FROM:
Finance
SUBJECT:
Title
Acknowledgement of Assigned Owner Participation Agreement Payments and Acceptance of Potential Reduction in Borrowing Costs
End
RECOMMENDATION:
Recommendation
Approve and authorize the execution of the Acknowledgement of Successor Agency
End
COUNCIL GOALS:
• Invest in the City’s infrastructure (streets, sewers, parks, etc.) by providing for the development of new infrastructure.
DISCUSSION:
The City and the former Fontana Redevelopment Agency entered into an Owner Participation Agreement (as amended from time to time) and various supplemental agreements (together, the “OPA”) with Ten-Ninety, Ltd. (the “Participating Owner”). The OPA, among other things, granted to the Participating Owner a right to receive certain tax increment revenues from the Jurupa Hills Redevelopment Project (the “Participating Owner’s Share of Tax Increment”). The Participating Owner assigned its right to receive portions of the Participating Owner’s Share of Tax Increment to third parties, including to Fontana OPA Holdings LLC (such portion of the Participating Owner’s Share of Tax Increment is referred to as the “Assigned OPA Payments”).
Fontana OPA Holdings LLC now desires to assign its right to receive the Assigned OPA Payments to California Public Finance Authority, a joint exercise of powers authority (“CalPFA”). CalPFA proposes to finance the purchase price for the Assigned OPA Payments by issuing its Tax Increment Revenue Bonds (the “CalPFA Bonds”), which CalPFA Bonds will be secured by the Assigned OPA Payments. Fontana OPA Holdings LLC and CalPFA have indicated to the Successor Agency that one or more specified debt service reserve funds (each, a “Reserve Fund”) will be established to serve as a payment reserve for the CalPFA Bonds.
The Successor Agency to the Fontana Redevelopment Agency prepares a recognized obligation payments schedule (“ROPS”) each year pursuant to the redevelopment dissolution laws, and includes the Participating Owner’s Share of Tax Increment payments on each annual ROPS. The issuance of the CalPFA Bonds by CalPFA and the assignment of the Assigned OPA Payments by Fontana OPA Holdings LLC to CalPFA to secure payment of the CalPFA Bonds will not change the Successor Agency’s payment obligation under the OPA and will not change the amount of the Participating Owner’s Share of Tax Increment that the Successor Agency will request on each ROPS.
In order to issue the CalPFA Bonds, CalPFA must show that the CalPFA Bonds have a public benefit, specifically, that the issuance of the CalPFA Bonds will assist in the reduction of local borrowing costs. To accomplish this public benefit, CalPFA and Fontana OPA Holdings LLC propose that any amounts remaining in certain CalPFA Bond reserve accounts when the CalPFA Bonds are paid in full (anticipated to occur in 2033) (referred to as the “Reduction in Borrower Costs Amount”) will be paid to the Successor Agency in order to reduce the Successor Agency’s borrowing costs under the OPA.
CalPFA and Fontana OPA Holdings LLC have requested that the Successor Agency sign the acknowledgement [attached hereto as Attachment A] in which the Successor Agency (1) acknowledges that, if the Reduction in Borrowing Costs Amount is transferred to the Successor Agency, CalPFA, by issuing the CalPFA Bonds and purchasing the Assigned OPA Payments with the proceeds thereof, will have assisted the Successor Agency in reducing its borrowing costs under the OPA, and (2) agrees to accept a payment of the Reduction in Borrowing Costs Amount from CalPFA.
Additionally, the acknowledgement:
• Recognizes that Fontana OPA Holdings LLC is entitled to receive 33.33% of the funds payable to the Participating Owner under the OPA, net of applicable expenses, as the Assigned OPA Payments.
• Acknowledges that CalPFA is issuing Series 2025 A, B, and C Tax Increment Revenue Bonds, the proceeds of which will be used to purchase the Assigned OPA Payments.
• Notes that the Successor Agency is not making any representation or warranty regarding the accuracy of financial projections provided by the CalPFA or the Fiscal Agent.
• Accepts the provision that, upon full repayment of the bonds or the September 1, 2033 sunset date, residual funds from the reserve accounts (excluding the Extraordinary Costs Fund) will be transferred to the Successor Agency, thereby reducing borrowing costs as permitted under California Government Code.
FISCAL IMPACT:
The financial impact associated with the approval of this item is approximately $1.2 million which the financial consultants of Fontana OPA Holdings LLC currently estimate as the Reduction in Borrowing Costs Amount to be received by the Successor Agency. The Reduction in Borrowing Costs Amount is expected as a one-time payment in 2033 after the CalPFA Bonds fully mature and will be dependent upon the timely payment of the CalPFA Bonds through their final maturity. According to the Successor Agency legal advisors, the payment may be used either to pay Successor Agency enforceable obligations or transferred to the County for payment to the various taxing agencies, including the City, like other property tax collections. All legal and advisory costs of the Successor Agency will be paid from proceeds of the CalPFA Bonds.
MOTION:
Approve staff’s recommendation.