sr-030811-8d~ City Council and
~~tY °f Redevelopment Agency Report
Santa Monica
City Council and Redevelopment Agency Meeting: March 8,.20^11
Agenda.Item:
Ta Mayor and City Council
Chairperson and Redevelopment Agency
From: Andy Agle, Director. of Housing and Economic Development
Carol Swindell, Director of Finance
Subject: Bank Loan Financing and Payment of Redevelopment Funds to Finance
Redevelopment Priority Capital Projects, Modification of a Contract for
Bond Counsel Services and Authorization for City Manager to Exercise
Options in Agreement No. 9340
Recommended Action
Staff recommends that the Redevelopment (Agency):
1) Adopt the attached Resolution identifying parameters for and authorizing the
Executive Director to enter into an agreement with Wells Fargo Bank (Bank), and
take all necessary actions, to obtain a bank term loan in the amount of
$60,000,000 for purposes of financing redevelopment priority capital projects,
and,
2) Authorize prepayment of payments due to the City pursuant to Implementing
Agreement No. 9318 to Cooperation Agreement No. 9267, including the
$60,000,000 from the Wells Fargo Bank term loan.
Staff recommends that the City Council (Council):
1) Direct the Director of Finance to segregate the prepayment by the Agency of
funds due the City pursuant to Implementing Agreement No. 9318 to Cooperation
Agreement No. 9267, including funds drawn from the Wells Fargo Bank Term
Loan into a designated account earmarked solely for funding redevelopment
priority capital projects;
2) Authorize the City Manager to negotiate and execute a modification to increase
the not-to-exceed amount by $130,000 to $350,000 for the existing agreement
with Stradling, Yocca, Carlson, and Rauth (SYCR) for legal services related to
the issuance of debt financing by the City;
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3) Authorize the City Manager to exercise the options to purchase Agency real
property pursuant to Second Implementation Agreement No. 9340; and,
4) Approve the budget changes as outlined in the Financial Impact and Budget
Actions section.
Executive Summary
Several of the Agency's priority capital projects including the Palisades Garden Walk,
Pico Library, Parking Structure 6 and Civic Auditorium Renovation (the Projects) have
achieved significant critical path milestones in design development, community input,
environmental analysis and construction cost estimates. A next major step for the
Projects is financing.
Following extensive study, staff recommends the use of a term loan from Wells Fargo to
finance the .Projects, as this option allows the Agency to leverage its tax increment
revenue stream while fulfilling the Agency's commitments to the City in accordance with
Cooperation Agreement No. 9267(CCS/RAS) and Implementing Agreement No. 9318
(CCS/RAS). Additional actions associated with implementing the loan include modifying
the existing contract with the City's bond counsel to provide funds for legal services and
authorizing the prepayment of funds due to the City pursuant to Implementing
Agreement No. 9318, including funds drawn from the Wells Fargo Bank Loan, into a
segregated account earmarked for the purpose of funding redevelopment priority capital
projects.
Finally, the Agency and City previously authorized execution of the Second
Implementing Agreement No. 9340 (CCS/RAS) to provide the City the ability to exercise
an option to purchase Agency. properties to secure performance of the Agency's
obligations under the Cooperation Agreement. The recommended action is to authorize
the City Manager to exercise the options in accordance with the agreement terms.
Background
On November 17, 2009, the Agency adopted its Five-Year Implementation Plan -(the
"Plan") for the period of FY 2009-10 through FY 2013-14, with established goals to
support affordable housing, disaster prevention and mitigation, community revitalization,
commercial revitalization, and institutional revitalization. To implement the programs
and activities associated with each goal, the Agency made redevelopment fund
allocations totaling approximately $283 million, based on a variety of assumptions
regarding growth in tax increment, borrowing costs, timing of borrowing, State grabs of
local funds, leveraging opportunities and State law.
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On August 10, 2010, to ensure timely implementation and completion of the Agency's
Five-Year Implementation Plan Projects, the Council and Agency authorized the
execution of Cooperation Agreement No. 9267 (CCS/RAS) and adopted Resolutions
10519 (CCS) and 527 (RAS). On January 17, 2011 to set forth the schedule of
payments from the Agency to the City for the City's implementation of projects
contained in the Agency/City Cooperatioh Agreement No. 9267, the Council and
Agency authorized execution of Implementing Agreement No. 9318. (CCS/RAS) (the
"First Implementing Agreement") and, most recently, on February 22, 2011, authorized
execution of the Second Implementing Agreement No. 9340 (CCS/RAS) (the "Second
Implementing Agreement") to provide the City the ability to exercise an option to
purchase certain Agency properties to secure performance of the Agency's obligations
under the Cooperation Agreement
Pursuant to the Second Implementing Agreement, the staff has fihished preparing an
inventory of the Agency's properties and associated legal descriptions. The next step is
to authorize the City Manager to exercise the options in accordance with the agreement
terms. To fulfill the obligations under the Cooperation Agreement and First
Implementing Agreement, staff evaluated a variety of financing options and determined
that a bank loan was the best option for financing certain projects. Staff obtained
competitive quotes and Wells Fargo provided the most advantageous terms via a seven
year term loan. Given the relatively restrictive credit market for redevelopment agencies
at this time and the limitations on the Agency's ability to concurrently finance all the
Projects with pay-as-you-go funding, the bank loan provides an immediate source of
funding for the Projects. The terms of the loan allow the Agency to prepay it at any time
with only LIBOR breakage costs, which are generally minimal.
Discussion
Bank Loan
The Agency received proposals from Bank of America, JP Morgan Chase Bank and
Wells Fargo Bank in response to a request for a potential bank loan. Lenders were
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asked to provide terms for an initial credit line of $50-$60 million. The Agency's annual
revenue stream can support borrowing in this amount without impacting debt service
and pass-through obligations. Wells Fargo provided the best proposed terms. Late in
the afternoon on Wednesday, February 23rd, the State Department of Finance released
language for a proposed budget trailer bill that addresses the Governor's proposal to
disestablish redevelopment agencies. In response to that proposed language, Wells
Fargo modified its previous offer of a line of credit to a fully amortized term loan. Their
proposal includes options for tax exempt and taxable debt, as well as both variable and
fixed interest rate options. The term sheet is included with this staff report as
Attachment B. The term loan is for seven years with atax-exempt rate of 70 percent of
LIBOR plus 150 basis points and a taxable rate of LIBOR plus 150 basis points.
Fixed rates are offered using an interest rate swap agreement pegged to LIBOR that
would equate to a tax exempt rate of 3.2 percent and a taxable rate of 3.85 percent
given today's LIBOR rate. The expectation is the Agency would prepay the loan with
longer term debt when the credit market has stabilized. The security is the pledge of tax
increment revenues from the Agency's Earthquake Recovery project area, subordinate
to senior pass-throughs and bonded indebtedness. In authorizing the Agency Executive
Director to negotiate and execute a Term Loan Agreement with Wells Fargo Bank,
Section 1 of the attached Resolution sets limits oh the exercise of the Executive
Director's discretion to do so and,. among other things, provides that the Term Loan
must be an obligation solely of the Agency payable from tax increment and not an
obligation of the City's General or other Funds.
Of the Agency's priority capital projects, the Palisades Garden Walk, Pico Library,
Parking Structure 6 and Civic Auditorium Renovation should proceed into construction
within the specified period. A brief summary of the Projects' progress is provided:
Palisades Garden Walk and Town Square: This project is quickly approaching
the construction documents phase, as an addendum to the Civic Center Specific
Plan EIR has been prepared and hearings before the Planning Commission and
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Council are scheduled for the near future. The current schematic designs
incorporate extensive input from the community and various boards and
commissions as well as Council's input from its October 12, 2010 meeting.
Refinements have been made to the initial design concepts to address
connectivity, access, play, water elements, lighting, landscaping and historic
preservation. The cost estimate based on the 100 percent schematic designs is
$35.9 million. It is anticipated that construction will commence in Fall 2011.
Pico Library: Council recently provided design direction on February 22, 2011,
helping staff move toward further development of the concept plans. The current
cost estimate for this project is $11.4 million. Staff will return to Council for design
development review in Fall 2011.
Parking Structure 6: On January 11, 2011, staff presented concept designs to
Council and received approval to .move forward with schematic design. An
addendum to the Downtown Parking Program EIR, text amendment and a
conditional use permit necessary for the demolition of the existing parking
structure and new construction is scheduled to go to Council on March 8, 2011.
The total cost of construction is approximately $40 million.
Civic Auditorium Renovation: Also oh the March 8, 2011 agenda is a
recommendation that Council approve negotiated business terms for the use and
programming of the Civic Auditorium by the Nederlander Organization. Major
improvements are necessary in order for the Civic Auditorium to function
effectively as a destination venue. Staff is currently refining early cost estimates
for the required renovation and planning to issue adesign/build RFB in Spring
2011 to keep the project timeline intact. The current schedule anticipates that the
renovation of the building would begin in the Fall or Winter of 2012 and last 18 to
24 months. At this time, Council has allocated $25 million to partially fund the
venue's seismic and ADA renovation.
Combined, the cash flow needs of these four projects exceed the. Agency's ability to
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finance construction simultaneously within the next two years on apay-as-you-go basis.
The bank loan offers the Agency the ability to immediately address the funding needs of
the Projects.
Bond Counsel Services
The City is currently working with Stradling, Yocca, Carlson, and Rauth (SYCR) to
prepare opinions and documents related to the financing. The City's current contract
with SYCR limits total compensation to an amount not to exceed $220,000. Staff
recommends that the amount of the contract be increased by $130,000, making the
total compensation under the contract $350,000. The increase also provides for future
anticipated borrowings, including the potential use of longer-term debt to pay off the
Wells Fargo loan. SYCR has served as the City's Bond Counsel since entering into a
contractual agreement in September 2007, following a competitive selection process.
The current contract with SYCR contemplated debt financing but did not provide
adequate total funding to meet the City's needs since September 2007. The remaining
terms of the contract and scope of services will remain unchanged.
First Implementing Agreement No. 9318
This agreement sets forth the schedule of payments from the Agency to the City for the
City's implementation of the projects contained in the Cooperation Agreement. Given
the immediate funding needs of the Projects, staff recommends the Agency authorize
prepayment of payments due to the City pursuant to the First Implementing Agreement,
including any funds drawn from the Wells Fargo Bank Loan. In addition, to ensure
proper tracking of expenditures, it is recommended Council direct the Director of
Finance to segregate the prepayments by the Agency of amounts due the City,
including funds drawn from the Wells Fargo Bank Loan, into a designated account
earmarked solely for funding redevelopment priority capital projects.
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Second Implementing Agreement No. 9340
This agreement provides the City the option to purchase Agency real properties in order
to secure performance of Agency obligations required under Cooperation Agreement
No. 9267 and Implementing Agreement No. 9318. Following a complete inventory of
the Agency's properties and preparation of legal documents, staff recommends that the
City Manager receive authority to exercise the options pursuant to the Second
Implementing Agreement.
Financial Impact and Budget Actions
Payments for Bond Counsel services will be made directly by the Agency. The bank
loan will provide $60,000,000 to finance the Projects. Staff recommends the proceeds be
deposited into account 17990.601007. Additionally, appropriations totaling $150,000 are
requested to account number 17274.522220 for the costs of the bank loan including
financial advisor. and outside bond counsel services. Any additional budget actions that
may be required as a result of this Council and Agency action will be brought back at a
later time.
Prepared by: Nia Tang, Senior Development Analyst
Approved:
E~
F
° An Agle, Director
Housing and Economic Development
Forwarded to Council:
Rod Gould
City Manager
Approved:
r
~~~
Carol Swindell, irector
Finance
Attachment A: Resolution
Attachment B: Bank Loan Term Sheet
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ATTACHMENT B
March 2, eon
Carol Swindell, CPA
Director of Finance
t9t7 4~ Street, Suite z5o
Santa Monica, California 90401
Dear Carol:
We are pleased to express our interest in considering the credit accommodation described below. This
letter is not intended to constitute a commitment or offer to lend on the part of Wells Fargo Bank,
National Association ("Wells Fargo" or "Bank°), but only to summarize, for discussion purposes, the
credit accommodation we are interested in considering at this time.
BORROWER: City of Santa Monica Redevelopment Agency ("Borrower").
LENDER: Wells Fargo Bank, National Association ("Wells Fargo" or "Bank°).
FACILITY AMOUNT: Up to$6o,000,000.
STRUCTURE: Fully Amortizing Term Loan.
PURPOSE: Finance the acquisition and construction of capital projects.
TERM: ~ Years.
SECURITY: Pledge of tax increment revenues from the Agenc}~s Earthquake
Recovery project area, subordinate to senior pass-throughs and bonded
indebtedness.
INTEREST RATE: Variable Rate Option
The Applicable Rate for the Facility is as follows:
• Taxable: LIBOR plusi.5o%
• Tax-Exempt: ~o%ofLIBORplust.5o%
Borrower may select interest periods of one, three, or six months for
LIBOR loans, or may select the one month LIBOR reset daily. Interest
shall be calculated on the basis of a 36o-day year and the actual days
elapsed and shall be paid monthly in arrears.
The Applicable Rate will increase if the Borrower is downgraded by
either Moody's or S&P.
FYxed Rate Option
Borrower may choose to enter into a separate interest rate swap
agreement in order to fix the applicable floating rate. Under this separate
contract, Borrower will receive:
Taxable: LIBOR
Tax-Exempt: 90% of LIBOR
And pay a fixed rate of:
Taxable: 2.35%
• All-in rate of 3.85%
Tax-Exempt: r.~o%
• All-in rate of g.2o%
The above fixed rates are based on market conditions as of 3/z/zou and
are subject to change with market movements.
FACILITY FEES: Prepayment is permitted in whole or in part, with prior notice but
without premium or penalty (except LIBOR breakage costs or separate
interest rate swap fees) and including accrued and unpaid interest.
OTHER FEES: Usual and customary for this. type of financing, including amendment
fees, termination fees, attorney's fees, and the Bank's customary
language regarding increased costs, capital adequacy and taxes.
PRINCIPAL Usual and customary for this type of financing, including but not limited
FINANCIAL to:
COVENANTS: • Senior Debt Test: Tax Revenue to Maximum Annual Debt
Service ratio of at least 1.25x.
• No additional senior or parity debt except pursuant to Senior
Debt Test.
DEFAULT RATE: Applicable Rate of the Facility plus 5.00%
CONDTiIONS Usual and customary and as otherwise appropriate for this type of
PRECEDENT TO financing. The Facility will be governed by a Credit Agreement for the
CONSIDERING benefit of the Bank, which agreement will contain conditions and
CREDIT covenants and other provisions.
ACCOMMODATION:
CONDITIONS Usual and customary for this type of financing, including but not limited
PRECEDENT TO to, no material adverse change, representation and warranties are true,
ADVANCES: no event of default.
REPORTING
REQUIREMENTSc Usual and customary for this type of financing, including but not limited
to:
• Audited annual financial statements and certificate of no default,
notices of default and material litigation proceedings.
REPS AND
WARRANTIES: Usual and customary for this type of financing.
EVENTS OF
DEFAULT/REMEDIES: Usual and customary for this type of financing, including but not limited
to, right to set off, waiver of jury trial/judicial reference, acceleration.
CONFIDENTLALITY: This document is confidential and proprietary and shall not be disclosed,
except to professional and financial advisors.
This expression of interest is not intended to be, and should not be construed as, a commitment to
enter into a credit transaction, nor should it be construed as an attempt to establish all of the terms
and conditions relating to such an accommodation. It is intended only to be indicative of certain terms
and conditions around which credit approval may be sought, and if approved, how the operative
documents might be structured, and not to preclude negotiations within the general scope of these
terms and conditions. The execution versions of agreements containing final terms and conditions, if
any, would be subj ect to approval by Borrower and Bank.
Best Regards,
Tanner Phifer
Relationship Manager
Wells Fargo Bank, N.A.
Telephone: (213) 614-4213
Reference Resolution No.
530 (RAS) and Amended
Contract No. 9146 (CCS).