Title
Adoption of Resolutions Authorizing the City of Alameda and the Alameda Public Financing Authority to Commence Proceedings in Connection with the Substitution of the Letter of Credit relating to the Alameda Public Financing Authority Variable Rate Demand Revenue Bonds, 2003 Series A and Series B (Alameda Point Improvement Project). [City Council and APFA] (Finance 10024051)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
The resolutions authorize the City of Alameda (City) and the Alameda Public Financing Authority (Authority) to replace the letter of credit supporting the outstanding Alameda Public Financing Authority Variable Rate Demand Revenue Bonds, 2003 Series A and Series B Bonds (Alameda Point Improvement Project).
BACKGROUND
For the purpose of providing funds to finance a portion of the costs of the acquisition, construction, installation and equipping of various public capital improvements to Alameda Point, the Authority issued $9,080,000 Alameda Public Financing Authority Variable Rate Demand Revenue Bonds, 2003 Series A (Alameda Point Improvement Project) (the “Series A Bonds”), and its $4,360,000 Alameda Public Financing Authority Taxable Variable Rate Demand Revenue Bonds, 2003 Series B (Alameda Point Improvement Project) (the “Series B Bonds” and, with the Series A Bonds, the “Bonds”) in December 2003.
In order to provide for the repayment of the Series A Bonds and the Series B Bonds, the Authority pledged certain revenues, substantially derived from rentals paid to Alameda Reuse and Redevelopment Authority (“ARRA”) for certain land, buildings, fixtures and equipment at Alameda Point leased by ARRA to certain subtenants which rentals have been assigned by ARRA to the Authority, which revenues are calculated to be sufficient to enable the Authority to pay the principal and interest on the Bonds. The obligations of ARRA have been assumed by the City.
The Bonds were issued by the Authority pursuant to that certain Indenture of Trust, dated as of December 1, 2003 (as amended and supplemented, the “Indenture”), by and between the Authority and Union Bank of California, N.A., since succeeded by U.S. Bank National Association (the “Trustee”). Principal and interest on the Bonds are supported by an irrevocable direct-pay letter of credit (the “Letter of Credit”) issued by Union Bank of California, N.A. (the “Bank”). The Bank has extended the term of the Letter of Credit several times since 2003 but has notified the City that it will not renew the Letter of Credit which will expire on November 15, 2021 (the “Expiration Date”). The Indenture authorizes the replacement of the Letter of Credit upon its expiration. If the Letter of Credit is not replaced thirty (30) days prior to the Expiration Date, the Series A and Series B Bonds will be automatically subject to mandatory tender pursuant to the terms of the Indenture, will be owned by the Bank and will be payable at a substantially higher interest rate (12%) than the current low variable rate of approximately 2.25%. Without the LOC the annual interest cost of the Bonds will increase from approximately $157,000 to $1 million. Wells Fargo Bank, National Association has agreed to provide a letter of credit to replace the expiring Letter of Credit on substantially similar terms as relate to the Letter of Credit.
DISCUSSION
The City Council and the Authority are now requested to authorize the replacement of the Letter of Credit with a letter of credit to be issued by Wells Fargo Bank, National Association, to replace the expiring Letter of Credit on substantially similar terms. The documents relating to the replacement letter of credit will be returned to the City Council and the Authority for final approval on October 5, 2021
Staff recommends that the City Council and the Authority authorize the replacement of the Letter of Credit with a letter of credit to be issued by Wells Fargo Bank, National Association.
ALTERNATIVES
The City Council and the Authority could consider the following alternative actions:
• Approve the resolution authorizing the replacement of the Letter of Credit with a letter of credit to be issued by Wells Fargo Bank, National Association.
• Do not approve the replacement of the Letter of Credit with a letter of credit to be issued by Wells Fargo Bank, National Association. Without a replacement letter of credit, interest on the Bonds will increase drastically.
FINANCIAL IMPACT
There is no impact on to the City if the City Council/Authority approves the replacement of the Letter of Credit with a letter of credit to be issued by Wells Fargo Bank, National Association. If the City Council/Authority does not approve the replacement of the Letter of Credit with a letter of credit to be issued by Wells Fargo Bank, National Association, the Series A Bonds will be automatically subject to mandatory tender pursuant to the terms of the Indenture, will be owned by the Bank and will be payable at a substantially higher interest rate than the current low variable rate. Without the LOC, the annual interest cost of the Bonds will increase from approximately $157,000 to $1 million.
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 CEQA Guidelines, section 15378(b)(4), because it involves governmental fiscal activities which do not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment.
CLIMATE IMPACT
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report.
RECOMMENDATION
Adopt Resolutions authorizing the replacement of the Letter of Credit with a letter of credit to be issued by Wells Fargo Bank, National Association.
CITY MANAGER RECOMMENDATION
The City Manager recommends adoption of the Resolution authorizing replacement of the Letter of Credit.
Respectfully submitted,
Annie To, Finance Director
cc: Eric Levitt, City Manager
Gerry Beaudin, Assistant City Manager