Urban Futures, Inc. (UFI) serves as financial advisor to the City of San Bernardino, California’s 17th-largest city. UFI completed a bond refunding for San Bernardino this month, restructuring some of the City’s outstanding debt obligations. San Bernardino is in the midst of bankruptcy, adding challenges to the bond issuance process.
The 2016 Tax Allocation Refunding Bonds were issued to refund four Tax Allocation Bonds issued by the former Redevelopment Agency and two notes. Balloon payments on the notes of $8,000,000 and $10,000,000 were coming due within the next two years, and the City lacked the funds needed to make these payments.
The key to the success of the Bonds was the emphasis on how the debt service payments will be made. Interest and principal payments will be provided not by the City’s general fund but by the City Successor Agency’s Redevelopment Property Tax Trust Fund (RPTTF) tax revenues. These tax revenues are guaranteed distributions from the County. Due to the complications surrounding the City’s finances, the bonds had sale limitations. Bonds were only offered to qualified institutional buyers and accredited investors in denominations of $100,000, as opposed to the usual $5,000. Buyers had to acknowledge the absence of current audited financial statements and agree to the rules and restrictions of resale. The bonds priced on March 23, 2016 with a positive response from investors.
Completion of this transaction helps the City establishment positive cash flow. The cumulative debt services savings resulting from the refunding is net present value $16.4 million, or 14.16%. Additionally, the financing team was able to assist the City with achieving a favorable credit rating of “A”.
All cities should consider a refunding of outstanding debt obligations given current low interest rates. Cities with financial complications tend to shy away from refundings, but UFI has the experience and ability to be a valuable asset to the success of a complex refinancing.
Urban Futures, Inc. has been providing services to local governmental agencies for over 43 years. Operating as five divisions – UFI Public Management Group, UFI Public Finance Group, UFI Sustainable Communities Development Group, UFI Analytics & Compliance Group, and Isom Advisors – UFI offers clients a growing portfolio of services and industry expertise that might otherwise be out of reach. Over 300 public agencies have benefited from partnering with UFI. UFI is based in Orange, CA with a Northern California office in Walnut Creek. Visit their website at www.urbanfuturesinc.com or call (714) 283-9334.