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Adoption of Resolution Authorizing the City of Alameda to Participate in the United States Department of Housing and Urban Development (HUD) Public Offering as Part of the Section 108 Loan Guarantee Assistance Program to Refinance an Existing Note in the Original Principal Amount of $4,000,000, Related to Financing of the Civic Center Parking Garage (Series 2006-A);
Adoption of Resolution Authorizing the City of Alameda to Participate in the United States Department of Housing and Urban Development (HUD) Public Offering as Part of the Section 108 Loan Guarantee Assistance Program to Refinance an Existing Note in the Original Principal Amount of $3,000,000, Related to Financing of the Civic Center Parking Garage (Series 2008-A); and
Recommendation to Authorize the Interim City Manager to Negotiate and Execute Related Documents, Agreements, and Modifications Related to the Refinancing. (Community Development 274)
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To: Honorable Mayor and Members of the City Council
From: David L. Rudat, Interim City Manager
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EXECUTIVE SUMMARY
In 2006, the City of Alameda was awarded HUD Section 108 funding of $7,000,000 to finance the construction of the Civic Center Parking Garage. The loan is evidenced by two notes with projected average interest rates of 5.19% for the life of the loan. HUD has announced plans for a public offering for the Section 108 Loan Guarantee Program that would allow for the refinancing of the two notes. Refinancing the current Section 108 Loan to reduce the interest rate, will save the City of Alameda approximately $500,000 over the remaining life of the loan.
BACKGROUND
The federal Department of Housing and Urban Development (HUD) awarded the City an $800,000 Brownfields Economic Development Initiative (BEDI) grant in October 2004, and a combined total $7,000,000 Section 108 Loan guarantee in January 2006. The Section 108 Loan was evidenced by two notes, one for $4,000,000 and another for $3,000,000. Proceeds from the loan were used by the former Community Improvement Commission (CIC) to construct the Civic Center Parking Garage in conjunction with redevelopment of the historic Alameda Theatre. The following sources have been used to repay the loan:
• Project revenues from parking meters, validated parking payments;
• Lease payments from the historic Alameda Theatre and ancillary tenants; and
• Transferred revenues from the City’s parking meter revenue fund.
HUD is undertaking a new public offering and has invited local jurisdictions with existing Section 108 Loans to participate in the refinancing should they so choose. A resolution of the governing body is required to go forward with the refinancing for each of the two notes.
DISCUSSION
As noted above, HUD has announced plans for a new public offering for the Section 108 Loan Guarantee Program. Refinancing the existing Section 108 Loan through this public offering is estimated to save the City approximately $500,000 over the life of the loan. The savings will come due to a reduction in the interest rate and maintenance of the same loan principal repayment schedule. The variable interest is expected to average approximately 1.9% less than the current rates. Furthermore, the terms of the new promissory notes (other than the interest rates) must be exactly the same as the existing promissory notes. Consequently, the principal payment schedule will remain the same and the security provisions of the existing notes will apply to the new notes.
In order to refinance the Section 108 Loans, the City must complete the following steps:
• Provide notice to investors of redemption of the two notes;
• Execute new loan documents and provide a legal opinion and resolutions approving the refinancing;
• Prepay the existing notes (this will be done through an interim financing coordinated by HUD);
• Remit the regularly scheduled interest payment on February 1, 2019; and
• Pay accrued interest and issuance costs.
If the City Council adopts the resolutions authorizing participation in the new public offering to refinance the existing Section 108 Loans, HUD will provide the City with the new loan documents for execution. The loan documents and required legal opinion must be submitted to HUD no later than January 21, 2019. As part of the refinancing, the City is required to pay issuance costs for the public offering on the new notes, which will be around 0.5% of the principal of the new notes (approximately $13,225). The public offering will take place in early to mid-February 2019. Following the public offering, the City will have new notes at lower interest rates than the previous notes. It will continue to make payments on a semi-annual basis on the new notes.
Based on the projected savings of almost $500,000 over the next 10 years, it is recommended that the City Council adopt the resolutions authorizing the refinancing of the Section 108 Loans and authorize the Interim City Manager to negotiate and executed all related documents to conclude the refinancing.
FINANCIAL IMPACT
Refinancing the two notes of Section 108 Loan will have a positive financial impact on the City’s budget as it is estimated to save approximately $500,000 over the next 10 years. As part of the refinancing, the City will have to pay issuance costs on the new notes, which are expected to be approximately $13,225. Sufficient appropriations are available to pay these costs in the Commercial Revitalization Fund 227.
The current outstanding principal balances of Series 2006-A note and Series 2008-A note are $2,261,000 and $2,645,000, respectively. The current notes can be prepaid at any time should the City have sufficient available cash. With refinancing of the notes, the City will save approximately $500,000, but will forgo the ability to prepay these notes.
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 (approving funding mechanisms), which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment.
RECOMMENDATION
It is recommended that the City Council:
1. Adopt a Resolution Authorizing the City of Alameda to Participate in the HUD Public Offering as Part of the Section 108 Loan Guarantee Assistance Program to Refinance an Existing Note in the Original Principal Amount of $4,000,000, Related to Financing of the Civic Center Parking Garage (Series 2006-A);
2. Adopt a Resolution Authorizing the City of Alameda to Participate in the HUD Public Offering as Part of the Section 108 Loan Guarantee Assistance Program to Refinance an Existing Note in the Original Principal Amount of $3,000,000, Related to Financing of the Civic Center Parking Garage (Series 2008-A); and
3. Authorize the Interim City Manager to negotiate and execute related documents, agreements, and modifications related to the refinancing.
Respectfully submitted,
Debbie Potter, Base Reuse and Community Development Director
By:
Lisa Fitts, Housing Authority Management Analyst
Financial Impact section reviewed,
Elena Adair, Finance Director