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Home My WebLink About2010 06 14 Regular 607 Consider Refinancing Outstanding Dept Related To Oak Forest Wall And Beautification District COMMISSION AGENDA CONSENT INFORMATIONAL ITEM 607 PUBLIC HEARING REGULAR X June 14, 2010 MGR /DEPT V Meeting Authorization REQUEST: The City Manager and the Finance Department is requesting that the City Commission consider refinancing outstanding capital debt related to the Oak Forest Wall and Beautification District Assessment Area, in the amount of $317,262.33, plus related closing costs, from funds available in the City's General Fund Reserve. SYSNOPSIS: In FY 2000, the City Commission authorized a Capital Improvement Revenue Note in the amount of $725,000 for the construction of entry features, a brick wall, and landscaping as part of the original Oak Forest Wall and Beautification District (OFWBD) Project. Repayment of the capital note is collected through a yearly non -ad valorem capital assessment on the annual property tax bills for each resident. In FY 2004, the City refinanced the remaining principal of $495,907, plus an additional $80,000 for the cost of completing landscaping along the Oak Forest Wall, using a 7/23 year balloon note from Bank Of America (Capital Improvement Revenue Note — Series 2004A), which is scheduled to mature on July 1, 2010. Staff is proposing that the outstanding debt be refinanced from the City's General Fund Reserves at a benefit to both the City and the OFWBD. CONSIDERATIONS: The following chart is a depiction of the chronology of the Oak Forest Debt Service Financing: Issue Date Amount/Principal Term Rate Maturity 2000 $725,000 5 Year 4.22% 11/2005 2004 $595,907 7 Year 4.22% 7/2010 2010 $332,000* 7 Year 2.75% 6/2017 *2010 Proposed - Principle amount includes $15,000 for legal and consulting costs associated with this loan. Consideration for the OFWBD loan from the City was based on three primary factors: 1) Assumption of credit risk by the City 2) Source of loan able funds 3) Potential legal implication(s) There are other considerations affecting the loan, however, the three identified above are central to this proposal. The credit risk to the City can best be described as the number of homes within the OFWBD Assessment Area that could potentially fall into default on their annual property taxes. In FY 2009, the OFWBD Assessment Area collected $59,098 for the purpose of debt service. The proposed loan would require OFWBD to repay $49,980 per year, leaving approximately 15% of a margin for property defaults and therefore mitigating most of the credit risk associated with this loan. Excess monies collected beyond the yearly repayment requirement would be applied to outstanding principle and the debt could potentially be retired earlier than anticipated. Originally, a 30 year repayment period was anticipated as part of the creation of the OFWBD Assessment Area. The City's source of funds would be the estimated $7 million dollar General Fund Reserve. These monies are currently invested in short-term, highly liquid investments earning 0.68 %. The proposed rate of the City's loan to OFWBD is 2.75 %, equal to the 7 year U.S. Treasuries stated coupon as of 6/7/2010. Justification for the rate spread between current earnings of 0.68% and the proposed 2.75% is the term of the investment moving from approximately 1 year to 7 years. For comparability staff solicited Bank of America (current holder of the debt) for a rate quote based on a 7 year simple interest loan in the amount of approximately $332,000, in return the bank quoted 4.55% at a fixed rate. `Closing Costs' (legal, administrative and recording fees) for either the City's loan to OFWBD or the quoted Bank of America debt instrument is estimated at $15,000. In addition, staff has been given a legal opinion that endorses the viability and practicality of this loan from the City Attorney. If refinancing of the OFWBD debt by the City is approved, a Resolution of the City Commission and a Debt Instrument `Note' will be presented to the City Commission within 60 days. FISCAL IMPACT: If the Commission approves refinancing of the outstanding OFWBD Capital Debt from the City's General Fund Reserves, a draw down from the General Fund reserves equal to approximately $332,000 will be transferred to Bank of America on or before July 1, 2010 to settle the remaining debt on behalf of the OFWBD. As a result of this debt obligation, the City will realize an additional $24,721 of interest income over a 7 year period. The OFWBD Assessment Area will realize an interest expense reduction of approximately $22,385 over the next 7 years while retiring their debt 13 years ahead of plan (Assumption made with no additional principle payments considered - See Attachment A). COMMUNICATION EFFORTS: The Oak Forest Wall and Beautification District Advisory Board at a special meeting on May 20, 2010 voted unanimously to support refinancing of the outstanding capital debt related to the OFWBD from the City's General Fund Reserves. If this proposal is approved, the enabling Resolution of the City Commission and Debt Instrument `Note' will be posted on the City's website once available. RECOMMENDATION: It is the recommendation of the City Manager and the Finance Department that the City Commission approve the refinancing plan for the OFWBD Assessment Area Capital Improvement Revenue Note, Series 2004A, with an internal note from the City's General Fund Reserve. The debt instrument will be a simple interest loan at the stated rate of 2.75 %, with quarterly installments for the next 7 years (See Attachment 'A), starting on September 30, 2010 and ending June 30, 2017. There will be no prepayment penalties. ATTACHMENTS: A) Schedule A — Proposed Loan Amortization Schedule Attachment 'A' Oak Forest Wall and Beautification District Proposed Amortization Schedule 'A' 192 - Debt Service Fund Grantor: City of Winter Springs - General Fund Reserves 2.750% Annual Rate Beginning Principle: $317,262.33 Number of Payments: 28 7 Years Anticipated 1st Payment: 9/30/10 Payment Quarter Year Payment Interest Principle Balance (Calendar Year) 1 3 $ 12,495.14 $ 2,181.18 $ 10,313.96 $ 306,948.37 2 4 $ 12,495.14 $ 2,110.27 $ 10,384.87 $ 296,563.50 3 1 2011 $ 12,495.14 $ 2,038.87 $ 10,456.27 $ 286,107.23 4 2 $ 12,495.14 $ 1,966.99 $ 10,528.15 $ 275,579.08 5 3 $ 12,495.14 $ 1,894.61 $ 10,600.53 $ 264,978.54 6 4 $ 12,495.14 $ 1,821.73 $ 10,673.41 $ 254,305.13 7 1 2012 $ 12,495.14 $ 1,748.35 $ 10,746.79 $ 243,558.34 8 2 $ 12,495.14 $ 1,674.46 $ 10,820.68 $ 232,737.66 9 3 $ 12,495.14 $ 1,600.07 $ 10,895.07 $ 221,842.59 10 4 $ 12,495.14 $ 1,525.17 $ 10,969.97 $ 210,872.62 11 1 2013 $ 12,495.14 $ 1,449.75 $ 11,045.39 $ 199,827.23 12 2 $ 12,495.14 $ 1,373.81 $ 11,121.33 $ 188,705.90 13 3 $ 12,495.14 $ 1,297.35 $ 11,197.79 $ 177,508.11 14 4 $ 12,495.14 $ 1,220.37 $ 11,274.77 $ 166,233.34 15 1 2014 $ 12,495.14 $ 1,142.85 $ 11,352.29 $ 154,881.05 16 2 $ 12,495.14 $ 1,064.81 $ 11,430.33 $ 143,450.72 17 3 $ 12,495.14 $ 986.22 $ 11,508.92 $ 131,941.80 18 4 $ 12,495.14 $ 907.10 $ 11,588.04 $ 120,353.76 19 1 2015 $ 12,495.14 $ 827.43 $ 11,667.71 $ 108,686.05 20 2 $ 12,495.14 $ 747.22 $ 11,747.92 $ 96,938.13 21 3 $ 12,495.14 $ 666.45 $ 11,828.69 $ 85,109.44 22 4 $ 12,495.14 $ 585.13 $ 11,910.01 $ 73,199.43 23 1 2016 $ 12,495.14 $ 503.25 $ 11,991.89 $ 61,207.53 24 2 $ 12,495.14 $ 420.80 $ 12,074.34 $ 49,133.19 25 3 $ 12,495.14 $ 337.79 $ 12,157.35 $ 36,975.84 26 4 $ 12,495.14 $ 254.21 $ 12,240.93 $ 24,734.91 27 1 2017 $ 12,495.14 $ 170.05 $ 12,325.09 $ 12,409.82 28 2 $ 12,495.14 $ 85.32 $ 12,409.82 $ (0.00) Totals $ 349,863.94 $ 32,601.61 $ 317,262.33 Oak Forest Wall and Beautification District - 192 Debt Service Fund Revenues Assessment Revenue @ P &I Pymt FY '10/11 Per ERU au Parcels . 2.6.% 4 Qtrs / Yriv Budgeted $72.00 848.5 821 $61,092.00 $58,648.32 $49,980.56 $58,400 ( *Current legal maximum assessment is $72 / ERU) ( *Actual ERU's /Parcels have been reduced due to capital prepayments made by property owners) ( *Revenue is reduced by 4% due to Statutory Discount allowed by Tax Collector for early payments)