PATTERSON PUBLIC FINANCING AUTHORITY
AGENDA REPORT
TO: Chair McCord and Members of the Patterson Public Financing Authority FROM: Ken Irwin, Executive Director
BY: Jennifer Riedeman, Finance Director
MEETING DATE: July 18, 2023
ITEM NO: 10.1
SUBJECT: Adopt Resolution No. 2023-01 of the Board of Directors of the Patterson Public Financing Authority Authorizing the Issuance and Sale of Refunding Special Tax Revenue Bonds.
RECOMMENDATION
Motion to Adopt Resolution No. 2023-01 of the Board of Directors of the Patterson Public Financing Authority Authorizing the Issuance and Sale of Refunding Special Tax Revenue Bonds.
SUMMARY
The Patterson Public Financing Authority (the “Authority”), 2023 Refunding Special Tax Revenue Bonds (the “2023 Bonds”) are being issued to refund two series of bonds issued in 2013, the Patterson Public Financing Authority, Revenue Bonds, Senior Series 2013A (the “2013 Senior Bonds”) issued in the amount of $67,190,000 and outstanding in the amount of $53,265,000, the Patterson Public Financing Authority, Revenue Bonds, Subordinate Series 2013B (the “2013 Subordinate Bonds”) issued in the amount of $6,465,000 and currently outstanding in the amount of $5,235,000 (collectively, with the 2013 Senior Bonds, the “2013 Bonds”) and to provide project funds in the amount of $5,000,000 to facilitate a portion of the financing for the City’s Emergency Operations Center. There are approximately $5,837,452 of total property owner savings over the life of the 2023 Bonds. The annual savings of approximately $364,341 per year can be credited back to property owners on subsequent years property tax bills resulting in average annual savings of approximately $156 per parcel per year, beginning in tax year 2024/25
ANALYSIS
Background
The Community Facilities District (“CFD 2001-1”) was formed pursuant to a Resolution of Formation and related proceedings adopted by the Board of Directors of the West Patterson Financing Authority on December 18, 2001 (the “Local Agency”). CFD 2001-1 was formed under the Mello-Roos Community Facilities District Act of 1982 (Gov. Code § 53311 et seq, (the “CFD Act”). The Act was adopted by the State of California as a method for financing infrastructure improvements and public services associated with new development. Since its adoption, local jurisdictions throughout California have utilized the CFD Act to finance infrastructure improvements through property tax assessments that also facilitate the issuance of bonds. Since 2001, the Local Agency issued two series of notes and seven series of bonds on behalf of CFD 2001-1 to finance infrastructure improvements for CFD 2001-1.
Concurrently with the issuance of the 2013 Bonds, the Local Agency issued Special Tax Refunding Bonds, Series 2001-A-1 currently outstanding in the amount of $29,540,762, Special Tax Refunding Bonds, Series 2001-A-2 currently outstanding in the amount of $23,885,232 and Special Tax Bonds, Series 2013-B currently outstanding in the amount of $3,476,156 (collectively the “Local Obligations”). The Local Obligations refunded all the outstanding bonds issued by the Local Agency on behalf of CFD 2001-1. The Authority issued the 2013 Bonds to purchase the Local Obligations.
The 2013 Bonds were issued under the provisions of Article 4 of Chapter 5 of Division 7 of Title 1 of the California Government Code (the “1984 Marks-Roos Local Bond Pooling Act”). The property owners pay their property tax bills each year a portion of which are the CFD 2001-1 special taxes. The special taxes are collected by the County and used to pay debt service on the Local Obligations. The debt service from the Local Obligations is then used to provide cash flow to pay the debt service first to the 2013 Senior Bonds at approximately 1.10 times debt service coverage each year and secondly to the 2013 Subordinate Bonds at approximately 1.00 times debt service coverage each year.
Financing Plan
The plan is to leave the Local Obligations in place and issue the 2023 Bonds to refund the 2013 Bonds for significant savings and provide some new money for the City’s Emergency Operations Center. Here is a summary of the outstanding 2013 Bonds proposed to be refunded:
Prior Bonds To Be Refunded Original Principal Remaining Principal Interest Rate(s) Final Maturity Call Date / Premium Series 2013A $67,190,000 $53,265,000 5.25-5.75% 2039 9/1/23 @ 100% Series 2013B $6,465,000 $5,235,000 5.88% 2039 9/1/23 @ 100% Totals $73,655,000 $58,500,000
Below is a table of the refunding results based on market conditions as of June 27, 2023:
Total Taxpayer Savings Average Annual Savings (*) Net Present NPV Savings Percentage Value Savings (Refunded)
2023 Bonds $5,837,452 $364,341 $3,709,336 6.30%
Note (*): Excludes First Year Cash Flow Savings Already on the Tax Roll and includes debt service on the new money portion of the 2023 Bonds.
Generally, net present value savings in excess of 3.00% are considered significant. The Government Finance Officers Association, in their best practices white paper titled “Analyzing and Issuing Refunding Bonds” from February 2011, reports that “one test often used by issuers to assess the appropriateness of a refunding is the requirement specifying the achievement of a minimum net present value (NPV) savings. A common threshold is that the savings (net of all issuance costs and any cash contribution to the refunding), as a percentage of the refunded bonds exceeds 3-5%.” The City’s Debt Policy uses 3% NPV savings as a guideline.
Local Obligations provide cash flow coverage on the 2023 Bonds at approximately 1.07x each year. The annual savings of approximately $364,341 per year can be credited back to property owners on subsequent years property tax bills resulting in average annual savings of approximately $156 per parcel per year, beginning in tax year 2024/25. In addition to the property owner savings, the 2023 Bonds also provides project funds in the amount of $5,000,000 to facilitate a portion of the financing for the City’s Emergency Operations Center.
CFD 2001-1 currently includes 2,339 parcels of which 2,296 are single-family residential properties, 42 are senior housing properties and 1 single-family residential parcel remains undeveloped. Since CFD 2001-1 is mostly developed, save for the 1 undeveloped parcel, the assessed value of the property in CFD 2001-1 is $806,292,194 which means the value-to-lien is about 11.4 times greater than the Local Obligations outstanding and the debt service coverage of
1.07x each year from the Local Obligations creates a well-diversified and strong credit. The 2023 Bonds received an “A” rating with a Stable Outlook from Standard & Poor’s Global Ratings. The financing team has applied for bond insurance on the 2023 Bonds and a surety policy for the reserve fund from the two bond insurers, Assured Guaranty and Build America Mutual. The advantage of bond insurance is it will raise the rating to AA allowing for lower interest rates on the 2023 Bonds and the advantage of a surety policy for the reserve fund is that it does not require proceeds of the 2023 Bonds to fund a reserve fund in cash (equal to approximately one year of debt service). The surety policy for the reserve fund increases the cash flow savings significantly. The team will only recommend the purchase of the bond insurance should the benefits of the lower interest rates outweigh the purchase price of the insurance.
Below is a table of the estimated costs of issuance:
Role Company Total
Bond Counsel Jones Hall $146,975.00
Disclosure Counsel Jones Hall $45,000.00
City Administration Fee City of Patterson $15,000.00
Municipal Advisor Del Rio Advisors, LLC $72,500.00
Municipal Advisor Expenses (NTE) Del Rio Advisors, LLC $750.00 Special Tax Consultant Goodwin Consulting Group $60,000.00 Overlapping Debt Statement Goodwin Consulting Group $650.00 Rating Fee S&P Global Ratings $42,000.00
Trustee Fee (Acceptance) U.S. Bank National Association $2,000.00 Trustee Fee (Annual Fee) U.S. Bank National Association $2,500.00 Trustee Legal Counsel Dorsey & Whitney $3,000.00
Fiscal Agent Fee U.S. Bank National Association $1,000.00 Escrow Agent U.S. Bank National Association $1,000.00
Escrow Verification Agent Robert Thomas CPA $1,750.00
Printing of Official Statement TBD $5,000.00
Contingency / Miscellaneous Misc. $875.00
Total Estimated Costs $400,000.00
The attached Resolution authorizes the issuance of special tax bonds in an aggregate principal amount not to exceed $65,000,000. This figure represents the maximum amount authorized by the Board for this bond issuance.
The Bonds are expected to be issued in the amount of $58,895,000 with interest rates at 5.00% with yields ranging from 3.26 to 3.85%. The “all-in” true interest cost of the Bonds is currently estimated to be 3.845% reflecting all the costs associated with issuing the 2023 Bonds.
Currently it is estimated that the costs of issuance will be $400,000 and the underwriter will charge an underwriter’s discount in the amount of $294,475 or 0.50% of the estimated par amount of $58,895,000. The underwriter’s discount is based on the percentage of the amount issued and may vary higher or lower depending on the final size of the issuance. The 2013 Bonds have a final maturity of September 1, 2039 and the 2023 Bonds will have the same final maturity of September 1, 2039, so there is no extension of the term.
Financing Team
Administration: City Staff
Bond and Disclosure Counsel: Jones Hall
Municipal Advisor: Del Rio Advisors, LLC
Underwriter: Hilltop Securities, Inc.
Trustee Fiscal Agent / Escrow Bank: U.S. Bank Trust Company, National Association Special Tax Consultant: Goodwin Consulting Group
Documents for Review
The following documents are attached to this Agenda Report for review by the Board:
Trust Indenture (Attachment 2): An agreement between the Authority acting on behalf and U.S.
Bank Trust Company, National Association as Trustee. This document, governs all the terms and conditions of the 2023 Bonds including, but not limited to:
· Establishment of funds
· The flow of funds
· Redemption provisions
· Foreclosure provisions
· Roles and responsibilities of the Trustee
· Issuance of parity obligations
· Substitution of another Trustee
Amendment to Fiscal Agent Agreement (Attachment 3): This makes certain changes to the Fiscal Agent Agreement for the Local Obligations entered into by the Local Agency in 2013.
The amendment facilitates the agreement now supporting the 2023 Bonds, and primarily sets forth the closing of the Reserve Fund and a Delinquency Maintenance Fund, which are no longer needed. A Reserve Fund for the 2023 Bonds will now be established in the Trust Indenture. The amendment additionally sets forth that references to the 2013 Senior Bonds and 2013 Subordinate Bonds will now be deemed references to the 2023 Bonds which will be secured by the continuing payments on the Local Obligations.
Escrow Agreement (Attachment 4): An agreement between the Authority and U.S. Bank Trust Company, National Association as Escrow Bank. This document governs the establishment of the Escrow Fund for the 2023 Bonds with payment of the principal and interest of the 2023 Bonds up to and including the call date of September 1, 2023, and to call the remaining 2023 Bonds on that date without premium. The escrow is to be funded with non-callable U.S.
Treasury securities.
Preliminary Official Statement (Attachment 5): Disclosure Counsel prepares a preliminary Official Statement with input from the Financing Team. Following Authority authorization, the preliminary Official Statement will be distributed by the Underwriter and used as the primary marketing document to prospective 2023 Bonds. The agenda item includes a draft of the preliminary Official Statement that the Financing Team considers to be substantially final.
A final Official Statement will be made available shortly after the 2023 Bonds are sold; it will be similar to the preliminary Official Statement except that it will reflect the final bond sale information. A table of contents of the preliminary Official Statement identifies critical topics such as the plan of finance, security for the bonds, information on the Authority, information on CFD 2001-1, excerpted legal documents, the continuing disclosure requirements, and the form of opinion of Bond Counsel.
The distribution of the preliminary Official Statement and the final Official Statement is subject to federal securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934. These laws require that the Official Statement include all facts that would be material to an investor purchasing the 2023 Bonds. Material information exists where there is a substantial likelihood that the information would have actual significance in the deliberations of the reasonable investor when deciding whether to buy or sell securities. The Securities and Exchange Commission (SEC), the agency with regulatory authority over compliance with the federal securities laws, has indicated that if a member of a legislative body, like the Board, has knowledge of any material facts or circumstances that an investor would want to know prior to investing in securities, similar to the 2023 Bonds, whether relating to their repayment, taxexempt status, undisclosed conflicts of interest with interested parties, or otherwise, he or she should endeavor to discover whether such facts are adequately disclosed in the preliminary Official Statement. The steps that a member of the Board could take to fulfill this obligation include becoming familiar with the preliminary Official Statement and questioning staff and other members of the Financing Team about the disclosure of such facts.
Continuing Disclosure Agreement (Included with Attachment 5): SEC Rule 15c2-12 requires the underwriter of an issue of municipal securities to obtain a commitment by the issuer of the securities to provide certain ongoing information. The Continuing Disclosure Agreement -- which is attached as an appendix to the preliminary Official Statement -- requires the Authority, as the obligated party with respect to the 2023 Bonds, to provide two types of ongoing disclosure - an annual report each year, and timely notices of certain types of events that are likely to be material to bond investors, if and when any occur.
Bond Purchase Agreement (Attachment 6): Under the Bond Purchase Agreement between the Authority and Hilltop Securities, Inc., as Underwriter, Hilltop Securities, Inc. will agree to purchase the 2023 Bonds contingent upon the Authority satisfying the obligations imposed within the agreement. The Underwriter agrees to make a bona fide public offering of the 2023 Bonds as authorized by the Authority Board of Directors.
Financing Schedule
Should the Board approve the attached Resolution, the Financing Team expects to sell the 2023 Bonds and close the transaction on the following schedule:
Date Action
July 18th Board Approval of Financing and Related Documents Week of July 24th Due Diligence Call Preliminary Official Statement Printed and Posted
Monday July 31st Pre-Pricing
Tuesday August 1st Pricing
Week of August 7th Print and Post Final Official Statement Final Documents Executed
Wednesday August
16th
Closing and Transfer of Funds
RECOMMENDATION:
Staff recommends that the Board adopt a Resolution of the Board of Directors of the Patterson Public Financing Authority Authorizing the Issuance and Sale of Refunding Special Tax Revenue Bonds.
ALTERNATIVE ACTIONS
(1) Although the Board is under no express obligation to adopt the attached Resolution, issuance of the 2023 Bonds as planned will provide significant savings to the property owners and facilitate the City’s ability to finance a portion of the City’s Emergency Operations Center. This is the staff recommended action. (2) Should the Board wish to not fund the $5MM from the 2023 Bonds, the Board could simply choose to forego those dollars or reduce those dollars and increase the savings to be credited back to property owners in subsequent years. (3) The Board could simply choose not to move forward on the issuance of the 2023 Bonds.
ATTACHMENTS
1. Resolution 2023-01 of the Board of Directors of the Patterson Public Financing Authority Authorizing the Issuance and Sale of Refunding Special Tax Revenue Bonds
2. Trust Indenture
3. Amendment to Fiscal Agent Agreement
4. Escrow Agreement
5. Preliminary Official Statement
6. Bond Purchase Agreement
Good Faith Estimates
California Government Code Section 5852.1 requires that the Authority disclose specified information obtained as good faith estimates from an underwriter or municipal advisor prior to authorization of the issuance of the 2023 Bonds. The Authority has received such information from the Underwriter which is set forth below:
(1) Name of Underwriter: Hilltop Securities
(2) City Council Meeting Date: July 18, 2023
(3) Name of Bond Issue: Patterson Public Financing Authority, Special Tax Revenue Refunding Bonds, Series 2023 (the “2023 Bonds”)
(4) The Underwriter has provided to the City the following required good faith estimates relating to the 2023 Bonds:
a) The true interest cost of the 2023 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 new issue of bonds: 3.628908%. b) The finance charge of the 2023 Bonds, which means the sum of all fees and charges paid to third parties: $1,291,443.45 which includes the underwriter’s discount in the estimated amount of $294,475, costs of issuance in the estimated amount of $400,000.00, bond insurance premium in the estimated amount of $427,639.74 and a surety bond premium in the estimated amount of $163,485.00. c) The amount of proceeds received by the public body for sale of the 2023 Bonds less the finance charge of the 2023 Bonds described in subparagraph (B) and less any reserves or capitalized interest paid or funded with proceeds of the 2023 Bonds:
$65,137,496.88 which includes the estimated purchase price of SLGs for the escrow in the amount of $60,137,496.88 and an estimated project fund deposit of $5,000,000.00.
d) The total payment amount, which means the sum total of all payments the public body will make to pay debt service on the 2023 Bonds (which total payment amount is calculated to the final maturity of the 2023 Bonds): $85,527,947.91.
The foregoing estimates constitute good faith estimates only. The actual principal amount of the 2023 Bonds issued and sold, the true interest cost thereof, the finance charges thereof, the amount of proceeds received therefrom and total payment amount with respect thereto may differ from such good faith estimates due to a variety of factors. The actual interest rates borne by the 2023 Bonds and the actual amortization of the 2023 Bonds will depend on market interest rates at the time of sale thereof. Market interest rates are affected by economic and other factors beyond the control of the Authority.