Loading...
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 1 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 2 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. 3 4. Adjournment Chairman Kaiser adjourned the meeting at 5:15 p.m. Respectfully submitted, ~/ , . (~ I c51--l/L- c~ J}.r.P,A'f/ Patricia Drew, Board Secretary A~cJIL Edward O. Kaiser, Chairman ofthe Board 4