TO: LINDA REICH, CITY MANAGER
FROM: KIM SAO, DIRECTOR OF FINANCE
SUBJECT
title
City of Chino Public Financing Authority 2026 Lease Revenue Bond.
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RECOMMENDATION
recommendation
That the Chino City Council 1) hold a Public Hearing regarding financing; 2) adopt Resolution 2026-048 authorizing the execution and delivery of a Ground Lease, Lease Agreement, Indenture, Supplemental Agreement, Term Sheet, and Placement Agent Agreement in connection with the issuance of the City of Chino Public Financing Authority 2026 Lease Revenue Bond, approving the issuance of such bond in the principal amount of not to exceed $3,500,000, and authorizing the execution of necessary documents and certificates and related actions; and that the City of Chino Public Financing Authority Board of Directors adopt a Resolution FA 2026-001 authorizing the execution and delivery of a Ground Lease, Lease Agreement, Indenture, Assignment Agreement, Term Sheet, and Placement Agent Agreement in connection with the issuance of the City of Chino Public Financing Authority 2026 Lease Revenue Bond, authorizing the issuance of such bond in the principal amount of not to exceed $3,500,000, and authorizing the execution of necessary documents and certificates, and related actions.
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FISCAL IMPACT
The City will incur a new lease obligation in the estimated amount of $3.225 million.
CITY OF CHINO MISSION / VISION / VALUES / STRATEGIC ISSUES
The recommendation detailed above further the City’s values and strategic issues that serve as key pillars on which identified priorities, goals, and action plans are built, by fostering:
• Financial Stability
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BACKGROUND
Summary
City staff has worked with its financing team to bring these items before the City Council and the Board of Directors of the City of Chino Public Financing Authority (the “Authority”) to authorize the execution and delivery of a Ground Lease, Lease Agreement, Indenture, Term Sheet, and Placement Agent Agreement in connection with the City of Chino Public Financing Authority 2026 Lease Revenue Bond (the “2026 LRB”). Proceeds from the 2026 LRB will be utilized to: (i) fund the acquisition of real property located at 13272 6th Street, Chino, California, (ii) fund certain soft project costs associated with the project, and (iii) pay for costs of issuance associated with the 2026 LRB.
Public Hearing
In accordance with Government Code Section 6586.5(a)(1), the City must hold a public hearing to consider public testimony concerning the possible issuance of bonds by the Authority to finance certain public capital improvements within the boundaries of the City. The City Resolution approves the sale of the 2026 LRB by the Authority and finds that there are significant public benefits in connection with the proposed project, and the associated financing thereof, with bond proceeds.
This meeting has been convened as a joint meeting of the City Council and the Authority Board of Directors in order to allow the City Council, and the Council Members acting in their capacity as the Authority Board of Directors, to hold the hearing described above and to consider the adoption of resolutions of each body approving or authorizing the issuance of bonds by the Authority and approving the form of related financing documents and other actions.
Financing Structure
The City will utilize the Lease Revenue Bond financing structure, which is a common financing tool used by public agencies to finance capital projects. The Chino Senior Center (the “Site”), located at 13170 Central Avenue, Chino, will be the facility that will be subject to the financing lease. Under the Ground Lease, the City will lease the Site to the City of Chino Public Financing Authority, and the Site will be subleased back to the City under the Lease Agreement. The Assignment Agreement will assign and transfer the Authority’s interests under the Ground Lease and the Lease Agreement to the bond trustee (The Bank of New York Mellon Trust Company, N.A.), including the payments made by the City under the Lease Agreement.
Lender Solicitation
The City’s Placement Agent, Raymond James & Associates, distributed a Request for Bids and Summary of Terms and Conditions to find an investor with the lowest overall cost of funds and favorable terms and conditions. The City received a total of six responses to the solicitation and BMO Bank N.A. (“BMO”) submitted the overall lowest interest rate for a 15-year borrowing term at 4.25%.
The transaction will be subject to the following optional redemption provisions:
- Year 1: No pre-payment
- Year 2: No pre-payment
- Year 3: 3%
- Year 4: 3%
- Year 5: 2%
- Year 6 and thereafter: No pre-payment penalty
The City has also worked with its Placement Agent, Bond Counsel (Anzel Galvan LLP) and its Municipal Advisor (KNN Public Finance LLC) to negotiate additional key terms and conditions.
Summary of Financing Documents
The resolutions approve the financing plan outlined above, appoint and retain the financing team, including KNN Public Finance LLC as Municipal Advisor; Anzel Galvan LLP as Bond Counsel; Raymond James & Associates as Placement Agent; and The Bank of New York Mellon Trust Company, N.A. as Trustee; and approve all documents and actions needed to authorize the issuance and sale of the 2026 LRB, including the form financing documents provided herein, together with any changes or additions deemed advisable and approved by any Authorized Officer. The following documents and information related to the transaction are included herein:
• Ground Lease and Lease Agreement: The Ground Lease and Lease Agreement provide for the City to lease the Site to the Authority in consideration of an upfront rent payment, and for the Authority to lease the Site back to the City in consideration of the payment by the City to the Authority of semi-annual base rental payments, which rental payments are pledged to the repayment of the 2026 LRB. The rental payments will be due on dates and in amounts to enable the Authority to pay scheduled debt service on the 2026 LRB. In addition, under the Lease Agreement the City will agree to annually budget for and appropriate the rental payments for the use and occupancy of the Site. The City will also agree in the Lease Agreement to provide specified forms of insurance and to maintain the Site.
• Indenture: The Indenture includes the terms and conditions of the 2026 LRB, including the pledge of revenues, redemption provisions, investment and management of funds and accounts, repayment mechanisms, and the rights and obligations of the City, the Authority, the Trustee (BNY), and the bondholder. Under the Indenture, the Trustee directly receives rental payments made by the City under the Lease Agreement, which are equal in amount to the interest and principal payments due on the 2026 LRB. The Trustee receives and disburses the rental payments semiannually to the holder of the 2026 LRB as payments of interest and principal.
• Assignment Agreement: Under the Assignment Agreement, the Authority agrees to assign to the Trustee its right to receive the rental payments made under the Lease Agreement.
• Supplemental Agreement: The Supplemental Agreement will be entered into the between the City and BMO. Among other items, the Supplemental Agreement describes the conditions to BMO’s purchase of the 2026 LRB, including the documents that will be required to be delivered on or before the closing date. It also contains representations, warranties and covenants on behalf of the City in favor of BMO, including covenants relating to periodic reporting of financial statements and budgets, covenants relating to environmental compliance as to the Site, the City’s promise to indemnify BMO for certain costs and expenses (including for environmental liability), and events of default.
• Term Sheet: Contains BMO’s summary of terms and conditions for the direct purchase of the 2026 LRB.
• Placement Agent Agreement: Contains the terms and conditions of Raymond James & Associates’ services as placement agent.
ISSUES/ANALYSIS
Below is a table summarizing the sources and uses, and key financing terms of the 2026 LRB:
FINANCING SCHEDULE
Following the Council’s approval of today’s financing documents, the next steps toward closing the 2026 LRB are as follows:
• Today, Tuesday, July 7th: City Council and Chino Financing Authority approve financing resolutions.
• Monday, July 13th: Pre-closing.
• Tuesday, July 14th: Closing of 2026 LRB (funds delivered to Trustee).
• Monday, June 20th: End of 90-day property acquisition escrow period.
ATTACHMENTS:
1. City Council Resolution 2026-048
2. Public Financing Authority Resolution FA 2026-001
3. Form of Ground Lease
4. Form of Lease Agreement
5. Form of Indenture
6. Form of Assignment Agreement
7. Form of Supplemental Agreement
8. Term Sheet
9. Form of Placement Agent Agreement