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SUMMARY: Authorize the City Manager to Execute an Extension of the Letter of Credit Related to Two Types of Revenue Bonds for Alameda Point Improvement Project
Recommendation to Authorize the City Manager to Execute an Extension of the Letter of Credit with the Combined Entity, Mitsubishi UFJ Financial Group (MUFG) Union Bank, N.A., Related to the Current Outstanding $6,200,000 Alameda Public Financing Authority (APFA) Variable Rate Demand Revenue Bonds (Alameda Point Improvement Project), 2003 Series A, and the Current Outstanding $3,200,000 APFA Taxable Variable Rate Demand Revenue Bonds (Alameda Point Improvement Project), 2003 Series B, with Updated Terms and Conditions. [City Council and APFA] (Finance 2410)
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To: Honorable Mayor and Members of the City Council
Honorable Chair and Members of the Alameda Public Financing Authority
From: Eric Levitt, City Manager
EXECUTIVE SUMMARY
This action will authorize the City Manager to execute an extension of a letter of credit (LOC) with MUFG Union Bank for the outstanding $9.4 million of Variable Rate Demand Revenue Bonds, 2003 Series A and B. The terms and conditions related to the cost of providing the letter of credit have been revised to increase the fee from 1.00% to 1.15% of the then outstanding bond balance plus 60 days of interest and to extend the date to June 14, 2021.
BACKGROUND
The Alameda Public Financing Authority (the Authority) issued a total of $13.44 million in variable rate bonds related to Alameda Point in 2003. The source of repayment for these bonds is the rental income received from properties managed by the City of Alameda's (City) Base Reuse Department. The credit and liquidity support for the bonds is currently provided by a direct pay letter of credit from MUFG Union Bank, N.A., which expires on June 14, 2019. The indenture of trust for the bonds requires that a new or extended letter of credit be in place 30 days prior to the expiration of the current letter of credit.
DISCUSSION
For the last several months, City staff has been working with MUFG Union Bank, N.A. to extend the termination date of the current LOC. The current LOC is due to expire on June 14, 2019. The indenture of trust for the 2003 Variable Rate Demand Revenue Bonds requires that a new or extended letter of credit be in place 30 days prior to the expiration of the current letter of credit. MUFG Union Bank, N.A. staff have been going through the Bank’s internal process for the approval of an extension of the LOC and informed the City in April that the LOC extension has been approved for an additional two-year period with an expiration date of June 14, 2021.
MUFG Union Bank, N.A. charges a fee to provide the LOC. The current annual fee is one percent of the then outstanding principal balance and sixty days of interest calculated at 12% per year. With the renewal of the LOC, the fee is being increased to 1.15%. At the current level of the outstanding principal of the Variable Rate Demand Revenue Bonds of $9,400,000 plus two months of interest, the new annual fee at 1.15% totals approximately $109,000.
FINANCIAL IMPACT
The LOC fee to be charged by the MUFG Union Bank, N.A. will increase from 1.00% to 1.15% of the then outstanding bonds balance plus two months of interest at a 12% annual rate. The City paid $98,588 in LOC fees for FY 2018-19. LOC fees are estimated at $109,000 for FY 2019-20. The LOC fees are charged to the Base Reuse Debt Service Fund budget.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action is in conformance with the Alameda Municipal Code.
ENVIRONMENTAL REVIEW
This activity is not a project and is exempt from the California Environmental Quality Act (CEQA) pursuant to section 15378 (b)(4) of the CEQA Guidelines, because it involves governmental fiscal activities (financial matters related to outstanding bonds), which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment.
RECOMMENDATION
Authorize the City Manager to execute an extension of the existing letter of credit with MUFG Union Bank, N.A., related to the current outstanding $6,200,000 Alameda Public Financing Authority (APFA) Variable Rate Demand Revenue Bonds (Alameda Point Improvement Project), 2003 Series A, and the current outstanding $3,200,000 Alameda Public Financing Authority Taxable Variable Rate Demand Revenue Bonds (Alameda Point Improvement Project), 2003 Series B, with updated terms and conditions.
Respectfully submitted,
Elena Adair, Finance Director
Exhibit:
1. Standby Letter of Credit