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HomeMy WebLinkAbout17 - Defeasance of the 1998 Library Certificates of ParticipationCITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No. 17 October 26, 2010 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Administrative Services Department Tracy McCraner, Administrative Services Director (949) 644 -3123 or tmccraner(a)newportbeachca.gov Dan Matusiewicz, Deputy Administrative Services Director (949) 644 -3126 or danm(- newportbeachca.gov SUBJECT: DEFEASANCE OF THE 1998 LIBRARY CERTIFICATES OF PARTICIPATION ISSUE: Authorize staff to execute and deliver all legal documents necessary to defease the outstanding 1998 Library Certificates of Participation. RECOMMENDATION: 1) Adopt Resolution No. 2010 - authorizing the defeasance of the 1998 Library Certificates of Participation, and 2) Authorize staff to execute the attached Escrow Agreement substantially to form, and 3) Approve a budget amendment appropriating an additional $3,630,000 from General Fund appropriations reserves to defease the 1998 Library Certificates of Participation. DISCUSSION: In 1992, the City issued $7,500,000 of Certificates of Participation (COPs) to finance the construction of the Central Library. These COPS were refinanced in 1998 in the principal amount of $7,330,000 to achieve an economic benefit to the City of approximately $690,000 in net present value savings. The current outstanding principal balance of the 1998 Library COPs is currently $3,990,000. These COPs carry an average interest rate of 5.15% and are scheduled to mature in 2019. Defeasance of the 1998 Library Certificates of Participation October 26, 2010 Page 2 Potential Savings Favorable market conditions again present the City with an opportunity to achieve an economic benefit by refinancing the remaining obligation. By "piggybacking" on the proposed Civic Center financing, the City could reduce the effective interest rate on the 1998 COPS to approximately 2.1 %. Refinancing the outstanding principal over the existing maturity schedule would achieve a financial savings of approximately $130,000 per year over the remaining term or approximately $520,000 in net present value savings. This projected savings is net of the incremental refinancing costs (expected to be under $25,000). Timing and Mechanics In accordance with the 1998 COP indenture, a redemption may only be executed on each June 1 and December 1, and the required funds must be deposited one month in advance. Therefore, in order to accomplish the defeasance of the Library COPs by December 1, 2010, the City would have to place approximately $3,525,858 into an escrow account for redemption. This deposit, along with $565,655 available in the COP debt service reserve (DSR), would be sufficient to satisfy the outstanding principal as follows: Sources: Escrow deposit $3,525,858 Debt Service Reserve $565,655 Total $4.091,513 Uses: Accrued Interest Payable $ 101,513 Outstanding Principal $3,990,000 Total $4.091.513 The general fund escrow advance could be reimbursed by the Civic Center financing proceeds if the 2010 Civic Center COPs are approved and issued before November 30, 2010. However, once the 1998 COPS are legally defeased as contemplated on December 1, 2010, the IRS tax code precludes the City from issuing new debt for the purpose of refinancing a debt that has already been satisfied. Consequently, the source of the 1998 COP escrow deposit would be provided from General Fund appropriations reserves if, for whatever reason, the proposed Civic Center financing does not close by November 30�h. Since fixed income investment earnings are also at historically low levels, the economic benefit of refinancing the existing COPs are expected to be advantageous to the City whether the escrow deposit is provided by cash reserves or refinanced by new COPs. Environmental Review: This action is not subject to the California Environmental Quality Act ( "CEQA ") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable Defeasance of the 1998 Library Certificates of Participation October 26, 2010 Page 3 indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Public Notice: This agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). Funding Availability: The refunding proceeds would be made available through the use of the 1998 COP debt service reserve and an advance from General Fund unappropriated operating reserves. Additional appropriations of $3,630,000 would be required to augment the $360,000 of principal expenditures previously authorized in the 2010 -11 budget. Alternatives: City Council may elect to not approve Resolution No. 2010- thereby electing not to defease the 1998 Library COPs. Prepared by: Submitted by: Dan Matusiewicz �- Tracy McCraner Deputy Administrative Setvic s Director Administrative Services erector Attachments: Resolution No. 2010 - Escrow Agreement Budget Amendment RESOLUTION NO. 2010- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH APPROVING THE ESCROW AGREEMENT, APPROPRIATING FUNDS AND AUTHORIZING THE CITY MANAGER TO TAKE ALL NECESSARY ACTIONS IN CONNECTION THEREWITH WHEREAS, the City of Newport Beach (the "City ") has previously caused to be sold and delivered the City of Newport Beach Certificates of Participation, Series 1998 (Central Library Building Project) (the "Library COP'S "), pursuant to the terms of a Trust Agreement dated as of June 1, 1998 (the "1998 Trust Agreement "); and WHEREAS, the City Council by adoption of this resolution finds that it is in the best interests of the City to defease the Library COP's by depositing cash in accordance with the Escrow Agreement and to redeem the Library COP'S on December 1, 2010. NOW THEREFORE, BE IT RESOLVED by the City Council of the City of Newport Beach that: Section 1. The Escrow Agreement between the City and the Trustee in substantially the form submitted at this meeting and made a part hereof as though set forth in full herein is hereby approved. The Mayor of the City and/or the City Manager of the City are hereby authorized and directed to execute the Escrow Agreement in the form presented at this meeting with such changes, insertions and omissions as may be approved by the Mayor or City Manager, said execution being conclusive evidence of such approval. Section 2. The appropriation of $3,630,000 is hereby approved. The City Manager is authorized and directed to cause such funds to be deposited in accordance with the Escrow Agreement. Section 3. The Mayor, the City Manager and any other proper officer of the City, acting singly, be and each of them hereby is authorized and directed to execute and deliver any and all documents and instruments, including any agreements with the Trustee relating to the Escrow Agreement, and to do and cause to be done any and all acts and things necessary or proper for carrying out the transactions contemplated by the Escrow Agreement and this Resolution. Section 4. This Resolution shall take effect immediately upon adoption. i ADOPTED, SIGNED AND APPROVED this 26th day of October, 2010. Mayor ATTEST: City Clerk ESCROW AGREEMENT THIS ESCROW AGREEMENT, dated as of November 1, 2010 (this "Agreement"), is by and between the City of Newport Beach (the "City ") and U.S. Bank National Association (formerly known as U.S. Bank Trust National Association), acting in its capacity as escrow agent (the "Escrow Agent ") pursuant to this Agreement; WITNESSETH: WHEREAS, the City has previously authorized the sale and delivery of the City of Newport Beach Refunding Certificates of Participation, Series 1998 (Central Library Building Project) (the "Library COP'S ") pursuant to a Trust Agreement dated as of July 1, 1998, between the City and U.S. Bank National Association, as trustee (the "Trustee ") (the "Trust Agreement"). WHEREAS, the City has determined that it is in the City's best interest to defease the Library COP'S by depositing funds with the Escrow Agent. NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained, the City and the Escrow Agent agree as follows: SECTION 1. Deposit of Moneys. The City hereby deposits with the Escrow Agent $ to be held in irrevocable escrow by the Escrow Agent separate and apart from other funds of the City and the Escrow Agent in a fund hereby created and established and to be known as the "Escrow Fund," and to be applied solely as provided in this Agreement. Such moneys are at least equal to an amount sufficient to pay the principal amount of Library COP'S together with accrued interest thereon and redemption premium, if any, thereon through December 1, 2010 (the "Redemption Date "). SECTION 2. Use and Investment of Moneys. The Escrow Agent acknowledges receipt of the moneys described in Section 1 and agrees: (a) such moneys in an amount equal to $ shall be held in a separate segregated trust account for the purpose of defeasing the Library COP'S; (b) to hold such moneys uninvested as cash; (c) to make the payments required under Section 3(a) hereof at the times set forth in Section 3(a) hereof. SECTION 3. Payment of Defeased Certificates. (a) Payment. "Defeased Certificates" shall mean the Library COP'S being defeased pursuant to this Agreement. The Escrow Agent shall transfer from the Escrow Fund to the Trustee the amounts sufficient to pay the principal and interest with respect to the Defeased Certificates until maturity. Such transfers shall constitute the respective payments of the principal of and interest on the Defeased Certificates due from the City. (b) Unclaimed Moneys. Any moneys remaining in the Escrow Fund established hereunder after December 1, 2010 (aside from unclaimed monies) which are in excess of the amount needed to pay owners of the Defeased Certificates payments of principal and interest and redemption premium, if any, with respect to the Defeased Certificates or to pay any amounts owed to the Escrow Agent shall be immediately transferred by the Escrow Agent to the City and deposited by the City in the debt service fund relating to the Library COP'S. (c) Priority of Payments. The holders of the Defeased Certificates shall have a first lien on the moneys in the Escrow Fund which are allowable and sufficient to pay the Defeased Certificates until such moneys are used and applied as provided in this Agreement. Moneys held in the Escrow Fund are irrevocably pledged only to the holders of the Defeased Certificates. (d) Termination of Obli ag tion. Upon deposit of the moneys set forth in Section 1 hereof with the Escrow Agent pursuant to the provisions of Section 1 hereof, all obligations of the City with respect to the Defeased Certificates shall cease and terminate, except only the obligation to make payments therefor from the moneys provided for hereunder. SECTION 4. Performance of Duties. The Escrow Agent agrees to perform the duties set forth herein. SECTION 5. Indemnity. The City hereby assumes liability for, and hereby agrees (whether or not any of the transactions contemplated hereby are consummated) to indemnify, protect, save and keep harmless the Escrow Agent and its respective successors, assigns, agents, employees and servants, from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, expenses and disbursements (including reasonable legal fees and disbursements) of whatsoever kind and nature which may be imposed on, incurred by, or asserted against, the Escrow Agent at any time (whether or not also indemnified against the same by the City or any other person under any other agreement or instrument, but without double indemnity) in any way relating to or arising out of the execution, delivery and performance of its Agreement, the establishment hereunder of the Escrow Fund, the acceptance of the funds and any payment, transfer or other application of moneys by the Escrow Agent in accordance with the provisions of this Agreement; provided, however, that the City shall not be required to indemnify the Escrow Agent against the Escrow Agent's own negligence or willful misconduct or the negligent or willful misconduct of the Escrow Agent's respective successors, assigns, agents and employees or the breach by the Escrow Agent of the terns of this Agreement. In no event shall the City or the Escrow Agent be liable to any person by reason of the transactions contemplated hereby other than to each other as set forth in this section. The indemnities contained in this section shall survive the termination of this Agreement. SECTION 6. Responsibilities of the Escrow Agent. The Escrow Agent and its respective successors, assigns, agents and servants shall not be held to any personal liability whatsoever, in tort, contract or otherwise, in connection with the execution and delivery of this Agreement, the establishment of the Escrow Fund, the acceptance of the moneys deposited therein, the sufficiency of the moneys deposited in Escrow Fund to accomplish the refunding and defeasance of the Defeased Certificates or any payment, transfer or other application of moneys or obligations by the Escrow Agent in accordance with the provisions of this Agreement or by reason of any non - negligent act, non - negligent omission or non - negligent error of the Escrow Agent made in good faith in the conduct of its duties. The recitals of fact contained in the "whereas" clauses herein shall be taken as the statements of the City and the Escrow Agent assumes no responsibility for the correctness thereof. The Escrow Agent makes no representation as to the sufficiency of the moneys deposited in Escrow Fund to accomplish the refunding and defeasance of the Defeased Certificates or to the validity of this Agreement as to the City and, except as otherwise provided herein, the Escrow Agent shall incur no liability with respect thereto. The Escrow Agent shall not be liable in connection with the performance of its duties under this Agreement except for its own negligence, willful misconduct or default, and the duties and obligations of the Escrow Agent shall be determined by the express provisions of this Agreement. The Escrow Agent may consult with counsel and in reliance upon the written opinion of such counsel shall have full and complete authorization and protection with respect to any action taken, suffered or omitted by it in good faith in accordance therewith. Whenever the Escrow Agent shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering, or omitting any action under this Agreement, such matter may be deemed to be conclusively established by a certificate signed by an authorized officer of the City. The City acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the City the right to receive brokerage confirmations of security transactions as they occur, the City specifically waives receipt of such confirmations to the extent permitted by law. The Escrow Agent will furnish the City periodic cash transaction statements which include detail for all investment transactions made by the Escrow Agent hereunder. SECTION 7. Substitution of Funds. Upon compliance with the conditions hereinafter set forth on or prior to December 1, 2010, the City shall have the power to deposit the proceeds of refunding Certificates of Participation in the Escrow Fund in an amount equal to the amount set forth in Section 1 hereof. The foregoing may be effected only: (i) if the amounts of and dates on which the anticipated transfers from the Escrow Fund to the Trustee for the payment of the principal of and/or redemption price of and/or interest with respect to the Defeased Certificates will not be diminished or postponed thereby; (ii) the Escrow Agent shall receive the unqualified opinion of nationally recognized municipal bond counsel to the effect that such substitution would not adversely affect the exclusion from gross income for federal income tax purposes of interest with respect to the Defeased Certificates, and that the conditions of this Section 7 as to the disposition and substitution have been satisfied and that the substitution is permitted by this Agreement. The moneys deposited in the Escrow Fund on the date of this Agreement shall be paid to the City free and clear of any trust, lien, pledge or assignment securing such Certificates or otherwise existing under this Agreement. SECTION 8. Irrevocable Instructions as to Notice. The Escrow Agent hereby acknowledges that upon the funding of the Escrow Fund as provided in this Agreement and the giving of irrevocable instructions to provide notice as provided in the Irrevocable Instructions and Request to Escrow Agent attached hereto as Schedule A (constituting all of the conditions precedent to the defeasance of the Defeased Certificates), the Defeased Certificates shall be paid in accordance with the terms of the Trust Agreement and all obligations of the City with respect to the Defeased Certificates shall cease and terminate. SECTION 9. Amendments. This Agreement is made for the benefit of the City and the holders from time to time of the Defeased Certificates and it shall not be repealed, revoked, altered or amended without the written consent of all such holders, the Escrow Agent and the City; provided, however, but only after the receipt by the Escrow Agent of an opinion of nationally recognized bond counsel that the exclusion from gross income of interest on the Certificates and the Defeased Certificates will not be adversely affected for federal income tax purposes, that the City and the Escrow Agent may, without the consent of, or notice to, such holders, amend this Agreement or enter into such agreements supplemental to this Agreement as shall not adversely affect the rights of such holders and as shall not be inconsistent with the terms and provisions of this Agreement for any one or more of the following purposes: (i) to cure any ambiguity or formal defect or omission in this 3 Agreement; (ii) to grant to, or confer upon, the Escrow Agent for the benefit of the holders of the Defeased Certificates any additional rights, remedies, powers or authority that may lawfully be granted to, or conferred upon, such holders or the Escrow Agent; and (iii) to include under this Agreement additional funds, securities or properties. The Escrow Agent shall be entitled to rely conclusively upon an unqualified opinion of nationally recognized municipal bond attorneys with respect to compliance with this Section 10, including the extent, if any, to which any change, modification, addition or elimination affects the rights of the holders of the Defeased Certificates or that any instrument executed hereunder complies with the conditions and provisions of this Section 9. In the event of any conflict with respect to the provisions of this Agreement, this Agreement shall prevail and be binding. SECTION 10. Term. This Agreement shall commence upon its execution and delivery and shall terminate on the later to occur of either (i) the date upon which the Defeased Certificates has been paid in accordance with this Agreement or (ii) the date upon which no unclaimed moneys remain on deposit with the Escrow Agent pursuant to Section 3(b) of this Agreement. SECTION 11. Compensation. The Escrow Agent shall receive its reasonable fees and expenses as previously agreed to; provided, however, that under no circumstances shall the Escrow Agent be entitled to any lien nor will it assert a lien whatsoever on any moneys or obligations in the Escrow Fund for the payment of fees and expenses for services rendered by the Escrow Agent under this Agreement. SECTION 12. Resienation or Removal of Escrow Agent. (a) The Escrow Agent may resign by giving notice in writing to the City, a copy of which shall be sent to DTC. The Escrow Agent may be removed (1) by (i) filing with the City an instrument or instruments executed by the holders of at least 51% in aggregate principal amount of the Defeased Certificates then remaining unpaid, (ii) sending notice at least 60 days prior to the effective date of said removal to DTC, and (iii) the delivery of a copy of the instruments filed with the City to the Escrow Agent or (2) by a court of competent jurisdiction for failure to act in accordance with the provisions of this Agreement upon application by the City or the holders of 5% in aggregate principal amount of the Defeased Certificates then remaining unpaid. (b) If the position of Escrow Agent becomes vacant due to resignation or removal of the Escrow Agent or any other reason, a successor Escrow Agent may be appointed by the City. The holders of a majority in principal amount of the Defeased Certificates then remaining unpaid may, by an instrument or instruments filed with the City, appoint a successor Escrow Agent who shall supersede any Escrow Agent theretofore appointed by the City. If no successor Escrow Agent is appointed by the City or the holders of such Defeased Certificates then remaining unpaid, within 45 days after any such resignation or removal, the holder of any such Defeased Certificates certificate or any retiring Escrow Agent may apply to a court of competent jurisdiction for the appointment of a successor Escrow Agent. The responsibilities of the Escrow Agent under this Escrow Agreement will not be discharged until a new Escrow Agent is appointed and until the cash and investments held under this Escrow Agreement are transferred to the new Escrow Agent. rd SECTION 13. Severability. If any one or more of the covenants or agreements provided in this Agreement on the part of the City or the Escrow Agent to be performed should be determined by a court of competent jurisdiction to be contrary to law, such covenants or agreements shall be null and void and shall be deemed separate from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Agreement. SECTION 14. Counterparts. This Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as one original and shall constitute and be but one and the same instrument. SECTION 15. Governing Law. This Agreement shall be construed under the laws of the State of California. SECTION 16. Holidays. If the date for making any payment or the last date for performance of any act or the exercising of any right, as provided in this Agreement, shall be a legal holiday or a day on which banking institutions in the city in which is located the principal office of the Escrow Agent are authorized by law to remain closed, such payment may be made or act performed or right exercised on the next succeeding day not a legal holiday or a day on which such banking institutions are authorized by law to remain closed, with the same force and effect as if done on the nominal date provided in this Agreement, and no interest shall accrue for the period after such nominal date. SECTION 17. Assignment. This Agreement shall not be assigned by the Escrow Agent or any successor thereto without the prior written consent of the City. SECTION 18. Moody's; Standard & Poor's. The City agrees to provide Standard & Poor's, a Division of the McGraw -Hill Companies, 55 Water Street, 45`" Floor, New York, New York 10041, and Moody's Investors Service, 7 World Trade Center, 250 Greenwich Street, 23`d Floor, New York, New York 10007, and FGIC, Risk Management, 125 Park Avenue, New York, New York 10017 prior notice of each amendment entered into pursuant to Section 10 hereof and a copy of such proposed amendment, and to forward a copy (as soon as possible) of (i) each amendment hereto entered into pursuant to Section 9 hereof, and (ii) any action relating to severability or contemplated by Section 13 hereof. SECTION 19. Reorganization of Escrow Agent. Notwithstanding anything to the contrary contained in this Agreement, any company into which the Escrow Agent may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which the Escrow Agent is a party, or any company to which the Escrow Agent may sell or transfer all or substantially all of its corporate trust business shall be the successor to the Escrow Agent without execution or filing of any paper or any paper or further act, if such company is eligible to serve as Escrow Agent. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers and attested as of the date and year first written above. APPROVED AS TO FORM: OFFICE OF THE CITY ATTORNEY B-. / I rq ill r David R. Hunt City Attorney ATTEST: By: Leilani I. Brown City Clerk C CITY OF NEWPORT BEACH, A California municipal corporation Dave Kiff City Manager U.S. BANK NATIONAL ASSOCIATION, as Escrow Agent Lo Authorized Officer SCHEDULE A IRREVOCABLE INSTRUCTIONS AND REQUEST TO TRUSTEE AND ESCROW AGENT $7,330,000 CITY OF NEWPORT BEACH CERTIFICATES OF PARTICIPATION, SERIES 1998 (CENTRAL LIBRARY BUILDING PROJECT) WRITTEN REQUEST OF THE CITY OF NEWPORT BEACH TO U.S. BANK NATIONAL ASSOCIATION, REGARDING REDEMPTION NOTICE 1. City Certifications Pursuant to Section 4.3 of the Trust Agreement dated as of June 1, 1998 (the "Trust Agreement "), among the City, the Newport Beach Public Facilities Corporation (the "Corporation ") and U.S. Bank National Association, as trustee (the "Trustee "), the undersigned, a duly appointed officer of the City, hereby certifies that I have reviewed the Trust Agreement and the sections thereof relating to the defeasance of the Defeased Certificates and I have made an examination of the provisions of the Trust Agreement and of related facts as is necessary in my opinion in connection with the submission of this written request. 2. Written Request On behalf of the City, I hereby inform you that the City has irrevocably elected and directed the Trustee to redeem on December 1, 2010 the Defeased Certificates, under the terms and conditions set forth in the Trust Agreement, and that upon deposit of the obligations and moneys required to be deposited by the City with U.S. Bank National Association (the "Escrow Agent ") pursuant to that certain Escrow Agreement dated as of December 1, 2010 between the City and the Escrow Agent and satisfaction of the requirements of Section 4.3 of the Trust Agreement which is occurring on the date hereof, the City's obligation to make lease payments pursuant to the Project Lease between the Corporation and the City, dated as of June 1, 1998 (the "Lease ") shall cease and terminate as provided in Section 14.1 of the Trust Agreement. I further irrevocably instruct the Trustee to do as follows with respect to the Defeased Certificates: (a) To send, postage prepaid, via first class mail, a notice of redemption and defeasance to the owners of the Defeased Certificates and to the Bond Insurer as defined in the Trust Agreement. Schedule A -1 (b) To pay from funds on deposit in the Escrow Fund on December 1, 2010 the principal, interest and redemption premium, if any, with respect to the Defeased Certificates. Receipt acknowledged and consented to: U.S. BANK NATIONAL ASSOCIATION, as Trustee and Escrow Agent Authorized Officer THE CITY OF NEWPORT BEACH City Manager Schedule A -2 City of Newport Beach BUDGET AMENDMENT 2010 -11 EFFECT ON BUDGETARY FUND BALANCE: Increase Revenue Estimates X Increase Expenditure Appropriations AND Transfer Budget Appropriations SOURCE: from existing budget appropriations from additional estimated revenues PX from unappropriated reserves EXPLANATION: NO. BA- IIBA -014 AMOUNT: $3,s3o,aoo.00 Increase in Budgetary Fund Balance X Decrease in Budgetary Fund Balance No effect on Budgetary Fund Balance This budget amendment is requested to provide for the following: To increase expenditure appropriations for 1998 Library Certificates of Participation principal expenditure from General Fund unappropriated reserves. ACCOUNTING ENTRY: BUDGETARY FUND BALANCE Fund Account 010 3776 REVENUE ESTIMATES (3601) Fund /Division Account EXPENDITURE APPROPRIATIONS (3603) Division Account Division Account Division Account Division Account Signed: Signed: Signed: General Fund - Reserve: CIP Non - Specific Description Approval: City City Council Approval: City Clerk Director Amount Debit Credit $3,630,000.00 * $3,630,000.00 * Automatic System Entry /0 Date 1OCfS/10 Date Date Description Number 9230 ND Debt Service Number 9906 Principal Expenditure Number Number Number Number Number Number Approval: City City Council Approval: City Clerk Director Amount Debit Credit $3,630,000.00 * $3,630,000.00 * Automatic System Entry /0 Date 1OCfS/10 Date Date