WEST PATTERSON FINANCING AUTHORITY
AGENDA REPORT
TO: Chair McCord and Members of the West Patterson Financing Authority FROM: Ken Irwin, Executive Director
BY: Jennifer Riedeman, Finance Director
MEETING DATE: January 16, 2024
ITEM NO: 7.1
SUBJECT: Adopt Resolution No. 2024-01 Authorizing the Issuance of Special Tax Bonds for and on behalf of the West Patterson Financing Authority Community Facilities District No. 2018-1 (Villages of Patterson), approving and directing the execution of Supplement No. 1 to Fiscal Agent Agreement, approving the form of Preliminary Official Statement, approving sale of such bonds, approving other related documents and actions, and authorize the Finance Department to make the necessary budget adjustments.
RECOMMENDATION
Motion to Adopt Resolution No. 2024-01 Authorizing the Issuance of Special Tax Bonds for and on behalf of the West Patterson Financing Authority Community Facilities District No. 2018-1 (Villages of Patterson), approving and directing the execution of Supplement No. 1 to Fiscal Agent Agreement, approving the form of Preliminary Official Statement, approving sale of such bonds, approving other related documents and actions, and authorize the Finance Department to make the necessary budget adjustments.
ALTERNATIVE ACTIONS
Although the Board is under no express obligation to adopt the attached resolution, issuance of the 2024 Bonds will facilitate the City’s ability to invest in infrastructure improvements, such as the City’s Public Safety Center.
BACKGROUND
The Mello-Roos Community Facilities Act of 1982 (Gov. Code § 53311 et seq, the “CFD Act”) was adopted by the State of California as a method for financing infrastructure improvements, public services and fees associated with new development. Special taxes provide an additional funding source for the construction and acquisition of public infrastructure, funding for the ongoing provision of public services, funding for the ongoing maintenance of public infrastructure and may be used to accelerate the payment of fees. Since its adoption, local jurisdictions throughout California have utilized the CFD Act to issue bonds, the repayment of which comes from the special taxes paid by property owners on the property tax bill each year.
The West Patterson Financing Authority Community Facilities District No. 2018-1 (Villages of Patterson) (“CFD 2018-1”) was formed in 2018. To date CFD 2018-1 has issued one series of special tax bonds in 2021 in the amount of $4,465,000 (“2021 Bonds”). The attached resolution authorizes the issuance and sale of a second series of special tax bonds (the “2024 Bonds”) on parity with the 2021 Bonds. Parity means the bondholders for each series have an equal right to the special taxes collected each year.
ANALYSIS
The attached resolution authorizes the issuance of special tax bonds in an aggregate principal amount not to exceed $12,000,000. This figure represents the maximum amount authorized by the Board for this bond issuance; the actual bond issuance will depend on bond market conditions, the appraisal report and other factors, and is expected to be less than the maximum $12,000,000.
Currently there are 472 properties which are expected to be levied a special tax within CFD 2018-1 for Fiscal Year 2024-25. These consist of 325 individual homeowners, 67 lots owned by KB Home North Bay LLC, 44 Lots owned by K. Hovnanian and 36 multifamily properties owned by Trivo LLC, of which 9 are finished, 3 are under construction and the remaining 24 are in the planning stages. Of the 472 properties, 325 are in the hands of individual homeowners so CFD 2018-1 is considered 72% developed.
The value-to-lien ratio is the total of the assessed and appraised value of the taxable property within CFD 2018-1 vs. the total of the outstanding principal of the 2021 Bonds and the proposed 2024 Bonds. Bond investors use this measure as one of the metrics when determining credit quality. The value-to-lien ratio is expected to be approximately 13:1. Value-to-lien ratios ranging from 3:1 to 5:1 generally reflect an early-stage development while values of more than 10:1 reflect a well-diversified project with a combination of individual homeowners (72%) and developer owned properties (28%).
The 2024 Bonds are expected to be issued as non-rated with a final term of 30 years. The 2024 Bonds are expected to be issued in the amount of $10,645,000 with interest rates at 5.00% with yields ranging from 3.35% (2025) to 5.13% (2054). Debt service coverage from maximum special taxes is expected to be just above 1.10x each year. It is also anticipated that a reserve fund will be funded from the proceeds of the 2024 Bonds on parity with the reserve fund from the 2021 Bonds, when combined, equals 1.25 times average annual debt service. The reserve fund serves as extra protection to investors in the event of significant delinquencies or payment disruption. Currently it is estimated that the costs of issuance will be $345,000 and the Underwriter will charge an underwriter’s discount in the amount of $96,550.15 or 0.907% of the estimated par amount of $10,645,000. The underwriter’s discount is based on the percentage of the amount issued. The expected proceeds of the bonds are $9,352,120, a portion of which ($5,000,000) is to be sent to Patterson Unified School District and the balance applied to projects on authorized facilities.
In connection with the issuance and sale of the 2024 Bonds, the Resolution provides the following:
(1) Authorize the Board’s authorized officers to execute Supplement No. 1 to Fiscal Agent Agreement, in consultation with bond counsel. Supplement No. 1 to Fiscal Agent Agreement provides the terms of the 2024 Bonds, including provisions for security and payment of the 2024 Bonds. The Fiscal Agent Agreement for the 2021 Bonds established the Bank of New York Mellon Trust Company as Fiscal Agent for the 2021 Bonds. Subsequently the Fiscal Agent duties have been transferred to U.S. Bank National Association (“U.S. Bank”) as Fiscal Agent for both the 2021 Bonds and the 2024 Bonds. U.S. Bank will be requested to authenticate the 2024 Bonds and deliver them to the underwriter in accordance with instructions provided in the Bond Purchase Agreement.
(2) Appoint Hilltop Securities as the underwriter (“Underwriter”) of the bonds and direct the Board’s authorized officers to negotiate a Bond Purchase Agreement with the Underwriter.
The Bond Purchase Agreement, when executed, will reflect the final interest rates, yields and prices of the various maturities of the 2024 Bonds sold to investors. (3) Approve and authorize execution of an Official Statement and Continuing Disclosure Agreement. The official statement is the primary document used by the Underwriter to market the bonds to investors. The official statement describes 2024 Bonds in detail and all the information about CFD 2018-1 used by investors to make an informed purchase decision. The official statement is deemed final pursuant to Rule 15c-2-12 under the Securities Exchange Act of 1934. The only permitted items to be excluded from the draft are data and tables related to final pricing information for the 2024 Bonds. The Continuing Disclosure Agreement, included as an attachment to the Official Statement, describes covenants of the Authority to provide ongoing disclosure to investors in the form of an annual report due by April 1 each year and posted to the electronic platform known as the Electronic Municipal Market Access system (“EMMA”). In addition, and from time-to-time, the Authority covenants to provide notices of certain listed events, if and to the extent they occur to EMMA.
(4) Covenant that the Authority will diligently pursue foreclosures for any delinquent special taxes, as required by Supplement No. 1 to Fiscal Agent Agreement and the Fiscal Agent Agreement. This will ensure that the Authority does not default on its financial obligation to repay bonds issued in connection with CFD 2018-1.
(5) Authorize the Board’s authorized officers to take all actions necessary to complete the issuance and delivery of the bonds.
Should the City Council / Authority Board approve the 2024 Bonds tonight, the bonds are expected to be sold on Tuesday January 30th and Wednesday January 31st. Closing is anticipated to occur on Wednesday February 14th.
FISCAL IMPACT
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 2024 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: January 16, 2024
(3) Name of Bond Issue: West Patterson Financing Authority, Community Facilities District No. 2018-1 (Villages of Patterson), Special Tax Bonds, Series 2024 4) The Underwriter has provided to the Authority and the City the following required good faith estimates relating to the 2024 Bonds:
a) 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 new issue of bonds: 5.079156%. b) The finance charge of the 2024 Bonds, which means the sum of all fees and charges paid to third parties: $441,550.15 which includes both the underwriter’s discount in the estimated amount of $96,550.15 and costs of issuance in the estimated amount of $345,000.
c) The amount of proceeds received by the public body for sale of the 2024 Bonds less the finance charge of the 2024 Bonds described in subparagraph b) and less any reserves or capitalized interest paid or funded with proceeds of the: $9,352,119.69. d) The total payment amount, which means the sum total of all payments the public body will make to pay debt service on the 2024 Bonds (which total payment amount is calculated to the final maturity of the 2024 Bonds): $23,145,759.03.
The foregoing estimates constitute good faith estimates only. The actual principal amount of the 2024 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 2024 Bonds and the actual amortization of the 2024 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.
ATTACHMENTS
1. Resolution No. 2024-1 Authorizing the Issuance of Special Tax Bonds for and on behalf of the West Patterson Financing Authority Community Facilities District No. 2018-1 (Villages of Patterson), approving and directing the execution of Supplement No. 1 to Fiscal Agent Agreement, approving the form of Preliminary Official Statement, approving sale of such bonds, and approving other related documents and actions.
2. Supplement No. 1 to Fiscal Agent Agreement
3. Official Statement
4. Bond Purchase Agreement
5. Presentation