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HomeMy WebLinkAbout07/01/1980 '.. \. . MINUTES SPECIAL MEETING COMMUNITY REDEVELOPMENT AGENCY SANTA ANA, CALIFORNIA JULY 1,1980 The Regular Meeting of the Community Redevelopment Agency of the City of Santa Ana was called to order by Chairman James Ward at 5:02 P.M. in the City Council Chambers, 22 Civic Center Plaza, Santa Ana, California. After the pledge to the Flag and the Invocation given by Mr. Luxembourger, roll was called: PRESENT ABSENT Gordon Bricken Daniel Griset (5:10 Robert Luxembourger J. Ogden Markel Al Serrato James Ward Harry Yamamoto tlbthers in attendance: P.M.) David N. Ream, Interim Executive Director Thomas E. Hammill, Agency Real Estate Officer Dan Stone, Interim City Manager Edward J. Cooper, Acting City Attorney Mellmary McNeely, Secretary Michael Whipple, Miller and Schroeder Municipals, Inc. Andy Hall, Jones, Hall, Hill & White Terry McCarty, Stone & Youngberg Municipal Financing Consultants RESIDENTIAL MORTGAGE REVENUE BONDS, ISSUE OF 1980 The Executive Director advised the Agency that the purpose of this Special Meeting was to consider a request to approve the sale of SB-99 Bonds in the amount of $11,500,000. He added that Michael Whipple, a representative of Miller and Schroeder Municipals, Inc., was present in the Chambers and wished to address the Agency regarding this request. Chairman Ward invited Mr. Whipple to address the Agency. 4IÞMr. Whipple explained that the issue size has dropped from $26,570,000 to $11,500,000 because only Phase One of the Town Square development is being financed. A second issue of bonds will be necessary to finance Phase Two of Town Square. It was necessary to cut the bond issue into two phases in order to minimize the negative arbitrage resulting from the recent drastic changes in the long term bond market and short term government market. Heretofore, residential mortgage revenue bond issues have worked from a revenue standpoint by taking advantage of. the difference in yields between the long term bond market and the short term government market. When an agency issued its bonds (say at 12%) it could invest part of the proceeds in the short term government market (say at 14.5%) during the three year period in which the mortgages were being originated. Because the short term market was yielding 2.5% to 3% higher than the bond market, an agency could realize significant arbitrage profit in order to amortize the costs of issuing its bonds. In the last two months, however, the two markets have changed drastically, the yields have reversed, and the short term market h~s fallen considerably faster and lower than the long term ~arket., ThlS 8 """i'lnf' th",t an agency offering bonds today at 9.5% must lnvest ln ~he short term market at 7.5% to 8% during the time the mortgages are belng or ig ina ted. If '. In order to minimize this loss resulting from the different yields, and to make the bond issue work from a revenue standpoint, the underwriters have: . 1. divided the original issue into two phases, so that the Series A bonds will finance Phase One of the development and Series B bonds will finance Phase Two. 2. cut the period during which mortgages can be originated from three years to one year! 3. arranged for the Developer to deposit a letter of credit for $750,000 to cover any loss of revenue due to non-placement of mortgages! 4. provided for a penalty to be paid by the Developer for placement of mortgages later than the scheduled takedown. Mr. Luxembourger pointed out that the money was to be for Phase One but that the authorization was for both Phase One and Two! he then asked if there were guidelines available for Phase Two. Mr. Whipple advised that guidelines would be worked out later and that, if the Agency found them to be unsuitable, then the agreement between participating partners would have to be renegotiated and it would then be presented to Standard and Poors for a rating. It The Executive Director suggested that it might be helpful to the Agency to hear the comments of Mr. Andrew Hall on this point. Chairman Ward invited Mr. Hall to address the Agency. Mr. Hall advised the Agency that there was only one reference in all of the documentation to the full amount needed to finance both phases. He added that, at this time, the Agency is issuing the first phase. When the second phase is issued, the entire process will have to be repeated. It was thought prudent to mention the second phase in this authorization due to the political climate in Washington as a result of the Ullman Bill. Mr. Hall further assured the Agency that the reference to Phase Two did not commit the Agency to the issuance of those bonds. In response to a question from Chairman Ward, the City Attorney affirmed that the documents under review by the Agency were for Phase One only. Mr. Markel said what was being that he wanted record as voting . that he wondered if anyone in the audience understood said regarding this Phase One and Phase Two. He added no portion of this redevelopment and wanted to go on "no". Mr. Serrato noted that Mr. Whipple represented Miller and Schroeder Municipals, who has a vested interest to make as high a rate of profit as possible. He then asked who was representing the City's interests as to whether this was a fair offer. Mr. Whipple replied that, as professionals, Miller and Schroeder, being interested in maintaining their reputation for ethical behavior in the field of redevelopment both in Santa Ana and elsewhere, would not jeopardize their long term prospects by taking a short term unfair profit. He stated further that the Developers involved were substantial and, because of the burden being placed upon them, would most certainly check this agreement with other underwriters. He added that, in addition to securing the opinion of an independent financial consultant, the Agency staff had reviewed the agreement thoroughly. In response to a question from Mr. Griset, Mr. Whipple said that the reason the rating on the bonds was not higher was that Standard and poors felt there should be a minimum of 300 units (the Town Square Project has only 158 units)in order to receive a higher rating than the . B+ which was given. Mr. Griset asked if the combined number of units for both phases (318) would qualify for a higher rating. Mr. Whipple stated that Miller and Schroeder had wanted to make the Resolution an open-end one in order commingle but that Standard and poors had stated that because of the present unstable economic situation, this would lower the rating. 2. 16 I Chairman Ward invited Mr. Terry McCarty of Stone and Youngberg Municipal Financing Consultants, Inc. to give the Agency his assessment of the 4Ifroposed bond issue. Mr. McCarty advised the Agency that Stone and Youngberg Municipal Financing Consultants had been involved in the negotiations for this bond issue for quite a while and that they had been associated with all those involved for a long period of time. He added that he had reviewed the market before corning to the Agency meeting and that he felt that this particular offering is consistent with the market and that the coupon rating also reflects the marketplace. Mr. McCarty stated further that he felt it was a fair program and that he would recommend that the Agency adopt it. After further discussion, it was moved by Mr. Bricken, seconded by Mr. Ward and carried by a vote of 6:1 (Mr. Markel casting the dissenting vote) that the Agency adopt the following Resolutions: 1. Resolution 80-75: A RESOLUTION OF THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF SANTA ANA AUTHORIZING THE ISSUANCE OF RESIDENTIAL MORTGAGE REVENUE BONDS FOR THE PURPOSE OF PURCHASING MORTGAGE LOANS TO PROVIDE FINANCING FOR A RESIDENTIAL CONSTRUCTION PROJECT. . 2. Resolution 80-76: A RESOLUTION OF THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF SANTA ANA AUTHORIZING THE ISSUANCE OF RESIDENTIAL MORTGAGE REVENUE BONDS, ISSUE OF 1980, FOR THE PURPOSE OF PURCHASING MORTGAGE LOANS TO PROVIDE FINANCING FOR A RESIDENTIAL CONSTRUCTION PROJECT. 3. Resolution 80-77: A RESOLUTION OF THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF SANTA ANA APPROVING RULES AND REGULATIONS RELATING TO ITS RESIDENTIAL MORTGAGE FINANCING PROGRAM . ADJOURNMENT There being no further business to corne before the Community Redevelopment Agency, the meeting was unanimously adjourned at 5:50 P.M. -r!1 E. ;;:rt~ fld¡ t~ Dav ld N. Ream, Esec~~ Director , . 3. f y