STAFF REPORT - CITY COUNCIL/SUCCESSOR AGENCY/PUBLIC FINANCE AUTHORITY

Financial Services Director recommends adoption of City Council Resolution No. 4007and adoption of Coalinga Public Financing Authority Resolution No. PFA 21-01

The City, the Redevelopment Agency of the City of Coalinga (the “City”), and the Coalinga-Huron Unified School District have heretofore entered into a joint exercise of powers agreement establishing the Coalinga Public Financing Authority (the “Authority”) for the purpose, among others, of issuing its bonds to be used to provide financial assistance to the City.

The Authority has previously issued its $12,830,000 Coalinga Public Financing Authority Revenue Bonds, Series 2012 (Water and Wastewater Financing Projects) (the “2012 Bonds”), of which $12,200,000 principal amount is outstanding, to finance and refinance the acquisition and construction of certain improvements and facilities constituting part of the City’s municipal water enterprise (the “Water System”) and to finance and refinance the acquisition and construction of certain improvements and facilities constituting part of the City’s municipal wastewater enterprise (the “Wastewater System”).

On July 29, 2020 the City increased water rates pursuant to a 218 procedure to bring its financials into compliance, to fund water enterprise operations, and to provide sufficient revenues to support the issuance of new project bonds.

On October 15, 2020, the City passed Resolution No. 3988 authorizing the commencement of proceedings in connection with the issuance and sale of revenue bonds by the Authority to finance and refinance Water System and Wastewater System improvements. The resolution also retained a Municipal Advisor, Bond Counsel, Disclosure Counsel and an Underwriter to direct this procedure.

The City, with its Advisors, has determined that, due to current prevailing financial market conditions and for other reasons, it is in the best interests of the City to refinance its obligations to make payment with respect to the 2012 Bonds, to provide for the advance refunding of the 2012 Bonds, and to finance the acquisition and construction of additional improvements and facilities of the Water System (the “Water Improvement Project”).

This action, if approved, will allow the Authority to issue Revenue Bonds, Series 2021A (Water and Wastewater Projects) (Federally Taxable) (the “Series 2021A Bonds”) to refund the 2012 Bonds and Revenue Bonds, Series 2021B (Water Projects) (Tax-Exempt) (the “Series 2021 Bonds” and, with the 2021A Bonds, the “2021 Bonds”) to finance the Water Improvement Project. The Bonds will be payable from and secured by payments to be made by the City under installment sale agreements, similar to the agreements executed in 2012.

The financing documents are being presented to the Authority Board and the City Council in near final form, as they cannot be fully completed at this time because certain critical components, such as the interest rates and debt service payments will be determined at the time the transaction is actually priced (when the 2021 Bonds are sold to Oppenheimer & Co., Inc., the Underwriter). This method of approval is the normal method of approving a bond issue in California. The individual financing documents needed to complete the financing are included as attachments and are each briefly described below.

Acquisition Agreements and Installment Sale Agreements - In order to provide for the repayment of the 2021 Bonds, (a) the City will sell the Water System to the Authority and the Authority will sell the Water System and the Water Improvement Project to the City pursuant to an installment sale agreement (the “Water Installment Sale Agreement”), under which the City will agree to make installment payments to the Authority payable from the net revenues of the Water System, and (b) the City will sell the Wastewater System to the Authority and the Authority will sell the Wastewater System to the City pursuant to an installment sale agreement (the “Wastewater Installment Sale Agreement”), under which the City will agree to make installment payments to the Authority payable from the net revenues of the Wastewater System. The payments to be made under the Water Installment Sale Agreement and the Wastewater Installment Sale Agreement will be calculated to be sufficient, in time and amount, to enable the Authority to pay the principal of and interest on the Series 2021 Bonds when due.

Indenture - Between the Authority and Wells Fargo Bank, National Association, the Trustee, under which the 2021 Bonds will be issued, fund and accounts will be established by the Trustee and payments to be made by the City under the Water Installment Sale Agreement and the Wastewater Installment Sale Agreement will be received by the Trustee and applied to pay the principal of and interest on the Series 2021 Bonds when due.

Escrow Agreement - Between the City and U.S. Bank National Association, as escrow bank, under which the escrow bank agrees to hold certain proceeds of the Series 2021A Bonds and to use such proceeds for the payment and redemption of the 2012 Bonds.

Preliminary Official Statement - As a necessary prerequisite to the public marketing and selling of the 2021 Bonds, a Preliminary Official Statement has been prepared by the City, with the assistance of disclosure counsel, the City’s municipal advisor and the Underwriter. This document describes the Authority, the City, the refunding, the Water System, the Wastewater System, the 2021 Bonds and the financing documents. Once the 2021 Bonds are priced and the sale is executed, the final details will be used to fill in the blanks of the Preliminary Official Statement, which will then be used as the basis for a final Official Statement.

Bond Purchase Agreement - Contains the obligation of the Underwriter to accept and pay for the 2021 Bonds, provided that all of the covenants and representations of the Authority and the City are met and certain other conditions excusing performance by the underwriter do not exist.

Continuing Disclosure Certificate - Contains the obligation of the City to provide financial statements and certain operating data to 2021 Bond investors, annually, via the City’s appointed Dissemination Agent.

The Series 2021A Bonds will reduce the debt service associated with the Water System and the Wastewater System through a reduction in interest rates. Both taxable and tax-exempt Interest rates hit all-time lows in 2020.

The refunding portion of the transaction (Series 2021A) is estimated to generate first year savings of approximately $524,000, second year savings of approximately $431,000, and thereafter approximately $100,000 of annual savings through 2048. The refunding is estimated to generate total cash flow savings of approximately $3,690,000. The net present value of the estimated savings is approximately $1,188,000. All quoted savings estimates are net of all financing charges and transaction expenses. The City’s Debt Management Policy, to be enacted at this meeting, sets a threshold of net present value savings of at least 3% of the bonds being refunded to justify such a refunding. This refunding is projected to exceed that threshold and generate over 9% net present value of savings. The refunding bonds will be taxable and are estimated to sell at an average interest rate of approximately 3.57%. Total debt service on the Series 2021A Bonds is estimated to be in the approximate amount of $18,820,000 (approximately $3.690 million less than the total remaining debt service on the 2012 Bonds).

The Water Improvement Project portion of the transaction (Series 2021B) will generate $7,000,000 in project funds. The new project bonds are tax-exempt and are estimated to sell at an average interest rate of approximately 3.35% Total Debt Service on the Series 2021B is estimated to be in the approximate amount of $12,142,000.