HomeMy WebLinkAboutD-2 Staff Report - Azusa CFD 2005-1 (Rosedale) RefinanceSCHEDULED ITEM
D-2
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
VIA: SERGIO GONZALEZ, CITY MANAGER
FROM: TALIKA M. JOHNSON, DIRECTOR OF FINANCE
DATE: MAY 6, 2019
SUBJECT: ADOPTION OF RESOLUTION BY THE CITY COUNCIL ACTING AS THE
LEGISLATIVE BODY OF COMMUNITY FACILITIES DISTRICT NO. 2005-1
(ROSEDALE - IMPROVEMENT AREA NO. 1) REGARDING THE PROPOSED
ISSUANCE OF SPECIAL TAX REFUNDING BONDS BY SUCH COMMUNITY
FACILITIES DISTRICT
BACKGROUND:
The City of Azusa (the “City”) initiated formation of CFD No. 2005-1 (Rosedale) (the “District”) in
2006. In 2007, the District Improvement Area No. 1 issued a total of $71,125,000 of non-rated Special
Tax Bonds (the “2007 Bonds”) to finance public infrastructure to be constructed and owned by the City
as well as additional public improvements to be owned by the Azusa School District, the Metropolitan
Water District and the City of Glendora.
Approximately $17 million of the 2007 Bonds were placed in an escrow account to fund public
improvements if the land values within Improvement Area No. 1 increased to a level that would result in
a lien-to-value ratio of more than 3 to 1 by June 1, 2009. In June 2009, the value to lien ratio was not
achieved and the escrowed 2007 Bond proceeds were used to redeem outstanding 2007 Bonds.
Additionally, as development occurred the special tax was reduced at the time of home purchase which
resulted in the early redemption of an additional $13.225 million of 2007 Bonds.
As a result of the redemptions, along with scheduled principal amortization since 2007, there are
roughly $30 million in 2007 Bonds which remain outstanding. Principal on the 2007 Bonds is paid in
each year through September 1, 2037 and the remaining 2007 Bonds bear an average interest rate of 5%.
RECOMMENDATION:
Staff recommends that City Council take the following action:
1) Adopt the attached Resolution No. 2019-C14 approving the issuance of refunding bonds to
refund outstanding bonds of Community Facilities District No. 2005-1 (Rosedale) Improvement
Area No. 1 and approve the execution of necessary financing documents.
Refinance CFD 2005-1 (Rosedale) Bonds
May 6, 2019
Page 2 of 5
ANALYSIS:
City staff previously presented this item to Council in April of 2015 when Urban Futures was engaged
by Resolution and again in June and July 2015 when the initial Authorizing Resolution was presented to
Council. Shortly after the July 2015 approval, the City was engaged in litigation initiated by the Azusa
Unified School District halting the refinancing until the City was released from litigation in early 2019.
Despite prior delays, interest rates are currently at historic lows. The 2007 Bonds are eligible to be
refunded with Special Tax Refunding Bonds (the “2019 Bonds”), which would result in annual interest
rate savings ranging from $375,000 to $631,000, depending on final credit rating of the 2019 Bonds
($6.7 to $11.4 million in total over the next 18 years) (“interest rate savings”). The current maturity date
of the 2007 Bonds would not be extended, and it is expected that the interest rate would be reduced to
approximately 3.3%.
Additionally, the City has worked with the developer of the property to eliminate the use of additional
special taxes (i.e. pay-go) to pay for public facilities not otherwise funded with proceeds of the 2007
Bonds. The elimination of special taxes to pay directly for public facilities will also reduce annual
assessments to property owners within the District Improvement Area No. 1 (“pay-go savings”). The
elimination of the pay-go special taxes will generate about $1.25 million annually ($22.5 million in total
over the next 18 years) of pay-go savings.
The final savings will depend upon the market interest rates at the time the 2019 Bonds and the City
staff and its consultants cannot guarantee that the savings will be the same as stated in this report. The
estimated annual savings amount associated with reduced interest rates is $375,000 to $631,000
(depending on credit rating) and the elimination of pay-go is estimated at $1.25 million for an estimated
total savings range of $1.62 to $1.88 million ($29.2 to $33.9 million in total over the next 18 years).
The City engaged Urban Futures Inc. (UFI) as its Municipal Advisor and will continue to work with
BBK as bond and disclosure counsel. At the direction of the City, UFI solicited proposals from three (3)
underwriting firms familiar with the proposed refinancing. Through an innovative approach aimed to
provide a performance incentive to the underwriter, create a platform to maximize savings to District
Improvement Area No. 1 taxpayers and to keep underwriter fees below average costs, City staff and UFI
are recommending the engagement of an underwriting group for this transaction.
2019 Bond Underwriting Group
Staff recommends selection of the following firms to be part of the 2019 Bond underwriting group.
1. Stifel – Senior Manager
2. Cabrera Capital – Co-Manager
3. Ramirez & Co. – Co-Manager
The Senior Manager will lead the transaction and work collaboratively with the Co-Managers to
successfully structure, market, sell and close the 2019 Bonds. The agreed upon compensation
arrangement between the three firms are as follows:
Refinance CFD 2005-1 (Rosedale) Bonds
May 6, 2019
Page 3 of 5
• Management Fee, if any, will be split evenly between all three Managers.
• Sales Commissions will be split 70% to the Senior Manager and 30% collectively to the Co-
Managers. This will be paid on a “group net” basis which means that these allocations will be
guaranteed regardless of the number of orders for the 2019 Bonds placed by each respective
firm.
• Expenses and Underwriter’s Counsel Fees will be paid by the Senior Manager for all customary
out-of-pockets costs on behalf of the 2019 Bond Underwriting Group members.
In discussions with the 2019 Bond Underwriting Group, the City’s financial advisor has negotiated a
performance-based fee schedule which will provide incentives for the group to work to achieve greater
savings by obtaining a credit rating for the transaction. Under this arrangement, if the 2019 Bond
Underwriting Group is able to secure a “BBB” or “A” credit ratings by providing more banking work
and analysis, then their compensation will be increased. By securing a “BBB” or “A” rating, the
transaction can be sold with bond insurance and a reserve fund surety which will reduce the bond size
and interest rates for the 2019 Bonds. This will translate into significant savings to taxpayers that will
more than offset the increase in compensation to the 2019 Bond Underwriting Group.
The tables on the next page show the estimated interest rate savings and underwriting fees under each
scenario assuming: (1) Base Case – No Rating, (2) “BBB” Rating with Insurance/Surety, and (3) “A”
Rating with Insurance/Surety.
Projected Interest Rate Savings by Credit Rating Scenario*
Base Case: Non-Rated Upgrade Case: 'BBB'Upgrade Case: 'A'
Refunding Analysis Cash DSRF Insurance / Surety Insurance / Surety
Proposed Refunding
Bond Amount $29,450,000 $26,820,000 $26,675,000
True Interest Cost (TIC)3.37%3.24%3.18%
Net Present Value Savings ($)$4,642,188 $5,190,032 $5,421,572
Net Present Value Savings (%)13.95%15.59%16.29%
Total Savings $6,747,059 $11,133,483 $11,350,930
Average Annual Savings $374,837 $618,527 $630,607
Average Annual Savings per Parcel1 $473 $781 $796
* Interest rate savings only. Does not include “pay-go savings” of $1.25 million discussed separately on Page 2 of this report.
Refinance CFD 2005-1 (Rosedale) Bonds
May 6, 2019
Page 4 of 5
Proposed Performance-Based Fee Schedule
Base Case: Non-Rated Upgrade Case: 'BBB'Upgrade Case: 'A'
Performance-Based Compensation Cash DSRF Insurance / Surety Insurance / Surety
Management Fee 0.000%0.15%0.24%
Sales Commissions 0.500%0.50%0.50%
Expenses 0.037%0.04%0.04%
Underwriter's Counsel Expenses 0.051%0.06%0.06%
Total Fee (as % of Bond Amount)0.588%0.746%0.841%
Management Fee1 $0 $40,000 $65,000
Sales Commissions2 $147,250 $134,100 $133,375
Expenses3 $11,000 $11,000 $11,000
Underwriter's Counsel Expenses4 $15,000 $15,000 $15,000
Total Fee ($ Dollar Amount)$173,250 $200,100 $224,375
Fee Increase Over Base Case $0 $26,850 $51,125
Savings Increase Over Base Case $0 $4,386,424 $4,603,871
1. Shared evenly among all three bond underwriters.
2. 70% paid to the senior managing underwriter (Stifel) and 15% paid to each of the co-managing underwriters (Cabrera, Ramirez).
3. Out-of-pocket expenses paid for CDIAC, CUSIP, IPREO, trading ticket charges, day loan, DTC, blue sky and other required fees.
4. Out-of-pocket expenses paid to underwriter's counsel fees.
The performance-based fee schedule provides the City significant upside for its taxpayers if the 2019
Bond Underwriting Group is able to secure better outcomes. Based on today’s market rates, these
projected outcomes are summarized below.
• If the City garners no rating, it will achieve $6,747,059 in interest rate savings with no additional
increase in underwriting fee. (BASE CASE)
• If the City garners a “BBB” rating, it will increase interest rate savings by $4,386,424 (over
the BASE CASE) to a total of $11,133,483 vs. a net increase of $26,850 in underwriting fee.
• If the City garners an “A” rating, it will increase interest rate savings by $4,603,871 (over the
BASE CASE) to a total of $11,350,930 vs. a net increase of $51,125 in underwriting fee.
The total underwriting fee percentages ranging from 0.588% (for an unrated transaction) to 0.841% (for
an “A” rated transaction). Based on a survey of recently sold CFD bonds, this fee range is significantly
below the recent market average (of 1.0%) for similar transactions in California.
Documents to be approved
Approval of the Resolution approving, authorizing and directing preparation of certain documents,
authorizing and directing the sale of 2019 Bonds, and authorizing the hiring of the finance team.
Refinance CFD 2005-1 (Rosedale) Bonds
May 6, 2019
Page 5 of 5
FISCAL IMPACT:
The proposed 2019 Bonds will generate the following savings:
SCENARIO TOTAL
SAVINGS
ANNUAL
SAVINGS
(Total)
ANNUAL
SAVINGS
(PER DWU)
A. Interest Rate Savings
1. Base Case (Non-Rated) $6,747,059 $374,837 $473
2. Upgrade Case (“BBB” Rating) $11,133,483 $618,527 $781
3. Upgrade Case (“A” Rating) $11,350,930 $630,607 $796
B. Pay-Go Savings $22,500,000 $1,250,000 $1,594
C. Total Savings $29.247 -
$33.85M
$1.625 -
$1.88M
$2,067 -
$2,390
* Savings divided by 784 units.
The term of the 2019 Bonds will not exceed the existing term of the 2007 Bonds.
Prepared by: Reviewed and Approved
Talika M. Johnson Sergio Gonzalez
Director of Finance City Manager
Attachment:
1. Resolution No. 2019-C14, A Resolution of the City of Azusa Successor Agency approving the
proposed issuance of Special Tax Refunding Bonds Series 2019 and hiring the finance team
RESOLUTION NO. 2019-C14
A RESOLUTION OF THE CITY OF AZUSA CONSIDERING THE PROPOSED ISSUANCE
OF COMMUNITY FACILITIES DISTRICT NO. 2005-1 IMPROVEMENT AREA NO. 1
REFUNDING BONDS; APPOINTING FINANCIAL AND LEGAL CONSULTANTS IN
CONNECTION WITH THE PROPOSED REFUNDING; MAKING CERTAIN
DETERMINATIONS RELATING THERETO; AND AUTHORIZING CERTAIN OTHER
ACTION IN CONNECTION THEREWITH
WHEREAS, on April 17, 2006, the City of Azusa (the “City”) initiated the formation of
Community Facilities District No. 2005-1 (Rosedale) Improvement Area No. 1 (the “District”)
with the adoption of its Resolution of Intention and completed those proceedings on June 19th
with the adoption of Ordinance No. 06-C39 which authorized the levy of special taxes on taxable
property within the boundaries of the District; and
WHEREAS, on February 7, 2007, the City Council, by and through the District, issued a
total of $71,125,000 of its Community Facilities District No. 2005-1 (Rosedale) Improvement
Area No. 1 2007 Special Tax Bonds (the “Series 2007 Bonds”) to finance public infrastructure to
be constructed and owned by the City as well as additional public improvements to be owned by
the Azusa School District, the Metropolitan Water District and the City of Glendora; and
WHEREAS, approximately $30 million principal amount of Series 2007 Bonds
outstanding; and
WHEREAS, California Government Code Section 53362 authorizes legislative bodies to
refund outstanding bonds issued pursuant to the Mello-Roos Community Facilities Act of 1982,
as amended (constituting Section 53311 et seq. of the California Government code (the “Act”);
and
WHEREAS, City staff and advisors have determine that the Series 2007 Bonds can be
refinanced achieving significant interest rate savings; and
WHEREAS, the City, by and through the District, now desires to proceed with the
preparation of documents for the issuance of refunding bonds (the “Refunding Bonds”), the
proceeds of which will be used to refund the outstanding Series 2007 Bonds; provided
reasonable interest rate savings can be obtained through such refunding, and to appoint members
of the City’s financing team to prepare documents and to assist with the performance of such acts
as may be necessary or desirable to effect the offering, sale and issuance of the Refunding
Bonds;
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF AZUSA DOES
HEREBY RESOLVE AS FOLLOWS:
Attachment 1
-2-
Section 1. Approval of Refunding.
This City Council hereby authorizes the preparation of such legal documents and other
materials necessary to proceed with the refunding of the outstanding Series 2007 Bonds, to the
extent permitted under the Act, through the issuance, by and through the District, of the
Refunding Bonds.
Section 2. City Manager and Director of Finance.
The City Manager and the Director of Finance are hereby authorized and directed to take
whatever action may be necessary to carry out the purposes of this Resolution in order to prepare
such documents and materials for the proposed refunding of the Series 2007 Bonds through the
issuance of the Refunding Bonds.
Section 3. Recovery of Costs.
The City is hereby authorized to recover its costs of issuance with respect to the
Refunding Bonds, including the cost of reimbursing the City for staff time and costs spent with
respect to the Refunding Bonds.
Section 4. Bond Issuance Services.
Stifel, Nicolaus & Company, Incorporated is hereby appointed as Lead Managing
Underwriter, Cabrera Capital and Ramirez & Company are appoint as Co-Managers, Best Best
& Krieger LLP is hereby appointed as Bond and Disclosure Counsel, and Urban Futures, Inc. is
hereby appointed as Financial Advisor in connection with the proposed issuance of Refunding
Bonds. The City Manager and the Director of Finance, acting for the City, are each individually
authorized to execute contracts for such services and any other related services as may be
required to defease and/or refund the outstanding Series 2007 Bonds proposed to be refunded
through the issuance of the Refunding Bonds.
Section 5. Other Acts.
The officers and staff of the City are hereby authorized and directed, jointly and
severally, to do any and all things, to execute and deliver any and all documents, which in
consultation with Best Best & Krieger LLP, the City’s bond counsel, they may deem necessary
or advisable in order to effectuate the purposes of this Resolution, and any and all such actions
previously taken by such officers or staff members are hereby ratified and confirmed.
Section 6. Effective Date.
This Resolution shall take effect upon adoption.
-3-
PASSED, APPROVED AND ADOPTED this ____________, 2019.
CITY OF AZUSA
___________________________________
Joseph Romero Rocha, Mayor
ATTEST:
___________________________________
Jeffrey Lawrence Cornejo, Jr., City Clerk
APPROVED AS TO FORM:
___________________________________
Marco A. Martinez, City Attorney
CLERK’S CERTIFICATE
I, Jeffrey Lawrence Cornejo, Jr., City Clerk, do hereby certify as follows:
The foregoing resolution is a full, true and correct copy of a resolution duly adopted at a
regular meeting of the City of Azusa duly and regularly held at the meeting place thereof on
_____ __, 2019, of which meeting all of the members of said City had due notice and at which a
majority thereof were present.
I have carefully compared the foregoing with the original minutes of said meeting on file
and of record in my office, and the foregoing is a full, true and correct copy of the original
resolution adopted at said meeting and entered in said minutes.
Said resolution has not been amended, modified or rescinded since the date of its
adoption and the same is now in full force and effect.
Dated: __________, 2019.
___________________________________
Jeffrey Lawrence Cornejo, Jr., City Clerk