HomeMy WebLinkAboutSS2 - CIOSA Special Improvement District Debt Refunding--35 #z
CITY OF NEWPORT BEACH
Administrative Services Department
Resource Management • Accounting • Revenue • Fiscal Services • Management Information Services
August 14, 2001
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
From: Dennis Danner, Administrative Services Director 1z),,a
SUBJECT: CIOSA SPECIAL IMPROVEMENT DISTRICT DEBT REFUNDING
RECOMMENDED ACTION:
Receive and file report (information only).
EXECUTIVE SUMMARY:
The City just completed a $15,495,000 refinancing of the CIOSA Special Improvement District
Bonds. This cleaned up and combined two complicated existing bond issues. This debt is
backed by a special assessment district tax, and as such it is not backed by the full faith and
credit of the City. Therefore the City will not receive the direct benefit of the savings. However,
approximately 276 Newport Beach homeowners will save in annual debt service payments,
which are collected as part of their property taxes, over the next 22 years. The present value of
the total saving is $624,073.18. The actual savings will be a multiple of that amount, but it will
be spread, a bit unevenly, over the life of the bonds.
BACKGROUND:
In 1993 the City and The Irvine Company entered into a Development Agreement entitled
CIOSA (Circulation Improvement and Open Space Agreement), which called for the Company
to meet financial obligations for the construction of public roadway and other improvements
within the City. The most significant of the specific projects undertaken with this funding was
the widening of MacArthur Boulevard. In 1995 and 1997, the City issued the CIOSA Special
Improvement District No. 95 -1 Series A and B Special Tax Bonds, in the amounts of $7,500,000
and $9,335,000, respectively, to finance the public roadway improvements described above. At
the time these Special Improvement District Special Tax Bonds were sold they received a very
favorable interest rate. However, with much of the property within the District having been
developed (and sold to new, individual owners) and with recent market conditions, there was an
opportunity to refinance this debt at a more competitive interest rate and to combine the two
issues into one.
August 14, 2001
Page 2
DISCUSSION:
As reported in several previous Newsletters, refunding of the CIOSA debt has been a fairly
significant project for City staff and the financing team assembled for this purpose. The team
consisted of members of Stone & Youngberg LLC, underwriters; Fieldman, Rolapp &
Associates, financial advisors; U.S. Trust (Bank of New York), paying agent and trustee; and
Orrick Herrington & Sutcliffe LLP, bond counsel.
There are limitations to the number of times a debt issue can be refunded, and the rule of thumb
in the industry is that if the net present value savings are not at least 3.0 %, it is not appropriate to
refinance. We were clear from the outset that we would not proceed if we could not achieve at
least that level of savings. Since the existing debt was at a fairly respectable rate already, it was
touch and go whether this level of savings could be achieved. If not, it is generally not advisable
to "use up" the opportunity. In this case, another factor requiring action at this time is that the
clear consensus is that rates are at or near a long -term low point now. It is therefore unlikely that
we would be able to do better by waiting.
Still, it was questionable throughout whether it would end up being worthwhile. A lot of hard
work had to be put in with significant factors impacting the outcome remaining largely out of
anyone's control. The Indenture, Escrow Agreement, Continuing Disclosure Agreement,
Preliminary Official Statement, City Council Resolution, and numerous other documents had to
be researched and prepared. Preliminary marketing had to be explored, and a thorough
understanding of the district itself had to be communicated to rating agencies and prospective
insurers. Since the new bonds would be in existence for a while before the old ones could be
fully retired, arrangements had to be made and confirmed for interim investment of the proceeds
prior to defeasance of the original debt; as well as long -term investment of the reserve fund.
Two significant, related hurdles were the debt rating and bond insurance, both of which would
have a significant influence on the ultimate interest rate that would have to be paid. Since the
issue was land based and relatively small by industry standards, we initially had difficulty
obtaining bond insurance. We were turned down flat by three different insurers, one of which
had provided insurance, at an attractive rate, to the City in the past. The difference was that the
full faith and credit of the City did not.back this issue.
We had been hoping for a BBB investment grade rating, with the potential to upgrade it to
BBB +, which would have helped our insurance prospects. In the end, we received an A- rating,
and another insurer came forward and provided insurance, and did so at a discounted rate.
Although commitments from the investment community were uneven at first, our underwriters
remained confident that the bonds could be sold, and the agreement was finalized on July 25'".
The underwriter's actual maturity schedule is shown in the table on the next page.
The net present value savings ended up being just over 4.2 %, well above the 3.0% threshold.
Because this is a transition year, property owners may or may not realize the savings this time
around. But over the next 22 years, the "dwelling cost" portion of several family budgets just
moved down a notch.
August 14, 2001
Page 3
Maturity
Principal
Interest
(September 1)
Amount
Rate
Yield
2002
$ 395,000
3.500%
2.65%
2003
465,000
3.500
2.90
2004
510,000
3.500
3.00
2005
550,000
3.500
3.10
2006
600,000
3.500
3.30
2007
645,000
3.500
3.50
2008
650,000
3.700
3.70
2009
675,000
3.900
3.90
2010
705,000
4.000
4.00
2011
730,000
4.100
4.17
2012
760,000
4.300
4.38
2013
790,000
4.500
4.57
2014
830,000
4.600
4.68
2015
865,000
4.700
4.78
2016
905,000
4.875
4.90
2017
950,000
4.875
5.00
2018
995,000
5.000
5.05
2019
475,000
5.000
5.07
2022
3,000,000
5.000
5.00