DATE: November 6, 2024
TO: Honorable Mayor and City Councilmembers
FROM: Financial Services Department
TITLE: RESOLUTIONS AUTHORIZING THE ISSUANCE OF OCEANSIDE PUBLIC FINANCING AUTHORITY LOCAL AGENCY REVENUE REFUNDING BONDS IN AN AGGREGATE PRINCIPAL AMOUNT NOT TO EXCEED $11,000,000
RECOMMENDATION
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Staff recommends that the City Council, acting as the legislative body of Community Facilities District No. 2001-1 of the City of Oceanside (Morro Hills Development), and the Board of Directors of the Oceanside Public Financing Authority (the “Authority), adopt resolutions authorizing the issuance of Local Agency Revenue Refunding Bonds in an aggregate principal amount not to exceed eleven million dollars ($11,000,000) and approving certain documents and taking certain other actions in connection therewith.
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BACKGROUND AND ANALYSIS
In 2002, the City completed proceedings to form Community Facilities District No. 2001-1 (Morro Hills Development) (the “CFD”) and Improvement Area 1 within the CFD (the “Improvement Area”). The CFD area, which was marketed under the name “Arrowood,” has been fully built out for some time now, except for a 1.3-acre undeveloped commercial site, and consists of 1,006 completed single family homes, as well as various completed amenities, including a golf course. The Improvement Area contains 827 single-family homes, which are also located within the boundaries of the CFD. Due to various prepayments of special taxes, 824 of the 1,006 single-family homes located within the CFD remain subject to CFD and/or Improvement Area special taxes. The CFD originally issued bonds back in 2003 and 2004 to reimburse the developer of Arrowood for the costs of certain public improvement and fees associated with the development. The Improvement Area issued bonds originally in 2004 to pay for the costs of new Bonsall Unified School District elementary school.
In 2013, the CFD issued its $6,710,000 CFD 2001-1 (Morro Hills Development) Special Tax Refunding Bonds, Series 2013A (the “2013 CFD Bonds”) which refunded the original series of bonds of the CFD issued in 2002 to provide savings to the property owners. The 2013 CFD Bonds bear interest at rates of 3.375% to 4.00% and have a final maturity of September 1, 2032. The 2013 CFD Bonds are currently outstanding in the amount of $2,700,000 and can be redeemed without premium on any date.
In 2014, the CFD issued its $10,885,000 CFD 2001-1 (Morro Hills Development) Special Tax Refunding Bonds, Series 2014A (the “2014 CFD Bonds”) which refunded the second series of bonds for the CFD in 2014 to provide savings to the property owners. The 2014 CFD Bonds bear interest at 4.28% and have a final maturity of September 1, 2034. The 2014 CFD Bonds are currently outstanding in the amount of $5,215,000 and can be redeemed without premium on any date.
In 2014, the CFD on behalf of the Improvement Area, issued its $7,025,000 CFD 2001-1 (Morro Hills Development) Special Tax Refunding Bonds, Series 2014A (the “2014 IA Bonds”) which refunded the original issue of bonds for the Improvement Area to provide savings to the property owners. The 2014 IA Bonds bear interest at 4.19% and have a final maturity of September 1, 2033. The 2014 IA Bonds are currently outstanding in the amount of $3,210,000 and can be redeemed without premium on any date.
Staff is requesting authorization to issue bonds for the purpose of refunding the prior CFD and Improvement Area bonds for interest rate savings. The savings are expected to benefit Arrowood property owners in the CFD through a reduction in annual tax levies for the CFD and the Improvement Area.
The following documents pertaining to the sale of the Bonds, in substantially the form as attached, will be approved as part of the resolutions: the Preliminary Official Statement including the Continuing Disclosure Agreement, three separate Escrow Agreements, Authority Indenture of Trust, two Local Obligation Bond Indentures, Authority Bond Purchase Agreement, and Local Obligations Bond Purchase Agreement.
In order to achieve economies of scale, the refunding contemplates a pooled issuance through the Oceanside Public Financing Authority (the “Authority”). The CFD will issue the CFD and Improvement Area refunding bond issues (the “Local Obligations”), which will be payable from the Special Taxes levied within the CFD and the Improvement Area, respectively. The Local Obligations will maintain the same final maturity as the prior CFD and Improvement Area bonds. In other words, there will be no extension of maturity. The Authority will then issue the Oceanside Public Financing Authority Local Agency Revenue Refunding Bonds, Series 2024 (the “Bonds”) and use the proceeds to purchase the Local Obligations from the CFD. The Bonds issued by the Authority will be the bonds which are publicly sold and will be payable from debt service on the Local Obligations.
The 2013 CFD Bonds currently maintain an “A” underlying rating from Standard & Poor’s. The 2014 CFD Bonds and 2014 Improvement Area Bonds were issued as private placements and are currently non-rated. The Bonds are expected to qualify for an investment grade rating and bond insurance, which would lead to a lower cost of borrowing. Furthermore, the Bonds are expected to qualify for a reserve fund surety policy. This would enable the City to downsize the Bonds, lower annual payments and increase savings to property owners.
The Bonds are expected to be issued in a par amount of approximately $9.09 million with a final maturity of September 1, 2034. Based on interest rates as of October 1, 2024, total cash flow savings over the life of the Bonds are estimated to be approximately $2.25 million. Net present value (NPV) savings are estimated to be approximately $369,246, or 3.32% of the par amount refunded. The interest rate savings are estimated to generate average annual cash flow savings of about $249,482. The annual savings per residential parcel are estimated at $350, on average, for properties subject to both the CFD and Improvement Area taxes. Savings will vary for certain properties that are subject to only the CFD or the Improvement Area tax, or that partially prepaid special taxes. The estimated savings shown below are net of all financing costs (including the cost of procuring bond insurance and a reserve fund surety policy). Interest rates have remained volatile in 2024, and the final savings and refunding bonds interest rates will be determined when the bonds are priced and sold. The resolution presented to the City Council, as the legislative body of the CFD, would require that the refunding result in net present value savings of at least 3.00% in the aggregate.
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Summary of Savings Results for the Bonds¹ |
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Existing CFD and Improvement Area Bonds |
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Outstanding Amount |
$11,125,000 |
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Average Current Interest Rates on Prior Bonds |
4.17% |
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2024 Refunding Bonds |
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Bond Amount |
$9,090,000 |
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True Interest Cost |
3.02% |
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Net Present Value Savings ($) |
$369,246 |
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Net Present Value Savings (% of Par Value Refunded) |
3.32% |
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Average Annual Savings (2026 - 2034) |
$249,482 |
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Average Annual Savings Per Residential Parcel (2026 - 2034) |
$350² |
¹Based on market conditions as of October 1, 2024
²Average annual savings divided by the total number of residential parcels subject to both CFD and Improvement Area taxes (net of estimated savings allocable to non-residential parcels).
The Bonds will be sold on a public offering basis (sale of bonds on the open market), by Stifel, Nicolaus & Company, Incorporated (Underwriter), pursuant to a bond purchase agreement between the Underwriter and the Authority. The sale of the Bonds is expected to occur in mid-November 2024, and closing of the Bonds is expected to occur in early December 2024. The foregoing dates are subject to change depending on market conditions.
FISCAL IMPACT
There is no fiscal impact to the City’s General Fund. Total cash flow savings over the life of the Bonds are estimated to be approximately $2.25 million. Net present value (NPV) savings are estimated to be approximately $369,246, or 3.32% of the par amount refunded. Arrowood residential property owners who currently pay both the CFD and Improvement Area special taxes are estimated to save, on average, approximately $350 annually. Savings will vary for certain properties that are subject to only the CFD or the Improvement Area tax, or that partially prepaid special taxes. The savings are net of all financing costs (including the cost of purchasing insurance and surety reserve policies). All figures are preliminary and subject to prevailing market conditions at the time of sale.
GOOD FAITH ESTIMATES
The good faith estimates set forth herein are provided with respect to the Bonds and the Local Obligations in accordance with California Government Code Section 5852.1. Such good faith estimates have been provided to the City by Urban Futures, Inc., the City’s Municipal Advisor (the “Municipal Advisor”) in consultation with Stifel, Nicolaus & Company, Incorporated, the Underwriter for the Bonds.
The foregoing estimates constitute good faith estimates only. The actual principal amount of the Bonds issued and sold, the true interest cost thereof, the finance charges thereof, the amount of proceeds received therefrom and total payment amount with respect thereto may differ from such good faith estimates due to (a) the actual date of the sale of the Bonds being different than the date assumed for purposes of such estimates, (b) the actual principal amount of Bonds sold being different from the Estimated Principal Amount, (c) the actual amortization of the Bonds being different than the amortization assumed for purposes of such estimates, (d) the actual market interest rates at the time of sale of the Bonds being different than those estimated for purposes of such estimates, (e) other market conditions, or (f) alterations in the City’s financing plan, or a combination of such factors. The actual date of sale of the Bonds and the actual principal amount of Bonds sold will be determined by the City based on the timing of the need for proceeds of the Bonds and other factors. The actual interest rates borne by the Bonds will depend on market interest rates at the time of sale thereof. The actual amortization of the Bonds will also depend, in part, on market interest rates at the time of sale thereof. Market interest rates are affected by economic and other factors beyond the control of the City.
COMMISSION OR COMMITTEE REPORT
Does not apply.
CITY ATTORNEY’S ANALYSIS
The referenced documents have been reviewed by the City Attorney and approved as to form.
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Prepared by: Jill Moya, Financial Services Director
Reviewed by: Michael Gossman, Assistant City Manager
Submitted by: Jonathan Borrego, City Manager
ATTACHMENTS:
1. Staff Report
2. Notice of Public Hearing
3. Resolution of the City Council of the City of Oceanside, Acting as the Legislative Body of Community Facilities District No. 2001-1 of the City of Oceanside (Morro Hills Development), Authorizing the issuance of its 2024 Special Tax Refunding Bonds in a Principal amount Not to Exceed Eight Million Dollars ($8,000,000) and its Improvement Area No. 1 2024 Special Tax Refunding Bonds in a Principal Amount Not to Exceed Three Million Dollars ($3,000,000) and Approving Certain Documents and Taking Certain other Actions in Connection Therewith
4. Resolution of the Board of Directors of the Oceanside Public Financing Authority, Oceanside, California, Authorizing the Issuance of its Local Agency Revenue Refunding Bonds in an Aggregate Principal amount Not To Exceed Eleven Million Dollars ($11,000,000) and Approving Certain Documents and Taking Certain Other Actions in Connection Therewith
5. Preliminary Official Statement (including Continuing Disclosure Agreement as Appendix E)
6. Authority Indenture of Trust
7. Authority Bond Purchase Agreement
8. Local Obligations Bond Purchase Agreement
9. Local Obligations Bond Indenture (CFD 2001-1 Improvement Area No. 1)
10. Local Obligations Bond Indenture (CFD 2001-1)
11. Escrow Agreement (2013 CFD Bonds)
12. Escrow Agreement (2014 CFD Bond)
13. Escrow Agreement (2014 Improvement Area No. 1 Bonds)