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HomeMy WebLinkAbout2005-06-14 - AGENDA REPORTS - PUBLIC FACILITIES CRTIFICATES (2)Agenda Item:_ CITY OF SANTA CLARITA PUBLIC FINANCE AUTHORITY AGENDA REPORT City Manager Approval: ` NEW BUSINESS Item to be presented by: Darren Hernandez DATE: June 14, 2005 SUBJECT: APPROVAL OF DOCUMENTS RELATED TO THE REFINANCING OF THE 1997 CERTIFICATES OF PARTICIPATION AND THE EXECUTION AND DELIVERY OF THE NOT TO EXCEED $ 18,500,000 REFUNDING CERTIFICATES OF PARTICIPATION (PUBLIC FACILITIES) 2005 SERIES DEPARTMENT: Administrative Services RECOMMENDED ACTION 1. City Council authorize the current refunding of the 1997 Certificates of Participation and the execution and delivery of the not to exceed $18,500,000 Refunding Certificates of Participation (Public Facilities) 2005 Series, approve the execution of sale documents, a trust agreement, a base lease, a lease agreement, assignment agreement, continuing disclosure agreement, escrow agreement and preliminary official statement and authorize the taking of certain actions in connection with the execution and delivery of such Refunding Certificates of Participation. 2. Public Finance Authority approve documents in connection with the execution and delivery of not to exceed $18,500,000 in Refunding Certificates of Participation (Public Facilities) 2005 Series. BACKGROUND In 1991, the City issued a local obligation, the 1991 Certificates of Participation (the "1991 COPS"), which was purchased by the Santa Clarita Public Financing Authority through the issuance of the Authority's $22,940,000 Local Agency Revenue Bonds (the "1991 Bonds"). The proceeds of the 1991 COPS were used to fund certain public capital improvements, including the acquisition of the building currently in use as the City Hall. The City leased its sewer system to 17Psa Z(} �o�s 1 Adopfed: e� o -(,og APPROVED the PFA which leased it back to the City. The City advance refunded the 1991 COPS (and the 1991 Bonds) in August 1997, by executing and delivering its $19,670,000 Refunding Certificates of Participation (the "1997 COPS"). The 1997 COPS matured in 2021 and had interest rates ranging from 4.5% to 5.0%. The leased property under the 1997 COPS remained the same as under the 1991 COPS, the City's sewer system. . In today's favorable interest rate climate, City staff and consultants have reviewed the advisability of refinancing the 1997 COPS to achieve savings to the City. Beginning July 1, 2005, the City has the ability to execute and deliver new Refunding COPS to refund or prepay the 1997 COPS on a current basis. The 1997 COPS may be prepaid on October 1, 2005 at a prepayment price of 102%. Under current market conditions gross savings after all costs of issuance are estimated to be $1,540,351 through 2020 and present value savings are estimated to be $1,019,782 or 5.78% of the issue being refunded. Final savings will depend on bond market conditions on the day of issuance and may be higher or lower. Generally present value savings of 3% are considered attractive. The proposed refunding will also level out annual payments. The average yield or interest rate is expected to be under 4%. The final bond maturity will also be shortened to 2020. Savings are very sensitive to changes in interest rates. The bonds have been qualifed for bond insurance by MBIA, the largest bond insurance company, and will be Aaa/AAA Rated. It is proposed that the bonds will be sold at competitive sale during the last week of June or first week of July. Multiple underwriting bids are expected. It is now proposed to refinance the 1997 COPS by executing and delivering the not to exceed $18,500,000 Refunding Certificates of Participation (Public Facilities) 2005 Series (the "COPs'). The City will use the same leased property as before, the City's sewer system, and lease such property (the "Leased Property") to the Authority pursuant to a Base Lease. The Authority will then leaseback the Leased Property to the City and make lease payments to the Authority. Pursuant to the Assignment Agreement, the lease payments will be assigned to the Trustee. Each owner of the COPS will have an undivided interest in the lease payments. The lease payments have an interest and principal component and will be payable semiannually. The proceeds from the sale of the COPS will be deposited into an escrow fund under the Escrow Agreement and used to defease the 1997 COPS. On October 1, 2005, moneys in the escrow fund will be used to pay and prepay in full the 1997 COPs. McGladrey & Pullen LLP, Minneapolis, Minnesota (the "Verification Agent") will examine the arithmetical accuracy of computations provided by the Financial Advisor to make sure that the amount on deposit in the escrow fund is sufficient to prepay the 1997 COPs. It is appropriate at this meeting to consider for adoption the resolutions of the City and the PFA authorizing the execution and delivery of the COPs. General Summary of Securitv: These COPS are payable from the lease payments to be made by the City. The City covenants to annually budget and appropriate for the lease payments from its general fund and maintain insurance on the Leased Property. There is also a reserve fund for the Certificates. Base Lease: Document in which the City leases the Leased Property to the Authority. It is drafted by Special Counsel and executed by the City and Authority. Lease Agreement: Key legal document in which the Authority leases back the Leased Property to the City for lease payments. Also contains the City's covenants to appropriate and maintain insurance and prepayment provisions. It is drafted by Special Counsel and executed by the City and Authority. Trust Agreement: Another key legal document that lays out the legal structure and terms of the COPS. It specifies payment dates, maturity dates; revenues and accounts specifically pledged to the repayment of the COPs; flow of funds, additional debt requirements; default and remedy provisions; and defeasance provisions in the event the COPS are prepaid. It is drafted by Special Counsel and executed by the City, Authority and Trustee. Assignment Agreement: Document in which the lease payment to the Authority are assigned to the Trustee. It is drafted by Special Counsel and executed by the Trustee and Authority. Escrow Agreement: Document governing the defeasance of the 1997 COPS and their prepayment. It is drafted by Special Counsel and executed by the City and Trustee. Official Statement: This document describes the security and discloses potential risks to prospective investors. It will generally describe the sources of payment for the COPS, the City's financial state, particularly its general fund, economic and demographic characteristics of the City, and inherent known risk factors associated with the security. It's important that this document not contain any material misstatements or omissions. The Preliminary Official Statement (often referred to as the "POS") is distributed to prospective investors prior to the sale so that they can make informed purchase decisions. The POS should be as close to final as possible with the actual terms of the pricing (interest rates and principal amounts) left necessarily blank. The Final Official Statement will be prepared shortly after the sale and must be available in time for closing. The POS and FOS are drafted by Special Counsel, acting as disclosure counsel and is executed by the City. Continuing Disclosure Agreement (form in POS): This agreement, attached as an appendix of the POS, outlines the updated information related to the security that the City will agree to provide to the bond markets. Disclosure is required annually, and on an exceptional basis for any major "material" event. This document is drafted by Special Counsel and executed by City. Notice of Sale and Bid Form: The COPS have a term ending on October 1, 2020 will be sold on a competitive basis at a true interest rate of not to exceed 4.20 %, with an underwriter's discount of not to exceed 1 %. The sale of the COPS is scheduled for late June at the offices of C.M. de Crinis & Co. at which time the City Manager or Director of Administrative Services will award the COPS to the best bidder. The bid form is submitted by potential underwriters on the day of the bond sale, and specifies the actual principal amounts, interest rates and prices at which the COPS will be purchased. In it, the underwriter commits to purchase the COPS at closing at the agreed upon prices and amounts subject to certain closing conditions. The City resolution also appoints various consultants including C.M. de Crinis & Co., as financial advisor, Fulbright & Jaworski L.L.P., as special counsel and disclosure counsel and The Bank of New York Trust Company, N.A., as trustee. ALTERNATIVE ACTIONS 1. The City Council may choose not to refinance the 1997 COPS. 2. Other action as determined by the City Council. FISCAL IMPACT The Fiscal Impact to the City will be to generate a total dollar and total net present value savings to the City net of all costs of issuance and to reduce the term of the debt by one year to 2020. The new refunding bonds will next be callable in 2015. Under current market conditions gross savings after all costs of issuance are estimated to be $1,540,351 through 2020 and present value savings are estimated to be $1,019,782 or 5.78% of the issue being refunded. Staff will target a minimum savings rate of about 3% or approximately $500,000. Savings are very sensitive to daily changes in bond market interest rates. ATTACHMENT Resolution of the City Council of the City of Santa Clarita Authorizing the Sale, Execution and Delivery of Not To Exceed $18,500,000 Refunding Certificates Of Participation (Public Facilities) 2005 Series and Approving Sale Documents, a Trust Agreement, an Assignment Agreement, a Base Lease, a Lease Agreement, a Continuing Disclosure Agreement, an Escrow Agreement and Preliminary Official Statement in Connection Therewith and Authorizing the Taking of Certain Actions in Connection Therewith. Resolution of the Board of the Santa Clarita Public Financing Authority Approving Certain Documents in Connection with the Execution and Delivery of Not to Exceed $18,500,000 Refunding Certificates of Participation (Public Facilities) 2005 Series. Trust Agreement (City Clerk's reading File) Lease Agreement (City Clerk's reading File) Base Lease (City Clerk's reading File) Assignment Agreement (City Clerk's reading File) Continuing Disclosure Agreement (Appendix F to POS - City Clerk's reading File) Escrow Agreement (City Clerk's reading File) Preliminary Official Statement (City Clerk's reading file) Notice of Sale and Intention to Sell (City Clerk's reading file) ATTACHMENTS Resolution Resolution