TITLE
Recommendation to adopt resolution authorizing the issuance of Marina Revenue Bonds, Series 2015, in an aggregate amount not to exceed $125,000,000, and the execution of various related documents. (District 3)
DISCUSSION
The City proposes to issue Marina Revenue Bonds, Series 2015 (Series 2015 Bonds), in an aggregate amount not to exceed $125,000,000, to finance the completion of the waterside improvements to the Alamitos Bay Marina (ABM Rebuild). This proposed bond issuance includes $49.2 million for the waterside improvements, prepayment of certain existing State loans, funding of capitalized interest on the Series 2015 Bonds during the construction period, funding a debt service reserve for the Series 2015 Bonds, and payment of bond issuance costs.
On April 15, 2014, staff reported to the City Council that the cost to complete the ABM Rebuild was $60.1 million. Staff also reported that a bond issuance of $34 to $40 million for the waterside improvements could be feasible, assuming ongoing 2 percent annual slip rent increases. To complete the ABM Rebuild, an additional $20 to $26 million would need to be identified, with the most likely source being the Tidelands Fund.
On August 19, 2014, the City Council authorized $10.9 million from the Tidelands Operating Fund (TF 401) for the ABM Rebuild with the understanding that additional funding, likely from Tidelands, of up to $15 million might still be needed (for a total of $26 million). Due to the sharp decline in the price of oil and the lack of funding for new Tidelands capital projects in the foreseeable future, staff began exploring the feasibility of funding the remaining cost of the ABM Rebuild with a bond issuance supported exclusively by Marina Fund revenues.
Much investigation was done to ensure that the completion of the ABM Rebuild was affordable. The City engaged a team of financial and market experts to determine the feasibility of such a bond issuance. The team projected that annual slip rent increases of 2 percent would be both sufficient, competitive with the market, and sustainable to support a bond issuance to complete the ABM Rebuild. If the bonds are sold as expected, the ABM Rebuild would be completed without any additional Tidelands funding. The proposed Series 2015 Bonds are based on this recommendation.
New Money to Complete the ABM Rebuild
The cost to complete the ABM Rebuild was $60.1 million. The City Council has already authorized $10.9 million from the Tidelands Operating Fund (TF 401) and the money has been expended on the ABM Rebuild. The remaining $49.2 million will be funded from Series 2015 Bond proceeds. The ABM Rebuild does not include landside improvements such as restrooms, parking lot improvements and landscaping.
Early Repayment of Certain State Loans for the Marina
There are currently $59.2 million of loans from the State Department of Parks and Recreation, Division of Boating and Waterways (DBW Marina Loans). These DBW Marina Loans primarily financed previous phases of the ABM and the Shoreline Marina rebuilds, and will be paid off by the Series 2015 Bonds. The repayment of the $59.2 million DBW Marina Loans does not include the $16.9 million DBW loan that was approved by the City Council on March 17, 2015. The timely issuance of bonds will preclude the need for the City to draw on this loan. Paying off the DBW Marina Loans is necessary as part of the ABM Rebuild financing.
This matter was reviewed by Assistant City Attorney Richard Anthony on April 15, 2015 and by Budget Management Officer Victoria Bell on April 17, 2015.
TIMING CONSIDERATIONS
City Council action is requested on May 5, 2015 in order to facilitate processing of required documents and benefit from currently advantageous interest rates, and to ensure the timely completion of the ABM Rebuild. Staff will return to City Council after the sale of the Series 2015 Bonds to execute the contract amendments needed to complete the ABM Rebuild.
FISCAL IMPACT
The Series 2015 Bonds will be special, limited obligations of the City, secured solely by a pledge of Marina Fund revenues, primarily monthly slip rent for boat docking. The Series 2015 Bonds will not be a debt of the City, nor will the credit or taxing power of the City be pledged in support of the Series 2015 Bonds.
Slip revenues comprise over 80 percent of total Marina Fund revenues. In order to sell the Series 2015 Bonds, the City will be required to maintain the Marina Fund in a sound financial condition, with a minimum debt service coverage ratio of 1.25. From a practical viewpoint, this means that it is expected that annual slip rent increases of a minimum of 2 percent will be required for the foreseeable future, inclusive of Fiscal Year 2016.
The expected amount of bonds to be issued is approximately $120 million, to provide for the $49.2 million to complete the ABM Rebuild; $61.5 million to pay off the outstanding ABM loans, including interest; and, $8 million to fund a required debt service reserve and to pay the costs of bond issuance. A higher authorization amount of $125 million is requested to allow flexibility in the final structuring of the bonds to meet market conditions or other needs. Any change in the amount or restructuring will not significantly alter the basic financial assumptions or the ability of the Marina Fund to repay the Series 2015 Bonds. This project will provide continued support to our local economy by providing up to 30 jobs during the next phases of the ABM Rebuild.
SUGGESTED ACTION
Approve recommendation.
BODY
RESOLUTION AUTHORIZING THE ISSUANCE OF NOT TO EXCEED $125,000,000 PRINCIPAL AMOUNT OF CITY OF LONG BEACH MARINA REVENUE BONDS (ALAMITOS BAY MARINA PROJECT), SERIES 2015 APPROVING THE FORM AND AUTHORIZING EXECUTION OF AN INDENTURE OF TRUST, A BOND PURCHASE AGREEMENT, A CONTINUING DISCLOSURE CERTIFICATE AND A PRELIMINARY OFFICIAL STATEMENT AND AUTHORIZING ACTIONS RELATED THERETO
Respectfully Submitted,
JOHN GROSS
DIRECTOR OF FINANCIAL MANAGEMENT
GEORGE CHAPJIAN
DIRECTOR OF PARKS, RECREATION AND MARINE
APPROVED:
PATRICK H. WEST
CITY MANAGER