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HomeMy WebLinkAboutCertificate as to Arbitrage $27,725,000 COUNTYWIDE PUBLIC FINANCING AUTHORITY 1996 Revenue Bonds CERTIFICATE AS TO ARBITRAGE I, the undersigned Treasurer of the Countywide Public Financing Authority, Orange County, California (the "Authority),being one of the officers of the Authority duly charged (by resolution of the members of the Authority), with others, with the responsibility of issuing the Authority's $27,725,000 principal amount of 1996 Revenue Bonds (the "Bonds"), dated July 31, 1996,and being issued this date,hereby certify as follows: (1) Purpose of Bonds; Financing Structure. The Bonds are being issued pursuant to an Indenture of Trust, dated as of July 1, 1996 (the "Indenture"), between the Authority and U. S. Trust Company of California, N. A., as trustee (the "Trustee"), in order to provide for financing of portions of the costs of an 800 MHz communications system (the "System Project") owned by • Orange County (the "County") to the extent that such costs are allocable, based upon expected usage, to some or all of the Cities of Brea, Buena Park, Fullerton, Garden Grove, Orange, Santa Ana, Seal Beach,Stanton and Tustin (together,the"Members"),as well as related System Project components ("Local System Components") of some or all Members,capital projects (the"Capital Projects") for certain Members and the refunding of certain obligations of the City of Fullerton (the "Fullerton Prior Obligations"), all as more particularly described in the Certificates Regarding Use of Proceeds of the respective Members, dated the date hereof and included elsewhere in the transcript for the Bonds (the "Proceeds Certificates"). The Bonds will be payable from revenues (the "Revenues") consisting of lease payments (the "Lease Payments") paid by the Members pursuant to lease agreements (the"Lease Agreements"), each dated as of July 1, 1996, and each entered into between the Authority, as lessor, and a Member, as lessee, which Lease Agreements (together with related site and facility leases) provide for the lease by a Member to the Authority of certain existing real property and improvements owned by that Member in consideration of the lease back, pursuant to a Lease Agreement, by the Authority to such Member of that property and of the participation by the Authority in the financing arrangement for the System Project,the Local System Components, the Capital Projects and the refunding of the Fullerton Prior Obligations. (2) Status of the Authority. The Authority constitutes a joint exercise of powers authority created by the Members. The Members are not part of a controlled group and no single Member has the right or power both to approve and to remove without cause a controlling portion of the governing body of the Authority or the right or power to require the use of funds or assets of the Authority for any purpose of the Member. By reason of these facts, the Authority is not a controlled entity or a subordinate entity of any single Member. The Authority possesses the sovereign power of eminent domain and by reason of such fact constitutes a political subdivision of the State of California. (3) Statement of Expectations. On the basis of the facts and estimates in existence on the date hereof, I reasonably expect the following with respect to the amount and use of gross proceeds of the Bonds: (a) Amount Received from Sale of Bonds; No Aggregated Issues. The Bonds were sold to Stone & Youngberg LLC (the "Underwriter"), at their face amount ($27,725,000), less original issue discount of $95,619.60, less Underwriter's discount of $185,757.50, for a total amount of $27,443,622.90. Of said amount, $469,122.86 will be deposited in the Costs of Issuance Fund; $2,772,500.00 will be deposited in the Reserve Account of the Bond Fund; $139,951.05 (which amount is allocable solely to the City of Santa Ana and is herein referenced as the "Santa Ana Capitalized Interest") will be deposited in the Interest Account of the Bond Fund; and the remaining $24,062,048.99 will be deposited in the Project Fund. All of said Funds and Accounts are held by the Trustee. No tax-exempt debt has been sold within fifteen (15) days before or after the date the Bonds were sold that will be paid from substantially the same source of funds as the Bonds (excluding guarantees from unrelated parties). (b) Costs of Issuance Fund. The proceeds of the Bonds deposited in the Costs of Issuance Fund will be used for payment of legal fees, printing costs and other costs of issuance of the Bonds and will be fully expended promptly upon receipt of invoices. Amounts deposited in the Costs of Issuance Fund, if invested, will be invested without yield restrictions. Interest earnings and gains resulting from said investment Will be retained in the Costs of Issuance Fund and used for the purposes thereof. Amounts, if any,remaining in the Costs of Issuance Fund on the earlier of March 1, 1997, or payment of costs of issuance in full will be deposited in the Bond Fund and applied to the payment of debt service on the Bonds. (c) Establishment of Project Accounts. Of the proceeds of the Bonds deposited hi the Project Fund, the following amounts will be transferred to the following Accounts (together, the"Project Accounts")established for the following Members: (i) $1,000,000 to the Brea Project Account; (ii) $3,000,000 to the Buena Park Project Account; (iii) $4,369,584.82 to the Fullerton Project Account; (iv) $2,977,931.33 to the Garden Grove Project Account; (v) $3,254,189.00 to the Orange Project Account; (vi) $5,676,282.00 to the Santa Ana Project Account; (vii) $1,102,456.84 to the Seal Beach Project Account; (viii) $325,000.00 to the Stanton Project Account; and (ix) $2,356,605.00 to the Tustin Project Account. (d) Use of Project Accounts; Reimbursement. Amounts in the Project Accounts will be disbursed by the Trustee upon requests of the Members to pay costs of the System Project, the Local System Components and the Capital Projects (together, the "Projects"), respectively, except that a portion of the amount deposited in the Fullerton Project Account will be applied on the date hereof for payment of the Prior Fullerton Obligations, as referenced in subparagraph (g) below. No portion of the proceeds of the Bonds will be used for reimbursement of expenditures paid by the Authority, the County or any Member prior to the date hereof except for (i) expenditures paid for costs of issuance of the Bonds, (ii) preliminary capital expenditures incurred before commencement of acquisition or construction of the Projects that do not exceed twenty percent (20%) of the portion of the issue price of the Bonds allocable to the Members (see subparagraph (r) and (t) below), and (iii) capital expenditures that (A) were paid no earlier than sixty (60) days before the date of the adoption by the a Member (as a conduit borrower) of a declaration of intent to reimburse such expenditures from the proceeds of obligations, and (B) are reimbursed no later than eighteen (18) months after the later of 2 the date the expenditure was paid or the date the applicable Project is placed in service (but no later than three (3)years after the expenditure is paid). Proceeds (if any) used for reimbursement of expenditures will be deposited in the general funds of the Member to which reimbursement is made and will not be used to replace funds of the Authority or the Member to be used to refund debt of the Authority or the Member, to create a sinking or pledged fund for such debt, for the Bonds or for the respective Lease Agreements or otherwise to create replacement proceeds for such debt, for the Bonds or for the respective Lease Agreements. (e) Completion of Projects; Investment of Project Accounts; Capital Expenditures. The respective Members have entered into, or will within six (6) months of the date hereof, enter into a contract for all or a portion of the respective Projects, which contract constitutes (or will constitute, in the case of contracts not yet entered into) a substantial binding obligation of the Member to a third party and is (or will be,in the case of contracts not yet entered into) in excess of five percent (5%) of the "Net Sale Proceeds" of the Bonds allocable to the respective Member (namely, an amount of proceeds of the Bonds equal to the issue price of the Bonds allocable to the Member, and less the proceeds deposited in the Reserve Account allocable to the Member (see subparagraph (t) below) and, in the case of the City of Fullerton, less the portion of the proceeds of the Bonds to be used for payment of the Fullerton Prior Obligations. Each Member will proceed with due diligence to complete the Member's Project and to spend the proceeds of the Bonds allocable to the Member. The contracts referenced above and the expected completion date of the respective Projects are set forth in the respective Proceeds Certificates of the Members.All expenditures from the Project Accounts will be capital expenditures. Not less than eighty-five percent (85%) of the Net Sale Proceeds allocable to the respective Members will be spent within three (3) years of the date hereof. Amounts deposited in the Project Accounts will be invested without yield restrictions for the period from the date hereof to the date that is three (3) years after the date hereof unless earlier expended (the "3-year Temporary Period"). Interest earnings and gains resulting from investment of the Project Accounts will be retained in the Account in which investment was made and used for the purposes thereof. Upon payment of costs of a Member's Project, and upon request of that Member, the Trustee will transfer amounts in the Member's Project Account to the Bond Fund to be applied as a credit against Lease Payments to be made by that Member and used for the payment of debt service on the Bonds. Proceeds of the Bonds and interest earnings and gains on investment thereof,if any, remaining in the respective Project Accounts following the 3- year Temporary Period will be invested at a yield not in excess of the yield of the Bonds (see subparagraph (r) below) or yield reduction payments will be made to the federal government with respect to such investment after the end of the 3-year Temporary Period. (f) Santa Ana Capitalized Interest. The proceeds of the Bonds ($139,951.05) deposited in the Interest Account will be used to pay a portion of the interest on the Bonds allocable to the City of Santa Ana from the date hereof through February 1, 1997, which date is within the 3-year Temporary Period and prior to that date will be invested without yield restrictions. Interest earnings and gains resulting from that investment will be retained in the Interest Account and applied to the payment of interest on the Bonds allocable to the City of Santa Ana. Interest on the Bonds allocable to the City of Santa Ana paid from the proceeds of the Bonds and interest earnings thereon will be 3 applied as a credit against lease payments due by the City of Santa Ana under the Lease Agreement with the City of Santa Ana (see paragraph (1) above). (g) Refunding of Fullerton Prior Obligations. Of the proceeds of the Bonds deposited in the Fullerton Project Account, $1,522,015.38 will be applied on the date hereof to pay the principal and interest amounts on the Fullerton Prior Obligations that are set forth on Exhibit B attached hereto and by this reference incorporated herein. Said proceeds will not be invested. The City of Fullerton has represented to the Authority that no amounts are on deposit in any debt service fund, sinking fund or reserve fund established for the Fullerton Prior Obligations that are being replaced by the proceeds of the Bonds being used for payment of the Fullerton Prior Obligations on the date hereof, and all proceeds of the Fullerton Prior Obligations and interest earnings thereon have been spent prior to the date hereof for the purposes for which the Fullerton Prior Obligations were incurred. (h) Reserve Account. The proceeds of the Bonds ($2,772,500) deposited in the Reserve Account of the Bond Fund equal the "Reserve Requirement," being ten percent (10%) of the principal amount of the Bonds. The Reserve Requirement is less than maximum annual debt service on the Bonds and less than one hundred and twenty-five percent (125%) of average annual debt service on the Bonds. Payment of debt service on the Bonds is guaranteed under a policy of insurance (the "Insurance") issued by MBIA Insurance Corporation (the "Insurer"). The arrangement represented by the Insurance imposes a secondary liability that unconditionally shifts substantially all of the credit risk for the payments guaranteed by the Insurance,and the Insurer is not a co-obligor on such payments. The Insurer has required the establishment of the Reserve Account in the amount of the Reserve Requirement as a condition precedent to issuance of the Insurance, and the Underwriter has represented that the issuance of the Insurance was vital to the marketing of the Bonds. Amounts deposited in the Reserve Account will be invested without yield restrictions. Interest earnings and gains resulting from said investment will be retained in the Reserve Account in the event that the amount on deposit in such Account is less than the Reserve Requirement and otherwise will be deposited in the Bond Fund and applied to the payment of debt service on the Bonds when and as due. (i) Pledge of Revenues; Debt Service Funds. The Authority has pledged the Revenues (consisting primarily of Lease Payments)to the payment of debt service on the Bonds. Upon receipt the Revenues will be deposited in the Bond Fund and, when required for the payment of debt service on the Bonds will be transferred to the Interest Account and the Principal Account within the Bond Fund. Prepayments of Lease Payments will be used for redemption of the Bonds prior to their maturity and will be deposited in the Redemption Fund. The Bond Fund and the Interest Account and the Principal Account within the Bond Fund and the Redemption Fund (together the "Debt Service Funds") have been established primarily to achieve a proper matching of revenues (consisting primarily of Revenues and certain interest earnings) and debt service due on the Bonds during each year that the Bonds are outstanding. Amounts deposited in the Debt Service Funds will be spent within thirteen (13) months of the date of deposit, and the Debt Service Funds will be depleted at least once a year except for a reasonable carryover amount not in excess of the greater of earnings on the Debt Service Funds during the preceding bond year for the Bonds (see subparagraph (p) below) or 4 one-twelfth (1/12th) of debt service on the Bonds during the preceding bond year for the Bonds. Amounts in the Debt Service Funds will be invested without yield restrictions. Interest earnings and gains resulting such investment will be retained in the Fund or Account in which investment was made and used for the purposes thereof. (j) Lease Payments. The Members will pay Lease Payments from their general funds. There is no assurance that the general funds of the Members will be available for the payment of Lease Payments if the Members encounters financial difficulties. Amounts in the general funds of the Members will be invested without yield restrictions. (k) Insurance and Condemnation Fund. Amounts deposited in the Insurance and Condemnation Fund, if any, will consist of proceeds of insurance or eminent domain with respect to property leased under the Lease Agreements and will ordinarily be transferred to the Member for repair or restoration of property leased pursuant to the Member's Lease Agreement. Amounts deposited in the Insurance and Condemnation Fund are not reasonably expected to be used for the payment of debt service on the Bonds or for Lease Payments. Amounts, if any, deposited therein will be invested without yield restrictions. (1) No Other Pledged Amounts or Investment-Type Property. Except as described herein, no amounts have been pledged to, or are reasonably expected to be used directly or indirectly to pay, principal or interest on the Bonds, nor are there any amounts that have been reserved or otherwise set aside such that there is a reasonable assurance that such amounts will be available to pay principal or interest on the Bonds. In addition, the Authority has not entered into, and does not reasonably expect to enter into, a hedge contract primarily for the purpose of reducing the Authority's risk of interest rate changes with respect to the Bonds. (m) No Negative Pledges. There are no amounts held under any agreement requiring the maintenance of amounts at a particular level for the direct or indirect benefit of the owners of the Bonds or any guarantor of the Bonds, excluding for this purpose amounts in which the Authority or a Member may grant rights that are superior to the rights of the owners of the Bonds or any guarantor of the Bonds and amounts that do not exceed reasonable needs for which they are maintained and as to which the required level is tested no more frequently than every six (6) months and that may be spent without any substantial restriction other than a requirement to replenish the amount by the next testing date. (n) No Replacement Proceeds. There are no amounts that have a sufficiently direct nexus to the Bonds, the Lease Agreements or the Projects to conclude that the amounts would have been used for the System Projects, for Lease Payments or for debt service on the Bonds if the proceeds of the Bonds were not being used for those purposes. The term of the Bonds is not longer than reasonably necessary for the respective Projects in that the weighted average maturity of the portions of the Bonds allocable to the respective Projects does not exceed one hundred twenty percent (120%) of the average reasonably expected economic lives of the respective Projects,based upon (i) the certificate of the Underwriter included elsewhere in the transcript for the Bonds, in the case of the weighted average maturities of the portions of the Bonds allocable to the respective Members (which weighted average maturities equal the weighted average 5 lives of the respective Lease Agreements); (ii) a reasonably expected life of 20 years from completion, in the case of the System Project as represented to the Authority by the County; and (iii) the certifications of the Members set forth in the respective Proceeds Certificates in the case of the reasonably expected economic lives of the respective Local System Components and Capital Projects (including in the case of the City of Fullerton, the projects financed with the Fullerton Prior Obligations). (o) No Improper Financial Advantage. The transaction contemplated herein does not represent an exploitation of the difference between tax-exempt and taxable interest rates to obtain a material financial advantage and does not overburden the tax- exempt bond market in that the Authority is not issuing more bonds, issuing bonds earlier, or allowing bonds to remain outstanding longer than is otherwise reasonably necessary to accomplish the governmental purposes of the bonds. (p) Bond Year for the Bonds. The Authority hereby selects each period from February 2 through February 1 of the following calendar year as the bond years for the Bonds, except that the first bond year will commence on the date hereof and the last bond year will end on the date of payment of the Bonds in full. (q) Rebate Requirement. The Authority has covenanted in the Indenture to comply with requirements for rebate of excess investment earnings to the federal government to the extent applicable and acknowledges that the first payment of excess investment earnings, if any, is required to be rebated to the federal government no later than sixty (60)days after the end of the fifth (5th)bond year for the Bonds. No portion of the Bonds will constitute a private activity bond within the meaning of section 141(a) of the Internal Revenue Code of 1986 (the "Code"), the average maturity of the Bonds is greater than five (5) years and none of the interest rates on the Bonds vary during the term of the Bonds. As a consequence of the foregoing, investment earnings on the Debt Service Funds will be excluded for the purposes of computation of the amount required to be rebated to the federal government as referenced in this subparagraph without regard to the total amount of said earnings. The Fullerton Prior Obligations are not subject to the requirement for rebate of excess investment earnings to the federal government because the Fullerton Prior Obligations were not issued on the basis that interest thereon was excluded from gross income for purposes of federal income taxation. (r) Yield of the Bonds. The yield of the Bonds is 5.28360%, determined on the basis of regularly scheduled principal and interest payments on the Bonds, discounted to $27,440,380.40, representing (A) the issue price of the Bonds of $27,629,380.40 (being the face amount of the Bonds of $27,725,000, less original issue discount of $95,619.60, less (B) Insurance fees of $189,000.00. The Underwriter has represented that (i) based upon reasonable expectations and actual facts which existed on the date the Underwriter purchased the Bonds from the Authority, the initial offering price of each maturity of the Bonds to the public (excluding bondhouses,brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) at which a substantial amount of each maturity of the Bonds was to be sold to the public on the date hereof is set forth on Exhibit A attached hereto and by this reference incorporated herein; (ii) the Bonds of each maturity were actually offered to the general public in a bona fide public offering for the prices set forth in Exhibit A; (iii) the present value of the fees for the Insurance is 6 less than the present value of expected interest savings as a result of the Insurance, determined by using the yield of the Bonds (including fees for the Insurance) as the discount rate in computing present value; and (iv) based on the experience of the Underwriter in assisting issuers to obtain municipal bond insurance, the fees for the Insurance do not exceed a reasonable, arm's-length charge for the transfer of credit risk represented by the Insurance and do not include any payment for any direct or indirect services other than the transfer of credit risk. (s) Yield of the Lease Payments. The Members will pay Lease Payments in the time and amount necessary to enable the Authority to pay debt service on the Bonds. Neither the Authority nor the Members intend that the interest component of Lease Payments will be exempt from gross income for purposes of federal income taxation. The composite yield of the Lease Payments will not exceed the yield of the Bonds by more than one-eighth of one percent (.125%), computed by (i) excluding costs and expenses paid, directly or indirectly, to purchase, carry, sell, and retire the Lease Agreements, (ii) excluding costs of issuing carrying and repaying the Bonds and the Underwriter's discount, (iii) assuming that Lease Payments are not paid until the Members ceases to receive the benefit of earnings on Lease Payments, and (iv) using the same redemption assumptions used to compute the yield of the Bonds. (t) Allocation of Issue Price. The issue price of the Bonds is allocated in accordance with the allocation of the principal amount of the Bonds to the respective Members. The principal amount of the Bonds is allocated among the respective Members in accordance with the principal components of the respective Lease Agreements as compared with the sum of the principal components of the Lease Agreements (which sum equals the principal amount of the Bonds). The principal amount of the Bonds and the percentage of the total principal amount of the Bond allocable to the respective Members is as follows: (i) The principal allocable to the City of Brea is $1,145,000 (being 4.13 percent of the total principal amount of the Bonds; (ii) The principal allocable to the City of Buena Park is $3,445,000 (being 12.43 percent of the total principal amount of the Bonds; (iii) The principal allocable to the City of Fullerton is$5,005,000 (being 18.05 percent of the total principal amount of the Bonds; (iv) The principal allocable to the City of Garden Grove is $3,410,000 (being 12.30 percent of the total principal amount of the Bonds; (v) The principal allocable to the City of Orange is $3,725,000 (being 13.44 percent of the total principal amount of the Bonds; (vi) The principal allocable to the City of Santa Ana is $6,655,000 (being 24.00 percent of the total principal amount of the Bonds; (vii) The principal allocable to the City of Seal Beach is $1,265,000 (being 4.56 percent of the total principal amount of the Bonds; 7 (viii) The principal allocable to the City of Stanton is $375,000 (being 1.35 percent of the total principal amount of the Bonds;and (ix) The principal allocable to the City of Tustin is $2,700,000 (being 9.74 percent of the total principal amount of the Bonds. (u) No Hedge Bonds. The Bonds d.o not constitute"hedge bonds" because(i) at least eighty-five percent(85%) of the Net Sale Proceeds allocable to each Member will be used to carry out the governmental purposes of the Bonds within three (3) years of the date hereof, and not more than fifty percent (50%) of the proceeds of the Bonds, if any, are invested in investments having a substantially guaranteed yield for four (4) or more years; and (ii) the Fullerton Prior Obligations were not hedge bonds.The Fullerton Prior Obligations were not hedge bonds because on the respective dates of issuance of the Fullerton Prior Obligations, the City of Fullerton reasonably expected that at least eight- five percent (85%) of the proceeds of the respective Fullerton Prior Obligations would be used to carry out the respective governmental purposes of the Fullerton Prior Obligations within three (3) years of the dates of issuance of the respective Fullerton Prior Obligations and not more than fifty percent (50%) of the proceeds of the respective Fullerton Prior Obligations, if any, was invested in investments having a substantially guaranteed yield for four (4) or more years. On the basis of the foregoing, it is not expected that the proceeds of the Bonds will be used in a manner that would cause the Bonds to be arbitrage bonds within the meaning of section 148 of the Code and applicable regulations. To the best of my knowledge, information and belief, the expectations herein expressed are reasonable and there are no facts or estimates, other than those expressed herein, that would materially affect the expectations herein expressed. IN WITNESS WHEREOF, I have hereunto set my hand this 31st day of July, 1996. Rode•ick Coloma, Tre urer 8 EXHIBIT A Maturity Principal Interest (Aug. 1) Amount Rate Price* 1997 $2,025,000 4.100% 100.291% 1998 2,115,000 4.100 100.000 1999 2,200,000 4.300 99.860 2000 2,300,000 4.600 100.00 2001 2,405,000 4.750 99.780 2002 2,515,000 4.900 99.743 2003 2,640,000 5.000 99.417 2004 2,765,000 5.100 99.352 2005 2,905,000 5.250 99.645 2006 3,060,000 5.300 99.235 2007 500,000 5.400 99.182 2008 530,000 5.500 99.134 2009 560,000 5.600 99.090 2010 585,000 5.700 99.523 2011 620,000 5.750 99.503 *Stated as a percentage of par. Exhibit A EXHIBIT B FULLERTON PRIOR OBLIGATIONS State Department of Transportation Loans for Fullerton Airport Facilities Loan Issue Original Outstanding Interest to Outstanding Number Date Principal Principal 07/31/96 Total ORA-3-84-L-1 04/03/84 $52,763 $29,547.28 $917.49 $30,464.77 ORA-3-85-L-2 12/03/85 207,748 124,648.80 6,439.06 131,087.86 ORA-3-85-L-3 12/19/85 151,032 50,344.00 2,600.72 52,944.72 ORA-3-86-L-4 01/20/86 138,889 88,888.96 3,246.35 92,135.31 ORA-3-86-L-5 09/29/86 550,000 256,666.64 14,940.69 271,607.33 ORA-3-86-L-6 02/18/86 605,000 282,333.36 8,861.72 291,195.08 ORA-3-89-L-7 09/06/89 244,183 146,509.78 8,505.71 155,015.49 ORA-3-91-L-8 11/22/91 195,156 143,114.40 6,279.00 149,393.40 ORA-3-92-L-10 08/06/92 200,000 132,802.00 8,301.59 141,103.59 ORA-3-92-L-11 08/06/92 250,000 165,612.76 10,351.42 175,964.18 ORA-3-94-L-12 06/22/94 33,333 30,874.00 229.65 31,103.65 Exhibit B