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12-14-2010 CC Rpt A14 COUNCIL AGENDA STAFF REPORT ¢i1E6t i 1QNLY 2010 DEC -6 AM 10: 53 Meeting Date: December 14, 2010 OFFICE Oi' CITY CLERK Public Hearing: 0 CHINO HILLS Discussion Item: ❑ tacaliggia Consent Item: DECEMBER 7, 2010 TO: HONORABLE MAYOR AND CITY COUNCIL MEMBERS FROM: CITY MANAGER SUBJECT: COMMUNITY FACILITIES DISTRICT NO. 9 SPECIAL TAX REFUNDING BONDS RECOMMENDATION: Adopt a Resolution entitled: "A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHINO HILLS, AUTHORIZING THE ISSUANCE OF CITY OF CHINO HILLS COMMUNITY FACILITIES DISTRICT NO. 9 (RINCON VILLAGE AREA) SPECIAL TAX REFUNDING BONDS, SERIES 2011, IN AN AGGREGATE PRINCIPAL AMOUNT OF NOT TO EXCEED $5,000,000, AUTHORIZING THE EXECUTION AND DELIVERY OF AN INDENTURE, AN ESCROW AGREEMENT, A BOND PURCHASE AGREEMENT AND A CONTINUING DISCLOSURE AGREEMENT, AUTHORIZING THE DISTRIBUTION OF AN OFFICIAL STATEMENT IN CONNECTION THEREWITH AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND CERTIFICATES AND RELATED ACTIONS." BACKGROUND/ANALYSIS: The County of San Bernardino formed Community Facilities District No. 9 in 1991 (CFD 9), just prior to the City's incorporation, and issued $27,500,000 in special tax bonds to fund infrastructure serving the Rincon Village Area. CFD No. 9 is within the incorporated area of the City and, upon incorporation, the City became the successor in interest to the County with respect to CFD No. 9 and the bonds issued in 1991. In 1998, the City, acting as the legislative body of CFD No. 9, authorized the issuance of Special Tax Refunding Bonds in an amount of $14,860,000 payable from Special Taxes to be levied on property in CFD No. 9. The 1998 Special Tax Refunding Bonds are currently outstanding in the amount $4,765,000 and bear interest at an average rate of 6.0%. The 1998 Bonds are currently eligible for refinancing at lower interest rates. The 1998 Bonds mature in 2021. Current market conditions would allow the City, acting as the legislative body of the CFD, to refinance the bonds at approximately 4.0%. Now that the CFD is developed with over 1,300 homes, bonds of CFD No. 9 may be eligible for an investment grade credit rating, which would reduce the interest rate even further to 3.75%. 6/ / 1 AGENDA DATE: DECEMBER 14, 2010 SUBJECT: ADOPT RESOLUTION AUTHORIZING COMMUNITY FACILITIES DISTRICT NO. 9 SPECIAL TAX REFUNDING BONDS PAGE TWO If the City is able to refinance the 1998 Bonds at an average interest rate of 4.0%, the average reduction in debt service is estimated to be $70,000 annually for the remaining 10 years that the bonds would be outstanding. On a present value basis, this equates to over 6% of the current outstanding principal amount of the 1998 Bonds. If authorized, the interest rates on the bonds would be set during the first two weeks of January 2011. Interest rates may change between the authorization of the refunding bonds and the date rates can be set. If interest rates were to increase by 1/4% from current rates, the present value savings would be reduced to 4.9%. In this case, the average annual savings would be $63,000. Interest rates may also decline in the early weeks of the new year, and if so, the savings would increase proportionately. The bonds would not be issued unless the present value savings was at least 4.0% -- the financing would just be delayed until rates were sufficiently low to produce the required savings. Regarding the sale of the bonds, the City's financial advisor is recommending a negotiated sale of the bonds as opposed to a competitive bid. This recommendation is based on current market conditions and the fact that in recent sales of Special Tax Bonds and other land secured bonds,the best interest rates were obtained through negotiated sale. In the current market, a negotiated sale allows the underwriter to pre-market the bonds to their investors, which reduces their risk of holding an inventory in the bonds, which in turn, allows the underwriter to offer lower rates for the City. Further, the market for land secured bonds, without credit enhancement, is now mainly composed of investors who must complete additional due diligence before committing to purchase the bonds, and so need more time to analyze each transaction. This reinforces the need to select one underwriter who can work with such investors and obtain the lowest interest rates possible. Assisting the staff on the issuance of the Special Tax Bonds are Orrick Herrington &Sutcliffe, LLP, bond counsel, Fulbright&Jaworski LLP, disclosure counsel, Harrell &Company Advisors,financial advisor, Willdan Financial Services, special tax consultant and Stone & Youngberg LLC, underwriter. The resolution presented authorizes the City Manager or the Finance Director, acting on behalf of the CFD, to sign a purchase contract for the sale of bonds pursuant to a negotiated sale with Stone & Youngberg, which may occur as early as January 13, 2011, depending on market conditions. The Resolution provides that the bonds will be issued in an amount not to exceed $5 million, at a true interest cost not to exceed 4.5% (which will produce a present value savings of not less than 4.0%) with an underwriter's discount not to exceed 1.50% of the bonds. 2 AGENDA DATE: DECEMBER 14, 2010 SUBJECT: ADOPT RESOLUTION AUTHORIZING COMMUNITY FACILITIES DISTRICT NO. 9 SPECIAL TAX REFUNDING BONDS PAGE THREE The Resolution also approves the form of: ® Indenture, by and between the CFD and U.S. Bank National Association (as Trustee); ® Escrow Agreement between the CFD and U.S. Bank National Association relating to the 1998 Bonds; ® Bond Purchase Agreement between the CFD and Stone & Youngberg LLC. ® Continuing Disclosure Agreement, by and between the CFD and U.S. Bank National Association; and ® Preliminary Official Statement. These documents are attached hereto, in draft form, and may be modified to reflect the terms of the actual sale of the bonds. REVIEW BY OTHERS: This agenda item has been reviewed by the City Attorney,the City's bond counsel, and the financial advisor. FISCAL IMPACT: There is no General Fund liability associated with the issuance of the Special Tax Bonds. The Bonds are payable from special taxes levied on property within CFD No. 9. Any reduction in debt service will used to fund additional authorized facilities of CFD No. 9. The costs of issuance associated with the bonds, including fees and expenses of the City's counsel, consultants and advisors, printing costs, rating fees and trustee fees, will be paid from proceeds of the Bonds. The bonds will be sold pursuant to a negotiated sale with Stone & Youngberg. The financial advisor assisted staff in negotiating the fees to be charged by the underwriter, and they are comparable with other issues of similar credit quality and time to maturity. Stone & Youngberg is also very familiar with the City, having served as financial advisor on the City's other CFD financings in 2004, 2006 and earlier this year. Total costs of issuance, including underwriting fees, are estimated to be $194,000 based on an estimated par amount of bonds to be issued of$4.9 million. Respectfully submitted, Recommended by: Can iief/ta& is ael S. " eage/City Manager Ju . L4icaster, Finance Director MSF:JRL:dk 1/ 3 RESOLUTION NO. 10R- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHINO HILLS, AUTHORIZING THE ISSUANCE OF CITY OF CHINO HILLS COMMUNITY FACILITIES DISTRICT NO. 9 (RINCON VILLAGE AREA) SPECIAL TAX REFUNDING BONDS, SERIES 2011, IN AN AGGREGATE PRINCIPAL AMOUNT OF NOT TO EXCEED $5,000,000, AUTHORIZING THE EXECUTION AND DELIVERY OF AN INDENTURE, AN ESCROW AGREEMENT, A BOND PURCHASE AGREEMENT AND A CONTINUING DISCLOSURE AGREEMENT, AUTHORIZING THE DISTRIBUTION OF AN OFFICIAL STATEMENT IN CONNECTION THEREWITH AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND CERTIFICATES AND RELATED ACTIONS. WHEREAS, the City Council (the "City Council) of the City of Chino Hills (the "City") is the successor to the Board of Supervisors of the County of San Bernardino (the "Board of Supervisors") as the legislative body of City of Chino Hills Community Facilities District No. 9 (Rincon Village Area) (the "Community Facilities District"); and WHEREAS, the Board of Supervisors formed the Community Facilities District under the provisions of the Mello-Roos Community Facilities Act of 1982 (the "Act"); and WHEREAS, the Community Facilities District is authorized under the Act to levy special taxes to pay for the costs of certain public facilities (the "Facilities") and to issue bonds payable from the Special Taxes; and WHEREAS, in order to refund certain bonds of the Community Facilities District previously issued to finance a portion of the Facilities, the Community Facilities District issued $14,860,000 aggregate principal amount of City of Chino Hills Community Facilities District No. 9 (Rincon Village Area) Special Tax Bonds, Series 1998 (the "Prior Bonds"), pursuant to the Indenture, dated as of August 1, 1998, by and between the Community Facilities District and Harris Trust Company of California, as trustee; and WHEREAS, the Community Facilities District has determined that it would be advantageous to refund the outstanding Prior Bonds; and WHEREAS, in order to provide funds to refund the outstanding Prior Bonds, the Community Facilities District proposes to issue its City of Chino Hills Community Facilities District No. 9 (Rincon Village Area) Special Tax Refunding Bonds, Series 2011 (the "Series 2011 Bonds"), in the aggregate principal amount of not to exceed $5,000,000; and Page 1 of 7 4 WHEREAS, in order to provide for the authentication and delivery of the Series 2011 Bonds, to establish and declare the terms and conditions upon which the Series 2011 Bonds are to be issued and secured and to secure the payment of the principal thereof, premium, if any, and interest thereon, the Community Facilities District proposes to enter into an Indenture with U.S. Bank National Association, as trustee (the "Trustee") (such Indenture, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Indenture"); and WHEREAS, the moneys to defease and redeem the Prior Bonds will be applied to such purpose pursuant to an Escrow Agreement by and between the Community Facilities District and U.S. Bank National Association, as prior trustee and as escrow bank (such Escrow Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Escrow Agreement"); and WHEREAS, Stone & Youngberg LLC (the "Underwriter") has presented the Community Facilities District with a proposal, in the form of a Bond Purchase Agreement, to purchase the Series 2011 Bonds from the Community Facilities District (such Bond Purchase Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Purchase Agreement"); and WHEREAS, Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 ("Rule 15c2-12") requires that, in order to be able to purchase or sell the Series 2011 Bonds, the underwriter thereof must have reasonably determined that the Community Facilities District has, or one or more appropriate obligated persons have, undertaken in a written agreement or contract for the benefit of the holders of the Series 2011 Bonds to provide disclosure of certain financial information and certain material events on an ongoing basis; and WHEREAS, in order to cause such requirement to be satisfied, the Community Facilities District desires to enter into a Continuing Disclosure Agreement with the Trustee (such Continuing Disclosure Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Continuing Disclosure Agreement"); and WHEREAS, a form of the Preliminary Official Statement to be distributed in connection with the public offering of the Series 2011 Bonds has been prepared (such Preliminary Official Statement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Preliminary Official Statement"); and Page 2 of 7 5 WHEREAS, there have been prepared and submitted to this meeting forms of: (a) the Indenture; (b) the Escrow Agreement; (c) the Bond Purchase Agreement; (c) the Continuing Disclosure Agreement; and (e) the Preliminary Official Statement. WHEREAS, the Community Facilities District desires to proceed to issue and sell the Series 2011 Bonds and to authorize the execution of such documents and the performance of such acts as may be necessary or desirable to effect the offering, sale and issuance of the Series 2011 Bonds. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF CHINO HILLS DOES RESOLVE, DETERMINE, AND ORDER AS FOLLOWS: SECTION 1. The foregoing recitals are true and correct, and the City Council so finds and determines. SECTION 2. Subject to the provisions of Section 3 hereof, the issuance of the Series 2011 Bonds, in an aggregate principal amount of not to exceed $5,000,000, on the terms and conditions set forth in, and subject to the limitations specified in, the Indenture, be and the same is hereby authorized and approved. The Series 2011 Bonds shall be dated, shall bear interest at the rates, shall mature on the dates, shall be subject to call and redemption, shall be issued in the form and shall be as otherwise provided in the Indenture, as the same shall be completed as provided in this Resolution. SECTION 3. The Indenture, in substantially the form submitted to this meeting and made a part hereof as though set forth herein, be and the same is hereby approved. Each of the Mayor of the City, and such other member of the City Council as the Mayor may designate, the City Manager of the City and the Finance Director of the City, and such other officer or employee of the City as the City Manager may designate (the "Authorized Officers") is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the Community Facilities District, to execute and deliver the Indenture in the form submitted to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Indenture by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not authorize an aggregate principal amount of Series 2011 Bonds in excess of $5,000,000, shall not result in a final maturity date of the Series 2011 Bonds later than September 1, 2022 and shall not result in a true interest cost for the Series 2011 Bonds in excess of 4.50%. Page 3 of 7 6 SECTION 4. The refunding of the Prior Bonds is hereby approved. Such refunding shall be accomplished by paying the interest on the Prior Bonds to and including March 1, 2011 and redeeming the Prior Bonds on March 1, 2011 by paying the redemption price therefor. In accordance with Section 53363.8 of the Act, the City Council hereby designates the following costs and expenses as the "designated costs of issuing the refunding bonds:" (a) all expenses incident to the calling, retiring, or paying of the Prior Bonds and incident to the issuance of the Series 2011 Bonds, including the charges of any agent in connection with the issuance of the Series 2011 Bonds or in connection with the redemption or retirement of the Prior Bonds; and (b) the interest upon the Prior Bonds from the date of sale of the Series 2011 Bonds to the date upon which the Prior Bonds will be paid pursuant to call; and (c) any premium necessary in the calling or retiring of the Prior Bonds. SECTION 5. The Escrow Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth in full herein, be and the same is hereby approved. Each of the Authorized Officers is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the Community Facilities District, to execute and deliver the Escrow Agreement in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Escrow Agreement by such Authorized Officer. SECTION 6. The Purchase Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth in full herein, be and the same is hereby approved. Each of the Authorized Officers is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the Community Facilities District, to execute and deliver the Purchase Agreement in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Purchase Agreement by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not result in an aggregate underwriter's discount (not including any original issue discount) from the principal amount of the Series 2011 Bonds in excess of 1.5% of the aggregate principal amount of the Series 2011 Bonds. The City Council hereby finds and determines that the sale of the Series 2011 Bonds at negotiated sale as contemplated by the Purchase Agreement will result in a lower overall cost. SECTION 7. The Continuing Disclosure Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth in full herein, be and the same is hereby approved. Each of the Authorized Officers is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the Page 4 of 7 7 Community Facilities District, to execute and deliver the Continuing Disclosure Agreement in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Continuing Disclosure Agreement by such Authorized Officer. SECTION 8. The Preliminary Official Statement, in substantially the form presented to this meeting and made a part hereof as though set forth in full herein, with such changes, insertions and omissions therein as may be approved by an Authorized Officer, be and the same is hereby approved, and the use of the Preliminary Official Statement in connection with the offering and sale of the Series 2011 Bonds is hereby authorized and approved. The Authorized Officers are each hereby authorized to certify on behalf of the Community Facilities District that the Preliminary Official Statement is deemed final as of its date, within the meaning of Rule 15c2-12 (except for the omission of certain final pricing, rating and related information as permitted by Rule 15c2-12). SECTION 9. The preparation and delivery of a final Official Statement (the "Official Statement"), and its use in connection with the offering and sale of the Series 2011 Bonds, be and the same is hereby authorized and approved. The Official Statement shall be in substantially the form of the Preliminary Official Statement, with such changes, insertions and omissions as may be approved by an Authorized Officer, such approval to be conclusively evidenced by the execution and delivery thereof. Each of the Authorized Officers is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the Community Facilities District, to execute the final Official Statement and any amendment or supplement thereto. SECTION 10. The assessed values of the property within the Community Facilities District are set forth in the Preliminary Official Statement and the value-to-lien information with respect thereto is set forth therein and, based thereon, the City Council, for purposes of Section 53345.8 of the Act, hereby finds and determines that the value of the real property that would be subject to the Special Tax to pay debt service on the Series 2011 Bonds will be at least three times the principal amount of the Series 2011 Bonds to be sold and the principal amount of all other bonds outstanding that are secured by a special tax levied pursuant to the Act on property within the Community Facilities District or a special assessment levied on property within the Community Facilities District. SECTION 11. The Authorized Officers and the officers and employees of the City are, and each of them is, hereby authorized and directed, for and in the name of the Community Facilities District to do any and all things and to execute and deliver any and all documents which they or any of them deem necessary or advisable in order to consummate the transactions contemplated by this Resolution and otherwise to carry out, give effect to and comply with the terms and intent of this Resolution. Page 5of7 8 SECTION 12. All actions heretofore taken by the officers and employees of the City with respect to the refunding of the Prior Bonds or the issuance and sale of the Series 2011 Bonds, or in connection with or related to any of the agreements or documents referred to herein, are hereby approved, confirmed and ratified. SECTION 13. This Resolution shall take effect immediately upon its adoption. PASSED, APPROVED and ADOPTED this 14th day of December 2010. ED GRAHAM, MAYOR ATTEST: MARY M. McDUFFEE, CITY CLERK APPROVED AS TO FORM: MARK D. HENSLEY, CITY ATTORNEY Page 6 of 7 9