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SR-203-001-01 W AUG = {) 2005 F :\atty\muni\strpts\mox\WastewaterBond Refundings'05DocumentAuthorization .doc Council Meeting: August 9,2005 Santa Monica, California TO: Mayor and City Council FROM: City Staff SUBJECT: Resolution Authorizing Issuance of Refunding Bonds and Approval of Various Documents, Actions and Other Matters Related Thereto Introduction This staff report recommends that the City Council adopt the attached resolution ("Resolution") which authorizes the refunding and defeasance of the City of Santa Monica 1993 Wastewater Enterprise Revenue Bonds ("1993 Bonds"). This refinancing transaction will take advantage of a decline in interest rates in the bond market since the Bonds were issued in 1993 and will result in a net savings in long-term debt service payments. The City of Santa Monica Wastewater Enterprise Revenue Bonds (Hyperion Project), 2005 Series A ("Refunding Bonds") will refund the 1993 Bonds. Discussion The attached Resolution will allow the City to proceed with all steps necessary for issuance of the Refunding Bonds. This Resolution will approve the refunding and defeasance of the 1993 Bonds and authorize the issuance of up to a maximum of $35.5 million aggregate principal amount of Bonds at a true interest rate not to exceed 4.5%, and would also authorize all steps required to complete the refinancing, including approval, execution and delivery of all necessary documents. Also attached to this staff report are copies of the following documents necessary for 1 ~ AUG - 9 2005 the issuance of the City of Santa Monica Wastewater Enterprise Revenue Bonds (Hyperion Project), 2005 Series A: 1. Indenture 2. Escrow Agreement 3. Preliminary Official Statement for use in connection with the offering and sale of the Bonds. 4. Bond Purchase Agreement The attached Resolution approves all of the above-described documents substantially in the form presented at this meeting and authorizes the execution and delivery of these documents by specified City officials and employees. The preparation, execution and delivery of final Official Statement and execution and delivery of any additional documents as may be necessary to effect the offering, sale and issuance of these Refunding Bonds is also authorized and approved by the attached resolutions. The attached documents assume a full refunding of the outstanding 1993 Bonds. These documents may be modified accordingly if, at the time of sale, a partial refunding of the 1993 Bonds improves the savings economics. Attachment A to this staff report is a list of questions which various national associations and the Federal Securities and Exchange Commission recommend that 2 public officials ask when approving the issuance of bonds. For your convenience, staff and the City's Financial Advisor and Bond Counsel have provided answers to each question. BudQet and FinanciallmDact The only budget impact resulting from this refunding is a reduction in debt service expenditures for the remaining term of the Bonds. Budget actions necessary to future fiscal years will be reflected in the City's proposed budget documents. Issuance of City of Santa Monica Wastewater Enterprise Bonds (Hyperion Project), Series A is estimated to result in a savings of all future annual debt service payments of approximately $1.2 million or $75,000 per year. The estimated net present value savings of these future annual debt service payments is approximately $800,000. These savings are net of costs of issuance. Recommendation It is recommended that the City Council adopt the attached Resolution authorizing the issuance of the City of Santa Monica Wastewater Enterprise Revenue Bonds (Hyperion Project), 2005 Series A, and approving the execution and delivery of an Indenture, Escrow Agreement, Bond Purchase Agreement, and Preliminary Official Statement. /I II II II /I II II II 3 Attachments: Attachment A - Questions For Public Officials To Ask Before Approving a Bond Issue Resolution Authorizing Issuance of Refunding Bonds Indenture Escrow Agreement Preliminary Official Statement for use in connection with the offering and sale of the Refunding Bonds Bond Purchase Agreement Prepared by: Marsha Jones Moutrie, City Attorney Steve Stark, Director of Finance Linda A. Moxon, Deputy City Attorney 4 ATTACHMENT A QUESTIONS FOR PUBLIC OFFICIALS TO ASK BEFORE APPROVING A BOND ISSUE The following question list has been prepared by the National League of Cities; the National Association of Counties; the National Association of State Auditors, Comptrollers, and Treasurers; and the Government Finance Officers Association with input from the Securities and Exchange Commission. They are designed to assist public officials who are responsible for approving the issuance of tax exempt bonds. Questions to Ask of Staff 1) How have staff allocated responsibilities for the preparation of the official statement? Have they clearly defined the responsibilities of all participants in the transaction? Answer: Preparation of the Preliminary and Final Official Statements is a collaborative effort of the Finance, and Environmental and Public Works Management (Water Resources Divisionl Sewer and Waste Water) Departments, and the offices of the City Manager and City Attorney; the City's Financial Advisor (Kelling, Northcross & Nobriga) and Bond Counsel (Jones Hall, a Professional Law Corporation). Each participant is responsible for ensuring the information presented in their area of expertise is correct. Jones Hall is serving as Disclosure Counsel for the preparation of the Preliminary Official Statement. All participants review the entire document for consistency and accuracy. 2) What process or procedures have been established to select qualified outside professionals? How are we relying on them, and is our reliance appropriate? How are they being compensated? Answer: The City's Financial Advisor and Bond Counsel have been selected by a competitive selection process wherein qualifications and price were considered. As a result of these selection processes, staff believes it is appropriate to rely on their expert advice. They will be compensated from the bond proceeds. 3) What has been done to establish the accuracy offinancial and operating information and its disclosure in the official statement? Has anything happened since the date of the financial statements that needs to be disclosed? Answer: All financial and operating information about the City has been subjected to multiple internal reviews by appropriate City staff. Audited financial information has been presented, for fiscal years ending June 30, 2004. FY04-05 financial information is currently unaudited but will be audited this 1 September by the City's auditors, Conrad and Associates, LLP. Nothing has occurred since the date of the financial statements that needs to be disclosed. 4) What policies and procedures have been developed to determine whether material conflicts of interest exist that need to be disclosed? Answer: The Financial Advisor and Bond Counsel have been questioned to determine if any material conflicts of interest exist that need to be disclosed. No conflicts of interest have been determined. A similar procedure has been followed for City staff. 5) What procedures have been established to accurately describe the project, the bond terms, the sources of repayment, and the risks associated with the project? What procedures have been established for the investment and disbursement of the bond proceeds? Answer: The project, bond terms, sources of repayment, and risks are described in the Preliminary Official Statement. Because this issue refunds a prior bond issue, proceeds will be limited to costs of issuance and an escrow that will be held by an Escrow Agent and which will be used to refund the prior issue, Bond proceeds will be controlled by the Trustee and the Escrow Agent. Use of the proceeds will be accounted for by the City's Finance Department in accordance with generally accepted accounting standards. 6) Do procedures permit the underwriters to carry out their "due diligence" and other responsibilities? Answer: Potential underwriters (including their attorneys) who will bid on, purchase, and resell the bonds, will be provided access to all bond documents. City staff, the City's Financial Advisor, and Bond Counsel will respond to all questions in a timely manner. 7) Has staff fully considered any questions asked by the rating agencies? Answer: Staff will brief and update the rating agencies concerning this bond issue and the financial status of the City shortly following Council authorization to proceed. Staff has tried to anticipate and include in the bond documents appropriate data and disclosures applicable to material rating agency questions. Any additional data and/or disclosures will be promptly provided to the rating agencies upon request. 8) What continuing disclosure responsibilities have staff assumed and what procedures have been established to meet them? Who will determine and file the annual financial and material event disclosure information? Has staff designated an individual to speak 2 to the market on behalf of the City? Answer: All Federal continuing disclosure requirements will be the responsibility of the Finance Department. An appropriate annual disclosure statement will be released and filed with the necessary agencies every year by March 1 and/or as material events occur. The City's Director of Finance, Water Resources Division and Financial Advisor will represent the City to the market. 9) Have staff procedures produced an official statement that accurately presents the City's financial condition and discloses the information a reasonable investor needs to know? Have all the right people reviewed it? Answer: Staff and the City's Financial Advisor and Bond Counsel believe the official statement accurately presents the financial condition of the City and discloses information a reasonable investor needs to know. Concerning review of the official statement, please see response to question #1 above. Questions to Ask Outside Professionals 1) What is the nature and scope of the written opinion or certification, if any, that you are giving in this transaction and relating to the disclosure document? Have staff given you access to the information you need? Answer: With respect to the disclosure documents for this transaction, Jones Hall, acting in its capacity as disclosure counsel, will provide an opinion which confirms the following: Its attorneys have reviewed certain portions of the Preliminary Official Statement, Official Statement, certificates of the City, the Final Opinion of Bond Counsel, and opinions of the City Attorney, Trustee Counsel, and such other records, opinions and documents and investigations of law as deemed appropriate as a basis for concluding that, during the course of its engagement on this matter, no information came to the attention of its attorneys rendering legal services which caused them to believe that the Official Statement, as of its date (except for any financial or statistical data, forecasts, numbers, charts estimates or projections as to which no opinion is expressed) contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Yes, staff has given disclosure counsel access to the information they need. 2) Have you explained to staff all aspects of the structure or nature of this transaction so that you are confident they fully understand all critical aspects? Does the City's Official Statement adequately address any concerns you have about this transaction that a reasonable investor would consider important? 3 Answer: The Financial Advisor and Bond Counsel have explained all aspects of this bond issuance to City staff and believe City staff fully understands all critical aspects. They also believe the Official Statement adequately addresses matters that a reasonable investor would consider important. 3) Are there any matters regarding your participation in this transaction about which you should make staff or the City Council aware, including potential conflicts of interest? Answer: There are no matters regarding their participation in this bond transaction or potential conflicts of interest that the Financial Advisor and Bond Counsel believe should be disclosed to the City Council and/or City staff. 4) Has your review of the relevant financial documents and other materials, including the Official Statement, raised any concerns regarding this borrowing? Do these concerns need to be disclosed? Answer: The Financial Advisor and Bond Counsel have reviewed all bond documents and do not have any concerns which need to be disclosed. 5) Are you aware of any circumstances in which City Council, City staff, or others have not complied with City procedures to ensure the City's Official Statement adequately and accurately describes this transaction? Answer: The Financial Advisor and Bond Counsel are not aware of any such circumstances. 4 See Adopted Resolution No. 10062 (CCS). Other documents available at the City Clerk's Office.