Title:
Resolution Authorizing the Banning Lewis Ranch Regional Metropolitan District No. 2 to Issue Series 2021A Limited Tax General Obligation Bonds in an Amount Estimated to be $8,595,846 and Series 2021B Subordinate Cash Flow Bonds in an Amount Estimated to be $1,040,000 (Legislative).
Presenter:
Carl Schueler, Comprehensive Planning Manager, Planning and Community Development
Body
SUMMARY:
This is a request to approve issuance of formal debt in an aggregate amount of up to $9,636,486 by the Banning Lewis Ranch Regional Metropolitan District No. 2 (“District”) in the form of marketed Series A and B bond issues. The City’s Special District Policy and the District’s approved service plan require that City Council’s approval be obtained prior to issuing any debt.
This request is expected be heard at the March 23, 2021 City Council meeting at which time approval of this debt issuance will require a 2/3rds majority of the entire City Council (at least six affirmative votes) pursuant to City Charter Article 7-100.
This agenda item was discussed at the February 23, 2021 Budget Committee meeting, and was introduced at the March 8, 2021 Work Session. At the Work Session, the applicants agreed to an overall combined cap of no greater than $10,560,000 for the Series A and B bonds and to a cap of no more than $1,500,000 for the Series B bonds if privately placed.
BACKGROUND:
Metropolitan districts are created under Colorado Statute and City Policy to finance and/or maintain certain public improvements in commercial and residential areas, primarily utilizing a property tax mill levy as the revenue source. These districts are a separate legal entity from the City, but their service plans and the City’s Special District Policy require City Council approval of all formal debt. The standard of review of the debt instruments is consistency with the service plan and all applicable laws.
Banning Lewis Ranch Regional Metropolitan District No. 2 was authorized in 2018 as a second overlay metropolitan district to be available for use by Oakwood Homes and/or its affiliates as an additional source of property tax funding limited to major improvements such as arterial roadways and regional stormwater facilities. This District has Gallagher-adjusted mill levy caps of 9.0 mills for debt service and 1.0 for operations, respectively. The boundaries of this District continue to be “rolled out” and it is now anticipated to include about 2,500 dwelling units at buildout (including the approximately 1,129 planned for BLR District No. 8).
The proposed Series A and B debt instruments are proposed to be tax exempt bonds marketed to third parties, and used to reimburse the developer for advances made to the District for public improvements already constructed, and as a source of funds for future improvements. However, the District would like to allow for a contingency of private placement of the B bonds in the event they cannot be marketed.
The senior Series 2021A Limited Tax General Obligation Bonds are proposed to be issued in an amount estimated to be $8,595,846. The immediately useable proceeds (“project funds”) are anticipated to be about $7.3M net of costs of issuance, capitalized interest and creation of a reserve fund. The interest rate, which will be set at closing, is expected to be about 5.25%.
The Series 2021B Subordinate Cash Flow Bonds are proposed to be issued in an amount estimated to be about $1,040,000. The interest rate, which will be set at closing, is expected to be about 8.75%. Payments of pledged revenues for these bonds are only made after the senior bonds are serviced.
The term (maturity) of the Series A and B bonds would be 30 years. Each is structured to have a “call date” beginning in five years (June 2026) with a declining premium from that point forward. Because this is a residential metropolitan district, it is subject to a 40-year Maximum Debt Service Mill Levy Imposition Term. Therefore, the draft Council resolution includes discharge dates that correspond with the original date of debt service mill levy imposition for this District (certified in 2060 for collection in 2061). This district does not currently have any mill levies. A debt service mill levy for this District is anticipated to be certified in December of 2021 for collection in 2022.
The attached resolution includes a provision requiring the closing of these bonds to occur within one year of City Council approval. The resolution also sets limits related to call (refunding) dates, as well as required discharge dates. Additionally, the resolution stipulates that the annual interest rate on the Series B Bonds shall be no greater than 8.00% in the event they are not marketed.
Pledged revenues for each bond issue will include the maximum Gallagher-adjusted capped debt service levy of 9.0 mills along with associated specific ownership taxes.
The improvements to be financed generally consist of a combination of installed and future public improvements including arterial streets, major water and sewer lines and regional stormwater improvements all as listed in an attached summary.
Although the companion Banning Lewis Ranch Regional Metropolitan District No. 1 has previously issued debt, this will be the first debt issued by this Regional Metropolitan District No. 2.
Council’s role is to approve the “form” of the debt subject to minor changes (e.g. final interest rates, and some final wording) that will occur prior to actual closing.
The attached resolution has an added provision requiring the closing of these bonds to occur within one year of City Council approval.
The attachments are provided in the following order:
• Draft City Council Resolution
• Cover letter from District
• Term Sheets
• Development Projections and Bond Summaries
• Draft Statements of Indenture for Series A, B bonds
• Draft Compliance Letter from District Counsel
• External Financial Advisor Opinion for Series 2021B Bonds (pending)
• Summary of Costs to be Reimbursed by Category
• Map of Regional Metropolitan District No.2
This agenda item was presented to the City Council Budget Committee on February 23, 2021. This included a District presentation (attached) Members asked clarifying questions focused primarily on the B bonds and the contingency that they could be privately placed. The bond underwriter provided an estimate of what the interest rates could be if the A and B bonds were combined. The Committee also asked for maximum not to exceed amounts for the B Bonds, as well as an accounting of the costs by public improvement category. This cost information has been provided, and the applicant is proposing a maximum not to exceed limit of $1.5 million for the B bonds. Additional supporting information will be provided at the Work Session.
FINANCIAL IMPLICATIONS:
Pursuant to the service plan, the City Special District Policy, and the bond documents, the issuance of this debt does not constitute a financial obligation of the City.
With this first issuance by this overlay District, formally issued debt will be below the maximum of $150,000,000 authorized by the service plan for this District. The bond documents are structured so that any risk beyond the maximum capped mill levy, and the associated specific ownership tax will not accrue to the tax paying property owners.
City Charter Article 7-100 requires that the total Debt of any proposed district shall not exceed 10 percent of the total assessed valuation of the taxable property within the District unless approved by at least a two-thirds vote of the entire Council. The maximum capped mill levy and other provisions of the bond indentures, as well as representations from the District that the loan complies with the service plan and all applicable laws, provide a basis for Council’s decision.
PREVIOUS COUNCIL ACTION:
The Banning Lewis Ranch Regional Metropolitan Districts No. 2 (“District”) was established by election in November 2018, following approval by Council of an initial service plan on August 28, 2018 (Resolution No. 94-18). City Council has previously authorized debt for Banning Lewis Ranch Metropolitan Districts No. 2, No. 3, No. 4, No. 5 and for Banning Lewis Ranch Regional Metropolitan District No. 1, each by formal resolution. Council will be reviewing a request for authorization of debt by Banning Lewis Ranch Metropolitan District No. 8. separately with this agenda. However, this would be the first debt formally issued by this particular district.
BOARD/COMMISSION RECOMMENDATION:
The City’s staff-level Special District Committee has been provided copies of these materials. All comments received have stated no concerns.
STAKEHOLDER PROCESS:
Not applicable.
ALTERNATIVES:
• Approve the resolution as presented
• Deny the resolution
• Approve the resolution with changes to the terms of the debt issuance
Recommended Action
PROPOSED MOTION:
Move approval of the Resolution Authorizing the Banning Lewis Ranch Regional Metropolitan District No. 2 to Issue Series 2021A Limited Tax General Obligation Bonds in an Amount Estimated to be $8,595,846 and Series 2021B Limited Tax Subordinate Bonds in an Amount Estimated to be $1,040,000.