To:Belinda Espinosa, Executive Director

Successor Agency Report 2015-24

Meeting Date: April 7, 20151

DATE:APRIL 7, 2015

TO:BELINDA ESPINOSA, EXECUTIVE DIRECTOR

FROM:HECTOR DE LA ROSA, ASSISTANT EXECUTIVE DIRECTOR

SUBJECT:JOINT RESOLUTIONS OF THE CITY OF PINOLE AND THE SUCCESSOR AGENCY OF THE CITY OF PINOLE AUTHORIZING THE CITY MANAGER/EXECUTIVE DIRECTOR TO ENTER INTO MULTIPLE CONTRACTS FOR THE REFUNDING OF REDEVELOPMENT AGENCY TAX ALLOCATION BONDS (1998A, 1998B, 1999, 2003A, 2004A, & 2004B).

RECOMMENDATION

It is recommended that the City of Pinole (“City”) and the Successor Agency of the City of Pinole (“Successor Agency”) adopt:

1.Joint Resolution No. ____, “Authorizing the City Manager and Executive Director to enter into a Contract with Stifel, Nicolaus & Company Inc. to Serve as Underwriter for the Refunding of Redevelopment Agency Tax Allocation Bonds (1998A, 1998B, 1999, 2003A, 2004A, & 2004B).”

2.Joint Resolution No. ____, “Authorizing the City Manager and Executive Director to enter into an amendment to the existing Legal ServicesAgreementwith Meyers Nave Riback Silver & Wilson, A Professional Corporation, (“Meyers Nave”) to Serve as Bond Counsel and Disclosure Counsel for the Refunding of Redevelopment Agency Tax Allocation Bonds (1998A, 1998B, 1999, 2003A, 2004A, & 2004B).”

3. Joint Resolution No. ____, “Authorizing the City Manager and Executive Director to enter into a Contract with NHA Advisors to Serve as Financial Advisors for the Refunding of Redevelopment Agency Tax Allocation Bonds (1998A, 1998B, 1999, 2003A, 2004A, & 2004B).”

4.Joint Resolution No. ____, “Authorizing the City Manager and Executive Director to enter into a Contract with HDL Companiesto Prepare a Fiscal Consultant Report for the Refunding of Redevelopment Agency Tax Allocation Bonds (1998A, 1998B, 1999, 2003A, 2004A, & 2004B).”

BACKGROUND

Since the elimination of redevelopment, the State has allowed for refinancing through AB 1484 (Health and Safety Code 34177.5) allowing a Successor Agency to issue bonds provided certain factors are met.

Requirements include:

• Not incurring additional interest costs,
• Not incurring additional principal other than the amount needed to redeem the outstanding bonds,
• Saving should pay for issuance costs, and
• Agency must meet the required debt reserves.

Based on a preliminary analysis provided by Stifel, Nicolaus and Company (also reviewed by our Finance Director, Richard Loomis) it was determined that there appears to be sufficient interest rate savings to justify a refunding of existing bonded indebtedness. As part of AB 1484, there are multiple steps involved in receiving approval and issuing any Refunding Bonds. The steps necessary to issue Refunding Bonds include the following:

• Successor Agency Board approval of Refunding Bond documents.
• Oversight Board approval of Refunding Bonds.
• State Department of Finance (DOF) approval of financing plan and Refunding Bonds.
• Drafting and approval of Refunding Bond Official Statement required to sell bonds.
• Refunding Bonds credit and rating process.
• Sale of Refunding Bonds, and
• Close financing and redeem old bonds.

It is anticipated that with City Council and Agency Board approval of the Resolutions, the Refunding Bonds could be completed by the end of FY 2014-15 with property tax revenues flowing to the City and other taxing entities by the beginning of FY 2015-16.

With the decline of interest rates and with the ability of all Bonds to be “callable” on any date, it appears an ideal time to refund the previously issued Redevlopment Agency Bonds. Interest rates are currently lower for this type of issuance than we currently pay. Based on the lower interest rates, it is estimated that over the next eight (8) years there can be a saving of up to $5,796,503 if the Bonds are insured or $2,238,993 if the debt service reserve is “cash” funded. The savings will no longer be distributed to the RDA through the ROPS for debt service but will now be distributed to the taxing agencies and the City who will receive 18.87%.

REVIEW AND ANALYSIS

Refunding of the Bonds requires issuance of new bonds to pay off the older, higher interest bonds. The debt service for the new bonds, which hold lower interest rates are then paid annually from Redevelopment Property Tax Trust Fund (RPTTF). The debt service payment will continue until 2023 which is the term of the original bonds.

In order to issue bonds, which will benefit the City and the taxing agencies in the County, the Agency will need to gather a professional team consisting of Bond Counsel and Disclosure Counsel, an Underwriter, and a Financial Advisor who will address all legal and financial matters pertaining to the refunding of the bonds.

Bond Counsel

One of the required contractual agreements in the process is to secure “Bond Counsel and Disclosure Counsel” as a part of the financial team. The firm of Meyers Nave has been selected to represent the Agency as Bond Counsel and Disclosure Counsel. Meyers Nave will assign two separate Attorneys who specialize in this area to work with the Agency in different capacities.

The role of Bond Counsel is to give the traditional bond counsel opinion. Such opinion customarily opines that the bonds have been validly issued and, if tax exemption is intended, that the bonds are considered tax-exempt bonds. Typically, Bond Counsel may prepare, or review and advise the issuer regarding authorizing resolutions, bond contracts, official statements,validation proceedings and litigation.

Disclosure Counsel

The role of Disclosure Counsel is to provide consulting services to the Agency and its financial team with respect to the timing, terms, legal structure of the proposed bonds, advice on issuer disclosure obligations and/or continuing disclosure agreement.

The Bond Counsel and Disclosure Counsel will also prepare all documents that need to be approved by the Successor Agency that are required for the authorization, sale and issuance of the bonds. Included is the preparation of the Bond Resolution and the Indenture, assistance on the preparation of the Official Statement, the issue of a tax and a validity opinion, as well as the Continuing Disclosure Agreement and Certificate. Meyers Nave already serves as the City/Agency’s City Attorney. An amendment to the legal services agreement is warranted in order to add bond and disclosure counsel services to the scope of services.

Underwriter

The second component of the team is the Underwriter. The role of Underwriter is to act as the intermediary between issuers and investors and to assist the Agency in ensuring the marketability of the bonds at the lowest possible interest rate. Underwriters can sell bonds in the public market or as a private placement. Staff has selected Stifel, Nicolaus and Company as the underwriter for this refunding based on the firm's prior history with bond deals, reference checks and prior history with the City/Agency.

Stifel, Nicolaus and Company has structured many Bond deals for various cities including the City of Pinole. Ralph Holmes, Managing Director for the firm of Stifel, Nicolaus and Companywill serve as the lead person and will work with Bond Counsel to structure the bonds to meet the Agency's objectives as well as recommend a financing structure, maturity schedule for the bonds, redemption term, and other terms of notice for the sale.

Financial Advisor

The third component of the team is the Financial Advisor. The role of the Financial Advisor is to look out for the interest of the Bond issuer – the Agency. They also provide quantitative analysis, financial advice, debt structuringassistance, fairly assess whether the bond financing terms and covenants are favorable to the Agency and whether the bond rates and yields are favorable. They will evaluate whether it is best to insure the bonds or sell the bonds as a public or private placement.

As required under AB 1484, the Financial Advisor will evaluate the tax increment cash flow management plan for the Agency, determine whether the cash flow management plan for the Redevelopment Property Tax Trust Fund (“RPTTF”) will work with respect to Recognized Obligation Payment Schedule (“ROPS”) procedures of the Agency and the timing of debt payments by the Agency to all of its obligors.

HDL Companies

Under AB 1484, the Agency seeking a refunding of agency bonds is required to submit a Fiscal Consultants Report to the Department of Finance(DOF). The Fiscal Consultants Report describes the assumptions and presents projections of the Project Area revenues to fund debt service payments. The report will reflect justification of the saving obtained by Refunding the Bonds at the lower interest rates, obtaining insurance and/or cash funding reserves. This information is required for approval of the Refunding of the RDA Bonds by the DOF.

Staff will be working on a tight time frame in order to refund this issuance prior to June 2015, the expected date in which interest rates are anticipated to increase. As such, within the next month staff will be presenting the Oversight Board with various Resolutions and documents for their approval.

FINANCIAL CONSIDERATIONS

Depending on the bond structure, whether the refunding will be secured by a surety reserve or with a cash funded reserve, the interest rates obtained at the time of the sale, private and/or a public sale of the bonds, the overall refunding saving can range from $2.6 million to $5.8 million over the term of the bonds (8 years).

The remainder of the savings will be distributed to the various taxing agencies on an annual basis with the City receiving nearly 19% of the savings estimated at $400,000 to $1,000,000 over the next 8 years.

Staff has determined that the costs proposed by the various team consultants are within the “median” costs based on number of bonds issued between 2009-2011. The information reflected on Table 1 is still relevant given that interest rates have continue to remain as low as they were in 2009-2011.

TABLE 1 - MAJOR ISSUANCE EXPENSES BY PAR VALUE
PAR VALUE / EXPENSES
CATEGORY (IN MILLIONS) / NUMBER IN CATEGORY / MEDIAN / UNDER-WRITER SPREAD / FINANCIAL ADVISOR FEE / LEGAL FEE / TOTAL
<$10: 175 $5,200,000 / MEDIAN / $50,000 / $63,675 / $47,500 / $161,175
% OFPAR / 1.00% / 1.18% / 0.92% / 3.10%
$10 - <$25: 118 $15,070,000 / MEDIAN / $132,654 / $75,750 / $59,000 / $267,404
% OF PAR / 0.95% / 0.47% / 0.38% / 1.80%
$25 - <$75 133 $38,389,923 / MEDIAN / $275,725 / $82,450 / $79,125 / $437,300
% OF PAR / 0.70% / 0.21% / 0.19% / 1.10%
$75 and Over 52 $127,500,000 / MEDIAN / $803,318 / $90,221 / $139,549 / $1,033,088
% OF PAR / 0.56% / 0.08% / 0.11% / 0.74%

California Debt Investment and Advisory Commission- “California Local Agency General Obligation Bond Cost of Issuance 2009-2011”

The savings from the refunding will be used to recover staff time and to pay the fees to the various team members estimated to range from $389,000 to $450,000. The breakdown of the cost to the various team members is outlined below:

Bond Counsel$65,000

Disclosure Counsel$35,000

Underwriter$6.50 per $1,000 of bonds or $234,000 (based on $36 million refunding)

Financial Advisor$57,500 (for private placement) or $80,000 (for a Public Placement)

HDL Company$22,500 plus expenses

Staff time$10,000 (estimate for all staff – Finance, Assistant City Manager, City Manager)

If the bonds are not refinanced, the Agency would not incur any cost

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