HomeMy WebLinkAbout06 CAPITAL PROJECT FUND AND WATER ENTERPRISE•~~ ~ • Agenda Item _~_
AGENDA .REPORT Reviewed:
~,~~ . ~~ City Manager
.-,(-~,
Finance Director
MEETING DATE: APRIL 6, 2010
TO: WILLIAM A. HUSTON, CITY MANAGER
FROM: PAMELA ARENDS-KING, FINANCE DIRECTOR
SUBJECT: PROMISSORY NOTE BETWEEN THE WATER ENTERPRISE FUND AND
THE CAPITAL PROJECT FUND
SUMMARY:
Authorize the Capital Project Fund purchase of a Promissory Note issued by the Water
Enterprise Fund (Water Enterprise) to meet the 2003 Refunding Water Revenue Bonds
rate covenant.
RECOMMENDATION:
It is recommended that the City Council adopt Resolution No. 10-31 that (1) authorizes the
Capital Project Fund purchase of a promissory note in the principal amount of $2,123,437
("Promissory Note"); and (2) authorizes the execution of the Promissory Note by the Water
Enterprise Fund (Water Enterprise) to meet the bond rate covenant.
FISCAL IMPACT:
The Capital Project Fund will earn 3.5% interest per annum compounded semiannually on
the principal amount of the Promissory Note. Total interest the Capital Project Fund will
earn over the five year life of the Note is $302,386.16. The principal and interest will be
paid to the Capital Project Fund annually on June 1 with the maturity of the Note being
June 1, 2015. Total cost of the Promissory Note for the Water Enterprise is $2,437,068.22.
BACKGROUND:
The Water Enterprise issued the 2003 Refunding Water Revenue Bonds for a total principal
amount of $14,355,000. The purpose of those bonds were to defease the 1993 revenue
bonds and finance capital improvements to improve the water system. At the time the 2003
Water Revenue Bonds were issued the Water Enterprise agreed to the bond rate covenant
(covenant) that requires the Water Enterprise to yield net revenues, including other funds
accumulated in the Fund which are lawfully available for payment of the debt service on the
Bonds, at least equal to one hundred twenty percent (120%) of the amounts payable during
the Fiscal Year. The Water Enterprise did not meet the 120% covenant for fiscal year ending
6/30/2009 and will not meet the covenant for fiscal year ending 6/30/201 Q. The total shortfall
of cash needed to meet the bond covenant for both fiscal years is $2,123,437.
The bond insurer, Assured Guaranty Corporation, was notified that the Water Enterprise is
not meeting the covenant. Assured Guaranty Corporation expressed that it was extremely
676606.1
PROMISSORY NOTE BETWEEN THE WATER ENTERPRISE FUND AND THE CAPITAL PROJECT FUND
APRIL 6, 2010 Page 2
concerned that the covenant was not being met. The consequences of not meeting the
covenant is the bonds are subject to default that results in the principal amount of the bonds
plus accrued interest becoming due and payable immediately. Currently the principal amount
due is $11,875,000.
To meet the covenant, bond counsel recommended available funds be loaned to the Water
Enterprise through the issuance of a Promissory Note. The Capital Project Fund has
available funds to loan to the Water Enterprise. The Water Enterprise will pay the principal
and interest back to the Capital Project Fund over a five year period. The debt service
payments for the Promissory Note will be included in the water rate proposal. Staff is
expected to present the water rate proposal to the City Council June 15, 2010.
Respectfully submitted,
Pamela Arends-King
Finance Director
Attachments: Resolution No. 10-31
Promissory Note
Promissory Note Amortization Schedule
676606.1
RESOLUTION NO. 10-31
A RESOLUTION OF THE CITY OF TUSTIN,
CALIFORNIA, AUTHORIZING THE CAPITAL PROJECT
FUND'S INVESTMENT IN A PROMISSORY NOTE OF
THE TUSTIN WATER ENTERPRISE FUND AND
AUTHORIZING THE EXECUTION OF THE
PROMISSORY NOTE BY THE WATER ENTERPRISE
FUND.
WHEREAS, the 2003 Refunding Water Revenue Bonds bond covenant requires
net revenues including other funds accumulated in the Fund which are lawfully available
for payment of the debt service on the Bond to equal at least 120% of the total amounts
payable for debt service during the Fiscal Year as stated in the Official Statement and
the Bond Indenture Covenant;
WHEREAS, the Tustin Water Enterprise Fund (the "Water Enterprise") did not
meet that covenant for fiscal year ending 6/30/2009 and will not meet the covenant for
fiscal year ending 6/30/2010, thus requiring a replenishment of cash in the Water
Enterprise of $2,123,437;
WHEREAS, the Water Enterprise's obligation to meet such bond covenant
constitutes an obligation to the bond holders and bond insurer;
WHEREAS, the Water Enterprise is authorized pursuant to Articles 10 and 11
(commencing with Section 53570) of Chapter 3 of Division 2 of Title 5 of the California
Government Code (the "Act") to issue bonds, warrants, notes or other evidence of
indebtedness for the purpose of meeting the bond covenant;
WHEREAS, in order to meet the bond covenant, the Water Enterprise desires to
issue, pursuant to the Act, its Promissory Note (the "Promissory Note") payable to the
City of Tustin (the "City");
WHEREAS, Section 53601 of the California Government Code provides that,
subject to the limitations specified therein, the legislative body of a local agency
(including a local agency such as the City) having money in its treasury not required for
the immediate needs of the local agency, may invest any portion of the money that it
deems wise or expedient in bonds, notes, warrants or other evidences of indebtedness
of any local agency within the State of California (including a local agency such as the
Water Enterprise);
WHEREAS, the City desires to invest in the Promissory Note by advancing to the
Water Enterprise the principal amount thereof;
WHEREAS, such advance is to be used by the Water Enterprise to meet the bond
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covenant requirements;
WHEREAS, a form of the Promissory Note has been submitted prior to this
meeting of the City Council; and
WHEREAS, the City Council desires to authorize the investment by the City of
moneys in its treasury in the Promissory Note and the performance of such acts by or on
behalf of the City as may be necessary or desirable to effect such investment;
NOW, THEREFORE, BE IT RESOLVED, by the City Council of the City of Tustin,
as follows:
Section 1. The investment by the City of a portion of the money in its treasury in
the Promissory Note is hereby authorized and approved; provided, however, that the
principal amount of the Promissory Note shall not be greater than $2,123,437, the
maturity date of the Promissory Note shall not be later than June 1, 2015 and the interest
rate on the Promissory Note shall be 3.5% per annum, compounded semiannually.
Section 2. The City Council hereby finds and determines that the City has money
in its treasury (within the Capital Project Fund) that is not required for the immediate
needs of the City in an amount at least equal to the maximum principal amount of the
Promissory Note specified in Section 1.
Section 3. The City Council hereby finds and determines that the investment of
such money in the treasury of the City in the Promissory Note, as provided herein, is
wise and expedient.
Section 4. The officers and employees of the City, and each of them is, hereby
authorized and directed, for and in the name of the City, to do any and all things and to
execute and deliver any and all documents which they or any of them deem necessary
or advisable in order to consummate the investment of money in the City treasury in the
Promissory Note and otherwise to carry out, give effect to and comply with the terms and
intent of this Resolution.
Section 5. The officers and employees of the City and Water Enterprise Fund,
and each of them is, hereby authorized and directed, for and on behalf of the Water
Enterprise Fund, to do any and all things and to execute and deliver on behalf of the
Water Enterprise Fund the Promissory Note specified in Section 1, and any and all other
documents which they or any of them deem necessary or advisable in order to
consummate the investment of money in the City treasury in the Promissory Note and
otherwise to carry out, give effect to and comply with the terms and intent of this
Resolution.
Section 6. All actions heretofore taken by the officers and employees of the City
and Water Enterprise Fund with respect to the investment of money in the City treasury
in the Promissory Note are hereby approved, confirmed and ratified.
676688.1
Section 7. This Resolution shall take effect immediately upon its adoption.
APPROVED and ADOPTED at a meeting of the City Council of the City of Tustin on April
6, 2010.
JERRY AMANTE,
Mayor
ATTEST:
PAMELA STOKER,
City Clerk
STATE OF CALIFORNIA )
COUNTY OF ORANGE )
CITY OF TUSTIN )
I, Pamela Stoker, City Clerk of the City of Tustin, do hereby certify that the whole number
of the members of the City Council of the City of Tustin is five; that the above and
foregoing Resolution No. XX-XtX was duly passed and adopted at a regular meeting of
the City of Tustin, held on the 6 day of April, 2010, by the following vote:
COUNCIL MEMBER AYES:
COUNCIL MEMBER NOES:
COUNCIL MEMBER ABSTAINED:
COUNCIL MEMBER ABSENT:
PAMELA STOKER
City Clerk
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PROMISSORY NOTE
Initial Principal Amount: $2,123,437 Tustin, California
Accreted Value at Maturity: $2,437,068.22 April 6, 2010
FOR VALUE RECEIVED, the Tustin Water Enterprise Fund (together with any
and all of its successors, the "Water Enterprise") hereby promises to pay to the City of
Tustin (together with any and all of its successors and assigns, the "City"), starting on
June 1, 2011 and paid annually on June 1 until June 1, 2015 (the Maturity Date")
principal and accrued interest, in lawful money of the United States of America, at 300
Centennial Way, Tustin, California, or at such other address as may be specified by the
City, the principal amount of $2,123,437,00, together with interest accrued thereon from
April 6, 2010 to the Maturity Date at the rate of 3.5% per annum, compounded
semiannually on June 1 and December 1 in each year, commencing June 1, 2010 (each
such date an "Interest Accrual Date") calculated on the basis of a 360-day year
comprised of twelve 30-day months (the "Accreted Value"). This Promissory Note, and
any renewals or extensions hereof and as the same may be amended, restated or
supplemented from time to time, is referred to herein as this "Note."
Section 1. Authority; Nature of Obligation. Pursuant to 2003 Refunding Water
Revenue Bonds Official Statement and the Bond Indenture Covenant, the Water
Enterprise Fund shall yield annual net revenues, including other funds accumulated in
the Fund which are lawfully available for payment of the debt service on the Bonds, at
least equal to one hundred twenty percent (120%) of the amounts payable during the
Fiscal Year. The Water Enterprise Fund did not meet that 120% bond covenant for
fiscal year ending 6/30/2009 and will not meet the covenant for fiscal year ending
6/30/2010. To meet the bond covenant as of 6/30/2010 the Water Enterprise needs an
inflow of cash totaling $2,123,437. The funds provided from the Capital Projects Fund
as consideration for this Promissory Note will provide the cash necessary to meet the
bond covenant.
The obligations of the Water Enterprise under this Note, including the obligation
to make all payments of the Accreted Value hereof when due or upon prepayment
hereof, are obligations of the Water Enterprise imposed by law and are absolute and
unconditional, without any right of set-off or counterclaim. This Note does not constitute
an obligation of the Water Enterprise for which the Water Enterprise is obligated to levy
or pledge any form of taxation or for which the Water Enterprise has levied or pledged
any form of taxation, and neither this Note nor the obligation of the Water Enterprise to
make payment of the Accreted Value hereof constitutes an indebtedness of the Water
Enterprise or the State of California, or any of its political subdivisions, in contravention
of any constitutional or statutory debt limitation or restriction.
Section 2. Prepayment. The Water Enterprise may voluntarily prepay this Note,
in whole or in part, on any date, by paying to the City, in lawful money of the United
States of America, at 300 Centennial Way, Tustin, California, or at such other address
as may be specified by the City, an amount equal to all or a portion of the Accreted
Value hereof as of such prepayment date. Upon any such prepayment, the Accreted
Value hereof as of the date of such prepayment, shall, ipso facto, be reduced by an
amount equal to the amount of such prepayment and, as of such prepayment date,
interest shall accrue on such reduced Accreted Value, and shall be compounded, as
described above. The Water Enterprise shall endeavor to give the City written notice of
its intention to prepay all or a portion of this Note not less than ten days prior to the
applicable prepayment date; provided that any prepayment shall be valid as of the
actual date of such prepayment even if such notice is given late.
Section 3. Events of Default and Remedies. The failure of the Water
Enterprise to pay the Accreted Value hereof, as and when due, shall constitute an event
of default under this Note (an "Event of Default"). If an Event of Default shall occur and
be continuing, the City may, at its option, without prior notice or demand, and is hereby
authorized and empowered by the Water Enterprise, at any time and from time to time,
exercise all or any one or more of the rights, powers or other remedies available to the
City against the Water Enterprise under applicable law. Upon the occurrence and during
the continuance of an Event of Default, interest shall accrue on the Accreted Value
hereof at the rate of 3.5% per annum, and shall be compounded, as described above.
Section 4. Costs and Expenses of Enforcement. Upon the occurrence and
during the continuance of an Event of Default, the Water Enterprise agrees to pay to the
City on demand all costs and expenses incurred by the City in seeking to collect this
Note or to enforce any of the City's rights and remedies hereunder, including court costs
and reasonable attorneys' fees and expenses, whether or not suit is filed hereon, or
whether in connection with bankruptcy, insolvency or appeal.
Section 5. Certain Provisions Regarding Payments. All payments made under
this Note shall be made without offset, demand, counterclaim, deduction or recoupment
(each of which is hereby waived) and shall be accepted subject to the condition that any
check or draft may be handled for collection in accordance with the practice of the
collecting bank or banks. Acceptance by the City of any payment in an amount less than
the amount then due shall be deemed an acceptance on account only, notwithstanding
any notation on or accompanying such partial payment to the contrary, and shall not in
any way (a) waive or excuse the exis#ence of an Event of Default, (b) waive, impair or
extinguish any right or remedy available to the City, or (c) waive the requirement of
punctual payment and performance or constitute novation in any respect.
Section 6. General Provisions. Time is of the essence with respect to the
Water Enterprise's obligations under this Note. To the extent permitted by applicable
law, the Water Enterprise hereby (a) waives demand, presentment for payment, notice
of dishonor and of nonpayment, protest, notice of protest and all other notices, filing of
suit and diligence in collecting this Note, (b) agrees that the City shall not be required
first to institute suit or exhaust its remedies hereon against the Water Enterprise, and (c)
consents to any extensions or postponements of time of payment of this Note for any
period or periods of time and to any partial payments, before or after maturity, and to
any other indulgences with respect hereto, without notice thereof. A determination that
any provision of this Note is unenforceable or invalid shall not affect the enforceability or
validity of any other provision and the determination that the application of any provision
of this Note to any person or circumstance is illegal or unenforceable shall not affect the
enforceability or validity of such provision as it may apply to other persons or
circumstances. This Note may not be amended except in a writing specifically intended
for such purpose and executed by the party against whom enforcement of the
amendment is sought. Captions and headings in this Note are for convenience only and
shall be disregarded in construing it.
Section 7. Notices. All written notices, statements, demands, consents,
approvals, authorizations, offers, designations, requests or other communications
hereunder shall be given to the party entitled thereto at its address set forth below, or at
such other address as such party may provide to the other parties in writing from time to
time, namely:
If to the Water Enterprise: Water Enterprise Fund
City of Tustin
300 Centennial Way
Tustin, California 92680
Attention: Finance Director
If to the City: City of Tustin
300 Centennial Way
Tustin, California 92680
Attention: Finance Director
Each such notice, statement, demand, consent, approval, authorization, offer,
designation, request or other communication hereunder shall be deemed delivered to
the party to whom it is addressed (a) if given by courier or delivery service or if
personally served or delivered, upon delivery, (b) if given by telecopier, upon the
sender's receipt of an appropriate answerback or other written acknowledgment, (c) if
given by registered or certified mail, return receipt requested, deposited with the United
States mail postage prepaid, 72 hours after such notice is deposited with the United
States mail, or (d) if given by any other means, upon delivery at the address specified in
this Section.
Section 8. Governing Law. In all respects, including matters of construction,
validity and performance, this Note and the obligations arising hereunder shall be
governed by, and construed in accordance with, the laws of the State of California.
IN WITNESS WHEREOF, the Water Enterprise has duly executed this Note as of the
date first above written.
TUSTIN WATER ENTERPRISE FUND
By:
PROMISSORY NOTE AMORTIZATION SCHEDULE
Capital Project Fund Loan to the Water Enterprise Fund to Meet 2003 Refunding Water Revenue Bonds Covenant Amortization
Schedule
Total Water Enterprise Fund Cash
Shortfall er Fiscal Year
Fiscal Year Amount
2008-2009 $348,079
2009-2010 $1,775,358
Total: $2,123,437
Loan Amount: $2,123,437
Interest Rate (annual): 3.50°/0
Terms (yrs): 5
1st Principal payment: June 1, 2011
Accrued Interest from April 4, 2010 through May 31, 2010: $11,560.93
Interest is compounded/accrued semi-annually
Amortization Schedule
Year Debt Service (FY Pa ment Date: Princi al Interest Total Pa ment Due
Accrued Interest $11,245.06
l 2010-2011 6/1/2011 $395,981.45 $74,970.60 $470,952.05 $482,197.11
2 2011-2012 6/1/2012 $409,840.80 $67,454.93 $477,295.73 $477,295.73
3 2012-2013 6/1/2013 $424,185.23 $60,469.43 $484,654.65 $484,654.65
4 2013-2014 6/1/2014 $439,031.71 $53,36].67 $492,393.38 $492,393.38
5 2014-2015 6/1/2015 $454,397.82 $46,129.53 $500,527.35 $500,527.35
Total: $2,123,437.00 $302,386.16 $2,425,823.16 $2,437,068.22