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City
Council and Redevelopment
Agency Report |
City Council and
Redevelopment Agency Meeting: March 8, 2011
Agenda Item: 8-D
To: Mayor and City Council
Chairperson
and Redevelopment Agency
From: Andy Agle, Director
of Housing and Economic Development
Carol
Swindell, Director of Finance
Subject: Bank Loan Financing and Payment of
Redevelopment Funds to Finance Redevelopment Priority Capital Projects,
Modification of a Contract for Bond Counsel Services and Authorization for City
Manager to Exercise Options in Agreement No. 9340
Recommended Action
Staff recommends that the Redevelopment (Agency):
1) Adopt the attached Resolution identifying parameters for and authorizing the Executive Director to enter into an agreement with Wells Fargo Bank (Bank), and take all necessary actions, to obtain a bank term loan in the amount of $60,000,000 for purposes of financing redevelopment priority capital projects, and,
2) Authorize
prepayment of payments due to the City pursuant to Implementing Agreement No.
9318 to Cooperation Agreement No. 9267, including the $60,000,000 from the
Wells Fargo Bank term loan.
Staff recommends that the City Council (Council):
1) Direct
the Director of Finance to segregate the prepayment by the Agency of funds due
the City pursuant to Implementing Agreement No. 9318 to Cooperation Agreement
No. 9267, including funds drawn from the Wells Fargo Bank Term Loan into a
designated account earmarked solely for funding redevelopment priority capital
projects;
2) Authorize the City Manager to negotiate and execute a modification to increase the not-to-exceed amount by $130,000 to $350,000 for the existing agreement with Stradling, Yocca, Carlson, and Rauth (SYCR) for legal services related to the issuance of debt financing by the City;
3) Authorize the City Manager to exercise the options to purchase Agency real property pursuant to Second Implementation Agreement No. 9340; and,
4) Approve the budget changes as outlined in the Financial Impact and Budget Actions section.
Executive Summary
Several of the Agency’s priority capital projects including
the Palisades Garden Walk, Pico Library, Parking Structure 6 and Civic
Auditorium Renovation (the Projects) have achieved significant critical path
milestones in design development, community input, environmental analysis and
construction cost estimates. A
next major step for the Projects is financing.
Following extensive study, staff recommends the use of a term loan from Wells Fargo to finance the Projects, as this option allows the Agency to leverage its tax increment revenue stream while fulfilling the Agency’s commitments to the City in accordance with Cooperation Agreement No. 9267(CCS/RAS) and Implementing Agreement No. 9318 (CCS/RAS). Additional actions associated with implementing the loan include modifying the existing contract with the City’s bond counsel to provide funds for legal services and authorizing the prepayment of funds due to the City pursuant to Implementing Agreement No. 9318, including funds drawn from the Wells Fargo Bank Loan, into a segregated account earmarked for the purpose of funding redevelopment priority capital projects.
Finally, the Agency and City previously authorized execution of the Second Implementing Agreement No. 9340 (CCS/RAS) to provide the City the ability to exercise an option to purchase Agency properties to secure performance of the Agency’s obligations under the Cooperation Agreement. The recommended action is to authorize the City Manager to exercise the options in accordance with the agreement terms.
Background
On November
17, 2009, the Agency adopted its Five-Year
Implementation Plan (the “Plan”) for the period of FY 2009-10 through FY
2013-14, with established goals to support affordable housing, disaster
prevention and mitigation, community revitalization, commercial revitalization,
and institutional revitalization. To
implement the programs and activities associated with each goal, the Agency
made redevelopment fund allocations totaling approximately $283 million, based
on a variety of assumptions regarding growth in tax increment, borrowing costs,
timing of borrowing, State grabs of local funds, leveraging opportunities and
State law.
On August 10, 2010, to ensure timely implementation
and completion of the Agency’s Five-Year Implementation Plan Projects, the
Council and Agency authorized the execution of Cooperation Agreement No. 9267 (CCS/RAS) and adopted
Resolutions 10519 (CCS) and 527 (RAS). On January 17, 2011 to set forth the schedule of
payments from the Agency to the City for the City’s implementation of projects
contained in the Agency/City Cooperation Agreement No. 9267, the Council and Agency authorized execution of
Implementing Agreement No. 9318 (CCS/RAS) (the “First Implementing Agreement”)
and, most recently, on February 22, 2011, authorized execution of the
Second Implementing Agreement No. 9340 (CCS/RAS) (the “Second Implementing
Agreement”) to provide the City the ability to exercise an option to purchase
certain Agency properties to secure performance of the Agency’s obligations
under the Cooperation Agreement.
Pursuant
to the Second Implementing Agreement, the staff has finished preparing an
inventory of the Agency’s properties and associated legal descriptions. The next step is to authorize the City
Manager to exercise the options in accordance with the agreement terms. To
fulfill the obligations under the Cooperation Agreement and First Implementing
Agreement, staff evaluated a variety of financing options and determined that a
bank loan was the best option for financing certain projects. Staff obtained competitive quotes and Wells
Fargo provided the most advantageous terms via a seven year term loan. Given the relatively restrictive credit market
for redevelopment agencies at this time and the limitations on the Agency’s
ability to concurrently finance all the Projects with pay-as-you-go funding, the
bank loan provides an immediate source of funding for the Projects. The terms of the loan allow the Agency to
prepay it at any time with only LIBOR breakage costs, which are generally
minimal.
Discussion
Bank Loan
The Agency received proposals from Bank of America, JP Morgan
Chase Bank and Wells Fargo Bank in response to a request for a potential bank
loan. Lenders were asked to provide
terms for an initial credit line of $50-$60 million. The Agency’s annual
revenue stream can support borrowing in this amount without impacting debt
service and pass-through obligations. Wells
Fargo provided the best proposed terms. Late
in the afternoon on Wednesday, February 23rd, the State Department of Finance
released language for a proposed budget trailer bill that addresses the
Governor’s proposal to disestablish redevelopment agencies. In response to that
proposed language, Wells Fargo modified its previous offer of a line of credit
to a fully amortized term loan. Their proposal
includes options for tax exempt and taxable debt, as well as both variable and
fixed interest rate options. The term sheet is included with this staff report
as Attachment B. The term loan is for
seven years with a tax-exempt rate of 70 percent of LIBOR plus 150 basis points
and a taxable rate of LIBOR plus 150 basis points.
Fixed rates are offered using an interest rate swap agreement
pegged to LIBOR that would equate to a tax exempt rate of 3.2 percent and a
taxable rate of 3.85 percent given today’s LIBOR rate. The expectation is the Agency would prepay
the loan with longer term debt when the credit market has stabilized. The
security is the pledge of tax increment revenues from the Agency’s Earthquake
Recovery project area, subordinate to senior pass-throughs
and bonded indebtedness. In authorizing
the Agency Executive Director to negotiate and execute a Term Loan Agreement
with Wells Fargo Bank, Section 1 of the attached Resolution sets limits on the
exercise of the Executive Director’s discretion to do so and, among other
things, provides that the Term Loan must be an
obligation solely of the Agency payable from tax increment and not an
obligation of the City’s General or other Funds.
Of the Agency’s priority capital projects, the Palisades Garden
Walk, Pico Library, Parking Structure 6 and Civic Auditorium Renovation should
proceed into construction within the specified period. A brief summary of the Projects’ progress is
provided:
·
Palisades Garden Walk and
Town Square:
This project is quickly approaching the construction documents phase, as
an addendum to the Civic Center Specific Plan EIR has been prepared and
hearings before the Planning Commission and Council are scheduled for the near
future. The current schematic designs incorporate extensive input from the
community and various boards and commissions as well as Council’s input from
its October
12, 2010 meeting.
Refinements have been made to the initial design concepts to address
connectivity, access, play, water elements, lighting, landscaping and historic
preservation. The cost estimate based on
the 100 percent schematic designs is $35.9 million. It is anticipated that
construction will commence in Fall 2011.
·
Pico Library: Council recently provided design direction on
February 22, 2011, helping staff
move toward further development
of the concept plans. The current cost estimate for this project is $11.4
million. Staff will return to Council for design development review in Fall 2011.
·
Parking Structure 6: On January 11, 2011, staff presented
concept designs to Council and received approval to move forward with schematic design. An addendum to the Downtown Parking Program
EIR, text amendment and a conditional use permit necessary for the demolition
of the existing parking structure and new construction is scheduled to go to
Council on March 8, 2011. The total cost of construction is
approximately $40 million.
·
Civic Auditorium Renovation: Also
on the March 8, 2011 agenda is a
recommendation that Council approve
negotiated business terms for the use and programming of the Civic Auditorium
by the Nederlander Organization. Major improvements are necessary in order for
the Civic Auditorium to function effectively as a destination venue. Staff is
currently refining early cost estimates for the required renovation and
planning to issue a design/build RFB in Spring 2011 to
keep the project timeline intact. The current schedule anticipates that the
renovation of the building would begin in the Fall or
Winter of 2012 and last 18 to 24 months.
At this time, Council has allocated $25 million to partially fund the
venue’s seismic and ADA renovation.
Combined, the cash flow needs of these four projects exceed
the Agency’s ability to finance construction simultaneously within the next two
years on a pay-as-you-go basis. The bank loan offers
the Agency the ability to immediately address the funding needs of the
Projects.
Bond Counsel Services
The
City is currently working with Stradling, Yocca,
Carlson, and Rauth (SYCR) to prepare opinions and documents related to the
financing. The City’s current contract
with SYCR limits total compensation to an amount not to exceed $220,000. Staff recommends that the amount of the
contract be increased by $130,000, making the total compensation under the
contract $350,000. The increase also provides for future anticipated
borrowings, including the potential use of longer-term debt to pay off the
Wells Fargo loan. SYCR has served as the City’s
Bond Counsel since entering into a contractual agreement in September 2007,
following a competitive selection process.
The current contract with SYCR contemplated debt financing but did not
provide adequate total funding to meet the City’s needs since September
2007. The remaining terms of the
contract and scope of services will remain unchanged.
First
Implementing Agreement No. 9318
This agreement sets forth the schedule of payments from the Agency to the City for the City’s implementation of the projects contained in the Cooperation Agreement. Given the immediate funding needs of the Projects, staff recommends the Agency authorize prepayment of payments due to the City pursuant to the First Implementing Agreement, including any funds drawn from the Wells Fargo Bank Loan. In addition, to ensure proper tracking of expenditures, it is recommended Council direct the Director of Finance to segregate the prepayments by the Agency of amounts due the City, including funds drawn from the Wells Fargo Bank Loan, into a designated account earmarked solely for funding redevelopment priority capital projects.
Second Implementing Agreement No. 9340
This agreement provides the City the option to
purchase Agency real properties in order to secure performance of Agency
obligations required under Cooperation Agreement No. 9267 and Implementing
Agreement No. 9318. Following a complete
inventory of the Agency’s properties and preparation of legal documents, staff
recommends that the City Manager receive authority to exercise the options
pursuant to the Second Implementing Agreement.
Financial Impact and Budget Actions
Payments for Bond Counsel services
will be made directly by the Agency. The bank loan will provide $60,000,000 to finance the
Projects. Staff recommends the proceeds
be deposited into account 17990.601007.
Additionally, appropriations totaling $150,000 are requested to account
number 17274.522220 for the costs of the bank loan including financial advisor and
outside bond counsel services. Any additional
budget actions that may be required as a result of this Council and Agency
action will be brought back at a later time.
Prepared by: Nia Tang, Senior
Development Analyst
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Approved: |
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Forwarded to Council: |
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Andy Agle, Director Housing and Economic Development |
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Rod Gould City Manager |
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Approved: |
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Carol Swindell, Director Finance |
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