03-20-2012 CC RPT 02 - Laserfiche WebLink

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Pinnacle Public Finance Capital Lease . Page 2 BACKGROUND On December 6, 2011, the City Council approved the award of Bid Number 7016 for the construction of Tequesquite Park. On March 6, 2012, the City Council approved a change in the name of the park to Ryan Bonaminio Park at the Tequesquite Arroyo in honor of fallen Riverside Police Department officer Ryan Bonaminio. Included in the December 6, 2011, actions taken by the City Council was approval of a preliminary plan of finance for the park as described in detail in the fiscal impact section of this report. The plan of finance included $4,000,000 from a subsequent debt issuance which is the action to be approved today. The proposed financing mechanism for the $4,000,000 component of the project cost is a capital lease with Pinnacle Public Finance, Inc. Staff reviewed various alternatives including a bank loan, a bond transaction and a capital lease. Once the capital lease structure was determined to be the most advantageous, alternative proposals were obtained and the City selected the best proposal presented. The interest rate for the transaction will be 3.05% and is below the rate that the City could achieve if it sought financing through other debt structures. Additionally, for a transaction of this size, the costs of issuance were substantially less for a capital lease than they would have been for other debt structures. The transaction will be for a term of 10 years with level, semi - annual debt service payments of approximately $468,000 per year. As part of the capital lease structure, assets are required to be leased first from the City to the Municipal Improvements Corporation and then back from the Municipal Improvements Corporation to the City. This is similar to the structure utilized for the City's various outstanding certificates of participation and is a standard structure for these types of financings. Pinnacle Public Finance, Inc. has required that the City pledge assets to the transaction that have a high level of essentiality to the City — meaning that the City would not likely default on the debt service payments due to the critical nature of the assets pledged to the transaction. Accordingly, in lieu of the park itself six fire stations were selected as the collateral for the transaction. The aggregate value of the six stations is slightly more than the $4,000,000 total amount of the proposed transaction, which is the reason that six stations were required. The fire stations that will be encumbered as a result of the lease agreement are: 1. Fire Station 2 — Arlington 2. Fire Station 3 — Magnolia Center 3. Fire Station 4 — University 4. Fire Station 8 — La Sierra 5. Fire Station 11 — Orangecrest 6. Fire Station 12 — La Sierra South At the conclusion of the lease term, the assets will be released from the lease. It should be noted that at all times during the term of the lease, the assets will remain the property of the City, though subject to the terms of the lease agreement. The financing team for the transaction consists of representatives from Pinnacle Public Finance, Inc., Special Counsel from Best, Best, & Krieger, and internal staff from the City Manager's Office and the City Attorney's Office. W