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Reso to Defease, Refund and Amend Bond Series 1994A, 2004A, 1998, & 2007 June 03, 2014 Page 2 DISCUSSION The City of Santa Ana Mayor and City Council unanimously adopted the City's 5 -year Strategic Plan which includes a goal to ensure financial stability. Under goal number four, two strategies are outlined; 2d) Conduct an assessment of the City's debt and refinancing options to achieve savings and 3c) Implement a plan to achieve a General Fund balance of 20% of expenditures. In an effort to implement these strategies, on January 21, 2014, the City Council approved the use of four firms to assist staff in reviewing existing debt and identify opportunities for potential savings. On April 1, 2014, two teams were selected. The first team is comprised of Fieldman, Rolapp, & Associates (financial advisor) and Quint & Thimmig (bond counsel), which were selected to review the 1994A and 2004A Police Administration Lease Revenue Bonds and other associated general fund debt. The second team is comprised of Urban Futures, Inc. (financial advisor) and Best, Best & Krieger LLP (bond counsel), which were selected to review the 2004 Water Revenue Bonds. With interest rates on US Treasury Bonds having decreased from 3.0% to 2.5 %, since the beginning of the year, the municipal bonds market has followed suit. This has correlated into increased attention in the municipal bond market by investors. In order to benefit from this opportunity, staff is recommending several actions. The items before the City Council relate specifically to General Fund debt and expands beyond the Police Administration Lease Revenue Bonds (1994A Bonds) to include the 1998 City Hall Expansion Project Certificates of Participation ( COP's), and a lease rate change on the City Hall Parking Structure Lease Agreement. The 1994A Bonds were issued in March of 1994 to finance the construction and equipping of a police administrative and holding facility. The 1994A Bonds were partially refunded in 2004. These bond series 2004A mature on July 1, 2014. The City will defease the 2004A bonds by depositing with the Bank of New York Mellon (trustee) the necessary amount that corresponds to the upcoming July 2014 debt service payment. The 1994A Bonds are currently outstanding in the par amount of $67.1 million, comprised of serial bonds maturing on July 1, of 2015 through 2019 and a term bond maturing on July 1, of 2024. As part of the bond covenants agreed to upon issuance of the original 1994A Bonds, a debt service reserve was established which is currently comprised of approximately $4.6 million of cash and $4.6 million of a reserve fund surety. Since 50% of the bonds are technically secured by a surety, the remaining 50% of the bonds relating to the cash reserve will be used to complete the refunding transaction. Defeasing all the bonds creates no annual savings and is not recommended. The 1998 COP's were delivered in January of 1998 to finance the expansion of City Hall (Ross Annex). The 1998 COP's are currently outstanding in the par amount of $8,015,000. All of the outstanding COP'S are being recommended for refunding. After evaluating different alternatives to increase efficiency and cost savings associated with the debt transactions, a private placement methodology was selected. A private placement is more in alignment with a direct bank loan, is more expeditious, allows the City to take immediate advantage of attractive interest rates, saves on issuance costs and eliminates the need on funding of a debt service reserve fund. Because of these attributes, the private placement, unlike a publicly sold bond issue, results in substantial savings for the City. 4 -2