City of Hawthorne
Proposed Funding Option for
Capital Improvement Projects
April 2024
Table of Contents and Executive Summary
I. Project Overview
a. The City is making significant investment in its infrastructure to address significant deferred maintenance and to improve services for residents
b. Staff conducted a statewide survey to evaluate best practices and would like to recommend issuing ~$25 million of lease revenue bonds (LRBs) to help fund a portion of its CIP II. Team Selection
a. City staff has engaged a highly qualified investment bank to help identify the optimal approach and lead the underwriting efforts on behalf of the City b. The selected underwriter has a history of success with the City of Hawthorne III. Benefits, Considerations, Cost and Timeline
a. LRBs will help the City protect reserves for a potential economic slowdown or unforeseen economic uncertainties at a favorable borrowing cost
b. To minimize its borrowing cost, staff is evaluating various structuring options and working to establish policies that could help deliver a credit rating upgrade c. Preliminary timeline would secure funds by July 2024 Section I
Project Overview
3 The City is Making Large Investments in its Infrastructure The City has done a good job of
improving cash reserves and is
now undertaking much needed
capital improvements for
residents
CIP projects total [$42.8
million] over 5-years
City staff is using a variety of
funding mechanisms to minimize
or eliminate debt financing
Local return dollars
Federal, State, County and
local grants
ARPA funds
General Fund
City of Hawthorne Capital Improvement Projects
Project Est. Cost
El Segundo Blvd. Improvement (Phase II) $600,000
Imperial Highway Improvement $3,800,000
El Segundo Blvd Improvement (Phase I) $2,000,000
Rosecrans Ave Improvement $4,000,000
Rosecrans Ave (Signal & Capacity Enh.) $2,000,000
120th St. Improvements (Phase II) $0
Crenshaw Blvd Improvement $4,000,000
North East Hawthorne Improvement $4,300,000
120th St. Improvement (105 Fwy To Felton) $3,200,000
Moneta Gardens Improvement $4,600,000
Hawthorne Blvd Mobility (Phase II) $2,350,000
Betty Ainsworth Gymnasium Roof Replacement $787,000
Sewer Main & Misc Storm Drain $2,200,000
Seismic Retrofit 2023 $0
City Owned Building Roof Rehabilitation $1,500,000
Hawthorne Jim Thorpe & Council Chambers $444,000
Hawthorne Memorial Center Hvac System $2,426,000
Hawthorne Housing Rehabilitation $4,147,000
Zela Davis Park Renovation Project $0
Alley Improvement Project Cdbg Funds $450,000
Total $42,804,000
4 CIP Funding Survey of California Cities to Evaluate Best Practices Recent Civic Center and Public Safety Expansion Projects ($millions) Rialto Indio Lake Elsinore Ontario Fontana S. San Francisco Projects Police Station
Refunding +
Public Safety +
City Hall
City Hall City Hall +
Fire Station
Refunding +
Fire Station +
Training Facility
Civic Center +
Police Station
Funding
Mechanism
Lease Revenue
Bonds
Lease Revenue
Bonds
Lease Revenue
Bonds
Lease Revenue
Bonds
Lease Revenue
Bonds
Lease Revenue
Bonds
Sale Date Dec 2023 Jun 2022 Jun 2022 May 2022 Oct 2021 May 2021 Bond Amount $56.5 $119.5 $23.7 $90.8 $23.1 $86.4
Project Cost $83.0 $106.0 $28.0-30.0 $136.3 $22.0 $185.8 Completion Jul 2026 Q1 2025 Jun 2024 Q2 2025 Mar 2023 Q2 2023 California cities are investing in public infrastructure due to years of deferred maintenance Many cities have healthy General Fund budgets due to growing property taxes, increasing sales taxes and Federal and State grants
To identify best practices, our team conducted a survey of the funding mechanism most commonly used by peer group cities throughout the State Our statewide survey shows LRBs are the most commonly used funding tool for CIP projects of all sizes
Section II
Team Selection
6 The City Engaged a Top Ranked Investment Bank
52 52 years in business (one of the oldest and largest privately-owned investment bank in the U.S.)
25% Ramirez is an underwriter in 25% of all municipal bonds sold nationally since 2020 (full credit to each)
80% 80% of Ramirez’ business is in municipal bonds
$5.3 bn Sufficient capital to underwrite a $5.3 billion issue $211M Average size for Ramirez senior managed bond issues* 36 17 municipal bond sales specialist, 16 taxable bond sales specialist and 3 local gov’t investment pool sales specialists
*Source: Thomson Reuters from
1/1/2020 through 10/26/2023
The City has engaged Ramirez because they have the experience and resources to deliver the lowest borrowing cost to the City
National resources with local experts and history of working with the City Eric McKean
Managing Director
General
Government Expert
7 Local Banking Professionals with Relevant Experience
Fernando Guerra
Managing Director
Policy Expert
Esthela Carreon
Vice President
Banking Support
General Government Team
Patty McGrorry
Managing Director
Lead Underwriter
Peter Block
Managing Director
Credit Strategies
Underwriting and Credit ($5.3 billion UW Capacity)
Banking Coverage Team
Raul Amezcua, Senior Managing Director
Role: Head of West Coast Public Finance
32+ years of experience
Former Head of CA Public Finance at
Stifel & De La Rosa & Co.; joined
Ramirez in same role on Feb. 1, 2021
Mike Mejia, Managing Director
Role: California Specialist
Lead banker on the City’s 2019 POBs
Structured over 100 California senior
managed financings with a par amount
of more than $7 billion
Shayan Golshan, Associate
Role: General Government Support
Most recently helped craft the credit
narrative and execute LRBs for the cities
of Placentia, Lynwood and El Centro
8 Experience Working with California Cities
$20,000,000* $42,295,000 $12,715,000 $9,190,000 $174,740,000
CITY OF
MONTEREY PARK
CITY OF
INGLEWOOD CITY OF CLOVIS
PLACENTIA PUBLIC
CFINANCING AUTHORITY
CITY OF
LOS ANGELES
Sole Manager Senior Manager Sole Manager Sole Manager Co-Senior Manager March 2024 September 2023 August 2023 August 2023 July 2023 $40,825,000 $10,275,000 $21,330,000 $90,830,000 $36,525,000
EL CENTRO PUBLIC
FINANCING AUTHORITY
SUCCESSOR AGENCY TO
CITY OF LYNWOOD
SUCCESSOR AGENCY TO
CITY OF VERNON
ONTARIO PUBLIC
FINANCING AUTHORITY
CITY OF
SAN FERNANDO
Senior Manager Sole Manager Sole Manager Senior Manager Sole Manager May 2023 October 2022 June 2022 May 2022 August 2021
$226,180,000 $16,700,000 $106,335,000 $17,590,000 $121,865,000
CITY OF
REDONDO BEACH
EL CENTRO FINANCING
AUTHORITY
CITY OF
MONTEREY PARK
CITY OF
COACHELLA
CITY OF
HAWTHORNE
Joint-Book Runner Sole Manager Senior Manager Sole Manager Senior Manager July 2021 May 2021 February 2021 November 2020 September 2019 *Pending; subject to change.
9 Successful History with the City of Hawthorne
Overview
City of Hawthorne
2019 Taxable Pension
Obligation Bonds
Date: September 2019
$121,865,000 Bonds were issued to refinance the City’s entire unfunded accrued actuarial liability of the California Public
Employees’ Retirement System
Successful
Results
Structured with level debt service to improve future
budgetary control and secure refunding savings
30-year level debt service and a traditional 10-year
par call option
Ramirez conducted a robust two week marketing period
to secure credit approval from the maximum number of
investors
Marketing included an investor roadshow and
multiple one-on-one calls with investors
Generated orders from a broad universe of buyers
that allowed Ramirez to reduce spreads by 10 bps
in 2049 from pre-pricing levels
Investor demand helped secure an All-In True Interest Sole Senior Manager Cost of 3.61%
Section III
Benefits, Considerations, Cost and Timeline
11 LRBs Offer a Cost Effective Funding Option to the City 1/18/2000
High: 6.04%
8/10/2020
Low: 1.28%
0.0 1.0
2.0 3.0
4.0 5.0
6.0 7.0
Jan-00Jan-01Jan-02Jan-03Jan-04Jan-05Jan-06Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19Jan-20Jan-21Jan-22Jan-23Jan-24 Since 2000
Average: 3.74%
Current
4/3/2024: 3.78%
30-Year Tax-Exempt Interest Rates (January 2000 to Present) Interest rates are at historical averages despite increases from their all-time lows (COVID) Cities utilize LRBs as a funding sources to protect reserves and spread upfront costs LRBs are most commonly structured with level debt service over 30 years Bonds will include an option to refinance the bonds prior to their maturity 12 LRBs Offer a Cost Effective Funding Option to the City In preparation for a bond financing, the
City will be making an effort to improve
its credit rating
The City is establishing management
policies that are considered best
practices by the rating agencies
Higher rating would reduce the
borrowing cost of the transaction
Structuring alternatives will be evaluated
in the upcoming months to ensure the
City moves forward with the most
favorable option
Asset transfer to eliminate
capitalized interest
Net vs. Gross funding
Sample Bond Cost - $25 million
City of Hawthorne1
30-year Level Debt Service –10-year Par Call
Project Fund $25,000,000
Interest Rate2 4.24%
Annual Debt Service $1,484,599
Total Debt Service $44,537,975
1Preliminary; subject to change.
2All-in True Interest Cost.
City of Hawthorne Credit Overview
Current Rating in High Grade Category
‘Aa3/AA-/--’
City will focus on the following
Revenue growth and strong liquidity
Robust economic development
Best practices on financial policies to
improve management score
13 Preliminary Timeline1
Date Action
May 7th Kick-off Zoom call to discuss the Plan of Finance May 9th Draft preliminary staff report recommending the City formally hire the financing team circulated May 14th Comments due on preliminary staff report
May 21st Staff report submitted to City Clerk
May 28th City Council meeting to formally appoint financing team June 4th Initial draft of bond documents and POS circulated June 11th Comments due on bond documents and POS
June 18th Second draft of bond documents and POS circulated June 20th Comments due on bond documents and POS
June 25th First draft of Credit Presentation, third draft of bond documents and POS circulated June 27th All hand meeting to review Credit Presentation July 2nd Second draft of Credit Presentation circulated July 9th Comments due on second draft of Credit Presentation, third draft of bond documents and POS July 9th Third draft of Credit Presentation circulated
July 11th Comments due on third draft of Credit Presentation July 15th Submit Credit Package to Rating Agency and
Bond Insurers (if needed) and distribute proposed final Credit Presentation July 16th Credit Presentation Prep Call
Wk of July 22nd Credit Rating Presentation
Wk of August 5th Rating due
August 13th City Council meeting to approve sale of LRBs August 15th Post POS
August 21st Pre-pricing call
August 22nd Price Bonds
September 18th Closing
1Preliminary; subject to change.
Ramirez & Co., Inc. (“Ramirez”) has prepared this material and any accompanying information exclusively for the resolution to whom it is directly addressed and delivered in anticipation of serving as an underwriter to you. As part of our services as underwriter, Ramirez may provide advice concerning the structure, timing, terms, and other similar matters concerning potential financings Ramirez proposed to underwrite. This presentation is not complete and should only be viewed in conjunction with any oral briefing provided and any related subsequent material and/or presentation.
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