TITLE
Recommendation to adopt resolution authorizing City of Long Beach to issue 2010 Refunding bonds in an amount not to exceed $35,000,000, to refund the outstanding 2002 Bonds, finance additional improvements to the Carnival Corporation's leasehold interest, and installation of a shorepower facility. (District 2)
DISCUSSION
On November 20, 2002, the City issued $32,100,000 of Taxable Revenue Bonds for the Carnival Cruise Terminal Financing (2002 Taxable Bonds), at a rate of 7.625 percent, to finance various cruise ship terminal improvements to Carnival Corporation's (Carnival) leasehold interest in the area around the Queen Mary. The improvements included cruise ship berth facilities, reconfiguration of the dome, construction of a ticketing area, and related facility improvements. These bonds were payable solely from tariff revenues generated from passenger embarkation and debarkation, and backed by Carnival's corporate guaranty. Neither the full faith and credit nor taxing authority of the City is pledged to the bond repayment. If such tariff collections were insufficient to fully pay the debt service due, Carnival unconditionally guaranteed the obligation.
In 2008, Carnival commissioned an economic study by Professors Lisa M. Grobar and Joseph P. Magaddino of California State University, Long Beach. Carnival Cruise has had a significant positive impact to the local economy, as well as the entire State. In 2006, it was estimated that Carnival contributed $82.4 million to the California economy, with $78.3 million of these expenditures occurring in Los Angeles County. Additionally, the cruise passengers are direct contributors of hotel taxes and are users of other entertainment options in the City.
Carnival has requested the City issue new bonds in an amount not to exceed $35,000,000, at a potentially lower rate but at a minimum not to exceed 8 percent, to refund the outstanding 2002 Taxable Bonds, which would provide financing to enhance local travel-oriented facilities, promote tourism and related activities, and support the furtherance of the health, safety and welfare of the residents of the City. The proposed 2010 Refunding Bonds would refund $15,870,000 of 2002 Taxable Bonds that remain outstanding, provide $8,000,000 to refinance completed capital improvements, provide $4,000,000 to finance a shorepower facility, provide $4,000,000 to finance dock improvements, pay an issuance fee of $100,000 to the City, and pay for cost of issuing the bonds. Carnival has also agreed to annually reimburse the City $5,000 for bond administration costs.
The proposed 2010 Refunding Bond Conduit Debt is a limited obligation of the City payable solely from an existing Port of Long Beach (Port) tariff collected by Carnival Corporation. The tariff of $6.33 will continue to be assessed on cruise passengers embarking and debarking from Carnival's Long Beach cruise ship terminal. Since this is a Port tariff, Carnival will continue to be permitted to collect the tariff to finance the improvements and remit it directly to the bond trustee. The tariff will be used to pay for the bond debt service and to create a capital reserve for potential future Carnival improvements. The 2010 Refunding Bonds are anticipated to be taxable and have a maturity structure of approximately 20 years. As a conduit issuer, neither the principal, nor interest, constitute a debt, liability, general or moral obligation of the City. Neither the full faith and credit, nor any taxing power of the City, is pledged to the repayment of these bonds.
The Carnival Corporation unconditionally guarantees the payment of debt service related to this financing. At any time while the bonds are outstanding, should Carnival's wharfage tariff revenue be insufficient to pay the scheduled debt service in full, Carnival is required to make up any deficiencies in the wharfage tariff-based revenues necessary to pay the debt service.
This item was reviewed by Chief Assistant City Attorney Heather A. Mahood and Budget Management Officer Victoria Bell on September 14, 2010.
TIMING CONSIDERATIONS
City Council action is requested on October 5, 2010 in order to facilitate processing of required documents and benefit from currently advantageous interest rates, and avoid an expected high volume of competing new bond issues towards year-end.
FISCAL IMPACT
There is no General Fund or City impact from this bond refunding. The financing is an obligation of Carnival Corporation, and is unconditionally guaranteed by the Corporation. The local job impact associated with the $4,000,000 shorepower facility and $4,000,000 dock improvements has not yet been determined, as the project bidding process is not yet closed.
SUGGESTED ACTION
Approve recommendation.
BODY
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LONG BEACH AUTHORIZING THE ISSUANCE OF REVENUE BONDS AND APPROVING OTHER RELATED DOCUMENTS AND ACTIONS RELATING TO CARNIVAL CRUISE TERMINAL FINANCING.
Respectfully Submitted,
LORI ANN FARRELL
DIRECTOR OF FINANCIAL MANAGEMENT/CFO
APPROVED:
PATRICK H. WEST
CITY MANAGER