DATE:
March 21, 2023
TO:
Mayor and City Council Members
FROM:
Nils Bentsen, City Manager
BY:
Casey Brooksher, Director of Administrative Services
SUBJECT:
Resolution Approving Institution of Proceedings to Issue 2023 Refunding Lease Revenue Bonds to Refinance the Outstanding Hesperia Joint Public Financing Authority 2013 Lease Revenue Bonds (Refinancing of the 2005 Civic Plaza Financing)
RECOMMENDED ACTION
It is recommended that the City Council adopt the following resolution:
RESOLUTION NO. 2023-18 – RESOLUTION OF THE CITY OF HESPERIA APPROVING INSTITUTION OF PROCEEDINGS TO REFINANCE OUTSTANDING LEASE REVENUE BONDS OF THE HESPERIA JOINT PUBLIC FINANCE AUTHORITY, AND ENGAGING PROFESSIONAL SERVICES RELATING THERETO
BACKGROUND
In 2013, the Hesperia Joint Public Finance Authority (Authority) issued refunding bonds (“2013 Bonds”) to refinance the City of Hesperia’s (City) outstanding 2005 Variable Rate Demand Certificates of Participation (Civic Plaza Financing) (“2005 Bonds”), which had financed the acquisition of the Civic Plaza. Based on current market conditions, there is an opportunity to refinance the outstanding 2013 Bonds for debt service savings (“Refunding Bonds”).
Issue Original Par
Hesperia Joint Public Finance Authority,
2013 Lease Revenue Bonds (Refinancing of the 2005 Civic Plaza Financing) * $ 12,445,000
* Callable any date after 10/1/2023 at par. Current outstanding principal balance is $9,610,000.
The 2013 Bonds are payable from lease payments made by the City to the Authority from the City’s General Fund for use and occupancy of City Hall.
The City’s municipal advisor, in consultation with the proposed underwriter, estimates that, based on current market conditions:
(i) the projected debt service gross savings from issuing Refunding Bonds to refinance the outstanding 2013 Bonds is $1,804,400, or an average annual reduction in debt service payments of $150,366 over the next twelve (12) years. (ii) the projected true interest cost is estimated to be 3.89%, and (iii) the principal amount of outstanding bonds is projected to be reduced from $9,610,000 to $7,715,000.
The final bond year date of the Refunding Bonds would remain the same as the 2013 Bonds: October 1, 2035.
The City’s Debt Policy requires a minimum net present value savings (including transaction costs) equal to at least 3% of the outstanding principal amount of the bonds to be refunded. Under current market conditions and using very conservative assumptions, the proposed refunding would result in projected net present value savings (including transaction costs) of 3.07% of the outstanding principal amount of the 2013 Bonds. In addition to generating debt service savings, the proposed refunding of the 2013 Bonds would also:
Potentially frees up an encumbered City asset, which may facilitate future financings.
Uses the existing debt service reserve fund to buy down the debt now instead of waiting to apply it as a credit against the debt service owed in the final year of the 2013 Bonds.
Reduces the principal amount of debt outstanding by $1,895,000.
Below is a table summarizing the details of the Refunding Bonds:
*Preliminary subject to change. Based on interest rates as of March 7, 2023.
The adoption of the Resolution authorizes staff to initiate the proceedings for a refunding of the 2013 Bonds; approves professional services related to the refunding; and directs City officials to execute related documents as needed. The City’s bond issuance team has been in place for many years and staff recommends that these firms continue providing those services for this refunding issue. The Resolution authorizes the following firms to participate in the transaction and the City Manager or the Director of Administrative Services to execute agreements as necessary:
Bond/Disclosure Counsel Services - Jones Hall, A Professional Law Corporation Municipal Advisor – Fieldman, Rolapp & Associates, Inc.
Underwriter – Stifel, Nicolaus & Company
The Resolution also authorizes the City Manager or the Director of Administrative Services to select and execute an agreement with a state or national bank to act as trustee for the Refunding Bonds.
The next steps will be to prepare the required legal and financing documents and secure an underlying credit rating from Standard & Poor’s. The final step will be for the City Council/Authority to consider resolutions authorizing the issuance of the Refunding Bonds and approving related documents, including the Preliminary Official Statement (bond offering document). Based on the current schedule, staff anticipates returning to the City Council/Authority for authorization to issue the Refunding Bonds at a June City Council meeting.
FISCAL IMPACT
The issuance of the Refunding Bonds will result in an average annual reduction in debt service payments of approximately $150,366. These are estimated savings based on market conditions as of March 7, 2023, and are subject to change. Costs will be paid from the proceeds of the Refunding Bonds.
ALTERNATIVE(S)
Provide alternative direction to staff.
ATTACHMENT(S)
Resolution No. 2023-18
Refunding Analysis
For rating agency purposes, the final maturity date will be changed from October 1, 2035 to November 1, 2035.
City of Hesperia STAFF REPORT City of Hesperia STAFF REPORT City of Hesperia
STAFF REPORT
City of Hesperia
STAFF REPORT
Staff Report to the Mayor and City Council authorizing staff to refinance the Outstanding 2013 Lease Revenue Bonds (Refinancing of the 2005 Civic Plaza Financing) March 21, 2023