CITY OF SAN MATEO
CITY OF SAN MATEO
Agenda Report
City Hall
330 W. 20th Avenue
San Mateo CA 94403
www.cityofsanmateo.org
Agenda Number: 14 Section Name: NEW BUSINESS - CITY OF SAN MATEO AND JOINT POWERS FINANCING AUTHORITY Account Number: 10-2021 File ID: 26-11024
TO: City Council
FROM: Alex Khojikian, City Manager
PREPARED BY: Finance Department
MEETING DATE: April 06, 2026
SUBJECT:
City of San Mateo Joint Powers Financing Authority Variable Rate Demand Revenue Bonds (Public Safety Project) Series 2007A — Letter of Credit Renewal
RECOMMENDATION:
Adopt a Resolution as the San Mateo City Council and a Resolution as the Governing Board of the City of San Mateo Joint Powers Financing Authority, each ratifying City Manager approval of the Fifth Amendment to Reimbursement Agreement and the Second Amended and Restated Fee Agreement for the renewal of an irrevocable letter of credit with Wells Fargo Bank according to the terms specified in the agreements.
BACKGROUND:
The above-referenced bonds ("Series 2007A") were issued in the initial par amount of $17,400,000 on 4/19/07 for a final maturity of 4/1/39 to complete the financing for the police administration building. Current par amount is $11,500,000.
Series 2007A was issued as variable rate to save money during the construction period and has been kept as the City's only variable rate debt because the average debt service has been favorable compared to fixed rate debt alternatives. Variable rate bonds require a bank letter of credit ("LOC") that will be drawn upon if the bonds cannot be remarketed at the weekly variable rate. Wells Fargo Bank has been the LOC provider since 2009. This LOC has been subsequently renewed in 2012, 2015, 2018 and in 2021 for a five-year term. The current LOC has an annual premium of 0.75% and expires on 4/5/29.
The City's municipal advisors ("MAs") have in the past, and prior to this renewal, analyzed keeping this debt as variable rate with different credit enhancement and refunding to a fixed rate. The current variable rate structure continues to be the lowest average cost of funds and their recommendation is to keep the variable rate structure with the current LOC bank to save on processing costs. The City and Wells Fargo Bank have agreed to a three-year term for this LOC for an annual premium of 0.75% with minimal renewal fees.
Although there are marketing, credit bank, and interest rate risks associated with variable rate debt, the benefits can be significant. The City's FY 24-25 Annual Comprehensive Financial Report (ACFR) discusses on page 93 the history of Series 2007A. The interest rate on this debt resets weekly and can be volatile. Since the City‘s last renewal of the LOC, the average weekly interest rate has been 1.71%, with a high of 4.00% and a low of 0.03%. Considering interest rates over either the fiscal or calendar year, the City continues to save money on variable rate debt service over fixed rate alternatives. However, the City will continue to work with our MA to analyze the market and determine if and when a change may be more cost effective.
The weekly variable rate is paid to bondholders. In addition, the City pays the LOC fee to Wells Fargo Bank and an annual remarketing fee of 0.90 per $1,000 to the remarketing agent. The new amended fee for the LOC with Wells Fargo Bank will be 0.75% instead of the previous 0.45%. However, even with the sum of all of these costs, the cost of the total variable rate debt is still lower than debt with a fixed rate alternative. As part of the ongoing analysis, staff and the City’s current
CITY OF SAN MATEO
MA will continue to consider the fixed rate alternative. If the City decides in the future to replace the variable rate structure with a fixed rate, the LOC can be terminated and the variable rate bonds prepaid with no penalty.
The previous LOC for the variable rate bond expired on April 5, 2026, and a new authorized LOC needed to be in place before that date. Since City staff was not able to prepare these agreements for a City Council meeting in time to meet this deadline, the City Manager signed the agreements prior to City Council approval in order to maintain financing for the bonds. Staff is now recommending for City Council to approve a resolution (Attachment 1) and the Authority to approve a similar resolution (Attachment 2) that each ratify and authorize the City Manager to execute the Fifth Amendment to Reimbursement Agreement (Attachment 3) with Wells Fargo Bank for renewal of an existing irrevocable LOC according to terms specified in the agreement and the Second Amended and Restated Fee Agreement (Attachment 4) with Wells Fargo Bank regarding the amended fee.
BUDGET IMPACT:
The new LOC annual fee is 0.75% and is guaranteed for the next three years. If the City finds that a fixed rate or other alternative is more cost effective, the City can refund the debt and terminate the LOC at any time in the next three years with no prepayment penalty.
Certain one-time costs associated with the financial analysis and legal review for this LOC renewal are expected to total approximately $5,000-10,000 and can be paid from the fiscal year 2025-26 budget of the 2% Hotel Tax Fund (Fund 560).
These costs are routinely required for LOC renewal and are much lower than for LOC replacement with a new bank or refunding to a fixed rate. The fiscal year 2025-26 budget assumed interest expense of $280,000 for Series 2007A and due to the low interest rates for the fiscal year to date, actual interest expense is projected to be under $200,000.
ENVIRONMENTAL DETERMINATION:
This authorizing resolution for a letter of credit renewal is not a project subject to CEQA, because it is a government funding mechanism or government fiscal activity which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment. (CEQA Guidelines Section 15378(b)(4).)
NOTICE PROVIDED
All meeting noticing requirements were met.
ATTACHMENTS
Att 1 – Proposed Resolution - City Authorizing
Att 2 – Proposed Resolution - Authority Authorizing
Att 3 – Fifth Amendment to the Reimbursement Agreement
Att 4 – Second Amended and Restated Fee Agreement
STAFF CONTACT
Karley Toffey, Senior Management Analyst
[email protected]
(650) 522-7106
Abby Veeser, Finance Director
[email protected]
(650) 522-7102