HomeMy WebLinkAboutRefund of Sec 29 AD No. 2004-02 Limited Obligation Bonds Series 2007CITY OF PALM DESERT
STAFF REPORT
MEETING DATE: September 10, 2020
SUBMITTED BY: Veronica Tapia, Senior Management Analyst
REQUEST: CONSIDERATION OF REFUNDING SECTION 29 ASSESSMENT
DISTRICT (NO. 2004-02) LIMITED OBLIGATION IMPROVEMENT
BONDS, SERIES 2007
Recommendation
That the City Council, by Minute Motion:
1) Authorize City Manager and the Finance Officer (Director of Finance of the City
of Palm Desert) to begin working with the financing team (including; Best, Best
and Krieger; Richards, Watson and Gershon; Del Rio Advisors; and Willdan
Financial Services) to prepare the necessary documentation for the issuance of
the refunding bonds for Section 29 Assessment District (""District"") Series 2007
Bonds. This will include entering into engagement letters and agreements with
the financing team for their services; and
2) Authorize staff to select an underwriter from the approved Underwriters Pool
based on the criteria established in the Request for Qualifications dated June 4,
2018 and prioritized by the refunding needs of the District.
Strateqic Plan
Approval of the Section 29 Assessment District Refunding Bond Plan supports the Land
Use, Housing and Open Space Priority 2 by financing improvements that will assist in
furthering the development of the City's northern section.
Executive Summary
A review of the outstanding principal and current interest rates for the Section 29
Assessment District Limited Obligation Improvement Bonds indicates there is potential
savings from a refunding of the debt of about $3.49 million or 17.63% net present value.
Background
The City, on behalf of the District, issued one series of bonds (debt) in 2007 with a par
amount of $29.4 million. The repayment of that debt is a burden that is carried by the
STAFF REPORT
SECTION 29 ASSESSMENT DISTRICT BOND REFUNDING
SEPTEMBER 10, 2020
PAGE 2
property owners within the District boundaries. Currently, $18,765,000 in principal
remains outstanding.
The District is located entirely within the City at the northwest corner of Portola Avenue
and Gerald Ford Drive and was created to finance the costs associated with the public
improvements necessary to develop the area. The area is generally known as the
Gateway Area of North Palm Desert. The area is predominantly residential, with some
commercial uses along Gerald Ford Drive in the vicinity of the District. Property in the
District subject to the lien of the Assessments (the "Assessments") consists of
approximately 260 acres, most of which is undeveloped. The property is planned for
mixed use development including commercial, multifamily residential and single family
residential.
The Bonds are limited obligations of the City secured by unpaid Assessments on the
properties within the District. The Bonds are not a debt of the City, the State of
California, nor any of its political subdivisions is liable therefore. The Bonds do not
constitute indebtedness within the meaning of any constitutional or statutory debt limit or
restriction.
As the municipal advisor for the outstanding bonds, Del Rio Advisors, LLC was engaged
by the City to determine if any cost savings could be recognized through debt refunding.
Del Rio Advisors determined that there is savings available as of their August 12, 2020
analysis. In general, a net present value savings of 3.00% or greater are considered
significant.
Based on current rates and the credit worthiness of the issue, Del Rio Advisors
determined that the District has the potential to realize approximately $275,006 in
savings to annual debt service payments. In total, refunding the outstanding debt may
generate savings of approximately $4.4 million over the life of the bond. That equates
to about $3.49 million net present value savings (or 17.63% NPV savings). Additionally,
recent analyses provided by multiple underwriters in the Underwriting Pool indicate
even greater savings may exist depending on the timing of the refunding.
Based on the analysis of Del Rio Advisors, staff would like to move forward with the
refunding of the District debt and will need to assimilate the refunding financing team.
The refunding would need to be completed by January 29, 2021 in order to redeem the
current bonds on their next available call date of March 2, 2021, so time is of the
essence.
In addition to the municipal advisor, there are many other participants involved in the
issuance of refunding bonds. An Underwriter will need to be selected from the
established Pool. The underwriter is responsible for marketing the bonds to potential
investors, buying the Refunding Bonds from the City at closing, and then sell the
Refunding Bonds after the closing to investors.
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STAFF REPORT
SECTION 29 ASSESSMENT DISTRICT BOND REFUNDING
SEPTEMBER 10, 2020
PAGE 3
Other participants include Bond Counsel, who will provide advice from a legal
perspective related to the issuance of debt, prepare the key legal documents for the
transaction and, upon closing, deliver its opinions regarding the legal validity of the
Refunding Bonds. Disclosure Counsel will assist the City with the preparation of an
official statement, the document which provides disclosures to investors regarding the
terms, the source of repayment, and certain investment risks pertaining to the
Refunding Bonds. Some of the key information in the official statement will be based on
the Engineer's Report provided by the Assessment District Engineer. These are the
legal and financial representations that the buyers of the bonds rely upon to make their
investments.
The costs of issuance for the Refunding Bonds (including the underwriter's discount,
compensation to the Municipal Advisor, Bond Counsel, Disclosure Counsel, District
Engineer and other costs (i.e. staff costs, printing costs for the official statement)) are
estimated to be under 2.5% of the total principal amount of the Refunding Bonds, or
approximately $465,000. The costs of issuance are paid to the financing team members
from the bond refunding and has no impact on the City's General Fund.
If the City Council approves this request, the City Manager and the Finance Officer
(Director of Finance) will assemble the team and begin working with the financing team
to prepare the necessary documentation for the issuance of the refunding bonds. This
will include entering into engagement letters and agreements for the financing team for
their services. The estimated value of each of the team members identified will be well
within the City Manager's authority, with the exception of Bond Counsel and the
Municipal Advisor (estimated at $65,000 and $62,500 respectively). Due to their
involvement in the original issue, the value associated with their knowledge of the
product provides a cost efficiency for their continued participation in this issue.
Fiscal Analvsis
As shown in the Plan of Refunding and Savings Analysis, the estimated debt service
savings from the refunding, based on bond market conditions as of mid -August, 2020,
are as follows:
Outstanding
Principal to be
Refunded
$18,760,000
Expected Total
Debt Service
Savings from
Refunding
$4,400,096
Average Annual
Savings
$275,006
Net Present
Value Savings as
Percentage of
Prior Issue
17.63%
W:AStaft Reports - Shared\Staff Reports 09-10-2020A4 - City Clerk 9-10-20\Section 29 Refunding\02 SR Section 29 Refunding Plan VT 8-27-20.doc
STAFF REPORT
SECTION 29 ASSESSMENT DISTRICT BOND REFUNDING
SEPTEMBER 10, 2020
PAGE 4
In general, and per the City's Debt Management Policy, a net present value savings of
3.00% or greater are considered significant and supports a refunding. The current
estimated net present value savings of 17.63% provide a substantial cushion for
adverse changes in the market. The savings will benefit the current and future property
owners within the Section 29 Assessment District. There is no impact to the City's
General Fund from this request.
LEGAL REVIEW
Reviewed by RWG
Robert W. Hargreaves
City Attorney
CONTENTS
DEPT. REVIEW
yct*vet". "'Dom®
Janet M. Moore
Director of Finance
FINANCIAL REVIEW
Janet M. Moore
Director of Finance
Plan of Refunding and Savings
CITY MANAGER
Lauri Aylaian
City Manager
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