City Council Memorandum
TO: HONORABLE MAYOR AND CITY COUNCIL DATE: FEBRUARY 28, 2023 FROM: FINANCE DEPARTMENT WARD: 1
SUBJECT: SECOND AMENDMENT TO THE 2012 CONVENTION CENTER LEASE AGREEMENT ISSUE:
That the City Council adopt a resolution authorizing an amendment to the 2012 Convention Center Lease Agreement with PNC NCNVINV, Inc., and related documents.
RECOMMENDATIONS:
That the City Council:
Adopt a resolution authorizing an amendment to the 2012 Convention Center Lease agreement with PNC NCNVINV, Inc. and related documents to reflect the selection of a successor index to London Interbank Offered Rate upon which the variable rate component of the Lease payments will be based; Approve as to form the Second Amendment to the 2012 Convention Center Lease Agreement with PNC NCNVINV, Inc.; and Authorize the City Manager, or designee, to execute all documents related to this action and to make non-substantive revisions to those documents as needed.
BACKGROUND:
On June 26, 2012, the City Council approved financing documents with BVBA/Compass Bank associated with the Convention Center renovation and expansion in an amount not-to-exceed $42,500,000. At the time, staff evaluated various traditional and alternative financing strategies to ensure the most cost-effective solution for the City. A variable rate lease-leaseback financing was selected with a LIBOR-indexed swap transaction layered over the variable rate financing. The result was a “synthetic fixed” transaction with a rate of less than 3.5% amortized over 20 years. This type of financing structure aids in mitigating interest rate risk associated with variable rate debt.
On February 25, 2014, the City Council approved an additional $3 million of financing for the Convention Center Expansion project, authorizing the first amendment with BVBA/Compass Bank.
On October 12, 2021, the City was notified that BBVA/Compass Bank was acquired by PNC NCNVINV, Inc. (PNC). The loan and swap were transferred to PNC as successor-in-interest.
DISCUSSION:
LIBOR, formerly known as the London Interbank Offered Rate, was the dominant benchmark rate used in financial contracts for decades. LIBOR, serves as a globally accepted key benchmark interest rate that indicates borrowing costs between banks. The rate is calculated and will continue to be published each day by the Intercontinental Exchange (ICE), but due to recent scandals and questions around its validity as a benchmark rate, it is being phased out by June 30, 2023, and will be replaced by the Secured Overnight Financing Rate (SOFR).
Congress enacted the LIBOR Act to provide a uniform, nationwide solution for contracts that do not have clear and practicable provisions for replacing LIBOR after June 30, 2023. The Act identifies a replacement benchmark to replace LIBOR in contracts that do not mature before LIBOR ends and that lack adequate "fallback" provisions that would replace LIBOR with a practicable replacement benchmark rate. The Convention Center lease, which matures in 2034, falls into that category.
The attached amendment to the lease agreement adopts the SOFR fallback rate to replace LIBOR in compliance with the LIBOR Act, while maintaining all other terms. This will ensure the Convention Center Swap will remain effective following the phaseout of LIBOR in June of this year.
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 – Financing 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 lease financing to fund long-term capital projects ensures generational equity. The repayment of the cost of the facility is made by the generation of residents that receive the actual benefits of the project.
Fiscal Responsibility – Ensuring the lowest possible fees related to the cost of borrowing ensures long term debt service fiscal responsibility.
Innovation – Proactive planning and the innovative use of a proven financial index ensures the City stays current with financial and legislative requirements.
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 the action is $7,500, which is the estimated cost to prepare the documents by Bond Counsel. The funds are budgeted and available in the Debt Service Fund, Finance-Debt Service, 2370100-447010.
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
Second Amendment to Lease Agreement with PNC NCNVINV, Inc. 2nd Amendment Convention Center Lease Agreement ● Page 5