HomeMy WebLinkAboutE-8 Staff Report - Mountain Cove CFD Bond RefinanceCONSENT ITEM
E-8
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
VIA: SERGIO GONZALEZ, CITY MANAGER
FROM: TALIKA M. JOHNSON, DIRECTOR OF ADMINISTRATIVE SERVICES
DATE: APRIL 5, 2021
SUBJECT: AUTHORIZE THE ISSUANCE OF NOT TO EXCEED $6 MILLION AGGREGATE
PRINCIPAL AMOUNT CITY OF AZUSA COMMUNITY FACILITIES DISTRICT
NO. 2002-1 (SPECIAL TAX REFUNDING BONDS, SERIES 2021)
BACKGROUND:
On December 19, 2002, the City of Azusa issued $8,980,000 Special Tax Bonds, 2002 Series A for the
Community Facilities District (“CFD”) No. 2002-1 (Mountain Cove) (the “2002 Bonds”). The 2002
Bonds were issued with a 6.0% coupon in 2032 and were currently callable on September 1, 2011 at a
price of 101%.
On June 20, 2011, the bonds were refinanced through the $7,880,000 Community Facility District No.
2002-1 (Mountain Cove) Special Tax Refunding Bonds, Series 2011 (the “2011 Bonds”) for interest rate
savings of $170 annually to the homeowners (a 9% - 10% reduction) through a reduction to the annual
tax levy established to repay the initial CFD bonds.
As the 2011 Bonds are nearing an optional call date of September 1, 2021, and current market
conditions present additional savings to residents. Staff and the City’s financial advisor has solicited
proposals from banks for indicative rates to refinance the remaining outstanding balance of roughly $6
million. Staff anticipates proposals from several banks at which time proposals presenting the lowest
cost of borrowing, and a structure which benefits the residents in the District will be recommended.
Savings at time of this report are estimated at $1.4 million. Actual rates will not be locked in until a
bank Term Sheet is executed based on market conditions at that time.
RECOMMENDATIONS:
Staff recommends the City Council take the following actions:
1) Authorize the refinancing of the Community Facilities District 2002-1 Special Tax Bonds
(Mountain Cove); and
APPROVED
CITY COUNCIL
4/5/2021
Mountain Cove CFD Bond Refinance
April 5, 2021
Page 2
2) Authorize the City Manager or his designee to initiate a Term Sheet for sale of the bonds through
a private placement structure to lock in interest rates to the benefit of impacted residents.
ANALYSIS:
The proposed 2021 Bonds would be approximately $6 million in par amount with a final maturity in
2032, which is the same as the final maturity for the 2002 Bonds. The final interest rate structure will be
determined after Council authorization to move forward and the term sheet is executed by Staff. To
accelerate the pricing of the bonds, and to lock in savings during volatile market periods, Staff is seeking
bank proposals assuming a call date on the bonds of June 4, 2021, which allow the bonds to be
refinanced through a tax-exempt structure.
Based on current interest rates and funds held by the Trustee, total savings over the life of the bonds is
estimated at approximately $1.4 million, or, on average, approximately $128,000 annually beginning in
2022. This results in net present value savings of approximately $1 million, or 17% of refunded par
amount. The public finance industry rule of thumb considers a refinancing that result in over 3.0% of
refunded par amount are “in the money”. Given the following four factors: 1) volatility of the interest
rate market; 2) highly competitive interest rates assigned to the bonds in 2011; 3) limited window of
opportunity for the City to execute a current refunding; and 4) desire to lock in savings for the property
owners now, Staff recommends a private placement structure. Savings from the refinancing will lower
the special tax for each resident within the Mountain Cove subject to the CFD assessment.
Once the Term Sheet is executed, Staff working with the City’s financial advisor, bond counsel and the
recommended bank’s counsel will draft the required financing documents and return to the City Council
for approval within 45 days.
FISCAL IMPACT:
The bonds are limited obligations of the District, payable solely from special tax revenue. The proposed
CFD refunding bonds will not be a direct obligation of the City of Azusa. Neither the faith or credit, nor
the taxing power of the City, County, State or any political subdivision is pledged to the repayment of
the bonds.
The refinancing of the bonds are estimated to provide meaningful savings annually to the homeowners
through a reduction to the annual tax levy established to repay the initial CFD bonds.
Prepared by: Reviewed and Approved:
Talika M. Johnson Sergio Gonzalez
Director of Administrative Services City Manage