SR 05:219 - Laserfiche WebLink

To finance the project, BRIDGE has requested the City enter into a tax-exempt installment purchase agreement, and related COP financing documents, to provide funds for project development. The COP documents provide that the City purchase the facility from the BLP on an installment basis and immediately resell the project back to BLP, with tax-exempt certificates of participation sold to investors representing interests in the City's installment payments. The proceeds of the sale of the certificates of participation would be used to pay the costs to construct the project, thereby enabling BLP to effectively borrow at tax-exempt interest rates instead of otherwise higher conventional interest rates. The City's installment payments under its installment purchase agreement from BLP would be payable solely from, and secured by an assignment of, the BLP's installment payments under its installment sale agreement with the City, and the BLP's installment payments would be made with income from the assisted living facility, all with the purpose and intent that the City have no involvement and no liability risk in the repayment of any of the installment payments or the COPs. The use of the tax-exempt installment sale financing structure (with certificates of participation) is common for health facility financings, including those involving assisted living facilities. The City has used similar certificates of participation financings in connection with past financings for civic improvements. In this case, the financing documents will provide that the City has no liability whatsoever to the investors in the COPs or any other party involved in the financing, such that BLP will be responsible for the payment of all costs of the COP financing and project revenues will be the source of repayment for the borrowing. Even though the City will have no liability for repayment of the COPs, if there were any possibility that payments to purchasers of the COPs was in doubt, the City would be involved in ensuring that BLP came forward with an alternative plan for payment. In the past, the City has had to work with the developers of multifamily housing bonds to help restructure credit issues. In addition, staff spent considerable time working to avoid a default of a City-sponsored single family mortgage revenue bond, in partnership with the City of Newark. In that case, prepayments made by mortgage holders far exceeded the initial worst-case scenarios modeled by the underwriter, resulting in an impending default. Staff does not anticipate problems with this financing, but Council should be aware that even though this is a "conduit" financing arrangement (where the project borrower, not the City, is liable for repayment), there is always some risk when the City issues debt, primarily concerning the City's name in the bond market. The Financing Documents are included on the DVD provided with the report. All documents related to the City have been reviewed by City staff including the City Attorney, the City's consultant and bond counsel and have been determined to be satisfactory. As a result, staff is not summarizing them in this report. The financing team will be at the City Council meeting and will be available to answer any questions regarding the documents. SR:05:2l9 Page 12