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AGENDA BILL Agenda Item No. 7(C) EL CERR.ITCJ Date: August 21, 2012 To: El Cerrito City Council El Cerrito Public Financing Authority From: Mary Dodge, Administrative Services Director/City Treasurer Subject: Measure A (Swim Center) Lease Revenue Bond Refinancing ACTION REQUESTED Adopt a City Council resolution and a Public Financing Authority resolution which authorize the City Manager/Executive Director to enter into the requiteq' agreements with JP Morgan Chase Bank for refinancing of the Measure A (Swim Center) Lease Revenue Bonds. BACKGROUND As discussed at the June 11, 2012 Council meeting, declines in interest rates have enabled the City to reduce interest costs on certain existing debt obligations. The Council previously approved refinancings for the City's Storm Drain Revenue Bonds and six equipment capital leases, which were successfully concluded last month. The Council also approved resolutions for refinancing the recycling center lease-purchase debt at the June 11, 2012 meeting, but due to a required change in the financing structure from a lease-purchase certificate of participation financing to a lease revenue bond financing, an amended resolution is presented this evening that has no impact on the savings, but has delayed the closing of this transaction. In addition, as noted in June, a decision was made to delay the refinancing of the City's Measure A (Swim Center) Lease Revenue Bonds (Bonds), due to the impending expiration on September 1 of a pre-existing "call" expense, which would save an additional $24,300 over and above any interest savings. As interest rates have remained favorable in the interim, this refinancing opportunity is now available to the City, without the "call" expense. All four of these refundings were reviewed individually by the Financial Advisory Board (FAB) at meetings in April and May, including the Swim Center Refinancing. The F AB recommended approval of each of the transactions to the City Council. ANALYSIS As noted in Staffs report to the City Council in June, the City, with assistance of Cooperman Associates, an independent Financial Advisor, conducted an informal bid process with multiple financial institutions to obtain a market interest rate for the refunding of the Storm Drain Revenue Bonds, the Swim Center Revenue Bonds, the ---PAGE BREAK--- Agenda Item No. 7(C) Recycling Center lease-purchase debt and existing debt on the fire trucks, recycling vehicles and carts. Four bids were received and JP Morgan Chase Bank (Chase) submitted the most advantageous rates and terms. The City has closed refinancing of the Storm Drain Revenue Bonds at an all-inclusive interest rate of 1.683%, vs. the prior rate of 5.50%, and the vehicle and cart debt at an all-inclusive rate of 1.78% over seven years, vs. prior rates ranging from 3.90% to 4.85% While the actual rates for the remaining two financings will not be determined until shortly before their closings, the rates as of August 6th for the Federal Reserve index used by Chase would be 1.80% for the Swim Center Bonds. Attachment 4 shows the calculations for determining the savings on the refinancing. FINANCIAL CONSIDERATIONS The existing Bonds, backed by a parcel tax passed by the City Council ori Noyember 29, 1999, and the voters on March 7, 2000, as Measure A, and expiring in 2020, hav~_a par value of $2.43 million with interest rates of 4.00% in 2013, increasing to 4.70% at their final maturity in 2020. The Bonds are callable at a 1% premium, which expires on September 1, 2012, at which time the Bonds are refundable at par. The objective is to complete the refinancing of the Bonds as soon as possible (but after September 1) following approval of the transaction and the proposed Resolution by the City Council and the Public Financing Authority Board. The 1.80% interest rate from Chase results in savings after costs of issuance of approximately $232,655 on a gross basis, and $212,781 on a net cashflow basis (includes loss of investment earnings on the reduced reserve fund) for the remaining eight year term. The final maturity for the Bonds mirrors substantially the existing maturity schedule on the existing Bonds, which extend only to the fiscal year in which the parcel tax sunsets. The transaction would be recorded as an obligation for accounting purposes and would supersede the earlier refunded obligation. The bonds are being issued on a tax -exempt basis to Chase, as investor, and like the earlier refinancings, will be a private direct placement to Chase. The City has built one additional benefit into the financing. In 2017, the City will be able to refund the remaining three years of the debt without a call premium at the then- current rates. As this would be considered a short term financing by that time, the City would expect that additional savings would then become available, for a subsequent final refunding. LEGAL CONSIDERATIONS Legal documents are currently being drafted by municipal bond attorneys at Meyers Nave. Documents will also be reviewed by Squire Sanders, a national law firm, on behalf of the Bank. Standard opinions of counsel respecting the validity and tax-exempt nature of the obligations will be provided to the City as part of the closing. Page 2 ---PAGE BREAK--- Agenda Item No. 7(C) RECOMMENDATION Approve this report and adopt the attached resolutions to proceed with the refinancings. Reviewed by: Scott Hanin, City Manager Attachments: Swim Center Revenue Bond: 1. Swim Center Bond Refunding City Resolution 2. Swim Center Bond Refunding Public Financing Authority Resolution 3. Swim Center Bond Refunding Proposal 4. Swim Center Bond Refunding Financial Analysis Page 3 ---PAGE BREAK--- RESOLUTION 2012-XX Agenda Item No. 7(C) Attachment 1 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF EL CERRITO APPROVING THE ISSUANCE AND SALE BY THE EL CERRITO PUBLIC FINANCING AUTHORITY OF NOT TO EXCEED $2,516,500 PRINCIPAL AMOUNT OF 2012 LEASE REVENUE REFUNDING BONDS; APPROVING FORM AND SUBSTANCE OF A SITE LEASE AND A FACILITY LEASE, AUTHORIZING MODIFICATIONS THEREOF AND EXECUTION AND DELIVERY THEREOF AS MODIFIED; APPROVING THE FORM AND SUBSTANCE OF A TRUST AGREEMENT AND A REFUNDING ESCROW AGREEMENT; AND AUTHORIZING RELATED ACTIONS NECESSARY TO IMPLEMENT THE PROPOSED REFUNDING PROGRAM WHEREAS, pursuant to, a resolution of its Governing Board, the El Cerrito Public Financing Authority (the "Authority") was authorized to issue of its 2002 Lease Revenue Bonds (Measure A Capital Improvement Project) (the "Prior Bonds"); and WHEREAS, the Prior Bonds were issued and delivered to the original purchaser thereof on July 31, 2002, and the proceeds of sale were utilized to assist the City of El Cerrito (the "City") in the financing of capital facilities for a swim center of the City commonly referred to as the "Measure A Capital Improvement Project" (the "Project"), as authorized by the Marks-Roos Local Bond Pooling Act of 1985 (the "Act"); and WHEREAS, by separate resolution adopted by its Governing Board (the "Authority Resolution"), the Authority has authorized the issuance of its El Cerrito Public Financing Authority 2012 Lease Revenue Refunding Bonds (the "Bonds") in a principal amount not to exceed $2,516,500 to provide funds needed to implement the refunding of the remaining outstanding Prior Bonds (the "Refunding Program") and, for said purpose, has approved the form and substance of a Site Lease (the "Site Lease"), between the Authority and the City, a Facility Lease (the "Facility Lease"), between the City and the Authority, a Trust Agreement (the "Trust Agreement"), between the Authority and a bank to be determined, as Trustee, and a Refunding Escrow Agreement (the "Refunding Escrow Agreement"), between the Authority and J.P. Morgan Trust Company, National Association, as Escrow Agent; and WHEREAS, the Authority has received a proposal, dated August 10, 2012 (the "Proposal"), from JPMorgan Chase Bank, NA (the "Bank"), a copy of which proposal is attached to the Authority Resolution as Exhibit A thereto, to purchase the Bonds by private placement, subject to certain conditions, and the Authority has authorized the sale of the Bonds to the Bank on terms and conditions substantially the same as those set forth in the Proposal; and WHEREAS, among the conditions of the Proposal is that the Bonds be designated as "qualified tax-exempt obligations" within the meaning of Section 265(b) of the Internal Revenue Code of 1986 (the "Code"), and this City Council of the City (this "City Council") concurs in the finding set forth in the Authority Resolution that neither the City nor any subordinate entity of the City, including but not limited to the Authority, expects or intends to 1 ---PAGE BREAK--- Agenda Item No. 7(C) Attachment 1 provide for the issuance of more than $1 0,000, 000 aggregate principal amount of tax -exempt obligations during calendar year 2012; and WHEREAS, the Bonds will be secured by a first pledge, lien and claim upon the proceeds of the special tax ·which was approved as Measure A at an election held in the City on March 7, 2000 (the "Special Tax Revenues"), and this City Council, by this resolution, wishes to expressly authorize such first pledge, lien and claim on the Special Tax Revenues to secure the payment of the principal of and the interest on the Bonds; and WHEREAS, the Authority has determined that all things necessary to make the Bonds, when executed on behalf of the Authority and authenticated by the Trustee, as provided in the Trust Agreement, the valid, binding and legal obligations of the Authority according to the import thereof and hereof have been done and performed; and WHEREAS, in furtherance of implementing the Refunding Program, there has been filed with the City Clerk for consideration and approval by this City CounciFfo.nns of the following: b the Site Lease, under the terms of which the City leases to the Authority for a nominal consideration the real property on which the Project has been constructed (the "Site"); the Facility Lease, under the terms of which the Authority leases back to the City the Site, as improved by the Project (together, the "Leased Property"), and the City agrees to make certain rental payments (the "Base Rental Payments" and the "Additional Payments") for the use and enjoyment of the Leased Property; the Trust Agreement, under the terms of which the Bonds are to be issued and the Revenues (as said term is defined in the Trust Agreement) are to be administered to pay the principal of and interest on the Bonds; and the Refunding Escrow Agreement, providing for the redemption of the remaining outstanding Prior Bonds on the date to be selected for such redemption. NOW THEREFORE, BE IT RESOLVED by the City Council of the City of El Cerrito as follows: Section 1. The foregoing recitals are true and correct, and this City Council so finds and determines. Section 2. This City Council hereby finds and determines that the implementation of the Refunding Program, including issuance by the Authority of the Bonds and sale thereof to the Bank, as provided by the Authority Resolution, and the resulting redemption of the Prior Bonds will result in significant public benefits, including demonstrable savings in effective interest rate, bond underwriting and bond issuance costs. 2 ---PAGE BREAK--- Agenda Item No. 7(C) Attachment 1 Section 3. This City Council hereby approves of the issuance of the Bonds by the Authority and the sale thereof to the Bank, as more fully provided by the Authority Resolution. Section 4. The forms of the Site Lease and Facility Lease, submitted to this meeting and on file with the City Clerk, are hereby approved, subject to such changes as the City Manager or designee shall approve, such approval to be conclusively established by the execution thereof on behalf of the City. The City Manager is authorized and directed to execute the Site Lease and the Facility Lease and each of them on behalf of the City. Section 5. The forms of Trust Agreement and Refunding Escrow Agreement, submitted to this meeting and on file with the City Clerk, are hereby approved, with such changes as the Authority shall approve prior to execution thereof. Section 6. This City Council hereby expressly authorizes the Autl}ori~y to provide a first pledge, lien and claim on the Special Tax Proceeds to secure the payment of the principal of and the interest on the Bonds and hereby covenants that, for as long as any:.ofthe Bonds remain outstanding and subject to the limitation on the maximum amount of the annual Measure A special tax which may be levied on any taxable parcel within the City, the City will annually, in each Fiscal Year, provide for the levy of the Measure A special tax in an aggregate amount which, when combined with the unencumbered balance of in the Measure A Parcel Tax Fund (as said term is defined in the Facility Lease) at the commencement of such Fiscal Year, shall be equal to not less than one hundred ten percent (11 of the amount of the City's Base Rental Payments (as said term is defined in the Facility Lease) payable pursuant to the Facility Lease during such Fiscal Year. Section 7. All actions heretofore taken by the officers and agents of the City are hereby approved, confirmed and ratified. Notwithstanding any provision of this resolution authorizing the City Manager to take any action or execute any document to the contrary, in the absence of the City Manager or in lieu of the City Manager, the person designated in writing by the City Manager, may take such action or execute such document with like effect as fully as though named in this resolution instead of the City Manager. Section 8. The officers of the City are hereby authorized and directed, jointly and severally, to do any and all things and to execute and deliver any and all documents which they may deem necessary or advisable in order to carry out, give effect to and comply with the terms and intent of this resolution and to implement the refunding program. Such actions heretofore taken by such officers are hereby ratified, confirmed and approved. I CERTIFY that at the regular meeting on August 21, 2012, the El Cerrito City Council passed this resolution by the following vote: AYES: NOES: ABSENT: ABSTAIN: COUNCILMEMBERS COUNCILMEMBERS COUNCILMEMBERS COUNCILMEMBERS 3 ---PAGE BREAK--- Agenda Item No. 7(C) Attachment 1 IN WITNESS of this action, I sign the document and affix the corporate seal of the City of El Cerrito on August XX, 2012. Cheryl Morse, City Clerk APPROVED: William Jones, III, Mayor 4 ---PAGE BREAK--- RESOLUTION 2012-XX Agenda Item No.7(C) Attachment 2 RESOLUTION OF THE GOVERNING BOARD OF THE EL CERRITO PUBLIC FINANCING AUTHORITY AUTHORIZING THE ISSUANCE AND SALE BY PRIVATE PLACEMENT TO JPMORGAN CHASE BANK, NA, OF NOT TO EXCEED $2,516,500 PRINCIPAL AMOUNT OF 2012 LEASE REVENUE REFUNDING BONDS; DESIGNATING THE BONDS AS QUALIFIED TAX-EXEMPT OBLIGATIONS PURSUANT TO SECTION 265(b) OF THE INTERNAL REVENUE CODE OF 1986; APPROVING THE FORM AND SUBSTANCE OF A SITE LEASE, A FACILITY LEASE, A TRUST AGREEMENT AND A REFUNDING ESCROW AGREEMENT AND AUTHORIZING THE MAKING OF MODIFICATIONS THERETO AND THE EXECUTION AND DELIVERY THEREOF AS MODIFIED; AND AUTHORIZING RELATED ACTIONS NECESSARY TO IMPLEMENT THE PROPOSED REFUNDING PROGRAM WHEREAS, the El Cerrito Public Financing Authority is a joint exercise of powers entity duly organized and existing under and by virtue of the laws of the State of California (the "Authority"); and WHEREAS, the City of El Cerrito is a municipal corporation organi~ed and existing under the Constitution and laws of the State of California (the "City"); and WHEREAS, the Authority is empowered under the provisions of the Marks-Roos Local Bond Pooling Act of 1985, being Article 4, Chapter 5, Division 7, Title 1 of the California Government Code (the "Law"), to issue its bonds for the purpose of refunding bonds previously issued by the Authority; and WHEREAS, pursuant to its resolution adopted on June 17, 2002, the Authority authorized the issuance of its 2002 Lease Revenue Bonds (Measure A Capital Improvement Project) (the "Prior Bonds"); and WHEREAS, the Prior Bonds were delivered to the original purchaser thereof on July 31, 2002, and the proceeds of sale were utilized in accordance with the Law to assist the City in the financing of capital facilities for a swim center of the City commonly referred to as the "Measure A Capital Improvement Project" (the "Project"); and WHEREAS, the Authority has determined to issue its El Cerrito Public Financing Authority 2012 Lease Revenue Refunding Bonds (the "Bonds") for the purpose of implementing a program to refund the remaining outstanding Prior Bonds (the "Refunding Program"); and WHEREAS, the Bonds will be secured by a first pledge, lien and claim upon certain revenues (the "Revenues"), together with a first pledge, lien and claim upon the proceeds of the special tax which was approved as Measure A at an election held in the City on March 7, 2000, to consider said measure (the "Special Tax Revenues"); and 1 ---PAGE BREAK--- Agenda Item No.7(C) Attachment 2 WHEREAS, the Authority has determined that, in order to implement the Refunding Program, including payment of the redemption price of the Prior Bonds on the date to be selected for such redemption (after taking into consideration funds on hand with respect to the Prior Bonds), establishment of a reserve fund for the Bonds and payment of the costs of the Refunding Program, including the costs of issuance of the Bonds, the Authority needs to authorize the issuance and sale of Bonds in the aggregate principal amount of not to exceed Two Million Five Hundred Sixteen Thousand Five Hundred Dollars ($2,516,500); and WHEREAS, the Authority has determined that all things necessary to make the Bonds, when executed on behalf of the Authority, authenticated by the Trustee, and delivered to JPMorgan Chase Bank, NA (the "Bank"), the valid, binding and legal obligations of the Authority according to the import thereof and hereof have been done and performed; and WHEREAS, in furtherance of implementing the above-described Refunding Program, Meyers, Nave, Riback, Silver & Wilson, as bond counsel to the Authority for the Refunding Program ("Bond Counsel"), has prepared and submitted to the Authority Secretary for consideration and approval by this Board forms of the following: f. a Site Lease (the "Site Lease"), between the City and the Authority, under the terms of which the City leases to the Authority for a nominal consideration the real property on which the Project has been constructed (the "Site"); a Facility Lease (the "Facility Lease"), between the Authority and the City, under the terms of which the Authority leases back to the City the Site, as improved by the Project (together, the "Leased Property"), and the City agrees to make certain rental payments (the "Base Rental Payments" and the "Additional Payments") for the use and enjoyment of the Leased Property; a Trust Agreement (the "Trust Agreement"), between the Authority and a bank to be determined, as trustee (the "Trustee"), under the terms of which the Bonds are to be issued and the Revenues (as said term is defined in the Trust Agreement) are to be administered to pay the principal of and interest on the Bonds; and a Refunding Escrow Agreement (the "Refunding Escrow Agreement"), between the Authority and J.P. Morgan Trust Company, National Association, as Escrow Agent (the "Escrow Agent"), for the purpose of providing for the redemption of the remaining outstanding Prior Bonds on the date to be selected for such redemption; and WHEREAS, being fully advised in the matter of the proposed Refunding Program, this Board wishes to proceed with implementation of the Refunding Program, provided that certain prescribed conditions set forth herein are satisfied; and WHEREAS, as required by the Law, the City has by separate resolution determined that the issuance of the Bonds by the Authority will result in significant public benefits, including demonstrable savings in effective interest rate, bond preparation and bond issuance costs; and 2 ---PAGE BREAK--- Agenda Item No.7(C) Attachment 2 WHEREAS, the Authority has received a proposal from the Bank, dated August 10, 2012 (the "Proposal"), to purchase by private placement $2,516,500 principal amount of 2012 Lease Revenue Refunding Bonds, subject to certain prescribed conditions; and WHEREAS, this Board hereby finds and determines that the proposed sale of the Bonds in accordance with and upon terms and conditions which are substantially the same as those specified in the Proposal will result in significant public benefits, including demonstrable savings in effective interest rate, bond preparation and bond issuance costs; and WHEREAS, all acts, conditions and things required by the Constitution and laws of the State of California to exist, to have happened and to have been performed precedent to and in connection with the issuance, sale and delivery of the Bonds and the consummation of the Refunding Program authorized hereby do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the Authority is now duly authorized and empowered, pursuant to each and every requirement of law, to ~uthorize the execution and delivery of certain documents in order to further implement the.