SR-414-002 (19)
CA:C/ED-EDD:LM:CSR:
Redevelopment Agency Meeting 3/10/87
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lIAR 1 0 1987
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Santa Monica, California
To: Redevelopment Agency Board
From: Agency Staff
Subject: Recommendation to Authorize the Executive Director to
Negotiate and Execute a Contract for Underwriter and
Bond Counsel Services Related to Refunding the Ocean
Park Redevelopment 1984 Tax Allocation Bonds and the
Refinancing of Debt Incurred by the Agency in
Connection with the Ocean Park Redevelopment Project
INTRODUCTION
This report recommends that the Redevelopment Agency Board
authorize the Agency's Executive Director to negotiate and
execute contracts with Rauscher Pierce Refsnes, Inc. to serve as
underwriter and Orrick, Herrington & Sutcliffe to serve as bond
counsel on the above referenced financing. These two firms would
provide all services necessary to refund the outstanding 1984 Tax
Allocation Bonds for the Ocean Park Redevelopment Project and to
proceed with refinancing the repayment of a portion of the
Agency's outstanding debt on the proj ect to the City of Santa
Monica if it is financially advisable.
BACKGROUND
In 1984, the Redevelopment Agency of the city of Santa Monica
issued $5.7 million in tax allocation bonds to assist in the
financing of various public improvements necessary for the
completion of the Ocean Park Redevelopment Project.
These
improvements included construction of Ocean View Park located in
the project area and of beach improvements and affordable housing
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~AR 1 0 1987
units located outside the project area but determined to be of
benefit to the Ocean Park Redevelopment Project.
since that time, market conditions and interest rates have
changed dramatically, such that it is now considered advantageous
for the Agency to refinance the bonds at current lower interest
rates. The bonds were sold in 1984 at 10.893% interest. Current
rates are about 6.5%. preliminary review and analysis indicates
that the Agency could save between approximately $10,000 and
$120,000 annually by refunding the outstanding 1984 bond debt at
this time.
Addi tional1y , the Redevelopment Agency owes the City of Santa
Monica approximately $5,500,000 in connection with the Ocean Park
Redevelopment Proj ect. These loans and advances from the City
were used by the Agency for project "start up" costs, for
renovation of the Ocean Park Branch Library, and for other
permitted purposes. Due to the current low interest rates and
the projected increase in property tax revenue generated by the
final phase of condominium units which will soon be available for
sale and occupancy, the Agency may be able to refinance the
repayment of a portion of its existing Ocean Park Project debt to
the City by issuing additional tax allocation bonds. The
issuance and sale of additional bonds could be combined with the
issuance of the bonds to refund the 1984 Tax Allocation Bonds.
UNDERWRITER SELECTION PROCESS AND RECOMMENDATION
The bond underwriter recommended for this project was selected
using a request for proposal (RFP) selection process. City staff
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4. The reasonableness of the fee which was consistent with
that proposed by other firms.
5. The firm's excellent past working relationship with The
City in its issuance of the Mall certificates of
Participation.
Overall, the committee found that Rauscher pierce Resfnes, Inc.
had a professional and practical approach to its refunding and
refinancing proposals which demonstrated creativity but, more
importantly, displayed a concern for not only the short-term but
long-term fiscal needs of the Agency and the city.
services to be performed by the underwriter include the
following:
1. Review, analysis, and evaluation of available financial,
legal, and other relevant information and data which may
affect the refunding of the bonds and refinancing the
Agency's debt:
2. Consultation with City staff, bond counsel, and others
regarding all factors leading to selection of the type
of financing program to be followed and the type of
securities to be issued:
3. Act as an underwriter or placement agent of securities
issued to refund the bonds and refinance the debt:
4. Recommendation to the City regarding the terms and
conditions under which the securities are to be sold and
issued:
5. Assistance to City Attorney and bond counsel in the
preparation of the resolution of issuance and other
legal documents related to issuance of the securities:
6. Preparation of the text and other material and printing
and distribution of preliminary and final official
statements in connection with marketing the securities:
7. As required, consultation with and assistance to ratings
services with regard to the assignment of credit ratings
on the securities and presentation to these rating
agencies of all data and information needed to permit
them to evaluate and rate the securities prior to their
offering:
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8. Marketing of the securities using the firm's best
efforts to obtain the lowest possible interest cost
consistent with market conditions, maturity schedule,
and rating of the issue;
9. Arrangement of printing and delivery of the securities
and the City's receipt of proceeds from their sale.
BOND COUNSEL SELECTION PROCESS AND RECOMMENDATION
staff prepared and distributed a request for proposal and
received and reviewed proposals from the following four law
firms:
1. O'Melveney & Myers
2. Morrison & Foerster
3. Mudge Rose Guthrie Alexander & Ferdon
4. Orrick, Herrington & Sutcliffe
Each of these firms has a Los Angeles Office. All four firms
have extensive experience in municipal financings, including bond
issuances and refundings involving redevelopment agencies.
Following evaluation of these proposals, a decision was reached
to recommend the law firm of Orrick, Herrington & Sutcliffe as
bond counsel based upon the following:
1. The proposals by others for services provided estimates
of fees only. These estimates either equalled or
greatly exceeded the fees Orrick, Herrington & Sutcliffe
was willing to set as a maximum;
2. Assurances that the Agency would receive top priority
from the attorneys assigned to the Project;
3. Expertise and experience with virtually every type of
bond and financing technique, including all tax aspects;
4. A reasonable fee arrangement, based upon standard hourly
rates for the attorneys involved on the financing,
(ranging from $80 to $225 per hour) plus reimbursable
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out-of-pocket expenses which vary depending upon the
nature of the financing which the Agency selects. If
the Agency chooses to proceed solely with a refunding of
the 1984 Bonds, bond councel services would not exceed
$25,000.00, with expenses capped at $5,000.00. If the
financing consists of a combined refunding of the 1984
Bonds plus the refinancing of the city loan, bond
counsel services would not exceed $40,000.00 and
expenses would be a maximum of $8,000.00;
5. Credibility with and universal acceptance of the firm's
legal opinions in the bond market;
6. Firm's excellent past working relationship with Rauscher
Pierce Refsnes, Inc., the underwriter recommended
herein.
services to be provided by bond counsel include the following:
1. Consul tation with representatives of the Agency 1 its
financial advisor, its underwriters, their respective
counsel, consultants and others, concerning the timing,
terms and structure of the financing, including analysis
of the advantages and disadvantages of each available
financing technique and consideration of state and
federal tax law and general pUblic finance law;
2. Preparation of all legal proceedings for the
authorization, issuance and sale of the bonds, including
preparation of the resolutions authorizing the issuance
of the bonds, preparation of the proceedings for the
sale of the bonds (whether by competitive sale pursuant
to an official notice inviting bids on the bonds or by
negotiated sale pursuant to a bond purchase agreement
with the underwriters or by private placement) ,
supervision of the printing of the bonds, preparation of
other proceedings and documents (including closing
papers) incidental to or in connection with the issuance
of the bonds; and coordination of the bond closing;
3. If ratings on the bonds are sought, assistance in
obtaining such ratings, including attendance at meetings
with the rating agencies;
4. Review of the bond purchase agreement to be entered into
by the Agency and the underwriters in connection wi th
the negotiated sale of the bonds;
5. Attendance at the bond sale and review and approval as
to the legality of the bids received for the bonds, (if
the bonds are to be sold at a public competitive sale;
6. If the bonds are to be sold competitively, review of the
official statement or other offering circular concerning
the bonds for compliance with the applicable securities
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laws and preparation of the blue sky and legal
investment memoranda describing the conditions upon
which the bonds may be resold and purchased in
jurisdictions other than California. (In negotiated
sales, such services are typically performed by
underwriter's counsel.);
7. Rendering of the final legal op~n~on on the validity of
the bonds, the tax-exempt status of interest on the
bonds, and such other legal opinions as may be
appropriate in connection with delivery of the bonds;
8. Such other legal services as may be incidental to the
foregoing.
BUDGET/FISCAL IMPACTS
positive budget/fiscal impacts will result to the Agency from the
refunding of the Agency's 1984 Tax Allocation Bonds. The Agency
could save from approximately $10,000 to $120,000 per year in
bond interest payments depending on the final arrangement of the
refunding due to the market conditions and current interest
rates.
positive budget/fiscal impacts will result for the City should
the Agency be able to finance the payment of a portion of the
Agency's outstanding debt to the City.
The Agency has
insufficient annual revenue to repay the city's loans in lump sum
and due to existing obligations would only be able to pay small
portions of the loan back over many years.
If feasible, by
committing current and future property tax revenue to the payment
of bonds, the Agency will be able to repay a larger portion of
the debt to the City earlier than would normally occur.
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The cost for bond underwriter services will be paid by proceeds
from the sale of tax allocation bonds. The cost for bond counsel
must be paid by the Agency.
RECOMMENDATIONS
It is respectfully recommended that the Agency Board:
1) Authorize the Agency Executive Director to negotiate and
execute a contract with Rauscher Pierce Refsnes, Inc., not to
exceed 1.5% of the proceeds to serve as bond underwriter, to
provide all services required for the issuance and sale of
Tax Allocation Bonds needed to refund the Agency's 1984 Tax
Allocation Bonds and to proceed with refinancing the
repayment of as much of the Agency's Ocean Park Redevelopment
Agency debt to the City as is financially advisable.
2) Authorize the Agency Executive Director to negotiate and
execute a contract with the law firm of Orrick, Herrington, &
Sutcliffe, not to exceed $40,000, to serve as bond counsel
and to provide all services required for the issuance and
sale of Tax Allocation Bonds needed to refund the Agency's
1984 Tax Allocation Bonds and to refinance the payment of as
much of the Agency's Ocean Park Redevelopment project debt to
the city as is financially advisable.
Prepared by: Christopher S. Rudd, Acting Manager
Economic Development Division
Community and Economic Development Department
Linda Moxon, Deputy City Attorney
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