BACKGROUND
The Redevelopment Agency of the City of Cathedral City (the “Predecessor Agency”) adopted redevelopment plans for Cathedral City Redevelopment Project Area No. 1, Cathedral City Redevelopment Project Area No. 2 and Cathedral City Redevelopment Project Area No. 3, each located within the City of Cathedral City (the “City”).
Thereafter, on September 27, 2006, Cathedral City Redevelopment Project Area No. 1, Cathedral City Redevelopment Project Area No. 2 and Cathedral City Redevelopment Project Area No. 3 were merged to create a merged redevelopment project area (the “Merged Redevelopment Project Area”).
To finance projects within the Merged Redevelopment Project Area, the Predecessor Agency caused the Cathedral City Public Financing Authority (the “Authority”) to issue several series of tax allocation revenue bonds (the “Authority Bonds”), payable from amounts received from the Predecessor Agency pursuant to its:
•2000A Merged Redevelopment Project Area Bonds,
•2000B Merged Redevelopment Project Area Bonds,
•2002A Merged Redevelopment Project Area and Project Area No. 3 Bonds, •2004A Project Area No. 3 Bonds,
•2004B Project Area No. 3 Taxable Bonds,
•2007A Merged Redevelopment Project Area Bonds,
•2007B Merged Redevelopment Project Area Bonds, and
•2007C Merged Redevelopment Project Area Subordinate Bonds (collectively, the “Predecessor Agency Obligations”).
On June 28, 2011, the California Legislature adopted ABx1 26 to, inter alia, dissolve existing redevelopment agencies, including the Predecessor Agency. In accordance with the legislation, the Predecessor Agency was dissolved on February 1, 2012 and the Successor Agency was initially formed pursuant to Resolution No. 2011-133 of the City Council, adopted on May 25, 2011, and such formation was reaffirmed pursuant to Resolution No. 2012-153 of the City Council, adopted on January 12, 2012.
On June 27, 2012, AB 1484 was adopted and specifically authorizes the issuance of refunding bonds by the Successor Agency under the authority of Article 11 (commencing with Section 53580) of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California and provides in Section 34177.5(a)(1) of the Health and Safety Code that “[t]he successor agency may pledge to the refunding bonds or other indebtedness the revenues pledged to the bonds or other indebtedness being refunded, and that pledge, when made in connection with the issuance of such refunding bonds or other indebtedness, shall have the same lien priority as the pledge of the bonds or other obligations to be refunded, and shall be valid, binding and enforceable in accordance with its terms.” Section 34177.5(g) of the Health and Safety Code states any bonds approved under this section will be seen as debt taken on by the dissolved redevelopment agency – as if the bonds had been issued before June 29, 2011, following all the old rules under the Community Redevelopment Law.
On October 15, 2014, the Successor Agency refinanced the Series 2000A, Series 2002A and 2004A Predecessor Agency Obligations to achieve debt service savings and caused the issuance of several series of tax allocation revenue bonds:
•2014A Merged Redevelopment Project Area Bonds,
•2014B Merged Redevelopment Project Area Housing Bonds, and •2014C Merged Redevelopment Project Area Taxable Bonds (collectively, the “Successor Agency Obligations”).
On January 21, 2021, the Successor Agency refinanced the Series 2004B, 2007A and 2007B Predecessor Agency Obligations to achieve debt service savings and caused the issuance of several series of tax allocation revenue bonds:
•2021A Merged Redevelopment Project Area Bonds,
•2021B Merged Redevelopment Project Area Housing Bonds, and •2021C Merged Redevelopment Project Area Subordinate Bonds.
The following table summarizes the outstanding Predecessor Agency and Successor Agency obligations.
Table 1. Outstanding Obligations
Bond
Series
Bond Balance
(FY 2024/25)
Term
(Fiscal Year Ending)
2000A $1,949,907 2000-2034
2007B $24,150,000 2007-2032
2014A $25,295,000 2015-2035
2014B $9,865,000 2015-2034
2014C $7,285,000 2015-2034
2021A $24,760,000 2022-2036
2021B $4,385,000 2022-2033
2021C $14,125,000 2022-2032
DISCUSSION:
Given the favorable interest rate market conditions, the Successor Agency can achieve debt service savings and provide assistance to local taxing entities through the refunding or prepayment of either all or a portion of the Successor Agency Obligations Series 2014A and Series 2014B Bonds.
Based on market conditions as of March 4, 2024, the total gross savings in annual debt service payments are estimated at $2.88 million, and present value savings estimated at $2.44 million or 6.94%. In accordance with the City's debt policy, a minimum savings level of 3.00% is required to proceed with a refunding. However, should the City decide to move forward with the refunding, the minimum savings target for the Refunding Bonds will be set at 5.00%.
To assess the impact of interest rates on total savings, the table below outlines various scenarios where interest rates increase from those of March 4, 2024. Interest rates would need to rise by approximately 40 basis points above those of March 1, 2024, to achieve a net present value savings of approximately 5.00%.
Table 2: Interest Rate Sensitivity Analysis
Interest Rates
as of 3/4/2024 +25bps +35bps +40bps
True Interest Cost (%): 3.11% 3.36% 3.46% 3.52%
All-In True Interest Cost (%): 3.45% 3.70% 3.81% 3.86%
Gross Savings ($): $2,875,708 $2,410,208 $2,223,056 $2,127,847 Net PV Savings ($): $2,441,705 $2,022,693 $1,857,078 $1,774,689 % Savings of Refunded Bonds: 6.94% 5.75% 5.28% 5.05%
City Share (~16%): $ 460,113 $ 385,633 $ 355,689 $ 340,456 Other Tax Entities Share
(~84%): $2,415,595 $2,024,575 $1,867,367 $1,787,392
Timing of Refunding Bonds
The financing may take approximately 4 to 5 months to issue the Refunding Bonds, and provided below are the key milestones to complete the financing. •April 24, 2024, Successor Agency Approval
•April 25, 2024, Agenda Deadline for County Oversight Board Meeting •May 16, 2024, County Oversight Board Approval
•May 17, 2024, Dept of Finance (DOF) Request Submission •June 10, 2024, Rating Presentation
•June 13, 2024, Receive DOF Approval
•June 14, 2024, Receive Rating
•June 25, 2024, Bond Sale
•July 11, 2024, Bond Closing
Documents to be Approved by the Successor Agency
If approved to proceed, the financing and legal documents to be approved by the Successor Agency at the April 24, 2024 City Council meeting will include:
•Successor Agency Resolution. The Resolution approves the issuance of the Refunding Bonds and authorizes certain authorized officers of the City to execute an Indenture of Trust and other legal documents as well as take other official actions necessary for issuing the Refunding Bonds on behalf of the Successor Agency. The Resolution authorizes the execution of the following documents:
oIndenture. This document provides the covenants and conditions for the Refunding Bonds and the duties of the trustee to the owners of the Refunding Bonds. It supplies the federal tax covenants to assure tax exemption of interest, as applicable, and, after pricing, will contain the final maturities and interest rates for the Refunding Bonds.
oEscrow Agreement. This is a form of agreement between the Successor Agency and the Trustee acting as Escrow Agent for the Successor Agency Obligations and specify the terms and conditions to provide for the payment and redemption of the outstanding Successor Agency Obligations.
oPreliminary Official Statement. This document is used by the Successor Agency to describe the bond financing and matters material to investors' decision to buy the Refunding Bonds, including certain risks.
This document will be completed with the final terms of the Refunding Bonds and interest rates when sold to the underwriter at pricing and become the final Official Statement.
oBond Purchase Agreement. This is a form of agreement for the purchase of the Refunding Bonds from the Successor Agency by the underwriter. It will require completion to show the final pricing items. oContinuing Disclosure Agreement. This document requires the Successor Agency to provide certain financial information and operating data relating to the Successor Agency and notices of the occurrences of certain enumerated events to be filed with the Municipal Securities Rulemaking Board to assist the underwriter in complying with Rule 15c2- 12 of the Securities and Exchange Commission.
FISCAL IMPACT:
The estimated annual savings for City General Fund revenues are 16% of the gross annual savings, while the remaining 84% will be passed on to our other taxing entities.
Table 3. Estimated Gross Annual Savings*
Maturity
Date
Prior
Debt
Service
New
Debt
Service
Total
Savings
Estimated
City’s Share
of Savings
8/1/2025 $ 4,504,500 $ 4,207,292 $ 297,208 $ 47,553
8/1/2026 4,505,250 4,212,750 292,500 46,800
8/1/2027 4,513,750 4,215,750 298,000 47,680
8/1/2028 4,509,250 4,211,500 297,750 47,640
8/1/2029 4,507,000 4,205,000 302,000 48,320
8/1/2030 4,506,500 4,211,000 295,500 47,280
8/1/2031 4,497,250 4,198,500 298,750 47,800
8/1/2032 4,504,250 4,208,000 296,250 47,400
8/1/2033 3,221,250 2,923,000 298,250 47,720
8/1/2034 1,937,250 1,737,750 199,500 31,920
Total $41,206,250 $38,330,542 $2,875,708 $460,113
*Based on interest rates as of March 4, 2024.
FIVE-YEAR STRATEGIC PLAN:
Goal C: FISCAL STABILITY and SUSTAINABILITY
Objective: Cathedral City has economically prospered by facilitating investment of private dollars in high quality development which benefits the community. We remain financially solvent by instituting prudent fiscal policies and transparent financial practices.