AgdaPkt 2009-10-26 - Laserfiche WebLink

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6.28 Page 1 REPORT To the Honorable Mayor and City Council From the Ci Mana er October 26, 2009 SUBJECT 1998 City Hall Variable Rate Certificates of Participation RECOMMENDATION By resolution, authorize the Finance Director to payoff all remaining debt associated with the 1998 City Hall variable rate certificates of participation. BACKGROUND In September 1998 the City Council authorized the issuance of $11.7 million of variable rate certificates of participation (COPs) to reimburse the City for the cost of constructing City Hall. The final maturity of this debt is July 2021. This action was taken to provide increased liquidity and the opportunity to generate interest earnings on the proceeds of the debt issue that exceeded the on-going interest expenses of such. The City's COPs are a financial instrument representing fractional ownership interests in lease payments made by the City for the use of City Hall. To securitize its lease, the City sold City Hall to the Redwood City Public Finance Authority (PFA) which then leased City Hall back to the City. The lease payments that the City makes to the PFA are then transferred by the PFA via a Trustee (U.S. Bank) and converted to principal and interest payments to the parties owning the COPs. The City used available cash balances to construct City Hall, but because the City passed a timely resolution stating its intention to reimburse itself with the proceeds of COPs, the U.S. Treasury Department considered the COPs proceeds as spent once they were used to reimburse the City for its construction expenditures. The City has retained its reimbursement of the cost of constructing City Hall and invested the balance. At the time the COPs were issued it was determined that variable rate COPs (in this case the interest rate on the COPs changes weekly) would be the most advantageous to the City as the COPs can be redeemed at anytime without paying a premium to the COPs owners and because the City could invest the proceeds used to reimburse the City in a variable rate investment, such as the State Local Agency Investment Fund (LAIF) or the County of San Mateo Investment Pool, that generally paid higher interest than and moved in the same direction as the weekly tax-exempt interest rates. Investing the proceeds in a short-term variable rate investment limited the risk that the interest rate paid on the COPs would exceed the interest rate earned on the proceeds. An integral element of variable rate COPs (or bonds) is the need to have a letter of credit (LOC) from a bank, with an investment grade rating, to additionally secure the