19-0865 Authorizing the defeasance and redemption of all or a portion of the City's Excise Tax Revenue Obligations, Series 2013 and, to accomplish the defeasance,
> authorizing 2 things: (i) the transfer of certain City funds in an amount not to exceed $55,000,000 to an irrevocable trust account, and (ii) the City entering into an escrow trust agreement. (Citywide)
The opening image you see featured in this post says something quite different. It's one of those photo opps engineered by City Manager Chris Brady, who assembled a supporting cast of 15 - including the city's financial advisor, at center left. Some members of the 2012 Mesa City Council have also got a calling to be there for the tentative redemption.
The opening image you see featured in this post says something quite different. It's one of those photo opps engineered by City Manager Chris Brady, who assembled a supporting cast of 15 - including the city's financial advisor, at center left. Some members of the 2012 Mesa City Council have also got a calling to be there for the tentative redemption.
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City Council Report
Date: August 19, 2019
Date: August 19, 2019
To: City Council
Through: Michael Kennington, Deputy City Manager/Chief Financial Officer
From: Ryan Wimmer, Treasurer
From: Ryan Wimmer, Treasurer
Subject: Defeasance of Series 2013 Excise Tax Revenue Obligations
Purpose
The purpose of this item is to defease (pre-pay) excise tax revenue obligations issued by the City in 2013. The defeasance would result in substantial interest cost savings and remove the debt from the City’s financial statements.
The following City debt would be defeased:
Excise Tax Revenue Obligation, Series 2013
Principal Amount Outstanding: $49,025,000
Background
In April 2013, the City issued $94 million of excise tax revenue obligations (“obligations”) to finance the construction and renovation of spring training baseball stadium facilities. When issuance of the obligations was authorized in 2013, revenue from the sale of Pinal County land owned by the City for its now-obsolete water rights was identified as the intended funding source to repay the obligations.
Background
In April 2013, the City issued $94 million of excise tax revenue obligations (“obligations”) to finance the construction and renovation of spring training baseball stadium facilities. When issuance of the obligations was authorized in 2013, revenue from the sale of Pinal County land owned by the City for its now-obsolete water rights was identified as the intended funding source to repay the obligations.
The purchase agreement for the sale of the City-owned farm lands in Pinal County was set up in three phases with initial closing in December of 2013.
The obligations were structured such that only interest payments were due until 2028, with principal repayment due over the five years from 2028 to 2032, in order to give the City time to sell the land.
The obligations were structured such that only interest payments were due until 2028, with principal repayment due over the five years from 2028 to 2032, in order to give the City time to sell the land.
> Roughly half of the obligations ($45 million) were callable (eligible to be paid off early) in July 2017 and were redeemed shortly thereafter utilizing proceeds from the sale of a portion of Pinal County land.
> In June 2019, the City received proceeds from the final sale of Pinal County land.
> In June 2019, the City received proceeds from the final sale of Pinal County land.
The land sale revenue is the proposed source of funding to defease the remaining obligations.
Results
The purchase agreement and master lease approved in 2012 resulted in the receipt of the following proceeds:
The purchase agreement and master lease approved in 2012 resulted in the receipt of the following proceeds:
• Sale Proceeds $109 M
• Lease Revenue $25 M
If defeasance approved by Council, the total payments associated with the 2013 excise tax revenue bond would be as follows:
If defeasance approved by Council, the total payments associated with the 2013 excise tax revenue bond would be as follows:
• Principal $94 M
• Interest Cost $30 M
The remaining $49 million of principal is callable in July 2022.
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Estimated Timeline for Defeasance Transaction
August 19 Council considers authorization of defeasance > August 21 Competitive bids for securities are received and final numbers for verification are submitted
September 5 City closes defeasance transaction
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Discussion
The obligations would be defeased by purchasing interest-bearing U.S. government securities and placing them in escrow in an irrevocable trust.
Discussion
The obligations would be defeased by purchasing interest-bearing U.S. government securities and placing them in escrow in an irrevocable trust.
The securities would be structured to mature at exactly the dates and amounts needed to pay interest due and to redeem the obligations when they become callable on July 1, 2022.
Since the remainder of the debt service on the obligations would be funded in an irrevocable trust, the defeasance would allow the debt to be removed from the City’s financial statements.
Since the remainder of the debt service on the obligations would be funded in an irrevocable trust, the defeasance would allow the debt to be removed from the City’s financial statements.
Fiscal Impact
The defeasance transaction would save the City $22.2 million in nominal interest costs. Pre-funding the payments on the obligations would have a negligible financial impact to the City. However, the early redemption (call) of the obligations in 2022 would allow the City to save ten years of interest payments that would otherwise be due in years 2023 to 2032.
Alternatives
The Council could choose not to move forward with the defeasance. In that case, the City would invest the Pinal County land sale revenue along with other City funds and pay the debt service on the obligations when due or callable. The financial impact would be negligible if the City were still to redeem the bonds when callable in July 2022. However, the City would continue to carry the obligations as debt on the City’s financial statements.
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HERE ARE THE ATTACHMENTS
| File #: | 19-0865 |
| Type: | Resolution | Status: | Agenda Ready |
| In control: | City Council |
| On agenda: | 8/19/2019 |
| Title: | Authorizing the defeasance and redemption of all or a portion of the City's Excise Tax Revenue Obligations, Series 2013 and, to accomplish the defeasance, authorizing (i) the transfer of certain City funds in an amount not to exceed $55,000,000 to an irrevocable trust account, and (ii) the City entering into an escrow trust agreement. (Citywide) |
| Attachments: | 1. Presentation, 2. Council Report, 3. Resolution, 4. Escrow Trust Agreement |
