven years remaining on this series; however, although we would
not recommend refunding Series A on its own, it makes sense to do so along with the Series B
and C refundings.
Overall, the refunding will result in a net present value savings of $726,000, and annual debt
service savings of$116,000 ($42,000 in the Water Fund and $74,000 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 2001-03 Financial Plan. Most notably, the
proposed refunding meets the following key criteria outlined in this policy:
1. The projects useful lives are equal to or greater than the original term of the financings. It is
important to note that the refunding will not extend the original time period of the bonds.
Series A will continue to mature in 7 years, Series B will mature in 9 years and Series C will
continue to mature in 2029.
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2. The proposed refunding 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 refunding.
4. The refunding will reduce the resources required to meet annual debt service requirements.
Proposed Refunding Structure
The refunding of the 1999 Lease Revenue Bonds will not change the original structure of the
bond issue. The San Luis Capital Improvement Board will issue the refunding. To secure the
bonds, the Board will continue to lease two properties to the City (the Damon-Garcia athletic
fields and 1016 Walnut Street adjacent to the Police Station) with the City paying semi-annual
rental payments sufficient to enable the Board to pay principal and interest on the bonds.
The costs associated with refunding the bonds (such as bond counsel, financial advisor, trustee,
rating agency and possible bond insurance) and the debt service reserve (which will continue to
be set aside from the proceeds as a payment surety to bond holders in an amount equal to at least
one year's debt service payment) will also be funded from the debt financing. Accordingly, the
bond issue is sized at an amount not to exceed $13 million to cover all costs.
Professional Assistance
In accordance with service agreements previously approved by the Council in November 1997,
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 contracted with U.
S. Bank in 1994 after an extensive proposal process.
Description of Financing Documents
The attached ordinance approves a variety of financing documents that are required in order to
proceed with the project financing. 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's offices:
1. Indenture of Trust This document contains all of the terms and provisions relating to the
refunding 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
purchasers of the refunding bonds, and constitutes the primary marketing document for the
financing.
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
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City and protecting the interests of the bond owners. This agreement also terminates the
assignment originally made for the security of the 1999 Lease Revenue Bonds.
4. Second Amended and Restated Lease Agreement. The lease agreement is between the City
and the Capital Improvement Board. hi order to secure the bonds, the Board will continue to
lease the two properties back to the City incorporating the details of the refunding bonds, and
reducing the schedule of lease payments to reflect the savings resulting from the refunding.
Semiannual rental payments from the City will be sufficient to pay principal and interest on
the bonds.
5. Escrow Deposit and Trust Agreement. The trust agreement governs the mechanics of
refunding the 1999 Lease Revenue Bonds.
As reflected in the attached resolution approving these financing documents, the Director of
Finance 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 to make this award based on the recommendation of our financial advisor.
Project Financing Schedule
The following outlines key dates in refunding the 1999 Lease Revenue Bonds:
Council approval of refunding program October 16
Rating agency and bond insurers presentation October 17 and 18
Bid opening November 14
Bond closing and receipt of funds November 28
FISCAL IMPACT
The 2001-03 Financial Plan reflects the debt service costs for the original 1999 Lease Revenue
Bonds. As discussed above, refunding these bonds will decrease debt service costs in the Water
Fund by about $42,000 annually and in the General Fund by about $74,000 annually.
ALTERNATIVE
Do Not Proceed with the Refunding. Current market conditions have reduced interest rates to
the point that significant savings can occur by proceeding with the refunding. The savings that
will result from the reduced debt service costs can be used by the Water and General Funds for
other purposes. As such, we recommend proceeding with the refunding.
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Council Agenda Report—Refunding 1999 Lease Revenue Bonds
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ATTACHMENT
Resolution approving refunding of the 1999 lease revenue bonds
AVAILABLE FOR REVIEW IN THE COUNCIL OFFICE
1. Indenture of Trust
2. Preliminary Official Statement
3. Assignment and Termination Agreement
4. Second Amended and Restated Lease Agreement
5. Escrow Deposit and Trust Agreement
G:Finance/Refunding 1999 Lease Revenue Bonds/Council Agenda Report—Approve.Refunding
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RESOLUTION NO. (Series 2001)
RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO
APPROVING DOCUMENTS AND ACTIONS RELATING TO
REFUNDING OF OUTSTANDING 1999 BONDS BY THE
CITY OF SAN LUIS OBISPO CAPITAL IMPROVEMENT BOARD
WHEREAS, in order to assist the City in financing and refinancing various public
capital improvement projects of the City, the City of San Luis Obispo Capital Improvement
Board (the "Board") has previously issued three series of its 1999 Lease Revenue Bonds
(collectively, the"1999 Bonds"), consisting of the following:
1. City of San Luis Obispo Capital Improvement Board 1999 Lease Revenue Bonds,
Series A, in the aggregate principal amount of$3,105,000,
2. City of San Luis Obispo Capital Improvement Board 1999 Lease Revenue Bonds,
Series B, in the aggregate principal amount of$3,245,000, and
3. City of San Luis Obispo Capital Improvement Board 1999 Lease Revenue Bonds,
Series C, in the aggregate principal amount of$6,745,000; and
WHEREAS, the 1999 Bonds are secured by revenues consisting primarily of lease
payments made by the City under a First Amended and Restated Lease Agreement dated as of
November 1, 1999 (the "1999 Lease"), under which the Board has leased to the City certain
property as more fully described therein, including water system improvements, open space
property, public park property, a recreation center, athletic fields, police station facilities and an
historical museum (collectively, the"Properties"); and
WHEREAS, due to favorable conditions in the municipal bond market, the City and the
Board wish to realize interest rate savings by refunding the outstanding 1999 Bonds at this time,
thereby reducing the City's annual lease payment obligations under the 1999 Lease; and
WHEREAS, the Board has approved the issuance and sale of three series of its 2001
Lease Revenue Refunding Bonds in the maximum principal amount of $13,000,000 (the
"Refunding Bonds'), for the purpose of providing funds to refund the 1999 Bonds; and
WHEREAS, the Council has previously approved the 1999 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 Refunding.Bonds;
NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis
Obispo as follows:
SECTION 1. Approval of Financing Plan and Related Documents. The Council
hereby approves the refunding of the 1999 Bonds as set forth in the financing plan outlined in the
recitals of this Resolution. To that end, the Council hereby approves each of the following
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Resolution No. (2001 Series)
Page 2
agreements in substantially the respective forms on file with the City Clerk together with any
changes therein or additions thereto deemed advisable by the Director of Finance, whose
execution thereof shall be conclusive evidence of the approval of any such changes or additions:
a. Second Amended and Restated Lease Agreement, between the Board as lessor
and the City as lessee, which amends and restates the 1999 Lease for the purpose (among others)
of incorporating provisions relating to the Refunding 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 refunding;
b. Escrow Deposit and Trust Agreement among the Board, the City and U.S. Bank
Trust National Association, as escrow bank, providing the investment and administration of
funds to refund the 1999 Bonds.
The Director of Finance 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 each of the foregoing agreements.
SECTION 2. Issuance and Sale of Refunding Bonds by Board. The Council hereby
approves the issuance of the Refunding Bonds by the Board in the aggregate principal amount of
not to exceed $13,000,000, for the purpose of providing funds to refund the 1999 Bonds. The
Council hereby approves the competitive sale of the Refunding Bonds by the Board in
accordance with the resolution of the governing body of the Board relating thereto.
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 (each, an "Authorized Officer") is individually
authorized, at the request of the purchaser of the Bonds, to execute an appropriate certificate
affirming the City 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 City Administrative Officer, the Director of
Finance, 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 all site 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 pursuant to 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
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Resolution No. (2001 Series)
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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.
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 passed and adopted this 16`h day of October 2001.
Mayor Allen Settle
ATTEST:
Lee Price, City Clerk
APPROVED AS TO FORM:
WrJG- a ity Attorney
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October 16, 2001
City Council Members:
John Ewan,Jan Marx,
Ken Schwartz, Christine Mullholland
Mayor Allen Settle 5
I am in a trusted position of having power of attorney over financial investments for a friend. We recently
made a very substantial monetary purchase of some bonds from the City of LA. After reading that humongous
prospectus I became curious about the City of SLO bonds refunding item on your agenda tonight.
Of particular interest are the Series C bonds. The Series C bonds list the 1999 properties as the Police Station
Facility and the Athletic Fields. I have questions regarding the information provided to potential bond buyers
under the Athletic Fields section.
On page 6 of the Preliminary Official Statement dated October 2001,it states:
Athletic Fields. The athletic fields property was purhased by the City in August 1999 for 2.0 million, and
was designated as the Damon garcia Sports Complex. The property consists of 25 acres of undeveloped
land in the South East section of the City with access from major thoroughfares of Broad Street and Tank
Farm Road Development plans include three baseball/so?ball fields and four,soccer/football fields with
restrooms, concession stand storage facility, lighted parking lots, and pedestrian and vehicular paths.
My questions are:
1. Why is there no mention of a segment of Prado Road being developed on the 25 acres?
2. How come the property is listed as 25 acres instead of 23.5 acres?
3. How come there is no mention that Prado Road will take 6-7 acres(approximately 1/4)of the property?
4. How come there is no mention of Prado Road being designed/planned to be a major 4 lane road(HWY 227)?
5. How come the bond document description reads that there are three baseball/softball fields and four
soccer/footbaIl fields,when the design given to the Corps of Engineers shows only four soccer fields?
Is there a possibility the Corps will only allow three?
6. Is there a non disclosure issue with the text description of the athletic fields or is this just the way business is
done in the bond market?
Non disclosure is a serious issue in the real estate industry. I am not sure of its role in the Bond market.
Shouldn't these pertinent fads be disclosed to prospective bond purchasers?
Thank your,
Patti Taylor
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October 16,2001
P
Jan Marx,John Ewan,Ken Schwartz,
Christine Mulholland and Mayor Settle,
I have some questions regarding the refunding of the bonds,especially the Series C bonds that are before you
tonight.
According to the design of the sports complex Prado Road is part of the property being listed in the Series C bonds.
1. How much of the sports complex budget is allocated for Prado Road construction?
2. If the Margarita area does not develop due to the recent airport land use commission findings,what will be
the financial impact on Prado Road and the sports fields?
3. Will this have some influencing impacts on the property being listed in the Series C bonds?
Thank you
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