SR-414-002 (11)
tjlt//?JOZ
~C/2/)t..-Z
FEB 2 3 1981
..
C/ED:EDD:PC:JPM:CSR:
Council Meeting: February 23, 1988
Santa Monica, California
TO:
Redevelopment Agency Board/City Council
FROM:
Agency/city staff
SUBJECT: Approval of Documents Required to Issue Tax Allocation
Bonds to Refund 1984 Ocean Park Redevelopment Project
Tax Allocation Bonds and Repay outstanding Debt to the
City of Santa Monica
INTRODUCTION
This report recommends that the Redevelopment Agency adopt the
attached Agency resolution (Attachment A) authorizing execution
of a series of documents necessary to refund the 1984 Ocean Park
Redevelopment Project Tax Allocation Bonds and to refinance deht
owed to the City in connection with the Ocean Park Redevelopment
Projects.
The Agency resolution authorizes issuance of the
refunding bonds and refinancing honds, and execution of an
Indenture of Trust. The Agency resolution also authorizes the
execution of a Purchase Agreement with an underwriter, an Escrow
Agreement with a bank as trustee,
and preparation and
distribution of a Preliminary Official Statement and an Official
Statement to market the refunding bonds.
Additionally, this
report recommends that the Agency Board authorize staff to
execute and deliver these approved documents and related closing
documents at the time of sale.
- 1 -
CA./f2A-2
r r:: P, 2 3 1988
Finally, this report recommends that the City council adopt the
attached City Council resolution (Attachment B) approving the
various actions taken-by the Agency.
BACKGROUND
In 1984, the Redevelopment Agency of the City of Santa Monica
issued $5.7 million in tax allocation bonds to finance a portion
of the construction of various improvements necessary to complete
Ocean Park Redevelopment proj ects 1 (a)
and 1 (b) .
These
improvements included Ocean View Park located in Project Area
l{a), public beach improvements located in close proximity to the
Project Areas, and affordable housing units located outside the
project Areas. All improvements were determined to be of benefit
to Ocean Park Redevelopment Projects lea) and l(b).
Addi tionally, the Redevelopment Agency owes the Ci ty of santa
Monica debt in connection with the Ocean Park Redevelopment
proj ect. Loans and advances from the City have been incurred
over a nUDber of years and were used by the Agency for project
"start-up" costs, renovation of the Ocean Park Branch Library,
and other Agency administrative and expense purposes. The Agency
.
has lacked sufficient fund balance and tax increment revenue to
repay this outstanding debt to the city. (As a result, such debt
continues to accrue interest due to the city.)
To the extent
possible, the Agency desires to refinance this portion of the
debt.
At its March 10, 1987 meeting, the Redevelopment Agency
authorized the Executive Director of the Agency to proceed with
- 2 -
preparing the necessary documents to refund the 1984 Tax
Allocation Bonds and, if feasible, repay a portion of the
Agency I s Ocean Park -Project debt. At that same meeting, the
Agency authorized the Executive Director to execute contracts
with Rauscher Pierce Refsnes, Inc. to serve as bond underwriter
and with orrick, Herrington & Sutcliffe to serve as bond counsel
for this project.
DISCUSSION
Since the 1984 Ocean Park Redevelopment Project Tax Allocation
Bonds were sold, market conditions have improved and interest
rates have decreased from the 10.893% rate on the 1984 Bonds.
Interest rates have fluctuated over the past year but are
currently approximately 7.7%, a level at which it would be
advantageous for the Agency to refund its 1984 Bonds.
Refunding the 1984 Bonds at currently lower interest rates will
reduce the amount of tax increment revenue needed to pay the
Projects' annual debt on bond indebtedness.
BOND ISSUB
The 1988 Ocean Park Redevelopment Project Tax Allocation
Refunding Bonds and Refinancing bonds (the "1988 Bonds") will be
repaid over a 30 year period. The Bond documents provide for a
fully funded Reserve Fund to assure payment of principal and
interest, thus m.inimizing the risk to investors if the Agency
defaults in payment of debt service. The Bonds have not yet been
- 3 -
rated by Moody's or Standard & Poor's bond rating agencies, but
an "A" rating is anticipated.
The rating agencies may condition their issuance of a
satisfactory rating on the Redevelopment Agency's agreement to
make revisions in the Bond documents which (in the opinion of the
rating agencies) are necessary and appropriate.
To complete the transactions necessary to issue and market the
1.988 Tax Allocation Refunding Bonds and Refinancing Bonds, the
Agency Board must approve various documents and actions. It is
requested that the Board approve such documents and preparation
of any additional documents related to the bond issuance, and
direct staff to execute such documents at the time of sale.
ISSUANCE OF BONDS AND EXECUTION OF INDENTURE OF TRUST
In order to proceed with issuance of the 1988 Tax Allocation
Bonds, the Redevelopment Agency must approve the attached
resolution (Attachment A) authorizing the Redevelopment Agency of
the City of Santa Monica to issue up to a maximum of $9,415,612
principal amount of Bonds to be called "Redevelopment Agency of
the City of Santa Monica, Ocean Park Redevelopment Project Tax
Allocation Refunding and Refinancing Bonds, Series 1988" and
authorizing the execution of an Indenture of Trust substantially
in the form attached to such resolution.
This Indenture of Trust contains eleven sections, summarized
briefly as follows:
Section 1.
Definitions -- defines terms used in the Indenture
of Trust.
- 4 -
section 2.
section 3.
section 4.
section 5.
section 6.
section 7.
section 8.
section 9.
Section 10.
section 11.
Bond provisions -- identifies the term of the Bonds
as well as the procedures to redeem, execute,
transfer, exchange, and replace the Bonds.
Bond Issuance -- provides for the transfer of funds
from the 1984 Bond accounts to new funds and
accounts required for the 1988 Bonds.
Issuance of Additional Bonds -- contains conditions
and procedures for issuance of additional bonds.
Creation of Funds -- describes the various funds
and accounts necessary to satisfy debt service on
the 1988 Bonds.
Covenants of the Agency -- contains restrictions
for the protection of the interests of the Bond
holders.
Trustee -- describes the role and services to be
provided by the Trustee.
Amendment of the Indenture -- describes the method
by which this Indenture may be amended.
Events of Default and Remedies describes
potential events of default and available remedies
to cure such default.
Defeasance
indebtedness.
describes
of
discharge
the
Miscellaneous -- contains miscellaneous provisions.
PURCHASE CONTRACT, ESCROW AGRBEKBRT, PURCHASE ORDBRS, OPPJ:CJ:AL
STATEMENT
The Redevelopment Agency's adoption of the attached Agency
resolution also authorizes the execution and delivery of a
Purchase Contract, an Escrow Agreement, and the preparation and
distribution of an Official statement in connection with the
issuance and marketing of the 1988 Bonds, and defeasance of the
1984 Bonds. A draft copy of each of these documents is attached.
- 5 -
The Purchase Contract with Rauscher pierce Refsnes, Inc. as
underwriter provides for the underwriter's purchase of all of the
1988 Bonds and the .marketing and sale of the 1988 Bonds to
investors.
The Escrow Agreement with Bank of America sets forth the
parameters for the establishment of an escrow account from which
the principal and interest on the 1984 Bonds would be paid until
the Agency is able to redeem the 1984 bonds in the year 1994.
The Official statement prepared for the marketing of the 1988
Bonds describes the use of Bond proceeds, the fiscal and economic
conditions of the Ocean Park Project, and the fiscal and economic
conditions of the City generally.
The resolution also make findings related to the set aside of tax
increment revenue for low and moderate income housing. The
resolution finding states that in FY 1987-88 no tax increment
revenue funds received in FY 1987-88 were set aside in the
Agency's Low and Moderate Income Housing Fund because existing
obligations of the Agency related to the Ocean Park Redevelopment
Project 1a and 1b exceeded the amount of tax increment revenue
received in FY 1987-88. The findings state the current financial
conditions of the Agency in FY 1987-88 and do not restrict the
Agency from setting aside tax increment revenue in future years
for housing projects when tax increment revenue is sufficient to
meet existing obligations and fund housing projects.
BUDGET/FISCAL IMPACTS
- 6 -
The 1988 Ocean Park Tax Allocation Refunding Bonds would be used
to refund the 1984 Tax Allocation Bonds. At a true interest cost
of 7.7% (as of February 1, 1988), the debt service on the 1988
Bonds would result in a savings to the Agency of about $400,000
in the first year, and about $100,000 annually for Years 2
through 18 compared to the current debt service on the 1984
Bonds. However, because the 1988 bonds would be amortized over
30 years rather than the 1984 Bonds' amortization over a 20 year
period, the Agency would be required to continue debt service
payments for an additional 10 years. The net result would be a
net present value savings to the Agency of approximately
$400,000.
While the net present value savings of refunding the 1984 Bonds
at this time is small, the annual debt service savings to the
Agency for the next 18 years would provide the Agency with more
flexibility. The lower debt service combined with the
anticipated continued increase in tax increment revenue generated
by the final phase of the Sea Colony condominium development in
the Ocean Park Redevelopment Project would allow the Agency to
repay a portion of the proj ect · s remaining debt to the Ci ty of
Santa Monica, continue to increase its financial support in the
construction of affordable housing, or a combination of both.
For FY 1987-88, the city's Adopted Budget estimates that the
Redevelopment Agency will repay to the General Fund $1,874,000 of
principal and interest on its debt to the city using proceeds
from the 1988 Bonds. The final amount of proceeds available to
- 7 -
repay the General Funds will depend on the final interest rate at
which the 1988 Refunding Bonds are sold.
RECOMMENDATIONS
It is recommended that the Redevelopment Aqency Board:
1) Adopt the Agency Resolution contained in Attachment A:
Resolution of the Redevelopment Agency of the city of Santa
Monica: (1) Approving the Issuance of Not to Exceed
$7,000,000 Principal Amount of Redevelopment Agency of the
City of Santa Monica, Ocean Park Redevelopment Projects Tax
Allocation Refunding Bonds, series 1988A: (2) Approving
Issuance of not to exceed $2,415,612 principal amount of
Redevelopment Agency of Ci ty of Santa Monica, Ocean Park
Redevelopment Project Tax Allocation Refinancing Bonds series
1988B: (3) Approving the forms of and authorizing the
execution and delivery of an Indenture of Trust, a Purchase
Contract, and an Escrow Agreement; (4) Approving the
preparation of an official statement; and (5) Other matters
related thereto.
It is recommended that the City Council:
1) Adopt the resolution contained in Attachment B: Resolution of
the City Council of the City of Santa Monica approving the
issuance and sale by the Redevelopment Agency of the City of
Santa Monica of its Ocean Park Redevelopment projects Tax
Allocation Refunding Bonds, Series 1988A and its Ocean Park
- 8 -
Redevelopment projects Tax Allocation Refinancing Bonda,
Series 1988B.
Prepared by: Peggy CUrran, Director
Comm~nity and Economic Development Department
Jeffrey P. Mathieu, Manager
Christopher S. Rudd, Sr. Administrative Analyst
Economic Development Division
CommQnity and Economic Development Department
Linda A. Hoxon, Deputy City Attorney
Attachments: A.
Resolution of the Redevelopment Agency re:
Issuance of Refunding and Refinancing Bonds,
and Indenture of Trust, Purchase Contract,
Escrow Agreement, Official Statement
B. Resolution of the City Council of the City of
Santa Monica, approving the actions taken or
to be taken by the Redevelopment Agency in
connection with the refunding of the 1984
Ocean Park proj ect Bonds and the issuance of
the 1988 Refunding and Refinancing Ocean Park
Project Tax Allocation Bonds.
opreficc
- 9 -