CITY MANAGERS REPORT
MAY 6 2013 CITY COUNCIL REGULAR MEETING
ITEM 2003 WATER REVENUE BONDS JUNE 1 2013 DEBT SERVICE PAYMENT FUNDING
RECOMMENDATION Adopt a Resolution Approving an Interfund Loan from General Fund Unassigned Reserves to Water
Fund for a Portion of the 2003 Water Revenue
Bonds Semiannual Debt Service Payment Due June
1 2013
SUMMARY
In 2003 the City of Lathrop took part in a multiagency water supply project known as the South County Surface Water Supply Project SCSWSP Richland Planned Communities Richland committed to paying a large share of the debt issue which financed the Citys participation in SCSWSP In 2008 Richland defaulted on its obligation and since then the City has financed the debt service payments as follows
1 1212008 through 1212011 Richland Letter of Credit LOC 2 1212011 through 612012 General Fund loans to Water Fund 3 1212012 Saybrook Advisors LLC Saybrook payment
The next debt service payment is due June 1 2013 and to cover it a39485539 General Fund loan to the Water Fund is needed City Staff recommends City Council approval of the loan as a shortterm means to stay current on the debt
service The other part of the debt service payment will be funded by a
268 412
11 payment from Saybrook
Staff has been in negotiations to sell a portion of the Citys share of SCSWSP with the City of Tracy This sale of water capacity is now imminent however it is not expected to be completed prior to the upcoming debt service payment on June 1 2013 Once the sale to Tracy is completed the gross sale proceeds will repay all General Fund loans to the Water Fund for debt service coverage which total 1
198 655 63
Staff has been working with consultants to refinance the water bonds and expects that refinancing to be completed in September 2013 This will reduce the debt service costs and part of that savings will be from the Tracy water sale proceeds net of the General Fund repayment
In summary this loan request is being made due to timing issues related to the debt service payment being due prior to completion of the water sale and the bond refinancing
MAY 6 2013 CITY COUNCIL REGULAR MEETING
2003 WATER REVENUE BONDS JUNE 1 2013 DEBT SERVICE PAYMENT
FUNDING DEVELOPER PORTION BACKGROUND
In an effort to secure a longterm quality water supply for its existing residents and future residential and commercial growth the City partnered with South San
Joaquin Irrigation District SSJID and the Cities of Tracy Manteca and Escalon in
2003 to fund the South County Surface Water Supply Project SCSWSP The City of Lathrops portion of the SCSWSP was financed by
1 City issued 325 million in bonded debt 2 River Islands 17 million payment
Total 495 million
The Citys 325 million SCSWSP contribution was in the form of Water Revenue Bonds commonly referred to as the 2003 Water Bonds and was secured with three sources of funding
1 City issued 325 million in bonded debt from above A Existing 2003 Rate Payers on water bill 63 million
B The Mossdale CFD 20031 on property tax bill 87 million
C Future Development 176 million 165 million of this component approximately 94 and referred herein as the Developer Portion was an obligation of Richland Planned Communities Richland
Pursuant to the Central Lathrop Specific Plan CLSP Development Agreement Richland obligated itself to pay the Developer Portion of the 2003 Water Bonds annual debt service and provided the City a3 million Letter of Credit LOC as security to cover any payment deficiencies
Annually the Developer Portion obligation for the 2003 Water Bonds is approximately 12 million This funding along with the CFD 20031 and City Ratepayer contributions was to be paid to the City in order to fund what is owed to the bondholders However Richland stopped paying in late 2008 This has left the City responsible for the Developer Portion of the debt service payments to bondholders as well as the other two portions mentioned above per Covenants made to bondholders when the 2003 Water Bonds were issued Utilization of the LOC provided full funding for the Developer Portion of the debt service payments through the June 1 2011 semiannual payment After this payment was completed an insufFicient amount of funding remained for future semiannual debt service payments The follow paragraphs chronologically detail how the debt service payments have been covered and highlight progress toward the future development of CLSP
For the December 1 2011 Developer Portion of the Water Bonds debt service payment the remainder of the LOC funds 20190412 along with interest earnings 10570500 and a14114806 City Councilauthorized interfund loan
from General Fund unassigned reserves to the Water Fund City Council Resolution No 113278 were combined and utilized to fund the payment
In an effort to minimizeeliminate this unexpected additional financial burden going forward City Staff began negotiating with other agencies to sell a portion of Lathrop
s treatment and conveyance infrastructure as a means of securing revenue with the purpose of funding part of the Developer Portion of the 2003 Water Bonds debt service payments until development moves forward in CLSP
The June 1 2012 Developer Portion semiannual payment was funded with a 662
652
18 City Councilauthorized interfund loan from General Fund unassigned reserves to the Water Fund City Council Resolution No 123379 Efforts toward selling a portion of the Developer Portion the Sale Portion continued but were stalled by delays from other agencies
In mid 2012 a new developer Saybrook Advisors LLC Saybrook purchased a large majority of the Community Facilities District No 20061 special tax bonds and a sizeable portion of the land within CLSP The Developer Portion less the Sale Portion is defined as the Saybrook Portion Saybrook paid the December 1 2012 Developer Portion of the Water Bonds debt service payment of 27869955 both the Sale Portion and the Saybrook Portion which was net of interest earnings of 10570500 and a onetime refund of SCSWSP capital costs from SSJID of 5456795
As illustrated in Table 1 the next debt service payment to bondholders is due June 1 2013 The Developer Portion of this semiannual payment is 76897250 A partial offset is available via 10570500 in interest earnings This leaves an anticipated shortfall of 66326750 this sum is comprised of two parts 268
412
11 Saybrook Portion and 39485539 Sale Portion
A transaction for the sale of the Sale Portion with the City of Tracy is near completion Given this recent development City Staff recommends the utilization of a39485539 interfund loan from the General Fund to the Water Fund for the Sale Portion share of the Developer Portion of the 2003 Water Bonds debt service payment due on June 1 2013 This assumes a payment of 26841211 from Saybrook for the Saybrook Portion
Staff expects the proceeds from the sale in the near future totaling 5 million When the proceeds arrive they will be set aside and be sufficient to repay the General Fund for all interfund loans to date including tonighYs recommended loan the total loan amount is 119865563 and provide a partial funding source to be used in conjunction with an ongoing refinancing of the 2003 Water Bonds Staff
MAY 6 2013 CITY COUNCIL REGULAR MEETING
2003 WATER REVENUE BONDS JUNE 1 2013 DEBT SERVICE PAYMENT
FUNDING DEVELOPER PORTION
Table 1
FY 203112 201213 Anticipated Revenues Expenses
Developer Portion of 2003 Water Revenue Bonds Debt Service
FY 201112 FY 201213 Debt ServicePaymentDue Date 1212011 612012 1212012 612013
Revenues
LOC Balance asof10312011 20190412 000 000 000
Semiannual InterestEarnings 10570500 10570500 10570500 10570500
Total Revenue Available 30760912 10570500 10570500 10570500
Expense DebtServicePaymentAmount 44875718 76835718 43897250 76897250 Anticipated5hortfall 14114806 66265218 33326750 66326750 FY 201213 Shortfall Breakdown SaybrookPortion 20905500 26841211 Sale Portion 12421250 39485539
Total Developer Portion 33326750 66326750
REASON FOR RECOMMENDATION
City Staff recommends this course of action as a means to prevent a debt service
payment default A default of this sort has many significant consequences including potential litigation from bondholders and credit downgrades from Nationally Recognized Statistical Rating Organizations NRSROs such as Moodys and Standard Poors These consequences could also greatly inhibit a future bond issue or refunding which would severely limit financing options available to the
FISCAL IMPACT
City Council adoption of the Staff recommendation and associated City Council
resolution would facilitate a transfer of 394
855
39 from Unassigned Reserves of
the General Fund into the Water Fund An interfund loan would be required as
follows
Decrease of General Fund Unassigned Reserves 101
0000 253 00
00 39485539
Increase of Water Loan Payable CLSP 540 0000 205 00 00 39485539 ATTACHMENTS
Resolution 13 Approving an Interfund Loan from General Fund Unassigned
Reserves to Water Fund for a Portion of the 2003 Water Revenue Bonds
MAY 6 2013 CITY COUNCIL REGULAR MEETING
2003 WATER REVENUE BONDS UNE 1 2013 DEBT SERVICE PAYMENT
FUNDING DEVELOPER PORTION APPROVALS
4
3o
fZo
3Mike Sylvia Date
Special Districts Manager
I3
CariJa
ies
DateActing
F
inance Director
iv
l
3
Glenn Gebhardt Date Community Development Director
City Engineer
Ta i 3
Salvador Navarrete Date
City Attorney
5
13
J 1
Ste n J Salvatore Date
RESERVES TO WATER FUND FOR A PORTION OF THE 2003 WATER REVENUE BONDS SEMIANNUAL DEBT SERVICE PAYMENT DUE JUNE 1 2013
WHEREAS previously the City of Lathrop participated in the South County Surface Water Supply Project SCSWSP with South San Joaquin Irrigation District SSJID and the Cities of Tracy Manteca and Escalon in 2003 and
WHEREAS the City of Lathrops 495 million share of the SCSWSP was financed with a325 million water revenue bond issue the Z003 Water Bonds and a17 million contribution from River Islands and
WHEREAS the 2003 Water Bonds aggregate issue amount of 325 million included three components to secure the financing water ratepayers Mossdale CFD 20031 and capacity designated for the Central Lathrop Specific Plan CLSP or Future Development in the amounts of 63 87 and 176 million respectively and
WHEREAS 165 million approximately 94 of the Future Development component Developer Portion was an obligation of Richland Planned Communities Richland as agreed upon within the CLSP Development
Agreement and
WHEREAS Richland provided the City of Lathrop with a3 million Letter of Credit LOC as surety for the repayment of the Developer Portion of the 2003 Water Bonds and
WHEREAS Richland defaulted on its obligation to fund the Developer Portion
of the 2003 Water Bonds beginning with the December 1 2008 semiannual debt
service payment and
WHEREAS the City has used the LOC funds to fund the Developer Portion since the December 1 2008 semiannual 2003 Water Bonds debt service payment and
WHEREAS The final remaining LOC funds interest earnings on LOC funds and a14114806 loan from General Fund unassigned reserves to the Water Fund funded the Developer Portion of the December 1 2011 semiannual 2003 Water Bonds debt service payment and
WHEREAS a66265218 loan from General Fund unassigned reserves to the Water Fund funded the Developer Portion of the June 1 2012 semiannual 2003 Water Bonds debt service payment and
sizeable portion of the land within CLSP area land held by Lathrop Land
Acquisition LLC in mid 2012 and
WHEREAS City Staff has been in negotiations with the City of Tracy for the sale of part of the Developer Portion which is identified as the Sale Portion and WHEREAS the remainder of the Developer Portion after the sale of the Sale Portion is identified as the Saybrook Portion and
WHEREAS Saybrook via a27869955 payment to the City with the following components 1 18305666 Saybrook Portion and 2 9564289 Sale Portion funded the Developer Portion of the December 1 2012 semiannual 2003 Water Bonds debt service payment and
WHEREAS Staff recommends an intertund loan from the General Fund unassigned reserves to the Water Fund in the amount of 39485539 to fund the net Sale Portion of the June 1 2013 semiannual 2003 Water Bonds debt service payment and
WHEREAS Staff has submitted a26841211 invoice to Saybrook to fund the net Saybrook Portion of the June 1 2013 semiannual 2003 Water Bonds debt service payment which includes a9564289 credit to the Saybrook Portion as repayment to Saybrook for the payment of the Sale Portion of the December 1 2012 semiannual 2003 Water Bonds debt service payment and
WHEREAS upon successful completion of the sale of the Sale Portion to the City of Tracy gross proceeds from the sale will be used solely for in order of priority 1 Reimbursement of the General Fund unassigned reserves for the interfund loans to the Water Fund referenced herein totaling 119865563 and 2 a source of funds for the reduction in the anticipated refunding amount of the
2003 Water Bonds and
WHEREAS if the sale of the Sale Portion to the City of Tracy is unsuccessful Saybrook will be responsible for repayment of all funds which were utilized from the General Fund unassigned reserves in the payment of the entire Developer Portion both Sale Portion and Saybrook Portion of the 2003 Water Bonds debt service payments in addition to future 2003 Water Bonds debt service payments or refunding debt instruments of the same and
WHEREAS it is in the public interest and for the public benefit that the City declares its intent to reimburse the interfund loans referenced herein
NOW THEREFORE BE IT RESOLVED the City Council of the City of
Lathrop does hereby authorize an interfund loan from General Fund unassigned
reserves to Water Fund in the amount of 39485539 to fund the Sales Portion of the June 1 2013 semiannual 2003 Water Bonds debt service payment and
BE IT FURTHER RESOLVED the City Council of the City of Lathrop does hereby authorize the following interfund loan
Decrease of General Fund Unassigned Reserves 101
0000 253 00
00 39485539
Increase of Water Loan Payable CLSP 540
0000 205 00
following vote of the City Council to wit
AYES NOES
ABSENT
ABSTAIN
Sonny Dhaliwal Mayor
ATTEST APPROVED AS TO FO M
