Title
Adoption of Resolution Authorizing the Issuance and Sale of Taxable Tax Allocation Refunding Bonds to Refund Bonds of the Former Community Improvement Commission of the City of Alameda and Approving Related Documents and Actions. (Community Development 207)
Body
To: Honorable Chair and Members of the Successor Agency to the Community Improvement Commission of the City of Alameda
From: Jill Keimach, City Manager
Re: Adoption of Resolution Authorizing the Issuance and Sale of Taxable Tax Allocation Refunding Bonds to Refund Bonds of the Former Community Improvement Commission of the City of Alameda and Approving Related Documents and Actions.
BACKGROUND
Staff recommends that the Successor Agency to the Community Improvement Commission of the City of Alameda (the “Successor Agency”) adopt a resolution approving documents required to issue Successor Agency Taxable Tax Allocation Refunding Bonds, Series 2017 (the “2017 Bonds”).
The proposed 2017 Bonds will be issued to refund $9,745,000 of Community Improvement Commission of the City of Alameda 2011 Tax Allocation Housing Bonds, Subordinate Series A (Taxable) (the “2011 Taxable TABs”) and $995,000 of Community Improvement Commission of the City of Alameda 2011 Tax Allocation Housing Bonds, Subordinate Series B (Tax-Exempt) (the “2011 Tax-Exempt TABs,” and together with the 2011 Taxable TABs, the “2011 Bonds”). The principal amount of the 2017 Bonds will not exceed $16 million. Because this is an advanced refunding (i.e., the earliest the bonds can be refunded is 2021), the 2017 bond proceeds must include approximately $4 million in interest and associated costs. Therefore, the principal bond amount will not exceed $16 million ($10.7M in outstanding principal owed + $4M in advanced interest due + $300,000 for miscellaneous costs). Annual debt service on the 2017 Bonds will not exceed the annual debt service currently payable on the outstanding 2011 Bonds, and the final maturity of the 2017 Bonds will be the same as the final maturity of the 2011 Bonds.
The 2011 Bonds were issued on May 19, 2011, just before the dissolution of the former Community Improvement Commission (CIC). The 2011 Bonds were issued in a high interest rate environment. The project funds were used to purchase the former Islander Motel and to redevelop it into permanent affordable housing, now the Park Alameda. Since the dissolution of the former CIC, the bond market has become more stable. It is appropriate to evaluate the outstanding bonds to determine if a refunding can generate debt service savings, and the proposed transaction is expected to result in substantial debt service savings to the City and other taxing entities such as the School District and East Bay Regional Park District. The analysis of savings is attached as Exhibit 1.
DISCUSSION
Successor Agency staff and consultants have been working to prepare the necessary documents to execute and deliver the 2017 Bonds. The documents provide for the terms of the proposed issue and include:
1. First Supplemental Indenture, which is an agreement entered into by the Successor Agency that supplements the existing Indenture of Trust for refunding bonds of the Successor Agency issued in 2014, between the former CIC and the Trustee, providing the terms of the 2017 Bonds (Exhibit 2).
2. Escrow Agreement, which is an agreement between the Successor Agency and the Trustee for the 2011 Bonds that details the deposit of funds into an Escrow Fund to be applied to the payment and redemption of the outstanding 2011 Bonds (Exhibit 3).
3. Bond Purchase Agreement which is an agreement between the Successor Agency and the underwriter establishing the terms of the sale of the 2017 Bonds (Exhibit 4).
The Successor Agency will pursue a credit rating from Standard & Poor’s Global Ratings and solicit bids for bond insurance for the 2017 Bonds. The Successor Agency expects an underlying credit rating on the 2017 Bonds in the “A+” category. The Successor Agency will determine closer to the pricing of the 2017 Bonds whether utilizing bond insurance provides economic benefit to the refunding.
The Successor Agency is using Stifel, Nicolaus & Company, Inc. (“Stifel”) as underwriter in connection with this transaction due to its extensive experience in the tax allocation bond market and familiarity with the Successor Agency. Upon approval by the Successor Agency, the proposed refunding will then be submitted for approval to the Oversight Board and the State Department of Finance, and a Preliminary Official Statement for the proposed 2017 Bonds will be presented to the Successor Agency for its approval at a later meeting.
Based on market interest rates as of January 9, 2017, plus a cushion of 50 basis points, the bond refunding would result in a total cash flow savings estimated at $4.1 million, with Net Present Value (NPV) savings at $1.3 million. This represents estimated savings of 12.4%, substantially higher than the industry standard threshold of 3% to undertake a bond refunding. The use of a 50 basis point cushion is intended to be conservative, given that the bonds will not be priced until late April (due to the Department of Finance approval timeline). If the transaction were executed at rates 25 basis points lower, total cash flow savings would be estimated at $4.6 million and NPV savings at $1.7 million, or 16.2%. Annual debt service savings are estimated at $165,000 through 2041, but could be as much as $200,000, depending on the final bond pricing.
The final maturity of the 2017 Bonds is expected to be in 2041, the same as the 2011 Bonds. The total projected debt service on the 2017 Bonds over the life of the bond issue is projected to be approximately $21.9 million, including future interest payments through 2041. The debt service on the proposed 2017 Bonds will be repaid from Successor Agency Redevelopment Property Tax Trust Fund (RPTTF) revenues, the same as with the existing 2011 Bonds.
FINANCIAL IMPACT
As state above, based on market interest rates as of January 9, 2017, plus a cushion of 50 basis points, the bond refunding would result in a total cash flow savings estimated at $4.1 million, with Net Present Value (NPV) savings at $1.3 million. This represents estimated savings of 12.4%, substantially higher than the industry standard threshold of 3% to undertake a bond refunding. Annual debt service savings are estimated at $165,000 through 2041, but could be greater, depending on the final bond pricing.
There is no direct impact to the City’s General Fund as a result of the refunding of the 2011 Bonds. Debt service will be repaid from RPTTF revenue. Debt service payments will be included on the annual Recognized Obligation Payment Schedule (“ROPS”).
However, indirectly, refunding will likely result in an increase in property tax distribution to the City of Alameda and other taxing entities.
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 (issuance of bonds), which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment.
RECOMMENDATION
Adopt a Resolution authorizing the issuance and sale of taxable tax allocation refunding bonds to refund bonds of the former Community Improvement Commission of the City of Alameda and approving related documents and actions.
Respectfully submitted,
Debbie Potter, Community Development Director
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibits:
1. Exhibit 1. Debt Service Savings Analysis
2. Exhibit 2. First Supplemental Indenture of Trust
3. Exhibit 3. Escrow Agreement
4. Exhibit 4. Bond Purchase Agreement