MEETING DATE:
March 11, 2025
SUBJECT:
Title
RESOLUTION NO. SA 2025-035 - A RESOLUTION OF THE SUCCESSOR AGENCY TO THE SAN MARCOS REDEVELOPMENT AGENCY APPROVING THE ISSUANCE OF BONDS TO REFUND CERTAIN OF ITS OUTSTANDING BONDS AND OTHER ACTIONS IN CONNECTION THEREWITH
Recommendation:
Recommendation
Staff recommends the City Council of the City of San Marcos (the “City Council”):
1. Adopt “a Resolution of the Successor Agency to the San Marcos Redevelopment Agency Approving the Issuance of Bonds to Refund Certain of its Outstanding Bonds, Approving the Execution and Delivery of a Second Supplemental Indenture of Trust, Escrow Deposit and Trust Agreement and Bond Purchase Agreement Relating Thereto, Requesting Oversight Board Approval of the Issuance of the Refunding Bonds, Requesting Certain Determinations by the Oversight Board, and Authorizing and Providing for Other Matters Properly Related Thereto;”
2. Approve and authorize the Debt Service Savings Analysis to be presented to the County of San Diego Countywide Redevelopment Successor Agency Oversight Board (the “CWOB”) and be submitted to the Department of Finance as required by Redevelopment Agency Dissolution Act; and
3. Request Oversight Board approval of the issuance of the refunding bonds.
Body
Board or Commission Action
Not applicable
Relevant Council Strategic Theme
Good Governance
Relevant Department Goal
Not applicable
Introduction:
The City Council of the City of San Marcos (the “City”) has elected to assume the obligations of the San Marcos Redevelopment Agency (the “Former Agency”), as the Successor Agency to the San Marcos Redevelopment Agency (the “Successor Agency”). The Former Agency previously issued its $54,055,000 San Marcos Public Facilities Authority 2001 Public Improvement Refunding Revenue Bonds, Series A (Civic Center/Public Works Yard) (the “Series 2001A Bonds”), its $69,740,000 San Marcos Public Facilities Authority 2003 Tax Allocation Revenue Bonds (Project Areas No. 1, No. 2 and No. 3 Refunding and Financing Project), Series A (the “Series 2003A Bonds”) and its $30,235,000 San Marcos Public Facilities Authority 2005 Tax Allocation Revenue Bonds (Project Areas No. 1 and No. 3 Refunding Project), Series A (the “Series 2005A Bonds and together with the Series 2003A Bonds and the Series 2001A Bonds, the “Former Agency Bonds”). The Successor Agency to the San Marcos Redevelopment Agency (the “Successor Agency”) then issued its $84,710,000 Tax Allocation Refunding Bonds, Series 2015A to refund the Former Agency Bonds (“Prior Bonds”) for the purpose of financing and refinancing redevelopment activities. The Successor Agency proposes to issue its Tax Allocation Refunding Bonds, Series 2025A (the “Refunding Bonds”) to refund the Prior Bonds.
California Health and Safety Code (“HSC”) Section 34177.5(a)(1) authorizes successor agencies the ability to refund outstanding bonds. The issuance of refunding bonds under the HSC section 34177.5, which was added to the Redevelopment Agency Dissolution Act (“RDA Dissolution Act”) by AB 1484, authorizes the Successor Agency to issue bonds for the purpose of refunding outstanding tax allocation bonds of the Redevelopment Agency or the Successor Agency to provide debt service savings provided that (A) the total interest cost to maturity on the refunding bonds plus the principal amount of the refunding bonds does not exceed the total remaining interest cost to maturity on the bonds to be refunded plus the remaining principal of the bonds to be refunded, and (B) the principal amount of the refunding bonds does not exceed the amount required to defease the refunded bonds, to establish customary debt service reserves, and to pay related costs of issuance.
In order to issue bonds to finance and refinance the activities of the Former Agency, the Successor Agency and U.S. Bank Trust Company, National Company., as successor in interest to MUFG Union Bank, N.A., as trustee (the “Trustee”) entered into an Indenture of Trust, dated as of July 1, 2015, by and between the Successor Agency and the Trustee (the “Original Indenture”), as amended and supplemented by that First Supplemental Indenture, dated as of December 1, 2017 by and between the Successor Agency and the Trustee (the “First Supplemental Indenture” together with the Original Indenture, the “Indenture”).
In order to refund the Prior Bonds, the Successor Agency must approve the issuance of the Refunding Bonds pursuant to the Indenture and to approve the form of and authorize the execution and delivery of a Second Supplemental Indenture, by and between the Successor Agency and U.S. Bank Trust Company, National Association, as trustee (the “Second Supplemental Indenture”) and the Irrevocable Refunding Instructions (the “Irrevocable Refunding Instructions”), which have been presented at this meeting.
Additionally, the Successor Agency must approve the form of the Bond Purchase Agreement between the Successor Agency and Stifel, Nicolaus & Company, Inc. (the “Underwriter”), as underwriter for the Refunding Bonds, which sets forth the terms and conditions of the sale of the Bonds to the Underwriter. The Preliminary Official Statement will be available at a later council meeting.
Under the HSC, the Successor Agency must authorize the issuance of the Refunding Bonds and prepare a debt service savings analysis (the “Debt Service Savings Analysis”) which must be approved by the CWOB. If approved, the California Department of Finance (DOF) will commence a review period of the Refunding Bonds of up to sixty-five days. The DOF review period is expected to end earlier, but no later than on June 22, 2025 and the refunding is expected to close in July of 2025.
Additionally, Section 5852.1 of the California Government Code (the “Government Code”) requires that the Successor Agency obtain from an underwriter, financial advisor, or private lender and disclose, prior to authorization of the issuance of the Refunding Bonds, good faith estimates of the following information in a meeting open to the public: (a) the true interest cost of the Refunding Bonds, (b) the sum of all fees and charges paid to third parties with respect to the Refunding Bonds, (c) the amount of proceeds of the Refunding Bonds expected to be received net of the fees and charges paid to third parties and any reserves or capitalized interest paid or funded with proceeds of the Refunding Bonds, and (d) the sum total of all debt service payments on the Refunding Bonds calculated to the final maturity of the Refunding Bonds plus the fees and charges paid to third parties not paid with the proceeds of the Refunding Bonds
Discussion:
In order to determine compliance with the Savings Parameters for purposes of the issuance by the Refunding Bonds, the Successor Agency has caused its municipal advisor, Fieldman, Rolapp & Associates, Inc. (the “Municipal Advisor”), to prepare an analysis of the potential savings that will accrue to the Successor Agency and to applicable taxing entities as a result of the use of the proceeds of the Refunding Bonds to repay all or a portion of the Prior Bonds and, thereby, to refund all or a portion of the Prior Bonds (the “Debt Service Savings Analysis”).
The Debt Service Savings Analysis has determined that the proposed refunding of the Prior Bonds through the issuance of the Refunding Bonds satisfies the applicable HSC sections.
(A) The total interest cost to maturity on the proposed Refunding Bonds plus the principal amount of the Refunding Bonds does not exceed the total remaining interest cost to maturity on the Prior Bonds to be refunded plus the remaining principal of the Prior Bonds to be refunded.
(B) The $43,735,000 in estimate principal amount of the Refunding Bonds does not exceed the amount required to defease the Prior Bonds, to establish customary debt service reserves, and to pay related costs of issuance.
The net effect of the proposed Refunding Bonds based on current bond market conditions and the proposed bond defeasance is expected to reduce current total bond debt service from $63,881,875 to $54,689,019 a reduction of $9,192,856 This amount is expected to be available as increased residual to impacted tax entities.
In accordance with Section 5852.1(a)(1) of the California Government Code, the following good faith estimate was prepared with information was obtained from the Municipal Advisor, with respect to the Refunding Bonds assuming the principal amount of the Refunding Bonds is $43,735,000.
1. True Interest Cost of the Refunding Bonds. Based on market interest rates prevailing at the time of preparation of this information, a good faith estimate of the true interest cost of the Refunding Bonds, which means the rate necessary to discount the amounts payable on the respective principal and interest payment dates to the purchase price received for the Refunding Bonds, is 3.11%.
2. Finance Charge of the Refunding Bonds. Based on market interest rates prevailing at the time of preparation of this information, a good faith estimate of the finance charge of the Refunding Bonds, which means the sum of all fees and charges paid to third parties (or costs associated with the Refunding Bonds), is $688,641.
3. Amount of Proceeds to be Received. Based on market interest rates prevailing at the time of preparation of this information, a good faith estimate of the amount of proceeds expected to be received by the Authority for sale of the Refunding Bonds less the finance charge of the Refunding Bonds described above and any reserves or capitalized interest paid or funded with proceeds of the Refunding Bonds, is $47,020,354.
4. Total Payment Amount. Based on market interest rates prevailing at the time of preparation of this information, a good faith estimate of the total payment amount, which means the sum total of all payments the Authority will make to pay debt service on the Refunding Bonds plus the finance charge of the Refunding Bonds described above not paid with the proceeds of the Refunding Bonds, calculated to the final maturity of the Refunding Bonds, is $54,716,019.
Attention is directed to the fact that the foregoing information constitutes good faith estimates only. The actual interest cost, finance charges, amount of proceeds and total payment amount may vary from the estimates above due to variations from these estimates in the timing of Refunding Bond sales, the amount of Refunding Bonds sold, the amortization of the Refunding Bonds sold and market interest rates at the time of each sale. The date or dates of sale and the amount of Refunding Bonds sold will be determined by the Agency based on need for project funds and other factors. The actual interest rates at which the Refunding Bonds will be sold will depend on the bond market at the time of each sale. The actual amortization of the Refunding Bonds will also depend, in part, on market interest rates at the time of each sale. Market interest rates are affected by economic and other factors beyond the Agency’s control.
The approval of the attached resolution will authorize the issuance of the Refunding Bonds, execution of the Second Supplemental Indenture, Irrevocable Refunding Instructions, and Continuing Disclosure Certificate and allow for the debt service savings described. Following approval by the CWOB, the staff will return to the City Council for approval of a Preliminary Official Statement and Bond Purchase Agreement.
Refunding Process:
It is anticipated that the refunding will take approximately 4 months to complete. The key milestones to complete the refunding are identified below:
• Successor Agency approving resolution to refund the Prior Bonds and approving legal documents (Tonight’s Action)
• Oversight Board’s approval of Successor Agency action to issue the Refunding Bonds and make determination of savings (April 17, 2025)
• Submission of resolutions of both the Successor Agency and Oversight Board and all the related documents to the Department of Finance (April 18, 2025)
• Successor Agency approval of the Preliminary Official Statement and remaining financing documents (May 13, 2025)
• Secure underlying credit ratings and debt service reserve fund surety (May 22, 2025)
• Receive Department of Finance’s Approval (May 23, 2025)
• Negotiated sale of Bonds (June 18, 2025)
• Bond Closing (July 3, 2025)
• Defeasance and redemption of outstanding Prior Bonds (October 1, 2025)
Fiscal Impact:
The fiscal impact of the issuance of refunding bonds will result in the average annual reduction in bond payments of approximately $455,694. This same reduction in annual bond payments frees up additional property tax revenues for distribution to affected taxing entities. This will result in an average annual increase of $63,315 in property tax revenues to the City and San Marcos Fire Protection District starting in 2026 and continuing through the final maturity in 2034, as a result of the refunding. These are estimated savings based on current market conditions as of January 27, 2025 and are subject to change.
Attachment(s)
Resolution Approving Issuance of Refunding Bonds
Debt Service Savings Analysis Report
Second Supplemental Indenture of Trust
Escrow Deposit and Trust Agreement
Bond Purchase Agreement
Prepared by: Jeffrey Jorgenson, Accounting and Treasury Manager
Reviewed by: Donna Apar, Finance Director
Approved by: Michelle Bender, City Manager