REQUEST FOR PUBLIC FINANCING AUTHORITY ACTION
SUBMITTED TO: Honorable Chair and Board Members
SUBMITTED BY: Oliver Chi, Executive Director
PREPARED BY: Dahle Bulosan, Chief Financial Officer
Subject:
title
Adopt Public Financing Authority Resolution No. 25 authorizing the execution and delivery by the Authority of a Master Site Lease, a Master Lease Agreement, a Master Indenture, a Bond Purchase Agreement, a Second Amendment to Site Lease and a Second Amendment to Lease Agreement in connection with the issuance of Huntington Beach Public Financing Authority Lease Revenue Refunding Bonds, in one or more series, approving the issuance of such bonds in an aggregate principal amount of not to exceed $21,000,000, authorizing the distribution of an official statement and authorizing the execution of necessary documents and certificates and related actions in connection therewith
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Statement of Issue:
Authorization is requested from the Public Financing Authority to approve the refunding of the Huntington Beach Public Financing Authority’s outstanding 2010 Lease Revenue Refunding Bonds, Series A ($7,410,000) and 2011 Lease Revenue Refunding Bonds, Series A ($15,725,000) in an amount not to exceed $21,000,000.
Financial Impact:
General Fund debt service expenditures will be reduced by over $900,000 in the first two years of refunding, followed by an average annual savings of $390,000 thereafter through 2032. All costs of the bond refunding will be paid from bond proceeds. The maturity dates of the new bonds coincide on a fiscal year basis with the maturity dates of the bonds that are being refunded.
Public Financing Authority Recommended Action:
recommendation
A) Adopt Resolution No. 25, “A Resolution of the Board of Directors of the Huntington Beach Public Financing Authority Authorizing the Execution and Delivery by the Authority of a Master Site Lease, A Master Lease Agreement, A Master Indenture, A Bond Purchase Agreement, A Second Amendment to Site Lease and a Second Amendment to Lease Agreement in Connection with the Issuance of Huntington Beach Public Financing Authority Lease Revenue Refunding Bonds, in One or More Series, Approving the Issuance of Such Bonds in an Aggregate Principal Amount of not to Exceed $21,000,000, Authorizing the Distribution of an Official Statement and Authorizing the Execution of Necessary Documents and Certificates and Related Actions in Connection Therewith;” and,
B) Authorize the Executive Director and Authority Secretary to take all administrative and budgetary actions necessary to perform the bond refunding.
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Alternative Action(s):
Do not approve the recommended actions and the refinancing of the bonds, and direct staff accordingly.
Analysis:
The Huntington Beach Public Financing Authority (PFA) was formed in 1988 to issue debt to finance public improvements and other capital projects for the City of Huntington Beach and the Redevelopment Agency of the City of Huntington Beach. The PFA’s governing body is the City Council, which also adopts the PFA annual budget. The PFA is financially dependent on the City for all its operations. Currently, the PFA has three separate debt issues outstanding (2010 Series A, 2011 Series A, and 2014 Series A) totaling $35,665,000.
Staff regularly monitors the market for municipal securities. Recently, the municipal bond market has improved to the point where refunding the bonds will be economically beneficial. The 2010 Series A Bonds are callable on September 1, 2020 and can be refunded on a tax-exempt basis. The 2011 Series A Bonds are callable on September 1, 2021 and will be advance refunded on a taxable basis. The Tax Cuts and Jobs Act of 2017, which went into effect on January 1, 2018, prohibits the use of tax-exempt bonds for advance refundings.
Below is a summary of the proposed transaction:
|
Bond Issue |
Original Issuance Amount |
Amount Currently Outstanding |
Economic Benefit of Refinancing |
Current Average Coupon Rate |
Refunding Coupon Rate |
|
2010 Lease Revenue Bonds, Series A |
14,745,000 |
7,410,000 |
2,085,300 |
5.0% |
4.0% |
|
2011 Lease Revenue Bonds, Series A |
36,275,000 |
15,725,000 |
3,637,700 |
4.1% |
2.4% |
|
Total |
$ 51,020,000 |
$ 23,135,000 |
$ 5,723,000 |
|
|
The City’s economic benefit is the difference between the cash flows for the new debt compared to the old debt, or $5,723,000, which takes into account all of the expenditures of the new debt. The proposed refunding will be structured to provide over $900,000 in annual savings for the first two years of the refunding, and an average of $390,000 in annual debt service savings through 2032. The maturity dates of the new bonds coincide on a fiscal year basis with the maturity dates of the bonds that are being refunded.
Staff is recommending that the existing debt be refunded by the issuance of new debt, not to exceed $21,000,000. The recommended “not to exceed” amount is determined by the City’s financial advisors, and is a conservative estimate based on issuing bonds at par, without the additional proceeds generated from bond “premium.” Upon issuance of the new debt, the City will have no further obligation to fund debt service on the original debt.
Staff is recommending that the bonds be sold through its selected underwriter, Stifel, through a negotiated sale. Stifel was selected through a competitive Request for Proposals process where seven different firms submitted proposals. Stifel provided the most competitive qualified proposal and will market the bonds to investors.
The bonds are payable from rental payments received by the Huntington Beach Public Financing Authority from General Fund lease payments made on City-owned properties. The 2010 Series A and 2011 Series B bonds have been payable from General Fund lease payments made on the following properties:
• Donald W. Kiser Corporate Yard
• Civic Center
Given current valuations, the City will only use the Donald W. Kiser Corporate Yard as a leased
property for the new debt and will release the Civic Center from the remaining lease obligation of the 2014 bonds. The leased asset securing the 2014 bonds will now be the Central Library.
Consistent with financial industry standards, in order for staff to proceed with the transaction, the net present value savings to the City must be at least 3% of the refunded principal amount. The minimum savings amount is calculated as follows:
|
Principal Amount of Debt to be Redeemed |
$ 23,135,000 |
|
Multiplied by 3% |
3% |
|
Minimum Necessary Present Value Savings |
$ 694,050 |
If the savings is less than $694,050, then the transaction will not be completed. Currently, the City is anticipating Net Present Value Savings of ~8.4%. Staff will continue to monitor interest rate trends to determine when and if additional debt refunding or defeasances will create a financial benefit. If such a situation occurs, staff will present the proposal to the Authority for approval.
Environmental Status:
Not applicable.
Strategic Plan Goal:
Strengthen long-term financial and economic sustainability
Attachment(s):
1. Resolution No. 25, “A Resolution of the Board of Directors of the Huntington Beach Public Financing Authority Authorizing the Execution and Delivery by the Authority of a Master Site Lease, A Master Lease Agreement, A Master Indenture, A Bond Purchase Agreement, A Second Amendment to Site Lease and a Second Amendment to Lease Agreement in Connection with the Issuance of Huntington Beach Public Financing Authority Lease Revenue Refunding Bonds, in One or More Series, Approving the Issuance of Such Bonds in an Aggregate Principal Amount of not to Exceed $21,000,000, Authorizing the Distribution of an Official Statement and Authorizing the Execution of Necessary Documents and Certificates and Related Actions in Connection Therewith.”
2. Master Site Lease
3. Master Lease Agreement
4. Master Indenture
5. Bond Purchase Agreement
6. 2010A Escrow Agreement
7. 2011A Escrow Agreement
8. Second Amendment to Site Lease
9. Second Amendment to Lease Agreement
10. Preliminary Official Statement