STAFF REPORT
City of Lancaster
JPH 1
6/11/2024
JC
Date: June 11, 2024
To: Mayor Parris and City Council Members
From: Jason Caudle, City Manager
Trolis Niebla, Assistant City Manager
George Harris, Director of Finance
Subject: A Resolution of the City Council of the City of Lancaster, Authorizing the Issuance of Lancaster Financing Authority Lease Revenue Bonds, Authorizing the Execution and Delivery of a Ground Lease, Lease Agreement, Indenture, Continuing Disclosure Certificate, and Bond Purchase Agreement in Connection with the Issuance of such Bonds, Authorizing the Distribution of an Official Statement in Connection with the Offering and Sale of such Bonds and Authorizing the Execution of necessary Documents and Certificates and Related Actions.
A Resolution of the Lancaster Financing Authority Authorizing the Issuance of Lancaster Financing Authority Lease Revenue Bonds, Authorizing the Execution and Delivery of a Ground Lease, Lease Agreement, Indenture, Assignment Agreement and Bond Purchase Agreement in Connection with the Issuance of Such Bonds, Authorizing the Distribution of an Official Statement in Connection with the Offering and Sale of such Bonds and Authorizing the Execution of necessary Documents and Certificates and Related Actions.
Recommendation:
Take the following actions:
Acting as the City Council:
1. Adopt Resolution No. ____ entitled, “A Resolution of the City Council of the City of Lancaster, Authorizing the Issuance of Lancaster Financing Authority Lease Revenue Bonds, Authorizing the Execution and Delivery of A Ground Lease, Lease Agreement, Indenture, 1 6
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Continuing Disclosure Certificate, and Bond Purchase Agreement in Connection with the Issuance of such Bonds, Authorizing the Distribution of an Official Statement in Connection with the Offering and Sale of such Bonds and Authorizing the Execution of necessary Documents and Certificates and Related Actions.”
Acting as the Lancaster Financing Authority:
2. Adopt Resolution No. ____ entitled, “ A Resolution of the Lancaster Financing Authority Authorizing the Issuance of Lancaster Financing Authority Lease Revenue Bonds, Authorizing the Execution and Delivery of a Ground Lease, Lease Agreement, Indenture, Assignment Agreement and Bond Purchase Agreement in Connection with the Issuance of such Bonds, Authorizing the Distribution of an Official Statement in Connection with the Offering and Sale of such Bonds and Authorizing the Execution of necessary Documents and Certificates and Related Actions.
Fiscal Impact:
Based on conservative assumptions on current market rates, the proposed 2024 Lease Revenue Bonds, Series A and B (collectively, the “2024 Bonds”) debt service will level out at approximately $4.2 million annually in lease payments from fiscal year 2026-27 through 2053-54. In the next two fiscal years, the debt service will step up each year, with total debt service payments in fiscal year 2024-25 being approximately $2 million and total debt service payments in fiscal year 2025-26 being approximately $3 million. These estimated annual debt service payments are subject to change based on market interest rate movements up until the bond’s price and the interest rates are locked in. The costs of issuance for the 2024 Bonds will be paid out of the financing and so there will be no budgetary impact in FYE 2024-25 directly due to the issuance costs of the bonds.
Background:
The City has identified two significant projects that require funding: (1) the Multi-Agency Regional Resilience Center (the “MARRC Project”) and (2) the conversion of the City’s minor league baseball stadium into a soccer stadium for a new professional soccer team (the “Stadium Project”). In addition to these two projects, the City anticipates using the 2024 Bonds to raise approximately $9 million for PARCS projects, including the Avenue J Neighborhood Park, an Indoor Recreation Complex, and public art projects to be procured and installed throughout the City.
At the May 7, 2024, meeting, the City Council authorized staff to engage the services of bond finance professionals NHA Advisors as municipal financial advisor, Piper Sandler as underwriter, and Stradling Yocca Carlson & Rauth as bond and disclosure counsel to assist the City with issuing the 2024 Bonds. Also, at the City Council meeting, City staff presented a detailed overview of the MARRC Project and Stadium Project and a finance plan for the 2024 Bonds.
At this evening’s meeting, City staff are requesting the City Council to approve the issuance of the 2024 Bonds and accompanying legal and disclosure documents.
Review and Analysis:
MARRC Project Overview:
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The MARRC will serve as a fully functioning, large-scale, off-the-grid, resilient and emergency evacuation center and event center. The proposed complex includes construction of an emergency operations center and a culinary community kitchen. The MARRC Project is estimated to cost $81.5 million, which will be shared among several public agencies. Matching sources of funding identified to date include a $20.5 million grant awarded to the Antelope Valley Fair Authority from the California Department of Food and Agriculture (“CDFA”) Fairs and Expositions Branch.
In addition, on November 2, 2023, the City of Palmdale and the Antelope Valley Fairgrounds Authority entered into an agreement whereby the City of Palmdale committed to contribute a total of $10 million to the project. In addition to these upfront contributions to the project, the Antelope Valley Union High School District (“AVUHSD”) has committed to annual contributions toward the debt service on the 2024 Bonds, totaling $10 million. Formal actions are pending regarding the County of Los Angeles and other agencies. It is expected that an additional $10-$30 Million will be contributed by other agencies. After factoring in these additional contributions from other agencies, the remaining contribution to the project from the City of Lancaster is set at a not-to- exceed amount of $50 Million, under the terms of the Joint Use and Irrevocable License Agreement with the Antelope Valley Fairgrounds Authority, approved by the City Council on March 26, 2024.
Construction on the MARRC Project is expected to begin in early August 2024, with potential completion in late 2025.
Stadium Project:
The City will convert its existing baseball stadium (previously used for the Lancaster JetHawks) into a 5,300-seat, soccer-specific stadium for professional and pre-professional soccer. The Stadium Project is estimated to cost $12.5 million. Construction on the Stadium Project is expected to begin in early August 2024, with potential completion at the end of February 2025, in time for the start of the spring soccer season in March.
PARCS Projects:
The City plans to construct a new Avenue J Neighborhood Park, consisting of a playground, pedestrian/bike lane with lighting and benches, shaded picnic area, fitness course with exercise stations, shaded open space areas, drought tolerant-demonstration garden, landscaping and perimeter fence. The City has been awarded $2.4M in funds from the California Department of Parks and Recreation Land and Water Conservation Fund Grant for the project. The grant requires $2.5M in matching funds to complete the project.
In addition, the city plans to design and build a new indoor recreation complex to host youth and adult indoor sports programming. The new facility will provide two (2) full size basketball courts, which can double as 4 volleyball courts, 8 pickleball courts, as well as host a multitude of indoor athletic programs. Allowing for a designated space for city leagues and programs to practice and play games. Furthermore, the facility will have the ability to host private rentals for practice and tournaments. Estimated cost of this project is $3.5M
Finally, the PARCS Department is currently in the process of developing and adopting a Public Art Master Plan. Through extensive internal and external community engagement the Master Plan will develop the vison, values and goals for public art; identify clear action strategies; as well as identify cultural opportunities and locations for future art installations. The adoption of the Master Plan will result in the identification of $3M in public art to be procured and installed throughout the City.
Combined total between these three PARCS projects is approximately $9 million. 1 6
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Bond Structure:
To finance these capital projects, the City will issue the 2024 Bonds as a lease revenue bond. The 2024 Bonds will be payable from lease payments made by the City to the Lancaster Financing Authority (the “Authority”) pursuant to a lease agreement involving various City assets. This structure is secured by a General Fund appropriations pledge and is similar to the structure used by the City’s 2018 Lease Revenue Bonds to finance improvements to City Hall and other facilities.
The assets proposed for the 2024 Bonds are listed in the table below (together the “Leased Assets”) and combined equal approximately $78 million in building insured value.
Asset* Description Constructed
Size
(Square
Ft.)
Building
Insured
Value
Lancaster
Municipal
Stadium
Stadium / Sporting
Venue
1996
(Remodel in
FY 2024-25)
29,230 $26,749,179
Performing Arts
Theater
Performing arts center
w/ two theaters 1991 41,950 $20,295,368
Museum of Art
and History Museum 2012 21,334 $9,284,676
Economic
Development
Office
Office / small
business incubator 1985 30,000 $7,353,910
Public Safety
Building
Office headquarters
for City’s police
department
1950
(Remodeled
in FY 2023-
24)
29,623 $7,250,091
Lancaster
Community
Center
Community Facility
(music, dance, arts,
crafts, STEM)
2008
(Remodeled
in FY 2021-
22)
16,056 $3,993,288
Corporation Yard Public Works
Modular Office 2006 10,080 $2,938,824
Total Insured Value $77,865,336
*Final list of assets subject to completing title review and seismic assessment The financing for the MARRC and the PARCS projects will be issued on a tax-exempt basis, but because of the nature of the agreement with Antelope Valley Soccer, Inc, the financing for the Stadium Improvements will need to be issued on a partially-taxable basis. Accordingly, the 2024 Bonds will have two series: Series A will be issued as tax-exempt bonds and Series B will be issued as taxable bonds and will fund approximately 60% of the anticipated $12.5M cost of the stadium project (or $7.5 million).
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Both series of the 2024 Bonds will be supported by a level annual lease payment structure and will have a 30-year final maturity on May 1, 2055. Additionally, both series will have a 10-year optional redemption at par. On a combined basis, debt service repayments will commence at approximately $2 million per year in fiscal year 2024-25, step up to $3 million per year in fiscal year 2025-26, and level out from fiscal year 2026-27 through final maturity at $4.2 million per year. The graph on the next page illustrates the combined structure between both series.
Because the 2024 Bonds use the Lancaster Municipal Stadium as the leased asset, the 2024 Bonds are required to capitalize a portion of the interest that would accrue on the debt through November 2025.
Financing Documents:
The following documents are being presented for approval:
•Authorizing Resolutions: The authorizing resolutions approve the form of the legal documents for the 2024 Bonds. The resolutions also authorize the execution of the legal documents for the 2024 Bonds, provided the final pricing of the 2024 Bonds is within not- to-exceed parameters identified therein. These not-to-exceed parameters authorize City staff to issue the bonds, provided the final par and interest rates are equal to or less than the following: (1) the par amount of the 2024 Bonds cannot exceed $73,000,000; (2) the underwriter’s discount cannot exceed 0.5% of the total par amount of the 2024 Bonds; (3) the maximum true interest cost cannot exceed 5.5%; and (4) the final maturity cannot exceed May 1, 2054.
•Ground Lease: This is an agreement between the City and the Authority in which the City leases the Leased Assets to the Authority, providing the mechanism from which the $0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
$4.5
2024-25
2025-26
2026-27
2027-28
2028-29
2029-30
2030-31
2031-32
2032-33
2033-34
2034-35
2035-36
2036-37
2037-38
2038-39
2039-40
2040-41
2041-42
2042-43
2043-44
2044-45
2045-46
2046-47
2047-48
2048-49
2049-50
2050-51
2051-52
2052-53
2053-54
2024A
(Tax Exempt)
2024B
(Taxable)
2024 LRBs
Estimated Net Debt Service
Millions
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Authority may sublease the Leased Assets back to the City pursuant to a Lease Agreement. •Lease Agreement: This agreement provides for the leasing of the Leased Assets back from the Authority to the City in exchange for semi-annual lease payments that equal the debt service on the 2024 Bonds. The City’s General Fund will make the lease payments over the term of the Lease Agreement.
•Assignment Agreement: This is an agreement between the Authority and the Trustee providing the mechanism by which the Authority assigns its rights, title, and interest in and to the Lease Agreement and Ground Lease to the Trustee. •Indenture: The Indenture formalizes the relationship between the Lancaster Financing Authority, City of Lancaster, and U.S. Bank Trust Company, National Association (“U.S.
Bank”) as Trustee for the 2024 Bonds. The Indenture describes the terms of the Bonds, including the payment terms and schedule, prepayment options, other covenants related to the 2024 Bonds, and other administrative items.
•Preliminary Official Statement: A preliminary official statement (“POS”) has been prepared to provide material information to investors regarding the terms and security of the 2024 Bonds. The POS contains all information a reasonable investor should know about the City’s General Fund, financials, budget, risks, operations, and policies before making the decision whether to purchase the 2024 Bonds. The POS also includes descriptions of the legal and financial aspects of the 2024 Bonds, as well as a summary of the various related legal documents. Certain information which will not be known until the pricing of the 2024 Bonds (such as the final principal amount, the interest rates and the redemption dates) and this information is either left blank or noted as “preliminary, subject to change” in the POS. The Underwriter will use the POS to market the 2024 Bonds to potential investors. Once the 2024 Bonds have been priced, the final pricing information will be inserted into the POS, thereby converting it to an Official Statement. The Underwriter will then distribute the Final Official Statement to the individuals and institutions that placed orders to buy the 2024 Bonds from the Underwriter.
•Continuing Disclosure Agreement: Under the Continuing Disclosure Agreement, the City will agree to provide an annual report containing certain information relevant to the security of the 2024 Bonds, to be filed on the EMMA system (the internet-based information repository maintained by the Municipal Securities Rule Making Board for municipal bonds issued in the United States) to make such information available to the investors. The City will also agree to disclose and make filings upon the occurrence of enumerated significant events (e.g., a change in trustee, a rating change, or a missed debt payment on the 2024 Bonds).
•Bond Purchase Agreement: Pursuant to the Bond Purchase Agreement (“BPA”), the Underwriter (Piper Sandler) will agree to buy the 2024 Bonds at specified prices and interest rates, subject to satisfaction of certain requirements, such as the City’s execution and delivery of the indentures and delivery of closing certificates and opinions. The BPA will be presented to the authorized officers of the City for approval and execution on the pricing date after the Underwriter has completed the offering to the investors and the pricing of the 2024 Bonds. The Resolution specifies the maximum underwriter’s discount and other financing parameters that must be met before moving forward on the transaction. 1 6
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Good Faith Estimates:
NHA Advisors, LLC (the City’s municipal advisor) and Piper Sandler (the City’s underwriter) have provided good faith estimates on the cost of the financing, as required by California Government Code Section 5852.1. These estimates are based on current market rates. •True Interest Cost of the 2024 Bonds. Assuming an aggregate principal amount of $66,965,000 of the 2024 Bonds are sold and based on market interest rates prevailing at the time of preparation of this information, a good faith estimates of the true interest cost of the 2024 Bonds, which means the rate necessary to discount the amounts payable on the respective principal and interest payment dates to the purchase price received for the 2024 Bonds, is 4.67%.
•Finance Charge of the 2024 Bonds. Assuming an aggregate principal amount of $66,965,000 of the 2024 Bonds are sold and based on market interest rates prevailing at the time of preparation of this information, a good faith estimates of the finance charge of the 2024 Bonds, which means the sum of all fees and charges paid to third parties (or costs associated with the 2024 Bonds), is approximately $667,829. •Amount of Proceeds to be Received. Assuming an aggregate principal amount of $66,965,000 of the 2024 Bonds are sold and based on market interest rates prevailing at the time of preparation of this information, a good faith estimates of the amount of proceeds expected to be received by the Authority for sale of the 2024 Bonds less the finance charge of the 2024 Bonds described above and any reserves or capitalized interest paid or funded with proceeds of the 2024 Bonds, is $60,000,000.
•Total Payment Amount. Assuming an aggregate principal amount of $66,965,000 of the 2024 Bonds are sold and based on market interest rates prevailing at the time of preparation of this information, a good faith estimate of the total payment amount, which means the sum total of all payments the Authority will make to pay debt service on the 2024 Bonds plus the finance charge of the Bonds described above not paid with the proceeds of the 2024 Bonds, calculated to the final maturity of the 2024 Bonds, is $122,792,190.
The foregoing information constitutes good faith estimates only. The actual interest cost, finance charges, amount of proceeds and total payment amount may vary from the estimates above due to variations from these estimates in the timing of the sale of the 2024 Bonds, the amount of 2024 Bonds sold, the amortization of the 2024 Bonds sold and market interest rates at the time of each sale. The date of sale and the amount of 2024 Bonds sold will be determined based on the need for project funds and other factors. The actual interest rates at which the 2024 Bonds will be sold will depend on the bond market at the time of each sale. The actual amortization of the 2024 Bonds will also depend, in part, on market interest rates at the time of sale. Market interest rates are affected by economic and other factors beyond the City’s and the Authority’s control.
Next Steps:
City staff will work with the financing team to complete the issuance of the 2024 Bonds. The following are tentative dates for the remaining key events of the financing:
Schedule:
•June 11: City Council and Financing Authority Board Approve Financing 1 6
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•Late June: Price 2024 Bonds (lock interest rates)
•Mid-July: Closing (funds delivered to City/Trustee)
Attachment:
1. City Council Resolution No. ____
2. Financing Authority Board Resolution No. ____
3. Ground Lease
4. Lease Agreement
5. Assignment Agreement
6. Indenture
7. Preliminary Official Statement (including Continuing Disclosure Agreement as Appendix E)
8. Appendix A to Official Statement
9. Bond Purchase Agreement