Inter-Departmental Correspondence




December 5, 2003


December 16, 2003



Honorable Board of Supervisors


Paul T. Scannell, Assistant County Manager


Issuance by the San Mateo County Joint Powers Financing Authority of not to exceed $8,500,000 aggregate principal amount of Lease Revenue Bonds (Capital Projects), 2004 Series A



Adopt a resolution approving the issuance by the San Mateo County Joint Powers Financing Authority of not to exceed $8,500,000 aggregate principal amount of Lease Revenue Bonds (Capital Projects), 2004 Series A, for refunding of a portion of the Authority's Lease Revenue Bonds (Capital Projects), 1993 Series A; authorizing the forms of and directing the execution and delivery of a Bond Purchase Contract, a continuing disclosure agreement and an official statement; authorizing a lease financing with the San Mateo County Joint Powers Financing Authority; and approving the taking of all necessary actions in connection therewith.



In 1991 the County financed $63,539,741 in Certificates of Participation to fund the construction of the Maguire Jail Expansion and the County Parking Garage at interest rates ranging from 6.25% in 1998 to 7.10% in 2021. In 1993, the County refinanced the 1991 Certificates of Participation with $68,137,797 in 1993 Refunding Lease Revenue Bonds in order to reduce County debt service payments. Interest rates on the refinancing bonds ranged from 4.40% in 1999 to 5.30% in 2021. Under Federal Tax Law, the 1993 Bonds could not be refinanced until June 2003, the first date on which the 1993 bonds could be retired immediately through a new refinancing.



In late October 2003, Henderson Capital contacted the County regarding a refinancing opportunity related to a portion of the 1993 Lease Revenue Refunding Bonds. The County has not worked with Henderson Capital in the past but has had a relationship with Jim Gibbs, their representative, for more than a decade. The County has a longstanding policy of encouraging underwriting firms to bring new and money saving ideas to the attention of the County and for using such firms to underwrite the bonds where the ideas are utilized. Given that Henderson Capital was the only firm to bring this idea to the attention of the County - and given the small size of the financing - Henderson Capital will act as sole underwriter for the refinancing. Orrick Herrington & Sutcliffe will act as Bond Counsel. California Financial Services will act as Financial Advisor. Sidley Austin Brown Wood will serve as Underwriter's Counsel. MBIA, the insurer for the 1993 Refunding Bonds, will serve as the insurer for the 2004 Refunding Bonds. Grant Thorton will serve as escrow verification consultant, an accounting role that verifies debt service savings to the County as well as the sufficiency of the refunding escrow to retire all of the identified 1993 Refunding Bonds. Henderson Capital has identified those 1993 Refunding Bond maturities that could be refinanced at a savings to the County, the 2004 through 2008 maturities, with interest rates ranging from 4.70 to 5.00%. The principal amount of these five maturities is $7,670,000. A prepayment premium of 2.0% or $153,400 will be due upon prepayment.



Government decisions are based on careful consideration of future impact, rather than temporary relief or immediate gain.



Financing costs of $275,000 for the financing team, bond insurance, rating agencies, official statement printing, and escrow verification consultant will be financed as part of the 2004 Refunding. Cost of issuance are contingent on the sale and completion of the bond financing. The 2004 Bonds are estimated to be issued in the amount of $8,145,000 based on market conditions as of today's date. After all costs estimated debt service savings are approximately $260,000 or $247,000 in 2004 dollars. This represents a savings of 3.22% of the amount refinanced. The industry standard for such refinancings is a minimum savings of 3.00%. The Financing Team expects to sell the 2004 Refunding Bonds in January. The team will be prepared to sell the bonds immediately following New Years day or as soon as market conditions are suited to realizing the three percent savings target. This schedule assumes receipt of an insurance commitment letter from MBIA in December. Once refinanced, the 2004-2008 1993 Refunding Bonds will be defeased and will no longer be a County obligation. On February 17, 2004, these bonds will be redeemed from investors and permanently retired.