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City of San Leandro Meeting Date: November 19, 2012 Staff Report File Number: 12-532 Agenda Section: ACTION ITEMS Agenda Number: 10.A. TO: City Council FROM: Chris Zapata City Manager BY: David Baum Finance Director FINANCE REVIEW: David Baum Finance Director TITLE: Staff Report Approving the Required Resolutions and Documents for the Issuance of the City of San Leandro 2013 Refunding Lease Revenue Bonds (Refunding Bonds) SUMMARY AND RECOMMENDATIONS Staff recommends that the City Council and the San Leandro Public Financing Authority approve the resolutions and documents required to issue the City of San Leandro 2013 Refunding Lease Revenue Bonds (“Refunding Bonds”). The proposed Refunding Bonds will be issued to refund $12,930,000 of currently outstanding City of San Leandro 2001 Certificates of Participation (2001 COP’s) and City of San Leandro 2003 Certificates of Participation (2003 COP’s). The par, or face value of the Refunding Bonds will not exceed $14.5 million and they will mature in 2028. Annual debt service on the Refunding Bonds will not exceed the annual debt service currently payable on the outstanding 2001 and 2003 COPs. DISCUSSION In December 2001 the City issued $5,020,000 of the 2001 COP’s to finance the acquisition and improvements necessary to support the City’s Auto Mall. In May 2003, the City issued $12,550,000 of the 2003 COP’s to refund previous debt used to improve City Hall and debt used to finance the construction of a parking facility in the Downtown. There are currently $3,610,000 and $9,490,000 of the 2001 and 2003 COPs outstanding, respectively. The City has an opportunity to refinance the 2001 and 2003 COPs and realize a substantial savings in annual debt service payments. Staff is recommending that the City use the savings from the 2003 COP’s to augment the City’s General Fund reserve. Because the debt service for the 2001 COP’s was reimbursed to the City from redevelopment tax increment, the savings from the 2001 COP’s will be distributed to affected taxing entities due to the the dissolution of the City’s Redevelopment Agency. The following table presents the current status of the 2001 and 2003 COPs. City of San Leandro Page 1 Printed on 11/13/2012 File Number: 12-532 Table 1. Current Status of the City of San Leandro 2001 and 2003 Certificates of Participation Issue Originally Par Amount Debt Maturity Bond Issue Date Issued as of 1/1/13 Service Date 2001 COP’s 12/13/01 $5,020,000 $3,440,000 $348,507 12/01/26 2003 COP’s 05/21/03 12,550,000 $9,490,000 $874,646 06/01/28 The current municipal bond market allows the City to refinance the 2001 and 2003 COPs, reduce annual debt service and realize total savings as detailed in Table 2 below: Table 2. City of San Leandro Refunding Bonds Savings Analysis Description Total of Annual Debt Service Payments 2001 and 2003 COPs $18,653,020 Refunding Bonds $16,012,780 Total Savings $ 2,640,240 Present Value of Savings $ 2,312,628 Present Value Savings 8.4% Based on municipal bond market rates effective October 24, staff estimates that the City will realize $2.64 million in total savings over the life of the 2001 and 2003 COPs. The present value of these future savings is $2.31 million. Savings of $1.23 million is attributed to the release of the debt service reserve fund from the 2001 and 2003 COPs. This results in net present value savings of 8.4% when taken as a percentage of the par value of outstanding 2001 and 2003 COPs. The general rule of thumb is that it is to a City’s advantage to execute a financing transaction whenever net present value savings exceeds 3%. By refunding the 2001 COP’s, $872,000 is expected in gross savings, $716,000 in present value savings and $366,000 in net present value savings. The final maturity will match the 2001 COP’s maturity on 12/1/2026. Similarly, by refunding the 2003 COP’s, $1,768,000 is expected in gross savings, $1,597,000 in present value savings and $722,000 in net present value savings. The final maturity will match the 2003 COP’s maturity on 6/1/2028. Financing Structure Over the years, the City had used certificates of participation to finance the construction and retrofitting of its public facilities. Certificates of participation are a variation of the general lease-purchase financing method that had been commonly used in California. Due to a perceived preference for lease revenue bonds in today’s bond market, the Refunding Bonds will be structured as lease revenue bonds instead of certificates of participation. For the proposed Refunding Bonds, the City would lease City Hall to the San Leandro Public Financing Authority (Authority). The Authority would lease City Hall back to the City for payments equal to the debt service on the Refunding Bonds. The City will make these payments to the trustee for the holders of the Refunding Bonds from its General Fund and an ongoing pledge of property taxes from the Successor Agency to the Redevelopment Agency. City of San Leandro Page 2 Printed on 11/13/2012 File Number: 12-532 Tax Increment Pledge The City’s obligation to make lease payments with respect to the 2001 COP’s was secured by a reimbursement agreement between the City and its former Redevelopment Agency from tax increment revenue derived from the Joint Project Area. The reimbursement agreement provides 100% of the amounts needed for the City’s lease payments, resulting in all debt service payable to the holders of the 2001 COP’s having been made from tax increment revenue, and none coming from the City’s General Fund. This agreement would transfer to the Refunding Bonds; the average annual debt service is expected to reduce by approximately $56,000. Due to the reimbursement of debt service by the Redevelopment Agency, the Successor Agency and its Oversight Board are required to authorize the Refunding Bonds. The Financing Team Staff has been working with the firms listed below to bring this financing transaction to the Council and Authority for approval. The resolution of issuance to be adopted by the Council directs staff to enter into agreements for consulting services with the following firms in the following capacities: Name of Firm Capacity Stone & Youngberg Underwriter Public Financial management Financial Advisor Jones Hall, APLC Bond Counsel Jones Hall, APLC Disclosure Counsel U.S. Bank National Association Trustee Stone & Youngberg (S&Y) was chosen via a request for proposals. S&Y was deemed to be the strongest underwriter from a group of ten proposals received by the City. The primary reasons for S&Y’s selection are its experience, pricing and structuring creativity. Jones Hall (JH), APLC, has been the City’s bond counsel dating back to 1979. JH ranks among the top two bond counsel in the number of state and local bond issues in California during each of the past ten years. Similarly, during the past ten years, JH has been among the top two as disclosure counsel. Public Financial Management (PFM) was chosen via a request for proposals in 2011 to serve as the City’s financial advisor for a three-year period. PFM previously served as financial advisor for the City’s pension obligation bond issue completed in March 2012. U.S. Bank has been bond trustee for the City’s 2001 and 2003 COPs. U.S. Bank is one of the top five municipal bond trustees in the country and most recently served as trustee for the City’s 2012 Pension Obligation Bonds. U.S. Bank also serves the City with two local branch offices. All fees associated with issuing the Refunding Bonds will be paid from bond proceeds. Sources and Uses of Funds Staff proposes the following sources and uses of funds for the Refunding Bonds financing transaction. City of San Leandro Page 3 Printed on 11/13/2012 File Number: 12-532 Sources of Funds Par Amount of 2013 Refunding Bonds $11,215,000 Original Issue Premium 1,171,582 Transfer from 2003 COP’s Reserve Fund 878,250 Transfer from 2001 COP’s Reserve Fund 350,852 Total Sources of Funds $13,615,684 Uses of Funds Refunding Escrow Deposit $13,300,851 2013 Debt Service Reserve Fund 0 Underwriter’s Discount 48,525 City Capital Fee 112,150 Costs of Issuance 154,158 Total Uses of Funds $13,615,684 Sources of funds include the par amount of the 2013 Refunding Bonds and funds available in the current 2001 COP’s and 2003 COP’s reserve funds. The Refunding Bond proceeds will be deposited in the 2001 COPS’s and 2003 COP’s Refunding Escrows to retire the outstanding 2001 COP’s on June 1, 2013 and the 2003 COP’s on December 1, 2013. A Debt Service Reserve Fund is not expected to be funded in this issue due to the extraordinary cost of investing these idle funds. The Underwriter’s Discount is a fee paid to the underwriter for structuring and marketing the Refunding Bonds. A Bond Insurance Premium will not be paid due to the lack of economic benefit associated with insuring these bonds. The Costs of Issuance and City Capital funds pay for legal, financial advisor, City staff, trustee, printing and other issuance costs. Authorizing Resolutions The City and Authority must approve the following resolutions to issue the 2013 Refunding Bonds. City of San Leandro Resolution Authorizing the Execution and Delivery of Not to Exceed $14,500,000 Refunding Bonds, Authorizing and Directing Execution of Related Lease Financing Documents, Trust Agreement, and Bond Purchase Agreement, Approving Official Statement and Authorizing Official Actions -This resolution authorizes the City to issue the 2013 Refunding Bonds and execute the documents required to complete the financing transaction. San Leandro Public Financing Authority Resolution Authorizing the Execution and Delivery of Not to Exceed $14,500,000 Refunding Bonds, Authorizing and Directing Execution of Related Lease Financing Documents, Approving Official Statement and Authorizing Official Actions -This resolution authorizes the Authority to enter into the 2013 Refunding Bonds transaction and execute the required lease agreements. Bond Documents The City and Authority must approve the following documents to complete the 2013 Refunding Bonds transaction. Site Lease -This agreement establishes the lease of the City Hall from the City to the City of San Leandro Page 4 Printed on 11/13/2012 File Number: 12-532 Authority. This agreement specifies the terms of the lease arrangement. Lease Agreement -This agreement establishes the leaseback of City Hall from the Authority by the City. This agreement specifies the term of the agreement (15 years) and the amount of payments. Assignment Agreement -This agreement is between the Authority and U.S. Bank National Association (the Trustee). In this agreement the Authority assigns all its rights under the Lease Agreement to the Trustee. For example, rather than the City making semi-annual lease payments to the Authority and the Authority then paying the bond holders, the City will make its payments directly to the Trustee and the Trustee will then pay the holders of the 2013 Refunding Bonds. Indenture of Trust -The trust agreement is between the Authority, the City and the Trustee. The trust agreement sets forth the guidelines for the administration, investment and treatment of the proceeds of the issue. Bond Purchase Agreement -The Bond Purchase Agreement is an agreement between the City and the underwriter under which the underwriter purchases the Refunding Bonds. This agreement specifies the price and interest rates at which the underwriter will purchase the Refunding Bonds and the documents that will be executed at closing. Preliminary Official Statement -This document is the public offering statement for the issuance of the Refunding Bonds. This document thoroughly describes the financing program, the public improvements to be financed, and the economic, financial and social characteristics of the City. Continuing Disclosure Certificate -This agreement obligates the City to continue providing information regarding the City, the Authority and the Refunding Bonds to the secondary municipal bond market as long as they are outstanding. Amended and Restated Reimbursement Agreement -This agreement guarantees the payment of tax increment from the former Redevelopment Agency’s Joint Project Area, sufficient to pay debt service on the Refunding Bonds associated with the refunding of the 2001 COP’s. Irrevocable Refunding Instructions (2001 COPs) and Irrevocable Refunding Instructions (2003 COPs) -These agreements set forth the terms to accomplish the prepayment of the outstanding 2001and 2003 COPs, the City will deposit, or cause to be deposited, a portion of the proceeds of the 2013 Bonds and certain other moneys with the 2001 and 2003 COPs’ Trustee in accordance with these Instructions. Termination Agreement (2001 COPs) and Termination Agreement (2003 COPs) -These agreements terminate the 2001 and 2003 Lease Agreements, the 2001 and 2003 Site Leases, the 2001 and 2003 Memoranda of Lease and the 2001 and 2003 Assignment Agreements relating to the pledge of assets for the 2001 and 2003 COPs. Current City Council Policy City of San Leandro Page 5 Printed on 11/13/2012 File Number: 12-532 The City Council and Public Financing Authority must approve municipal debt issues that impact their financial position. Summary of Public Outreach Efforts The meeting was properly noticed in accordance with California law. Fiscal Impact The par value of the Refunding Bonds will not exceed $14,500,000 and they will mature in 2028. The Refunding Bonds will have an interest cost of less than 4.5% and annual debt service on the Refunding Bonds will be approximately $1,000,000. Annual debt service on the Refunding Bonds will not exceed the annual debt service currently payable on the outstanding 2001 and 2003 COPs. Budget Authority City of San Leandro Charter ATTACHMENTS The following financing documents are attached: · Site Lease · Lease Agreement · Assignment Agreement · Indenture of Trust · Bond Purchase Agreement · Preliminary Official Statement · Continuing Disclosure Certificate (appendix in Preliminary Official Statement) · Amended and Restated Reimbursement Agreement · Irrevocable Refunding Instructions (2001 COPs) · Irrevocable Refunding Instructions (2003 COPs) · Termination Agreement (2001 COPs) · Termination Agreement (2003 COPs) PREPARED BY: David Baum, Finance Director, Finance Department City of San Leandro Page 6 Printed on 11/13/2012 60295-01 JH:SM;mwk 10/19/12 10/30/12 TO BE RECORDED AND WHEN RECORDED RETURN TO: Jones Hall A Professional Law Corporation 650 California Street, 18th Floor San Francisco, California 94108 Attention: Stephen G. Melikian, Esq. THIS TRANSACTION IS EXEMPT FROM CALIFORNIA DOCUMENTARY TRANSFER TAX UNDER SECTION 11929 OF THE CALIFORNIA REVENUE AND TAXATION CODE. THIS DOCUMENT IS EXEMPT FROM RECORDING FEES UNDER SECTION 27383 OF THE CALIFORNIA GOVERNMENT CODE. SITE LEASE This SITE LEASE (this “Site Lease”), dated for convenience as of January 1, 2013, is between the CITY OF SAN LEANDRO, a municipal corporation and chartered city duly organized and existing under the Constitution and laws of the State of California, as lessor (the “City”), and the SAN LEANDRO PUBLIC FINANCING AUTHORITY, a joint powers authority duly organized and existing under the laws of the State of California, as lessee (the “Authority”). B A C K G R O U N D : 1. The City has previously caused the execution and delivery of its (a) 2001 Certificates of Participation (Joint Project Area Financing) in the aggregate initial principal amount of $5,020,000 (the “2001 Certificates”) for the purpose of financing certain capital projects within or benefit to the Joint Project Area of the Redevelopment Agency of the City of San Leandro and (b) 2003 Certificates of Participation (City Hall Refinancing Project) in the aggregate initial principal amount of $12,550,000 (the “2003 Certificates”) for the purpose of refunding, on a current basis, the City of San Leandro Certificates of Participation (1993 Seismic Retrofit Financing Project), which were executed and delivered to finance improvements to the City Hall of the City and to refund, on an advance basis, the Parking Authority of the City of San Leandro 1982 Parking Lease Revenue Bonds, which were issued to finance certain parking improvements for the City. 2. The City is proceeding to refinance its outstanding 2001 Certificates and its outstanding 2003 Certificates (collectively, the “Prior Certificates”). Certificates”). 3. To that end, the City will lease the real property constituting its City Hall, including land and improvements (the “Leased Property”), to the Authority under this Site Lease described in Appendix A hereto, in consideration of the payment by the Authority of an upfront rental payment (the “Site Lease Payment”) which is sufficient to provide funds for the prepayment of the Prior Certificates. -2-4. The Authority has authorized the issuance of its San Leandro Public Financing Authority 2013 Refunding Lease Revenue Bonds in the aggregate principal amount of $______________ (the “Bonds”) under this Indenture for the purpose of providing the funds to enable the Authority to pay the Site Lease Payment to the City in accordance with the Site Lease. 5. In order to provide revenues which are sufficient to enable the Authority to pay debt service on the Bonds, the Authority has leased the Leased Property back to the City under a Lease Agreement dated as of January 1, 2013 (the “Lease”), under which the City has agreed to pay semiannual Lease Payments as the rental for the Leased Property thereunder. 6. The lease payments made by the City under the Lease have been assigned by the Authority to the Trustee for the security of the Bonds under an Assignment Agreement, dated as of January 1, 2013, between the Authority as assignor and the Trustee as assignee. A G R E E M E N T : In consideration of the above premises and of the mutual promises and covenants herein contained and for other valuable consideration, the parties hereto do hereby agree as follows: SECTION 1. Lease of Property to Authority. The City hereby leases the Leased Property to the Authority and the Authority hereby leases the Leased Property from the City, on the terms and conditions hereinafter set forth. SECTION 2. Term; Possession. The term of this Site Lease commences on the Closing Date and ends on the date on which the Indenture is discharged in accordance with Section 10.03 thereof, but under any circumstances not later than October 1, 2041. The provisions of this Section 2 are subject in all respects to any other provisions of this Site Lease relating to the termination hereof. SECTION 3. Rental. The Authority shall pay to the City as and for rental of the Leased Property hereunder, the sum of $___________ (the “Site Lease Payment”). The Site Lease Payment is due and payable upon the issuance of the Bonds and the execution and delivery hereof, and will be paid from the proceeds of the Bonds. The Authority and the City hereby find and determine that the total amount of the Site Lease Payment does not exceed the fair market value of the leasehold interest in the Leased Property which is conveyed hereunder by the City to the Authority. No other amount of rental is due and payable by the Authority for the use and occupancy of the Leased Property under this Site Lease. As provided in the Indenture, a portion of the proceeds of the Bonds will be applied to make the Site Lease Payment by depositing the full amount thereof with the 2001 Trustee and the 2003 Trustee to be held, invested and administered in accordance with the 2001 Refunding Instructions and the 2003 Refunding Instructions for the purpose of discharging the City’s obligations with respect to the Prior Certificates. SECTION 4. Leaseback to City. The Authority shall lease the Leased Property back to the City under the Lease. -3-SECTION 5. Assignments and Subleases. Unless the City is in default under the Lease, the Authority may not assign its rights under this Site Lease or sublet all or any portion of the Leased Property, except as provided in the Assignment Agreement and in the Lease, without the prior written consent of the City. SECTION 6. Substitution or Release of Property. If the City exercises its option under Section 3.2 of the Lease to substitute property for the Leased Property in whole or in part, such substitution shall also operate to substitute property for the Leased Property which is leased hereunder. If the City exercises its option under Section 3.3 of the Lease to release a portion of the Leased Property from the Lease, such substitution shall also operate to release such portion of the Leased Property hereunder. The description of the Leased Property which is leased under the Lease shall conform at all times to the description of the Leased Property which is leased hereunder. SECTION 7. Right of Entry. The The City reserves the right for any of its duly authorized representatives to enter upon the Leased Property, or any portion thereof, at any reasonable time to inspect the same or to make any repairs, improvements or changes necessary for the preservation thereof. SECTION 8. Termination. The Authority agrees, upon the termination of this Site Lease, to quit and surrender the Leased Property in the same good order and condition as the Leased Property was in at the time of commencement of the term hereof, reasonable wear and tear excepted, and agrees that all buildings, improvements and structures then existing upon the Leased Property shall remain thereon and title thereto shall vest thereupon in the City for no additional consideration. SECTION 9. Default. If the Authority defaults in the performance of any obligation on its part to be performed under the terms of this Site Lease, which default continues for 30 days following notice and demand for correction thereof to the Authority, the City may exercise any and all remedies granted by law, except that no merger of this Site Lease and of the Lease shall be deemed to occur as a result thereof and no such remedy may include termination hereof; provided, however, that so long as the Lease remains in effect, the Lease Payments payable by the City under the Lease shall continue to be paid to the Trustee. SECTION 10. Quiet Enjoyment. The Authority at all times during the term of this Site Lease shall peaceably and quietly have, hold and enjoy all of the Leased Property, subject to the provisions of the Lease and subject only to Permitted Encumbrances (as that term is defined in the Lease). SECTION 11. Waiver of Personal Liability. All liabilities under this Site Lease on the part of the Authority are solely corporate liabilities of the Authority as a public entity, and the City hereby releases each and every member and officer of the Authority of and from any personal or individual liability under this Site Lease. No member or officer of the Authority or its governing board shall at any time or under any circumstances be individually or personally liable under this Site Lease for anything done or omitted to be done by the Authority hereunder. SECTION 12. Taxes. The City covenants and agrees to pay any and all assessments of any kind or character and also all taxes, including possessory interest taxes, levied or assessed upon the Leased Property and any improvements thereon. -4-SECTION 13. Eminent Domain. If the whole or any part of the Leased Property or any improvements thereon is taken by eminent domain proceedings, the interest of the Authority shall be recognized and is hereby determined to be the amount of the then unpaid Lease Payments payable under the Lease and the balance of the award, if any, shall be paid to the City. SECTION 14. Partial Invalidity. If any one or more of the terms, provisions, covenants or conditions of this Site Lease shall to any extent be declared invalid, unenforceable, void or voidable for any reason whatsoever by a court of competent jurisdiction, the finding or order or decree of which becomes final, none of the remaining terms, provisions, covenants and conditions of this Site Lease shall be affected thereby, and each provision of this Site Lease shall be valid and enforceable to the fullest extent permitted by law. SECTION 15. Notices. Any notice, request, complaint, demand or other communication under this Site Lease shall be given by first class mail or personal delivery to the party entitled thereto at its address set forth below, or by telecopy, telex or other form of telecommunication, at its number set forth below. Notice shall be effective either (a) upon transmission by telecopy, telex or other form of telecommunication, (b) 48 hours after deposit in the United States mail, postage prepaid, or (c) in the case of personal delivery to any person, upon actual receipt. The City, the Authority and the Trustee may, by written notice to the other parties, from time to time modify the address or number to which communications are to be given hereunder. If to the Authority City of San Leandro or the City: 835 East 14th Street San Leandro, CA 95240 Attention: Finance Director Fax: (510) 577-3312 If to the Trustee: U.S. Bank National Association Attn.: Global Corporate Trust Services One California Street, Suite 1000 San Francisco, CA 94111 Fax: 415-677-3768 SECTION 16. Amendment of this Site Lease. The Authority and the City may at any time amend or modify any of the provisions of this Site Lease, but only (a) with the prior written consent of the Owners of a majority in aggregate principal amount of the Outstanding Bonds; or (b) without the consent of any of the Bond Owners, but only if such amendment or modification is for any one or more of the following purposes: (i) to make cure any ambiguity, or to cure, correct or supplement any defective provision contained herein, or in any other respect whatsoever as the Authority and the City may deem necessary or desirable, provided that, in the opinion of Bond Counsel, such modifications or amendments do not materially adversely affect the interests of the Owners of the Bonds; (ii) to amend any provision hereof relating to the Tax Code, to any extent whatsoever but only if and to the extent such amendment will -5-not adversely affect the exclusion from gross income of interest on the Bonds under the Tax Code, in the opinion of Bond Counsel; (iii) to conform to any amendment of the Indenture which is made thereto in accordance with Section 9.01 of the Indenture; or (iv) for the purpose of effectuating any substitution or release of property under Section 6. SECTION 17. Governing Law. This Site Lease shall be construed in accordance with and governed by the Constitution and laws of the State of California. SECTION 18. Third Party Beneficiary. The Trustee is hereby made a third party beneficiary under this Site Lease with all rights of a third party beneficiary. SECTION 19. Binding Effect. This Site Lease inures to the benefit of and is binding upon the Authority, the City and their respective successors and assigns, subject, however, to the limitations contained herein. SECTION 20. Section Headings. All section headings contained herein are for convenience of reference only and are not intended to define or limit the scope of any provision of this Site Lease. SECTION 21. Execution in Counterparts. This Site Lease may be executed in any number of counterparts, each of which shall be deemed to be an original but all together shall constitute but one and the same lease. It is also agreed that separate counterparts of this Site Lease may be separately executed by the Authority and the City, all with the same force and effect as though the same counterpart had been executed by both the Authority and the City. SECTION 22. Defined Terms. All capitalized terms used herein and not otherwise defined have the respective meanings given those terms in the Indenture. -6-IN WITNESS WHEREOF, the City and the Authority have caused this Site Lease to be executed by their respective officers thereunto duly authorized, all as of the day and year first above written. CITY OF SAN LEANDRO, as lessor By Chris Zapata City Manager Attest: Marian Handa City Clerk SAN LEANDRO PUBLIC FINANCING AUTHORITY, as lessee By Chris Zapata Executive Director Attest: Marian Handa Secretary A-1 APPENDIX A DESCRIPTION OF THE LEASED PROPERTY The Leased Property consists of that certain real property situated in the City of San Leandro, County of Alameda, State of California, which is more particularly described as follows: 60295-01 JH:SM;mwk 10/19/12 10/30/12 TO BE RECORDED AND WHEN RECORDED RETURN TO: Jones Hall, A Professional Law Corporation 650 California Street, 18th Floor San Francisco, California 94108 Attention: Stephen