FROM:
Finance
SUBJECT:
Title
Conduct a public hearing and approval of resolutions (i) authorizing issuance of the Fontana Public Facilities Financing Authority Lease Revenue Bonds, Series 2025A (the “Bonds”); (ii) approving related documents, including the Preliminary Official Statement; and (iii) directing related actions by each of the City of Fontana and the Fontana Public Facilities Financing Authority to finance certain public improvements, including demolition and reconstruction of the City Hall building, construction of a new parking garage, and other capital improvements including pavement rehabilitation, underground utility infrastructure, and park improvements (the “2025 Project”), and refinance all or a portion of its previously issued Lease Revenue Refunding Bonds, Series 2014A (the “2014 Bonds).
End
RECOMMENDATION:
Recommendation
Conduct a Public Hearing and Adopt Resolution No. PFFA 2025-002, a Resolution of the Board of Directors of the Fontana Public Facilities Financing Authority authorizing the execution and delivery by the Authority of a Ground Lease, Lease Agreement, Indenture, Assignment Agreement, Escrow Agreement and Bond Purchase Agreement in connection with the issuance of Fontana Public Facilities Financing Authority Lease Revenue Bonds, Series 2025A, authorizing the issuance of such Bonds in an aggregate principal amount of not to exceed $150,000,000, authorizing the distribution of an Official Statement in connection with the offering and sale of such Bonds and authorizing the execution of necessary documents and certificates and related actions.
End
DISCUSSION:
Plan of Finance. The City contemplates issuance of the Bonds to fund the 2025 Project consisting of:
|
Public Improvements
City Hall
Parking Structure
Other Capital Improvements of the City
Total |
Total Approximate Cost
$70 million
$27 million
$23 million
$120 million |
Currently, the City of Fontana has two outstanding bond financings including the 2014 Lease Revenue Refunding Bonds and the 2021A Lease Revenue Bonds. The 2025A Lease Revenue Bonds are structured similar to the City’s existing bond financings and will refinance the 2014 Bonds to achieve annual savings and release the leased assets from the 2014 Lease, together with other City assets, for use under the 2025 Lease, as described below.
Lease Financings Generally. California cities commonly use lease financing to pay for capital improvements through their general fund without first holding a city-wide election. Lease financings are commonly structured as lease revenue bonds issued by a joint exercise of powers authority (a separate public agency formed to provide assistance with financings under State law). Under a lease revenue bond financing, the city is obligated to make lease payments to the joint powers authority for the right to use and occupy a public building, and the joint powers authority assigns its right to receive the lease payments to a bond trustee; the bond trustee uses the lease payments to pay debt service on lease revenue bonds that are sold to investors. In lease financing structures, cities covenant to annually budget and appropriate from the general fund for the lease payments.
Fontana Public Facilities Financing Authority. The Fontana Public Facilities Financing Authority (the “Authority”) is a joint exercise of powers authority organized and exists pursuant to the Joint Exercise of Powers Act (Government Code §6500 et seq., the “Joint Powers Law”) for the purpose of providing assistance to the City with its financing programs, and for any other purposes authorized under Article 4 of the Joint Powers Law (the “Bond Law”), and a Joint Exercise of Powers Agreement, dated as of September 1, 2014. The members of the Authority are the City and the Fontana Fire Protection District (the “Fire Protection District”).
Proposed Bonds. Staff recommends the following actions:
City Council Public Hearing. Pursuant to Government Code Section 6585.5, the City must make a finding of significant benefit before the Authority’s issuance of the Bonds, after the noticed public hearing. Notice of the public hearing was published on Thursday, September 4, 2025, and the public hearing is scheduled for September 9, 2025.
Financing Documents. Staff recommends that the Board of Directors of the Authority adopt a resolution authorizing issuance of the Bonds and approving the execution and delivery of certain documents as listed below:
Authority Resolution: By adopting the Resolution (Attachment A), the Authority Board will authorize the issuance of the Bonds, and approve the execution and delivery of the following documents. Each of the documents are presented in substantially final form, and will be completed after the Bonds are priced (i.e., when the principal amount of the Bonds, the interest rates and the original issue premium or discount will be determined).
(i) Ground Lease,
(ii) Lease Agreement,
(iii) Assignment Agreement,
(iv) Escrow Agreement,
(v) Preliminary Official Statement,
(vi) Bond Purchase Agreement, and
(vii) Indenture.
Below are brief descriptions of these documents:
(i) Ground Lease: (Attachment B)
Under the Ground Lease, the City will lease the Leased Properties listed below to the Authority in consideration for the application of the bond proceeds for the Project (including the 2025 Project and the refunding of the Series 2014 Bonds).
(ii) Lease Agreement: (Attachment C)
Under the Lease Agreement, the City will lease the Leased Properties back from the Authority. In consideration for the Lease Agreement, the City will pay annual Lease Payments to the Authority, which the Authority will assign to the Trustee for payment of debt service on the Bonds.
Under the provisions of the Lease Agreement and the Ground Lease, the “Leased Properties” are identified as the Lewis Library (which was subject to the 2014 Lease), the City Hall/Development Services Building (which was also subject to the 2014 Lease); Parking Structure #1 located at 16948 Arrow Boulevard; the Fire District Administration Building and related property thereto; and the Fontana Park (collectively, the “Leased Properties”). Upon completion of the 2025 Project, the Lease provides the City with the ability to release the Lewis Library, and upon the last lease payment attributable to refinancing of the 2014 Bonds coming due in 2037, the Lease Agreement and Ground Lease will terminate with respect to Fontana Park.
(iii) Assignment Agreement: (Attachment D)
Under this agreement, the Authority will assign its right to receive the Lease Payments from the City pursuant to the Lease Agreement and certain other rights under the Lease Agreement to the Trustee, for the benefit of the owners of the Bonds.
(v) Preliminary Official Statement:( Attachment E)
In connection with a public offering, the Preliminary Official Statement (the “POS”) will be distributed by the Underwriter (as described below) for the Underwriter’s use in marketing the Bonds to potential investors. The POS provides a summary of the proposed terms of the Bonds, the sources of repayment and certain risks relating to the investment in the Bonds. As permitted by federal securities laws, some of the terms relating to the Bonds (such as interest rates and redemption schedule), will appear as blanks or be footnoted as “preliminary; subject to change” in the POS and will not be determined until the pricing of the Bonds. After the pricing of the Bonds, these terms will be inserted, and the POS will be converted into a final Official Statement. The Underwriter will then distribute the Official Statement to buyers of the Bonds and cause it to be uploaded onto the Electronic Municipal Market Access website (known as EMMA), the official repository for information pertaining municipal securities issued in the United States.
The Official Statement is the “offering document” for the Bonds, required to be made available to investors pursuant to federal securities laws. The Official Statement must include all information that would be material to a prospective investor’s decision whether to purchase the Bonds. While the various members of the financing team have contributed to the preparation of the POS and the Official Statement, the City and the Authority are ultimately responsible for ensuring that the POS is accurate, contains no misleading information and does not omit any information necessary to make the POS not misleading to investors.
(vi) Bond Purchase Agreement: (Attachment F)
In connection with a public offering, this agreement will be executed on the day that the Bonds are priced (i.e., when the principal amount of the Bonds, the interest rates and the original issue premium or discount will be determined, a few weeks before the closing date). Under this agreement, Samuel A. Ramirez & Co. Incorporated (the “Underwriter”) will agree to buy the Bonds from the Authority on the issuance date of the Bonds upon satisfaction of the closing conditions specified in the Bond Purchase Agreement, including the execution and delivery of applicable documents by the Authority and the City.
(vi) Escrow Agreement (Attachment G)
The Escrow Agreement provides for the transfer of a portion of the proceeds of the Bonds to the Trustee to pay off the remaining balance of the 2014 Bonds.
(vii) Indenture: (Attachment H)
The Indenture contains provisions pertaining to the terms of the Bonds, including maturity schedule, interest rates and redemption provisions. It also provides for the establishment and maintenance of certain funds and accounts and the rights and duties of the Trustee. Under the Indenture, the Authority will pledge “Base Rental Payments” (i.e., Lease Payments) made by the City to the payment of debt service on the Bonds.
Authorization Parameters. Under the Authority Resolution, the Executive Director is authorized to act on behalf of the Authority within the following parameters: (i) the principal amount of the Bonds shall not exceed $150,000,000; (ii) the true interest cost of the Bonds shall not exceed 6.00%; and (iii) the Underwriter’s discount (excluding any original issue discount) shall not exceed 0.30% of the principal amount of the Bonds.
Financing Team Engagements. The Authority Resolution also approves the engagement of Stradling Yocca Carlson & Rauth LLP as Bond Counsel; Jones Hall LLP as Disclosure Counsel, and CSG Advisors Incorporated as Municipal Advisor, and US Bank Trust Company, National Association as Trustee for the Bonds
Additional Actions. Each Resolution also authorizes Authorized Officers of the City and the Authority as needed to effectuate bond closing, including the provision of bond insurance and/or a reserve fund surety as needed.
FISCAL IMPACT:
In accordance with the Good Faith Estimates outlined in Exhibit A of the City and Authority Resolutions, the portion of annual lease payments related to the 2025 Project are estimated to average approximately $7,621,400 per year on a fiscal year basis through June 30, 2056, and the portion that would be related to the refinancing of the 2014 Bonds are estimated to average $2,480,000 per year on a fiscal year basis through June 30, 2038. Based on current interest rates, net present value savings related to the refinancing of the 2014 Bonds is approximately $1.2 million. Lease payments would be paid from available general fund revenues. Actual annual average lease payments and savings attributable to the refinancing of the 2014 Bonds will not be determined until the Bonds price in late September or early October.
The fees and expenses of the financing team, including Bond Counsel, Disclosure Counsel, Underwriter and Municipal Advisor, Rating Agency, and any bond insurance or reserve fund surety, if applicable, are paid from proceeds of the Bonds.
MOTION:
Approve - A RESOLUTION OF THE BOARD OF DIRECTORS OF THE FONTANA PUBLIC FACILITIES FINANCING AUTHORITY AUTHORIZING THE EXECUTION AND DELIVERY BY THE AUTHORITY OF A GROUND LEASE, LEASE AGREEMENT, INDENTURE, ASSIGNMENT AGREEMENT, ESCROW AGREEMENT AND BOND PURCHASE AGREEMENT IN CONNECTION WITH THE ISSUANCE OF FONTANA PUBLIC FACILITIES FINANCING AUTHORITY LEASE REVENUE BONDS, SERIES 2025A, AUTHORIZING THE ISSUANCE OF SUCH BONDS IN AN AGGREGATE PRINCIPAL AMOUNT OF NOT TO EXCEED $150,000,000, AUTHORIZING THE DISTRIBUTION OF AN OFFICIAL STATEMENT IN CONNECTION WITH THE OFFERING AND SALE OF SUCH BONDS AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND CERTIFICATES AND RELATED ACTIONS