TO: LINDA REICH, CITY MANAGER
FROM: KIM SAO, DIRECTOR OF FINANCE
SUBJECT
title
Refunding of Community Facilities District Bonds.
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RECOMMENDATION
recommendation
1) Adopt Resolution Nos. 2025-050, 2025-051, 2025-052, and 2025-053 authorizing the issuance of the 2025 Special Tax Refunding Bonds; 2) adopt Chino Public Financing Authority Resolution No. FA 2025-001, approving the substantially final forms of the Indenture of Trust, Preliminary Official Statement; Bond Purchase Agreement; and Continuing Disclosure Agreement for the 2025 Pooled CFD Refunding; and 3) authorize the City Manager to execute all necessary documents on behalf of the City.
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FISCAL IMPACT
The refunding of these Community Facilities District bonds will provide for total savings of approximately $2,102,681 over the remaining life of the bonds, representing average annual savings of $210,268 or $1,749,748 net present value savings.
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:
• Positive City Image
• Financial Stability
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Revenue: 1001000-51200 |
Expenditure: |
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Transfer In: |
Transfer Out: |
BACKGROUND
Over the course of the last 25 years, developers have utilized Community Facilities Districts (CFDs) to help finance public infrastructure improvements associated with residential and industrial developments. Eligible public improvements consist of backbone infrastructure, such as sewer, water and gas lines, storm drain connections, streets, curb and gutters, as well as additional public facilities financed in lieu of receiving Development Impact Fees.
CFDs issue bonds to finance the construction of the previously mentioned public improvements. Repayment of these bonds occurs through an annual special tax levy on the property owners within the CFDs. This special tax levy is designed to provide sufficient revenues for the scheduled repayment of principal and interest, much like a home mortgage payment.
Recent conditions in the municipal bond market have created a refunding (refinancing) opportunity for four of the CFDs located in the City of Chino (CFD Nos. 2005-2, 2005-1 (IA 1), 2006-2 and 2003-3 (IA 2) (the “Refunded Bonds”)). Refunding such CFD bonds will reduce the required annual debt service portion of the annual special tax levy within such CFDs. In order to produce economies of scale and maximize efficiency, the proposed structure of the CFD financings is a “pooled refunding” whereby each individual CFD will issue a series of refunding bonds that will be purchased by the City of Chino Public Financing Authority (Authority) which will then issue a single series of Authority bonds secured by the collective revenue stream of the pooled CFD bonds.
The proceeds of Authority Refunding Bonds will be used to effect a current refunding, meaning the proceeds of the Authority Refunding Bonds will be used to pay off the Refunded Bonds less than 90 days from the date the Authority Refunding Bonds are issued. The proposed Authority Refunding Bonds are expected to result in significant dollar savings. The general industry standard is that refunding provides at least 3% present value savings after all costs. Based on market conditions, estimates by the City’s financial advisor and underwriter, estimate net present value savings percentage is 5.81%. Should the net present value savings percentage fall below 3%, staff will not move forward with the refunding process and this series of Authority Refunding Bonds will not be issued.
The Net Present Value (PV) of savings for each CFD is presented below:
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CFD |
Type |
Estimated Projected Net PV Savings from Refunding |
|
2005-2 |
Residential |
$ 167,544 |
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2005-1 IA 1 |
Residential |
$ 606,424 |
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2006-2 |
Residential |
$ 268,093 |
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2003-3 IA 2 |
Residential |
$ 707,687 |
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Total Savings |
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$1,749,748 |
ISSUES/ANALYSIS
As described above, the proposed structure of the CFD refunding’s is a “pooled refunding” whereby each CFD will issue a series of refunding bonds that will be purchased by the Authority which will then issue a single series of Authority bonds secured by the collective revenue stream of the pooled CFD bonds. The Authority was created under the Marks-Roos Act of 1985 as a Joint Power Authority in December of 1998. The Authority has the ability to issue revenue bonds and use the proceeds to purchase the CFD refunding bonds. The proceeds of City of Chino Public Financing Authority Local Agency Refunding Bonds will be used to refund the Community Facilities Districts bonds noted in the tables above.
The main elements of the refunding bonds are as follows:
1. Special tax payments from each district will be pledged to make debt service payments on its related bond obligation.
2. A portion of the bond proceeds will be used to redeem each CFDs current outstanding bonds by legally defeasing (and then redeeming) the existing bonds.
3. A reserve fund (or reserve fund surety) will be funded and available to cover debt service shortfalls, if any, for the related Community Facilities District bonds.
4. The issuance of new refunding bonds will result in reduced debt service obligation and net present value savings for each CFD.
Urban Futures, Inc. has been retained as financial advisor; the law firm of Stradling, Yocca, Carlson & Rauth LLP as bond and disclosure counsel; Raymond James, as the underwriter; BNY Mellon as the Fiscal Agent; and Webb Municipal Finance, LLC as the special tax administrator for each CFD.
The estimated Cost of Issuance (COI) and Underwriter’s Discount for the proposed $26,300,000 City of Chino Public Financing Authority Local Agency Refunding Bonds, Series 2025, total approximately $900,058 and are to be paid from bond proceeds contingent upon the successful completion of the refunding transaction. Approximately 45% of the cost of issuance is for credit enhancement, which will lower the debt service cost and increase refunding savings. These costs reflect the standard professional services and underwriting activities required to structure, market, and close a pooled refunding of outstanding Community Facilities District bonds and do not result in a financial obligation to the City should the bonds not close.
The financing team has prepared the necessary documents to implement the issuance of new refunding bonds in order to achieve the estimated net present value savings for each CFD described above. Copies of the bond documents are available for review in the Finance Department.
The Governing Board of the Authority is required to review and approve the documents with respect to the Authority Bonds and the City Council, acting as the legislative body of the CFDs, is required to review and approve the refinancing of Community Facilities District Bonds. Adoption of the identified Resolutions will satisfy these requirements. It is anticipated that the bonds will be sold by negotiated sale, with final closing of the issue scheduled for mid August, 2025.
Attachments: Resolution No FA2025-001
Resolution No. 2025-050
Resolution No. 2025-051
Resolution No. 2025-052
Resolution No. 2025-053