On April 30, 2010, the Garden Grove Public Financing Authority issued its Revenue Bonds, Series 2010 (the 2010 Bonds) to finance certain water utility capital improvement projects.  The interest rates for the 2010 Bonds range from 2.0% to 6.389%.  As of June 30, 2020, the 2010 Bonds carried a remaining principal balance of $10,630,000.

In a recent financial review with the City’s Municipal Advisor, Fieldman, Rolapp & Associates, Inc. (FRA), it was identified that the 2010 Bonds would become callable as of December 15, 2020.  The current municipal bond market shows favorable condition to refund the 2010 Bonds.  The financing team has estimated that the net present value savings to refund the 2010 Bonds to be approximately $1.5 million or 14.3% of the refunded bonds.  Consequently, it is beneficial for the City to refund the 2010 Bonds to achieve savings in debt service.

In July 2020, the City received its draft 2020 Water Master Plan Update.  In the update, a few key capital improvement projects were identified to cost-effectively meet the City’s water distribution system infrastructure needs.  The Water utility currently does not have existing capital to carry out these projects. Public financing is necessary to undertake the acquisition and construction of certain capital improvements, betterments, renovations and expansions of facilities within its water system (the 2020 Project). FRA has recommended raising new capital sufficient to cover the 2020 Projects while refunding the 2010 Bonds.

The par amount of the 2020 Bonds is estimated to be $22,590,000, with anticipated original issuance premium of $4,177,650, with a total proceeds of $26,767,650. Among the total proceeds, about $11 million will be used to defease the 2010 Bonds, and $16 million as “new money” to fund for the 2020 Projects.  The proposed bond structure will maximize cash flow savings in the initial year.  The refunding portion of the 2020 Bonds will not extend the term of the 2010 Bonds, and the new money portion will carry a 30-year amortization period with annual debt service payments ranging between $1.0 million to $1.8 million.

It is estimated that by refunding the 2010 Bonds, the Authority will realize a net present value savings of $1.5 million or 14.3% of the refunded debt.

Total cost of issuance is estimated to be $347,714, which will be paid from the proceeds of the 2020 Bonds.  This amount covers the cost of bond and disclosure counsel, municipal advisor, trustee and escrow agent, credit rating, underwriter, City administrative costs and other fees.

The stated rate of the 2020 bonds will be 4.0%, with the true interest cost 2.56% per annum.  The annual debt service payments of the 2020 Bonds will be incorporated in the Water utility fund’s annual operating budget.

It is recommended that the Garden Grove Public Financing Authority:

• Adopt the resolution authorizing the sale and issuance of Garden Grove Public Financing Authority Water Revenue Bonds, Series 2020A, and approving the execution and delivery of certain documents in connection therewith and certain other matters (Attachment 1);

• Approve the Installment Purchase Agreement by and between City of Garden Grove and Garden Grove Public Financing Authority (Attachment 2);

• Approve the Indenture of Trust by and between U.S. Bank National Association as Trustee and the Garden Grove Public Financing Authority Relating to Garden Grove Public Financing Authority Water Revenue Bonds, Series 2020A (Attachment 3); 

• Approve the Escrow Agreement by and among the City of Garden Grove, the Garden Grove Public Financing Authority, and the U.S. Bank National Association, as Escrow Agent (Attachment 4);

• Approve the Bond Purchase Agreement by and among Stifel, Nicolaus & Company, Inc., the Garden Grove Public Financing Authority, and the City of Garden Grove (Attachment 5); and

• Approve the Preliminary Official Statement for the Garden Grove Public Financing Authority Water Revenue Bonds, Series 2020A (Attachment 6); and

• Authorize the Executive Director or his designee to execute any other documents that are necessary to cause the issuance of the 2020 Bonds.