In 2010, the Brea Public Financing Authority issued its 2010 Lease Revenue Bonds (Solar and Energy Efficiency Projects) to finance the costs of certain renewable energy and energy efficiency improvements on the Civic and Cultural Center and Brea Community Center properties (the “2010 Bonds”). The 2010 Bonds were issued in the original principal amount of $2,835,000, of which $2,760,000 is currently outstanding. The 2010 Bonds are currently callable on any interest payment date (being October 1 and April 1) without penalty.
In February/March 2021, City Staff has determined in consultation with its Municipal Advisor, Fieldman, Rolapp & Associates, Inc, and its bond underwriter, Stifel, Nicolaus & Company, Incorporated (the “Underwriter”), that current market conditions allowed for the issuance of the Brea Public Finance Authority 2021 Refunding Lease Revenue Bonds (“2021 Bonds”) to generate savings in the form of lower annual debt payments by refinancing the 2010 Bonds. Therefore, on March 16, 2021, staff recommended and the Brea City Council adopted Resolution 2021-014 approving the institution of proceedings to refinance the outstanding 2010 Bonds by issuing refunding bonds
The proposed refinancing assumes that the 2010 Bonds will be called on October 1, 2021 and the proposed refunding bonds would retain the same final maturity as the 2010 Bonds. The finance team has requested a rating for the 2021 Bonds from Standard & Poor’s and expects to receive a rating at least as high as the “AA” underlying rating currently assigned to the 2010 Bonds. Based on current market conditions as of April 29, 2021, 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 estimated at $842,097 or an average annual reduction in bond payments of $56,194 over the next fifteen (15) years. The projected true interest cost is lower at 2.03% 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 $445,000 from $2.760 million down to $2.315 million. The term of the 2021 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 2010 Bonds to be refunded and the anticipated savings:
| Refunding Statistics (Estimated) |
| Amount of Refunded Bonds |
$2,760,000 |
| Call Date of Refunded Bonds |
10/01/2021 |
| Refunding Type |
Current, Tax-Exempt |
| Final Maturity |
04/01/2036 |
| Amount of Refunding Bonds |
$2,315,000 |
| True Interest Cost |
2.03% |
| Average Annual Savings |
$56,194 |
| Total Gross Savings |
$842,907 |
| Net Present Value Savings |
$463,889 |
| % NPV Savings of Refunded Bonds |
16.81% |
The 2021 Bonds will be secured solely by lease payments from the City’s General Fund for use and occupancy of the City’s Community Center (the “Leased Property”). As mentioned previously, the improvements constructed with the proceeds of the original bonds benefited the Brea Community Center.
Approval of the attached resolutions will approve the following documents required to issue the 2021 Bonds:
- Amended and Restated Site Lease – agreement between the City as lessor and the Authority as lessee which provides for the lease of the Leased Property to the Authority.
- Amended and Restated Lease Agreement – agreement between the Authority as lessor and the City as lessee which allows the Authority to sublease the Leased Property back to the City in exchange for semi-annual lease payments sufficient to pay debt service due on the 2021 Bonds.
- Escrow Agreement - among the Authority, the City and The Bank of New York Mellon Trust Company, N.A., as escrow agent, providing the terms and provisions relating to the refunding and redemption of the 2010 Bonds.
- Preliminary Official Statement – offering statement used to inform the marketplace of the terms of the 2021 Bonds and contains all relevant information for the investors to decide whether to purchase the 2021 Bonds.
- Continuing Disclosure Certificate (Appendix E to the Preliminary Official Statement) - requires the City to submit annual continuing disclosure reports and notice of certain listed events to the marketplace as long as the 2021 Bonds are outstanding. The Bank of New York Mellon Trust Company, N.A., as dissemination agent, will assist the City with this responsibility.
- Bond Purchase Agreement – contract among the Authority, the City and the Underwriter, whereby the Underwriter agrees to buy the 2021 Bonds for resale to the public.
If the refinancing is approved, it is anticipated that the 2021 Bonds will be sold in mid-June with the bond closing scheduled on July 13, 2021. |