Rose Bowl Refunding Bonds Series 2018 A&B

Rose Bowl Refunding Bonds Series 2018 A&B October 22, 2018

Recommendation 1. Find the proposed action is not a project to CEQA as defined in Section 21065 of CEQA, and as such, no environmental document pursuant to CEQA is required for the project; and 2. Hold a TEFRA hearing pursuant to Section 147(f) of the Internal Revenue Code of 1986; and 3. Adopt a resolution of the City Council of the City of Pasadena approving the issuance of not to exceed $50 million and authorizing the execution and delivery of a second amendment to amended and restated lease, third amendment to amended and restate sublease, purchase agreement, continuing disclosure agreement, preliminary official statement and final official statement in connection therewith, and authorizing the taking of certain actions in connection therewith;

Recommendation (continued) 4. Approve the termination of the swap with Deutsche bank. It is recommended that the Pasadena Public Financing Authority: 5. Hold a public hearing pursuant to section 6586.5(a)(2) of the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California. At the public hearing the Authority will consider benefits. “Significant public benefits” include, among others, demonstrable savings in effective interest rate, bond preparation, bond underwriting or bond issuance costs

Recommendation (continued) 6. Adopt a resolution authorizing the issuance of lease revenue bonds in an amount not to exceed $50 million and the execution and delivery of a second amendment to amended and restated lease, third amendment to amended and restated sublease, purchase agreement, escrow agreement, preliminary official statement and final official statement, and authorizing the taking of certain actions in connections therewith.

Background In 2006, PPFA issued variable rate demand lease revenue bonds in the aggregate amount of $47.3 million. Concurrently with the bonds, the City synthetically fixed the rate by entering into an interest rate swap agreement with Deutsche Bank. In 2011, the bonds were privately placed with MUFG Union Bank with an initial term until 2015. In 2013, the bonds were restructured and partially refunded to raise additional $30 million by issuing the 2013 A&B Series in the amounts of $34 million and $19.065 million respectively. The 2013 A&B bonds had an initial mandatory tender date of January 2, 2018 and were remarketed with a new mandatory tender date of January 2, 2019

Refunding Plan Given the shape of the taxable and tax exempt yield curves, it is most advantageous to refund the outstanding 2013A&B series at a fixed rate with conventional fixed rate bonds. Terminate the interest rate swap agreement with Deutsche bank. Estimated interest cost is currently at 3.83% for the tax-exempt Series A bonds. Estimated interest rate cost is currently 3.80% for the Series B taxable bonds.

Benefits This strategy will eliminate: • Interest rate risk – As short-term rates are expected to increase; • Eliminates the counterparty risk associated with the swap; • Eliminates the basis risk; • Eliminates the tax risk; • Refunds the hedged portion with the swap (4.02% synthetic rate) at a lower 3.83% rate; • Eliminates the debt service spike in 2024 by restructuring the principal amortization of the 2018B taxable bonds.

Debt Service Payments

Fiscal Impact

Sensitivity Analysis

Fiscal Impact – Difference in the Net Annual Increase

Rates – 2YRT

Fiscal Impact (continued) Estimated True Interest Cost • 2018A Tax-Exempt – 3.83% • 2018B Taxable – 3.80%

Sources and Uses of Funds Sources Bond Proceeds: -Par amount 44,715,000 -Net Premiums 2,902,099 Other sources -Swap termination payment 800,000 -Interest set-aside (max rate 12%) 488,198 -rounding 35 Total 48,905,332 Uses Refunding Escrow deposit 47,733,198 Delivery date Expenses - Cost of Issuance 259,250 - Underwriter’s Discount 109,603 Other Uses -Swap Termination fee 800,000 -Contingency 3,281 Total 48,905,332

Schedule October 18 – Ratings presentation October 22- Council presentation Week of Nov 5 – Obtain ratings and Print POS Week of Nov 5 – Marketing of Bonds Nov 13 – Pre-pricing Nov 14 – Pricing the Bonds December 6 – Close the financing

Rose Bowl Refunding Bonds Series 2018 A&B