SR-203-001-06 (8)
Council Meeting: March 28, 2006 Santa Monica, California
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TO: Mayor and City Council
Chairperson and Redevelopment Agency
FROM: City and Redevelopment Staff
SUBJECT: Recommendation for the City Council and Redevelopment Agency to
Adopt Resolutions Authorizing Issuance of Earthquake Recovery
Redevelopment Project Area Tax Allocation Refunding Bonds (’Refunding
Bonds”) and Approval of Various Documents, Budget Actions and Other
Matters Related Thereto
Introduction
This staff report requests that the City Council and the Redevelopment Agency adopt the
attached Resolutions approving related documents authorizing the advance refunding and
defeasance of the Redevelopment Agency of the City of Santa Monica Earthquake
Recovery Redevelopment Project Area Tax Allocation Bonds, Series 1999 (“1999 Bonds”).
This refinancing transaction will take advantage of a reduction in interest rates since the
bonds were issued in 1999 and will result in savings estimated at a net present value of
$3.9 million in long-term debt service payments. The Redevelopment Agency of the City of
Santa Monica Earthquake Recovery Redevelopment Project Area 2006 Tax Allocation
Bonds, Series A and Series B (“Refunding Bonds”) will refund the 1999 Bonds.
Background
In December 1999 the City of Santa Monica Redevelopment Agency issued tax-exempt tax
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allocation bonds totaling $65,285,000 to finance, for redevelopment purposes, the
purchase of approximately 11.3 acres in the Civic Center area of the City to provide
funding for low- and moderate-income housing projects, and to provide funding for seismic
retrofit activities for the downtown parking structures. Interest rates paid by the Agency to
the bondholders of the 1999 Bonds range from 4.5 to 7.5%.
The Agency has an opportunity to refinance the 1999 Bonds and realize interest savings
by issuing Refunding Bonds with lower interest rates. Because the first call date for the
1999 Bonds is July 1, 2009, monies realized from the sale of Refunding Bonds will be
placed in escrow until the call date and will be sufficient to:
1. Meet the periodic principal and interest payments until July 1, 2010;
2. Pay a 1% call premium;
3. Redeem the outstanding 1999 Bonds maturing on or after July 1, 2011 on July 1,
2009.
This type of refinancing is known as an advance refunding because the new debt is issued
in advance of the old debt’s redemption.
At Council’s direction, the Agency has recently entered into negotiations to develop
affordable and market-rate housing on a portion of the land purchased with the proceeds
of the 1999 Bonds. The development of market-rate housing is expected to result in net
revenue for the Agency of $14 million to $21 million. The portion of the 1999 Bonds used
to purchase the land where market-rate housing will be developed will no longer meet the
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tests for tax-exempt status; therefore, the Redevelopment Agency will issue Refunding
Bonds in two series, Series A (tax-exempt) and Series B (taxable). Interest paid to
bondholders of the Series A bonds will be tax-exempt and interest paid to bondholders of
the Series B bonds will be taxable and therefore be at somewhat higher interest rates.
Notwithstanding this taxable component of the refunding, which would be required by
federal tax law whether or not savings were generated, the refunding is expected to
produce savings in excess of 6.5% of the par amount of the Refunding Bonds of which the
tax-exempt refunding generates approximately 7.4% savings and the taxable refunding
generates 3.8% savings.
Discussion
The attached Resolutions will allow the City and the Redevelopment Agency to proceed
with all steps necessary for issuance of the Refunding Bonds described above. These
Resolutions will approve the refunding and defeasance of the 1999 Bonds and authorize
the issuance of up to a maximum of $73.1 million aggregate principal amount of Refunding
Bonds, comprised of $56.4 million aggregate principal amount of tax-exempt bonds (Series
A) at a true interest rate not to exceed 5.4% and the issuance of up to a maximum of $16.7
million aggregate principal amount of taxable bonds (Series B) at a true interest rate not to
exceed 7%, and would also authorize all steps required to complete the refinancing,
including approval, execution and delivery of all necessary documents.
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Because the financing documents necessary for the issuance of the Refunding Bonds
are so extensive in size, copies of these documents, as listed below, are not attached
to this staff report. Instead, they are all on file in the City Clerk’s office and available
for review:
Indenture
1.
First Supplement to Indenture of Trust
2.
Escrow Agreement
3.
Preliminary Official Statement
4.
Official Notice of Sale
5.
Notice of Intention to Sell for use in connection with the offering and
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sale of the bonds.
The attached City and Agency Resolutions approve all of the above-described documents
substantially in the form presented at this meeting and authorize the execution and
delivery of these documents by specified City and Redevelopment Agency officials and
employees.
The preparation, execution and delivery of the final Official Statement and execution and
delivery of any additional documents as may be necessary to affect the offering, sale and
issuance of these Refunding Bonds are also authorized and approved by the attached
Resolutions.
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Also on file for review in the City Clerk’s office is a list of questions which various national
associations and the Federal Securities and Exchange Commission recommend that 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.
Budget/Financial Impact
It is necessary to establish revenue budgets for the proceeds from the issuance of the
Refunding Bonds and expenditure budgets for the defeasance of the 1999 Bonds and
payment of issuance costs. Revenue and appropriation budget actions necessary at
this time to record the sale of the Refunding Bonds and defeasance of the 1999 Bonds
in the Earthquake Recovery Project Area Fund and the Low/Moderate Housing Fund
follow:
Other Financing Sources (proceeds from the sale of Refunding Bonds,
net of the estimated maximum original issue discount):
Acct. No. 17990.601001 $56,000,000
Acct. No. 15990.601001 14,000,000
$70,000,000
Other Financing Uses (defeasance of 1999 Bonds):
Acct. No. 17990.601003 $50,720,000
Acct. No. 15990.601003 12,680,000
$63,400,000
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Bond Issue Costs (costs of issuance, underwriter’s
discount and bond insurance)
Acct. No. 17274.555980 $ 1,440,000
Acct. No. 15274.555980 360,000
$ 1,800,000
NOTE: The remaining $4.8 million of Refunding Bonds proceeds may be
deposited into a required reserve account. The City may substitute a
surety bond for this required reserve, in which case the costs of issuance
will increase and the par amount of Refunding Bonds will decrease.
The estimated annual debt service on the Refunding Bonds is approximately $4.8 million
which will be paid from tax increment received by the Agency. Budget actions necessary
for future fiscal years will be reflected in the City’s proposed budget documents in future
years. The expected net present value of all future savings in annual debt service
payments is approximately $3.9 million, which would represent 6.5% of the 1999 Bonds. A
schedule prepared by the City’s Financial Advisor summarizing expected savings is
available for review in the City Clerk’s office.
Recommendation
It is recommended that the City Council and Redevelopment Agency:
1. Adopt the attached Resolutions authorizing issuance of Redevelopment Agency
Earthquake Recovery Redevelopment Project Area Tax Allocation Bonds, 2006
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Series A and B and approve the execution and delivery of an Indenture and First
Supplement to Indenture of Trust, Escrow Agreement, Preliminary Official
Statement, Official Notice of Sale and Notice of Intention to Sell.
2. Approve the budget changes as outlined in the Budget/Financial Impact section of
this report.
Attachments: Agency Resolution Authorizing Issuance Refunding Bonds
City Resolution Authorizing Issuance of Refunding Bonds
Due to their voluminous nature the following documents are
on file in the City Clerk’s office and available for review:
Indenture
First Supplement to Indenture of Trust
Escrow Agreement
Preliminary Official Statement
Official Notice of Sale
Notice of Intention to Sell
Qs For Public Officials To Ask Before Approving A
Bond Issue
Summary of Expected Savings
Prepared by: Steve Stark, Chief Financial Officer
Jeff Mathieu, Director of Resource Management
Marsha Jones Moutrie, City Attorney
See Adopted Resolution No. 10118 (CCS)
See Adopted Resolution No. 495 (RAS)
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