2004-10-26
CITY OF ENCINITAS
ENCINITAS RANCH GOLF AUTHORITY
MINUTES OF SPECIAL MEETING
Lilac Room, Civic Center
505 South Vulcan Avenue
TUESDAY, OCTOBER 26,2004 at 4:00 p.m.
CALL TO ORDER/ROLL CALL
Chairman Kaiser called the meeting to order at 4:10 p.m.
DIRECTORS PRESENT:
Edward Kaiser, Phil Cotton, Peter Cota-Robles and Kerry Miller.
DIRECTOR ABSENT:
Cindy Jacob.
ALSO PRESENT:
Tom Johnsen of Fieldman, Rolapp & Associates; John McNair and
Rod Linville of JC Resorts; Staff Leslie Browder, Jay Lembach and
Nancy Sullivan; Pat Drew, Recording Secretary
ORAL COMMUNICATION [3 minutes for each speaker. Maximum 15 minutes for
oral communication.]
None
AGENDIZED BUSINESS ITEMS
1. Approve Minutes of Special Meeting of October 12, 2004.
Director Cotton moved approval of the minutes of the October 12 meeting, seconded
by Director Miller. Approved 4-0-1 (Jacob)
2. Presentation by Tom Johnsen on Refinancing the ERGA Revenue Bonds, 1996 Series A.
Mr. Johnsen noted that the last time he had met with the Board was in March or April and at
that time the Board had directed him to keep an eye on the market and also communicate
with the rating agency about the possibility of obtaining an investment grade rating for the
proposed refunding of the ERGA bonds. Following the meeting they spoke to the rating
agencies who said that they wanted end of the year financial information. Nancy Sullivan
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provided this information. He said they had provided this information to three rating
agencies and sent to two of them, who had expressed an interest, four year's financial
information on rates - a pretty comprehensive package that had been provided by staff.
Moody's initially declined saying they had no interest in a golf course revenue bond
whatsoever. The other two, Fitch and S&P, came back with the same answer, "we really
think this is a great golf course but it's a single asset with one revenue." He said they also
talked to four municipal bond insurance firms who decided to pass also. However, since
Marchi April time has passed and the period of negative arbitrage has shortened by six
months. In March they were looking at approximately $800,000 of negative arbitrage and
that has been cut to about $460,000. Mr. Johnsen said there have also been some changes
in interest rates where the decline in non-rated interest rates has been greater than the
changes to the treasury market so the escrow has become not only shorter but a little more
efficient thus helping to change the number for the negative arbitrage. From numbers run
a week or two earlier, a refunding bond issue with the same maturity, not extending the
maturity but the September 2026 maturity, they would be looking at about $11,500,000
worth of bonds. The present value savings is approximately $890,000; on a cash flow basis
per year that would be about $70,000 less than the current debt service. As a percentage of
the refunding bond - this is one of the ways issuers usually look at the feasibility of a
refunding - 3 - 5% is kind of the rule of thumb and these are about 7.7% as a percentage.
He said it was his understanding from the last meeting that if the savings could be $800,000
of present value the Board thought that would be something worthwhile pursuing.
Mr. Johnsen said they have proceeded with the same team that has been involved since
1996 and the 2001 effort and they are at the point where the base legal documents have been
distributed and are looking at the Preliminary Official Statement being distributed during
the current week. If the Board approves these actions he said they plan to return to the
Board at the end of November or early in December with a complete set oflegal documents,
including resolutions approving the issuance of bonds, a Preliminary Official Statement and
the other actions that would be required for the bonds to be sold. On this schedule the
bonds could be sold the first week of December with the closing immediately prior to
Christmas.
Mr. Johnsen said he had two questions for the Board and would seek some direction; one,
they have been operating under the presumption that this will be a refunding only and would
not be drawing out any new money; and two, is their presumption of golf course revenues
only securing the bonds still correct? They had been told by the rating agencies that with
revenue base only an investment grade rating was not achievable. They found out that S&P
has never given an investment grade rating to a golf course revenue bond, solely secured by
golf course revenue. There could be things done to enhance and backup the revenues to
presumably obtain an investment grade rating or to get a commitment from a bond firm for
municipal bond insurance but that would require some type of supplemental pledge from
either the City or some other entity. Director Miller asked what would ERGA gain by an
investment quality bond and was told the savings would be increased. If a triple A rating
was achievable he would estimate they would go from $70,000 per year to perhaps
$130,000-140,000 a year. However, besides the pledge there is a possibility that they could
have other requirements. For example, in his conversation with S&P they indicated that to
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get an investment grade rating they might also look at factors such as increasing the
insurance, requiring the operating and capital reserves to be at a higher level, and say they
want some maintenance standards upheld. All of this could decrease ERGA's flexibility in
running the course. So the two questions are new money refunding, golf course revenue
bonds only or some other?
Chairman Kaiser asked the Directors to comment on question #1 with respect to increasing
the amount or getting any extra funds out. The general consensus was that there was no
need to do so. Chairman Kaiser told Mr. Johnsen that the answer to his first question was
no additional funds. On the second question, the Board agreed they would rather move
forward on the refunding as proposed in the staff report.
Chairman Kaiser said that from the conversation around the table about going for an
investment rating it was obvious that the Board wished to go with their original intent.
Director Miller said that he would like Jay Lembach's question about the land as a pledge to
be researched and if they find out there is an opportunity that is not immediately able to be
identified, that he would immediately bring it back to the Board to reconsider the
transaction. He would like this caveat considered in connection with the motion.
Chairman Kaiser moved approval, with the caveat noted above, seconded by
Director Miller, that the Board:
a) Authorize the refunding of the Encinitas Ranch Golf Course Revenue Bonds,
1996 Series A, at rates and terms sufficient to generate at least $800,000 in
interest cost savings on a present value basis.
b) Authorize the ERGA Board Chairman, Finance Director Browder and/or
Finance Manager Lembach to negotiate and execute contracts on behalf of the
ERGA Board with Fieldman Rolapp & Associates, as financial advisor, Jones
Hall as bond counsel, Best Best & Kreiger as disclosure counsel and Stone &
Youngberg, as underwriter.
c) Authorize the ERGA Board Chairman, Finance Director Browder and/or
Finance Manager Lembach to sign and execute all necessary documents
related to the refunding.
Approved 4-0-1 (Jacob)
3. Next Meeting - Thursday, December 2, 2004 at 4:00 p.m. in the Lilac Room, with the
regular December meeting on Tuesday, December 14 at 4:00 p.m. at the Golf Course Club
House.
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4. Adjournment
Chairman Kaiser adjourned the meeting at 5:15 p.m.
Respectfully submitted,
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Patricia Drew, Board Secretary
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Edward O. Kaiser, Chairman ofthe Board
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