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Agenda Item 19.

City Council Meeting

Meeting Date:	10/06/2020
FROM:	Bill Gallardo

Subject:

Authorization of an Escrow Agreement Relating to the Refunding of the Outstanding 2014 Water Revenue Bonds

RECOMMENDATION

Adopt the Resolution, authorizing the execution and delivery of an Escrow Agreement relating to the refunding of the outstanding 2014 Water Revenue Bonds, and approving related actions.

BACKGROUND/DISCUSSION

In 2014, the City/Authority issued the following Bonds to the acquisition of water rights for the benefit of the City’s Water System that are able to be refunded (refinanced) at this time at a cost savings to the City:

$18,555,000 (original principal amount) 2014 Water Revenue Bonds, (the “2014 Authority Bonds”), of which $16,595,000 remain outstanding; $14,940,000 would be refunded (refinanced) and $1,655,000 will remain outstanding and will be paid on their current schedule.

On August 28, 2020, staff recommended and the City Council adopted Resolution 2020-054 approving the institution of proceedings to refinance the outstanding 2014 Water Revenue Bonds of the Authority (the “2014 Water Bonds”) by issuing refunding bonds. Based on this approval, the City's bond issuance team proceeded with the necessary steps to complete the refunding, including further detailed analysis to optimize the City's savings.

The 2014 Authority Bonds include callable bonds, totaling $14,940,000 which are subject to prepayment and redemption on any date on or after July 1, 2024, and are recommended for refunding. The refunding of the remaining $1,655,000 of non-callable would not results in savings; therefore, based on the calculations provided by the City's bond issuance team, the bonds will remain outstanding and paid as scheduled.

On October 6, 2020, the City Council will consider the authorization and sale of The City of Brea 2020 Water Revenue Refunding Bonds (the “2020 Water Refunding Bonds”) which would be issued under the provisions of Articles 10 and 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code, commencing with Section 53570 of said Code (the “Refunding Bond Law”).

If authorized for issuance by the City Council, the Authority Board of Directors would need to adopt the attached Resolution which approves the refunding of the 2014 Authority Bonds in accordance with the provisions of the Escrow Agreement among the City, the Authority and the Escrow Agent. The proceeds of the 2020 Water Refunding Bonds issued by the City would then be deposited with The Bank of New York Mellon Trust, N.A., as trustee for the 2014 Authority Bonds and escrow agent (the “Escrow Agent”) under an Escrow Agreement.

FISCAL IMPACT/SUMMARY

Staff has recommended the City refund the outstanding 2014 Authority Bonds as taxable bonds to do an advance refunding and reduce the average annual bond payments by an estimated $71,447, based on current market conditions, subject to change. The term of the outstanding bonds remains the same. The net present value savings which includes the cost to issuance on the bonds is 8.66% of the refunded bonds and is in compliance with the City’s Debt Policy. These savings would benefit the City’s Water Enterprise Fund and would be factored into the City’s upcoming water rate study planned for early 2021. There is no impact to the City’s General Fund as a result of the proposed bond refunding.

If issuance of the 2020 Water Refunding Bonds is authorized by the City Council, staff recommends the Authority Board adopt the Resolution authorizing the execution of the Escrow Agreement related to the this transaction.

RESPECTFULLY SUBMITTED:

William Gallardo, City Manager
Prepared by: Cindy Russell, Administrative Services Director

Attachments
Resolution
Escrow Agreement