STAFF REPORT TO THE BOARD OF DIRECTORS OF THE SUCCESSOR AGENCY TO THE HERCULES REDEVELOPMENT AGENCY DATE: Regular Meeting of January 11, 2022
TO: Board of Directors of the Successor Agency to the Hercules Redevelopment Agency
VIA: Dante Hall, Executive Director/City Manager
SUBMITTED BY: Edwin Gato, Finance Director
SUBJECT: Approval of Successor Agency to the Hercules Redevelopment Agency 2022 Tax Allocation Refunding Bonds and Related Actions RECOMMENDED ACTION:
Adopt a Resolution of the Successor Agency to the Hercules Redevelopment Agency Authorizing the Issuance and Sale of Tax Allocation Refunding Bonds in an Amount of Not to Exceed $98 million, and Approving the Form of an Indenture of Trust, the Form of Escrow Agreement, a Form of Bond Purchase Agreement, a Form of Continuing Disclosure Certificate, and Authorizing Certain other Actions in Connection Therewith.
FISCAL IMPACT OF RECOMMENDATION:
As illustrated in the Municipal Advisor’s Savings Memorandum attached hereto as Attachment 3, the issuance of Successor Agency to the Hercules Redevelopment Agency 2022 Tax Allocation Refunding Bonds (the “2022 Bonds”) is estimated to result in debt service savings of approximately $25.1 million and Net Present Value savings of approximately $17.8 million, or 19.6% of refunded par. Savings would be distributed among various taxing entities. Final savings achieved from the refunding will not be determined until the sale of the 2022 Bonds (currently estimated to be in April 2022).
In accordance with California Government Code Section 5852.1, Good Faith Estimates regarding certain financial aspects of the proposed 2022 Bonds are provided in Attachment 1. These estimates are based on market conditions as of December 21, 2021, as prepared by Stifel, Nicolaus & Company, Incorporated, as Underwriter, and reviewed by Urban Futures, Inc., as Municipal Advisor. Additionally, these estimates are based on a proportional savings structure among other assumptions; the Successor Agency may select an alternative structure for the 2022 Bonds and other assumptions may be adjusted, which would change the results. Staff will update the Board on the proposed structure when we return with a final form of the Preliminary Official Statement for Board approval.
DISCUSSION:
Background
The Former Agency previously issued four series of Hercules Merged Project Area Tax Allocation Bonds (the “Prior Obligations”). As summarized in the table below, $90.65 million of the Prior Obligations remain outstanding, all of which are callable on any date.
Health and Safety Code Section 34177.5(a)(1) authorizes successor agencies to refinance outstanding debt obligations to produce debt service savings. A successor agency is generally not permitted to issue bonds that would increase the overall indebtedness of the successor agency or provide additional proceeds to be expended, but it can issue bonds to refund prior debt obligations and effectuate debt service savings.
On October 26, 2021, the Board of Directors of the Successor Agency directed staff to proceed with the actions necessary to issue the 2022 Bonds to refinance the Successor Agency’s Prior Obligations to achieve debt service savings. If the Board approves the proposed Resolution authorizing the issuance of the 2022 Bonds, the proposed refunding bond transaction will then be presented to the Contra Costa County Countywide Oversight Board on January 24, 2022. If approved by the Oversight Board, the transaction will be submitted to the California Department of Finance (“DOF”) for approval shortly thereafter. DOF has up to 65 days to review the transaction. Because the impact of the refunding would be to reduce the interest costs associated with the Prior Obligations, it is anticipated that DOF will not object to this action.
While awaiting DOF approval, the Successor Agency’s financing team will continue preparation of the financing. This includes: (i) preparation of a Preliminary Official Statement (POS), (ii) requesting subordination of statutory and negotiated pass-through payments from the various taxing agencies, (iii) meeting with one or more rating agencies to obtain a rating on the bonds, (iv) working with bond insurers to obtain bond insurance and a debt service reserve account insurance policy for the refunding bonds, and (v) seeking final approval of the POS from the Successor Agency Board in February or March 2022.
Documents to be Approved
The proposed Resolution approves documents and actions needed to authorize the issuance and sale of the 2022 Bonds, including the following substantially final form financing documents together with any changes or additions deemed advisable and approved by any Authorized Officer. At this time, it is anticipated that the 2022 Bonds will be sold through a negotiated sale; however, the Resolution also allows for the 2022 Bonds to be sold on a private placement basis.
Indenture of Trust between the Successor Agency and the Trustee (Bank of New York Mellon Trust Company, N.A), which sets forth the material terms and provisions relating to the 2022 Bonds and whereby the Trustee agrees to certain rights and duties related to the 2022 Bonds.
Form of Escrow Agreement between the Successor Agency and the Escrow Agent (Bank of New York Mellon Trust Company, N.A.), containing terms by which the Escrow Agent will hold the 2022 Bond proceeds on behalf of the owners of the Prior Obligations to pay and discharge these Bonds on the redemption date and give proper notice to the owners.
Bond Purchase Agreement between the Successor Agency and the Underwriter (Stifel, Nicolaus & Company, Inc.), pursuant to terms and provisions of which the 2022 Bonds will be sold with a negotiated method of sale, such terms and provisions including an underwriter’s discount not to exceed 0.95% of the principal amount of the 2022 Bonds.
Continuing Disclosure Certificate delivered by the Successor Agency for the benefit of owners of the 2022 Bonds and in order to assist the Underwriter in complying with Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission. This document describes various annual and period reporting and disclosure obligations of the Successor Agency, as required by federal securities laws.
ATTACHMENTS:
Good Faith Estimates
Resolution No. 22-___ of the Successor Agency to the Hercules Redevelopment Agency Municipal Advisor’s Savings Memorandum
Indenture of Trust
Form of Escrow Agreement
Bond Purchase Agreement
Continuing Disclosure Certificate
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