Agenda - Council - 08/13/2013 - Laserfiche WebLink

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CC Regular Session Meeting Date: 08/13/2013 By: Diana Lund, Finance Information 7. 2.. Title: Authorizing the Issuance of Approximately $11.5M of Lease Revnue Bonds for Pact Charter School (Conduit Refinancing) and the Execution of Various Documents in Connection with the Pact Charter School Project Background: State and Federal law allows cities to issue bonds and loan the proceeds to nonprofit corporations to finance capital expenditures. This procedure is known as the issuance of conduit debt. By issuing tax-exempt bonds through the City, the non-profit reduces their borrowing costs due to the tax-exempt status of a city. Pact Charter School is asking for the City to authorize the issuance of a not -to -exceed amount of $11.8 million in Lease Revenue Bonds. These bond proceeds would be used to advance refund the original Lease Revenue bonds ($11.5M) that were issued via conduit debt in February 2004 for Pact Charter School to construct their school building at 7250 East Ramsey Parkway. The following documents relating to the bond issuance also need to be executed. They are as such: Loan Agreement, Indenture of Trust, Amended and Restated Mortgage -Security Agreement, Escrow Agreement, Pledge and Covenant Agreement, Bond Purchase Agreement, Continuing Disclosure Agreement and the Official Statements. These are all standard documents that are filed in these types of financings and are put in place so as that the city is not placed at risk in any way, financially or legally, in appearance or fact. The city's bond counsel, Briggs and Morgan, has drafted and overseen all related documents. The Pact Charter School agrees to pay all principal and interest on the bonds, whereas the City is merely a conduit and the money and obligations are between Pact and the Trustee for the bondholders. Pact Charter School will be held responsible for all fees that are incurred for the issuance of this bond. Per the city's conduit debt policy, Pact Charter School is required to pay the City $25,000 to cover costs incurred relating to staff time, consultants, ratings call, and any other expenses caused by their proposal. In addition, Pact Charter School is required to pay the city for any additional interest costs that the city incurs in relation to its issuance of Capital Equipment Certificates (awarding sale of certificates will immediatly follow this agenda item). The city will incur an additional interest expense of approximately $9,000 due to the city's debt issuance now being considered non -bank qualified instead of bank qualified. To remain bank qualified, which offers lower interest rates, the City must not borrow more than ten million dollars in any one calendar year. The issuance of conduit debt is factored in when determining the city's debt issuance for a calendar year. Thus, Pacts $11.8M will exceed. the ten million dollar cap and the city will pay an extra 114% in interest rates on its issuance of Capital Equipment Certificates. Notification: A representative from Pact Charter School and their bond underwriter from Dougherty will be present at the City Council Meeting. Observation s/Alternatives: