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Agenda Item 16.
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| City Council Meeting |
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| Subject: |
| Authorization for the Issuance of the 2021 Lease Revenue Refunding Bonds to Refinance the Outstanding 2010 Lease Revenue Bonds (Solar and Energy Efficiency Projects) of the Brea Public Financing Authority |
| RECOMMENDATION |
| Adopt Resolution No. 2021-014 approving the institution of proceedings to refinance the outstanding 2010 Lease Revenue Bonds and engaging related professional services as needed. |
| BACKGROUND/DISCUSSION |
In 2010, the City of Brea through the Brea Public Finance Authority (Authority), issued the following Bonds to finance a portion of the costs of the installation of photovoltaic energy systems and energy efficient improvements at the Brea Civic & Cultural Center and Brea Community Center:
$2,835 000 (original principal amount) 2010 Lease Revenue Bonds (Solar Energy and Efficiency Projects) (the “2010 Bonds”), of which $2,760,000 remain outstanding
These bonds are secured by lease payments from the City’s General Fund which benefits from the facilities constructed with the bond proceeds. It is noted that these bonds were issued as taxable Build America Bonds which made the Authority eligible for a cash subsidy to offset the cost of the interest on these taxable bonds. The effective rate of interest on these bonds is 4.58% based on the 6.83% average coupon on the outstanding bonds, net of the subsidy of approximately 33%.
Based on current market conditions, subject to change, it is projected that the City could realize savings at this time by refunding these bonds with tax-exempt bonds. The projected debt service savings are $827,072 or an average annual reduction in bond payments of $55,138 over the next fifteen (15) years. The projected true interest cost is lower at 2.10% as compared to the effective 4.58% average interest rate on the outstanding bonds. The amount of bonds outstanding is projected to be reduced by $435,000 from $2.760 million down to $2.325 million. The term of the 2021 Lease Revenue Refunding Bonds ("2021 Refunding Bonds") would remain the same as the 2010 Bonds with a final maturity on April 1, 2036. The City’s local Debt Policy requires a threshold of at least 3% net present value savings to be met in order to refund bonds. The proposed refunding which includes the costs of issuing the bonds, results in a projected net present value savings of 16.02% of the outstanding bonds to be refunded.
Below is a table summarizing the details of the 2021 Refunding Bonds to be refunded and the anticipated savings:
Refunding Statistics |
2021 Lease Revenue
Refunding Bonds |
| Amount of Refunded Bonds |
$2,760,000 |
| Call Date |
10/01/2021 @ 100 |
| Rating |
"AA" |
| Refunding Type |
Tax-exempt |
| Final Maturity |
04/01/2036 |
| Amount of Refunding Bonds |
$2,325,000 |
| True Interest Cost |
2.10% |
| Avg. Annual Savings |
$55,138 |
| Total Gross Savings |
$827,072 |
| Net PV Savings |
$442,142 |
| % Savings of Refunded Bonds |
16.02% |
The adoption of the Resolution authorizes staff to undertake the necessary actions for the proposed refunding of the 2010 Bonds; approves professional services related to the refunding; and directs City officials to execute related documents as needed. The City's bond issuance team has been in place for many years and staff recommends these firms to continue providing those services for this refunding issue. The Resolution authorizes the following firms to participate in the transaction and the City Manager to execute agreements as necessary:
- Financial Advisory - Fieldman, Rolapp & Associates
- Bond Counsel - Jones Hall, A Professional Law Corporation
- Disclosure Counsel - Richards, Watson & Gershon
- Underwriter - Stifel, Nicolaus & Company
- Trustee and Escrow Bank - Bank of New York Mellon Trust, N.A.
The next steps will be to prepare required legal and financing documents and secure an underlying credit rating from Standard & Poor’s. The final step will be for the City Council to consider a resolution approving the Preliminary Official Statement (bond offering document) and other related bond documents for the 2021 Refunding Bonds. Based on the current schedule, staff anticipates this City Council consideration of the final authorization for issuance of the bonds would be scheduled for a May 2021 City Council meeting. |
| COMMISSION/COMMITTEE RECOMMENDATION |
| This item was included on the March 9, 2021 agenda for the Finance Committee and was recommended for approval.
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| FISCAL IMPACT/SUMMARY |
The City has $2,760,000 in outstanding 2010 Lease Revenue Bonds (Solar and Energy Efficiency Projects). Based on current market conditions, subject to change, it is projected that lower interest rates would result in a savings of $827,072 to the City over the next fifteen (15) years, an average annual savings of $55,138. The refunding would result in a reduction of the amount bonds outstanding by $435,000 down tow $2,325,000. The projected Net Present Value of the savings is 16.02% which is in compliance with the City's Local Debt Policy threshold of at least 3%. The projected savings and calculations factor in the costs to issue the 2021 Refunding Bonds.
Staff recommends the issuance of the 2021 Lease Revenue Refunding Bonds to Refinance the Outstanding 2010 Lease Revenue Bonds (Solar and Energy Efficiency Projects) through the Brea Public Financing Authority. |
| RESPECTFULLY SUBMITTED: |
William Gallardo, City Manager
Prepared by: Cindy Russell, Administrative Services Director
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