HomeMy WebLinkAbout03/16/2004, BUS 3 - REFINANCING 1994 LEASE REVENUE BONDS council 3-16-04
j acEnoA Report Ss 3
CITY O F SAN LUIS O B I S P O
FROM: Bill Statler, Director of Finance & Information Technology
Carolyn Dominguez, Finance Manager
SUBJECT: REFINANCING 1994 LEASE REVENUE BONDS
CAO RECOMMENDATIONS:
Adopt a resolution approving the refinancing of the 1994 Lease Revenue Bonds.
DISCUSSION
Background
The 1994 "Refunding" Lease Revenue Bonds were issued to refinance the 1986 Lease Revenue
Bonds. Accordingly, this will be the second refinancing of the original 1986 bond issue of
$13,970,000, which was used to fund parking
structure construction, road improvements and . . -
facility acquisitions. The City of San Luis Obispo Capital
Improvement Board was established in April
The San Luis Obispo Capital Improvement Board 1986 as a public authority to implement
issued the bonds and receives annual lease financings for City facility and infrastructure
payments from the City equal to the annual debt improvements. The Council serves as the
Board of Directors for this agency.
service amounts of the bonds. The bond issue is
not a "general" obligation of the City; however, Because the Board issued these bonds
the City does pledge annually to budget the lease initially,there will be a companion item for
payments necessary for the Board to meet its Board action on the March 16,2004 agenda.
annual debt service requirements.
Refinancing the 1994 Lease Revenue Bonds
Current market conditions have reduced interest rates to the point that significant savings can
occur by proceeding with the refinancing. Refinancing these bonds at this time is especially
attractive, as the bond indenture allows them to be called at this time (ten years after the
refunding issue date in 1994) without any pre-payment penalties. Overall, the refinancing will
result in estimated net "present value" savings of about $1 million and annual debt service
savings of$230,000 ($145,000 in the Parking Fund and $85,000 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 1994 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 1994
bond issue: the maturity remains at 2014.
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 12.6%, 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 significantly more than 5%.
5. The refinancing will reduce the resources required to meet annual debt service requirements.
Proposed Refinancing Structure
The San Luis Capital Improvement Board will issue the 2004 Refunding Lease Revenue Bonds.
To secure the bonds, the Board will pledge the Marsh Street parking structure as collateral.
After our normal June 2004 debt service payment, the amount of outstanding bonds (General and
Parking Fund portions combined) will be $7.52 million. However, we have $1.03 million in
bond reserve funds on hand that we will use in calling the outstanding bonds, which reduces the
overall amount needed from the refunding issue. As such, 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 net amount of the refinanced bonds is
estimated at$6.8 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's offices:
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.
Refinancing 1994 Lease Revenue Bonds Page 3
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
City and protecting the interests of the bond owners. This agreement also terminates the
assignment originally made for the security of the 1994 Refunding Lease Revenue Bonds.
4. Second 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 the
Marsh Street parking structure and release other property pledged in the 1994 lease
agreement. 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. Trustee Instructions. These govern the mechanics of refinancing the 1994 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.
Project Financing Schedule
The following outlines key dates in refinancing these bonds:
Task Datq
Council and Capital Improvement Board approval of refinancing March 16, 2004
Publish notice of intention to sell bonds March 17, 2004
Bid opening April 1, 2004
Bond closing and receipt of funds April 15, 2004
1994 Lease Revenue Bonds called June 1, 2004
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Refinancing 1994 Lease Revenue Bonds Page 4
FISCAL IMPACT
Anticipating the refinancing of the 1994 bonds, the 2003-04 Mid-Year Budget Review
(presented to the Council on February 17, 2004) reduced 2004-05 debt service appropriations by
$230,000 ($85,000 in the General Fund and $145,000 in the Parking Fund), summarized as
follows:
Annual Debt Ser-�ice- 2004-05
Current After Refinancing Savings
General Fund 381,000 296,000 85,000
Parking Fund 649,000 504,000 145,000
Total $190309000 $8009000 $2309000
As noted in the Mid-Year Budget Review, the overall savings is allocated between funds on the
proportionate use of the original proceeds as reflected in the current debt service apportionment:
37% in the General Fund and 63% in the Parking Fund.
A detailed schedule of estimated savings from the refinancing is provided in Attachment 2.
ALTERNATIVE
Do Not Proceed with the Refinancing. Current market conditions have reduced interest rates
to the point that significant savings can occur by proceeding with the refinancing. The savings
that will result from the reduced debt service costs can be used by the Parking and General
Funds for other purposes. As such, we recommend proceeding with the refinancing.
ATTACHMENTS
1. Resolution approving refinancing the 1994 Refunding Lease Revenue Bonds
2. Schedule of estimated savings from the refinancing
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. Trustee Instructions
G:Finance/2004 Refinancing of 1994 Lease Revenue Bonds/Council Agenda Report-2004 Refinancing,.3-16-04
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Aftachment.:L.
RESOLUTION NO. (2004 SERIES)
RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO
APPROVING DOCUMENTS AND ACTIONS RELATING TO THE
REFINANCING OF OUTSTANDING 1994 BONDS BY THE
CITY OF SAN LUIS OBISPO CAPITAL IMPROVEMENT BOARD
WHEREAS, the City Council of the City of San Luis Obispo (the "City") has previously
adopted its Ordinance No. 1059 (1986 Series) on April 15, 1986, 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, in order to assist the City in financing and refinancing various public
capital improvement projects of the City, the Board has previously issued its Lease Revenue
Bonds (Capital Improvement Projects), Series 1986 in the aggregate principal amount of
$13,970,000 (the "1986 Bonds"); and
WHEREAS, the Board refinanced the 1986 Bonds from the proceeds of its 1994
Refunding Lease Revenue Bonds (Capital Improvement Projects) issued in the aggregate
principal amount of $11,780,000 (the "1994 Bonds"), which are payable from lease payments
made by the City under a First Amended and Restated Lease Agreement dated as of October 1,
1994 (the "1994 Lease"), between the Board as lessor and the City as lessee of the properties
which were originally financed from the proceeds of the 1986 Bonds; and
WHEREAS, the 1994 Bonds are subject to redemption in full on June 1, 2004, 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 1994 Bonds at this time; and
WHEREAS, to that end the Board has authorized the issuance and sale of its 2004
Refunding Lease Revenue Bonds in the maximum principal amount of$8,600,000 (the "Bonds")
under the provisions of Articles 10 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the
California Government Code, commencing with Section 53570 of said Code (the "Bond Law"),
and has authorized the execution and delivery of all documents and actions required to issue and
sell the Bonds; and
WHEREAS, the City Council has previously approved the lease which was entered into
in connection with the 1986 Bonds and which was amended and restated by the 1994 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 City 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 1994 Bonds;
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of San Luis
Obispo as follows:
SECTION 1. Approval of Financing Plan and Related Lease. The City Council hereby
approves the refinancing of the 1994 Bonds as set forth in the financing plan outlined in the
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Resolution No. 2004 Series Moment A
Page 2
recitals of this Resolution. To that end, the City Council hereby approves the Second Amended
and Restated Lease Agreement (the "Lease") between the Board as lessor and the City as lessee,
which amends and restates the 1994 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.
The City 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, whose execution thereof shall be conclusive evidence of the approval of any such
changes or additions. 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 the Lease.
SECTION 2. Issuance and Sale of Bonds by Board. The City Council hereby approves
the issuance of the Bonds by the Board under the Bond Law in the aggregate principal amount of
not to exceed $8,600,000, for the purpose of providing funds to refinance the 1994 Bonds. The
City 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.
SECTION 3. Official Statement. The City 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 City 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 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.
SECTION 5. Effective Date. This Resolution shall take effect immediately upon its
passage and adoption.
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Attachmen
Resolution No. (2004 Series)
Page 3
Upon motion of seconded by and on
the following roll call vote:
AYES:
NOES:
ABSENT:
the foregoing Resolution was passed and adopted on March 16, 2004.
David F. Romero, Mayor
ATTEST:
Lee Price, C.M.C.
City Clerk
APPROVED AS TO FORM:
Jonakan,,KLowell
City Attorney
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Prepared by Fieldman,Rolapp&Associates
SAVINGS
City of San Luis Obispo Capital Improvement Board
2004 Lease Revenue Refunding Bonds
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PRELIMINARY
Note:Debt Service Savings Allocation:63%Parking Fund;37%General Fund
Present Value
Prior Refunding to 04/15/2004
Date Debt Service Debt Service Savings @3.1218076%
06/01/2005 1,030,407.50 800,001.24 230,406.26 224,329.71
06/01/2006 1,032,917.50 800,647.50 232,270.00 219,370.57
06/01/2007 1,032,827.50 801,122.50 231,705.00 211,985.39
06/01/2008 1,030,067.50 794,835.00 235,232.50 208,441.69
06/01/2009 1,034,567.50 801,185.00 233,382.50 200,326.72
06/01/2010 1,030,647.50 795,440.00 235,207.50 195,543.94
06/01/2011 1,034,287.50 802,420.00 231,867.50 186,723.80
06/01/2012 1,034,675.00 801,622.50 233,052.50 181,774.75
06/01/2013 1,029,850.00 798,422.50 231,427.50 174,819.44
06/01/2014 1,031,837.50 797,720.00 234,117.50 171,268.46
10,322,085.00 7,993,416.24 2,328,668.76 1,974,584.46
Savings Summary
PV of savings from cash flow 1,974,584.46
Less:Prior funds on hand(debt service reserve) -1,034,700.00
Plus:Refunding funds on hand 3,673.02
Net PV Savings(%savings of refunded bonds: 12.6%) $943,557.48
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