City Council and Riverside
Public Financing Authority
Memorandum
TO: HONORABLE MAYOR, CITY COUNCIL, DATE: FEBRUARY 28, 2023 AND AUTHORITY MEMBERS FROM: FINANCE DEPARTMENT WARDS: ALL
SUBJECT: ADOPTION OF RESOLUTIONS AUTHORIZING THE EXTENSION OF THE TERM OF A LETTER OF CREDIT SUPPORTING THE VARIABLE RATE REFUNDING CERTIFICATES OF PARTICIPATION (RIVERSIDE RENAISSANCE PROJECTS) SERIES 2008 USING CSG ADVISORS, INCORPORATED AS FINANCIAL ADVISOR, STRADLING YOCCA CARLSON & RAUTH AS BOND AND DISCLOSURE COUNSEL, AND NIXON PEABODY LLP, REPRESENTING BANK OF AMERICA, NA FOR THE LETTER OF CREDIT FACILITY ISSUES:
Adopt resolutions of the City and the Riverside Public Financing Authority authorizing the extension of the term of a Letter of Credit Supporting the Variable Rate Refunding Certificates of Participation (Riverside Renaissance Projects) Series 2008 for an additional three years and approve the financing team and costs associated with the transaction.
RECOMMENDATIONS:
That the City Council:
Adopt a Resolution authorizing the extension of the term of a Letter of Credit supporting the Variable Rate Refunding Certificates of Participation (Riverside Renaissance Projects) Series 2008, and approving the form of a Sixth Amendment to the Reimbursement Agreement and the Fee Letter relating to such Letter of Credit and approving the supplement to the Official Statement for the 2008 Certificates to reflect the extension of the term of the Letter of Credit on behalf of the City of Riverside; Approve and authorize expenditures for the use of CSG Advisors Incorporated (CSG), as the City’s Municipal Advisor, Stradling Yocca Carlson & Rauth as the City’s Bond and Disclosure Counsel, and reimburse Bank of America, NA for legal costs associated with their transactions; and Authorize the City Manager, or designee, to execute all documents related to these actions and to make non-substantive revisions to those documents as needed.
That the Riverside Public Financing Authority:
Adopt a Resolution authorizing the extension of the term of a Letter of Credit supporting the Variable Rate Refunding Certificates of Participation (Riverside Renaissance Projects) Series 2008, and approving the form of a Fifth Amendment to the Reimbursement Agreement relating to such Letter of Credit, on behalf of the Riverside Public Financing Authority; and Authorize the City Manager, or designee, to execute all documents related to these actions and to make non-substantive revisions to those documents as needed.
BACKGROUND:
In April 2008, the City Council approved the issuance of $128,300,000 of Refunding Certificates of Participation (COPs) as Variable Rate Demand Notes (VRDNs). This variable interest rate debt structure takes advantage of very low short-term interest rates but requires a bank Letter of Credit (LOC) be inserted between the issuer of the VRDNs (City of Riverside) and the purchasers of the 2008 COPs. This form of security provides greater assurance to investors that the COPs will be repaid by adding another party to help guarantee payment.
In 2008, the City entered into a two-year LOC with Bank of America, NA, who competed successfully for the work by offering the best pricing. The LOC was renewed in 2010 for two years, and in 2012, 2015, and 2018 for three years respectively and 2021 for two years. While market pricing has fluctuated over the life of the LOC agreement, Bank of America, NA has consistently provided the best pricing to the City.
DISCUSSION:
City staff and CSG meet regularly to review current financial market conditions. As part of that regular review, it was determined that maintaining the 2008 COPs in variable rate mode continues to provide the City with the lowest possible cost of borrowing. With the current LOC term expiring in March 2023, the Financing team reached out to Bank of America, NA and other banks which we have a relationship with to determine whether extending the term of the existing LOC would provide the best pricing for the City. The cost of switching to a new LOC provider includes much higher one-time administrative and legal fees of approximately $150,000-$180,000. Added to that, Bank of America, NA offered the lowest bid – a three-year renewal for 35 basis points or .35% of current debt outstanding.
Financing Team
To assist staff in evaluating and implementing these transactions, a financing team was assembled consisting of City Finance staff and outside consultants with whom the City has current service agreements with, and who are also experienced and knowledgeable in this area of financing. These include CSG, serving as the Municipal Advisor, and Stradling Yocca Carlson & Rauth, serving as Bond and Disclosure counsel for the City. In addition, the City will be responsible for costs incurred by Nixon Peabody, LLC, legal counsel to Bank of America.
Proposed Plan of Financing
Bank of America provided proposed fees to extend the term of the LOC for an additional two years or three years. The current LOC fee with Bank of America is for 40 basis points or .40% of the current debt outstanding (approximately $380,000 per year). The bank offered a renewal rate for a three-year term at 35 basis points or .35% of current debt outstanding (approximately $300,000 per year).
Required Documents:
To finalize the letter of credit, the following documents need to be executed and delivered as part of the Resolutions:
Fee Letter Amendment with Bank of America with respect to the 2008 Certificates of Participation; Supplement to the Variable Rate Refunding Certificates of Participation (Riverside Renaissance Projects) Series 2008 Official Statement, extending the LOC expiration date to March 31, 2026; and Sixth Amendment to Reimbursement Agreement between City of Riverside, Riverside Public Financing Authority, and Bank of America, NA.
STRATEGIC PLAN ALIGNMENT:
This item contributes to Strategic Priority 5 – High Performing Government and Goal 5.4 – Achieve and maintain financial health by addressing gaps between revenues and expenditures and aligning resources with strategic priorities to yield the greatest impact.
This item aligns with each of the five Cross-Cutting Threads as follows:
Community Trust – The use of bond proceeds to finance capital expenditures supports the City of Riverside’s Multi-year Capital Planning Fiscal Policy. Fiscal policies are designed to ensure the interests of our residents are met and helps build community trust.
Equity – Using bonded indebtedness to fund long-term capital projects ensures generational equity. The repayment of the cost of the facilities (20 to 30 years) is made by the generation of ratepayers that receive the actual benefits of the projects.
Fiscal Responsibility – Ensuring the lowest possible fees related to the cost of borrowing ensures long term debt service fiscal responsibility.
Innovation – Ensuring accessibility to the tax-exempt capital securities market allows Riverside to expand and upgrade to meet the future needs of its residents.
Sustainability & Resiliency – Sound analysis and consideration of all funding options are the key to Riverside’s resilient and sustainable debt portfolio.
FISCAL IMPACT:
The total fiscal impact of this action is $19,500, as outlined in the table below.
Estimated Financing Team Fees
City Bond/Disclosure Counsel
$7,500
Municipal Advisor
$4,500
Bank Counsel
$7,500
Total:
$19,500
Sufficient budget is available in the FY 2022/23 Debt Service Fund, Annual Bond Expense account number 2370100-447010, to pay these one-time fees. The total LOC cost for the 2008 Certificates of Participation will decrease an average of approximately $80,000 per annum through 2026.
Prepared by: Heidi Schrader, Debt and Treasury Manager Certified as to
availability of funds: Edward Enriquez, Interim Assistant City Manager/Chief Financial Officer/City Treasurer Approved by: Edward Enriquez, Interim Assistant City Manager/Chief Financial Officer/City Treasurer
Approved as to form: Phaedra A. Norton, City Attorney
Attachments:
Resolution of the City of Riverside authorizing the extension of the term of an LOC Resolution of the Board of Directors of the Riverside Public Financing Authority authorizing the extension of the term of an LOC Sixth Amendment to the Reimbursement Agreement
Fee Letter
Supplement to the Official Statement
LOC Extension 2008 Certificates of Participation