Title
Recommendation to Accept Report on Sale of Successor Agency to the Community Improvement Commission of the City of Alameda 2014 Bonds. (Finance 2410)
Body
ody
To: Honorable Mayor and Members of the City Council
From: John A. Russo, City Manager
Re: Accept Report on Sale of Successor Agency to the Community Improvement Commission of the City of Alameda 2014 Bonds
BACKGROUND
The State suspended all new redevelopment activity except for limited specified activities as of June 27, 2012. The City elected to become the Successor Agency and on February 1, 2012 the Community Improvement Commission's assets were distributed to and liabilities were assumed by the Successor Agency. All actions of the Successor Agency are subject to review of the Oversight Board whose members are appointed by the various taxing entities (i.e. AC Transit, Alameda Unified School District, and Peralta Community College District) which are impacted by tax increment financing.
The Successor Agency is obligated to receive property tax revenues and pay debt service on existing debt issues. One of the limited specified activities which is permitted is refinancing existing debt if there are debt service savings within the same or shorter maturity date. The Successor Agency continues to explore these criteria for each of the outstanding debt issues. In August 2014, a proposal to refund existing 2003 Taxable and Tax-Exempt Tax Allocation Bonds was approved by the Successor Agency.
DISCUSSION
The goal of the refunding was to reduce the True Interest Cost (TIC) by approximately 1.50%. The par amount of the proposed refunding was not to exceed $33 million in tax-exempt bonds and $32 million in taxable bonds. The net present value savings was estimated at $6 million. The annual savings was estimated to be $475,000 through 2033 of which $118,750 would accrue to the City's General Fund.
The City's Financial Advisor, Pacific Financial Management, Inc. (PFM) served as financial advisor and Quint and Thimmig, LLP served as Bond Counsel. PFM issued requests for qualifications for underwriting services and presented the City with six responses. Piper Jaffray was selected as underwriter based upon volume of similar sales, the proposed TIC and proposed fees. The average rate on the 2003 Tax Allocation Bonds was originally 5.64%. Comparatively, the TIC proposed by Piper Jaffray was 3.86%; a savings of 1.78%. The anticipated issuance of the 2014 Refunding Bonds was December 2014.
Various alternative taxable vs. tax-exempt issues were explored with the goal of finding the greatest savings while remaining well within the forecasted revenues. Credit enhancement was sought from two insuring agencies. Build America Mutual Assurance Company (BAM) was selected to provide insurance for the debt service. In addition, BAM will provide a Municipal Debt Service Reserve Insurance Policy. Standard & Poors, after a detailed review, provided an underlying rating of "A+". This is an improvement from the 2011 rating of "A-".
The final bonds offered for sale were $23,295,000 of tax-exempt tax allocation bonds and $24,355,000 of taxable tax allocation bonds. The December 9, 2014 sale was over-subscribed for both issues, meaning there was more demand for the bonds than the City could supply, resulting in lower pricing and greater savings. The results of the sale are as follows:
Total Par Amount $ 48.575 million
Annual Savings $ 1.23 million
Annual Savings for the City $ 381,300
Total Net Present Value Savings $ 9.42 million
True Interest Cost (TIC) 3.63%
The issue closed successfully on December 23, 2014.
PFM has provided an evaluation of the process and sale summarized in Exhibit 1. They have also provided a Post-Pricing Analysis book which is attached as Exhibit 2.
FINANCIAL IMPACT
The original True Interest Cost (TIC) of the 2003 issue was 5.64%. The TIC of the 2014 issue is 3.63%, a savings of 2.01%. This savings of $9.42 million (Net Present Value) over the life of the issue will allow the City's General Fund to receive approximately $381,000 each year through 2033, an amount the City would not have realized had the City not pursued the refinancing. The Successor Agency will experience lower debt service requirements as well.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
There is no requirement in the Municipal Code regarding this issue.
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 (commitment, appropriation and transfer of funds), which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment.
RECOMMENDATION
Accept report on sale of Successor Agency to the Community Improvement Commission of the City of Alameda 2014 bonds.
Respectfully submitted,
Juelle-Ann Boyer, Interim Finance Director
Financial Impact section reviewed,
Juelle-Ann Boyer, Interim Finance Director
Exhibits:
1. Post-Pricing Summary Letter
2. Post-Pricing Analysis Book