HomeMy WebLinkAboutAGENDA REPORT 2017 1206 CCSA REG ITEM 10H ITEM 10.H.
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AGENDA REPORT M� _/a_0G -0?Q/7
TO: Honorable City Council .Itr
FROM: Ron Ahlers, Finance Directo
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DATE: November 22, 2017 (City Council Meeting of December 6, 2017)
SUBJECT: Consider Approving the Debt Management Policy in Compliance with
Government Code Section 8855(i)
SUMMARY
A recent change in State law requires all governmental agencies to establish a Debt
Management Policy. The Debt Management Policy needs to be adopted prior to the
City issuing debt for the Pacific Communities project, called, "City of Moorpark
Community Facilities District No. 2018=1)" (CFD No. 2018=1). Staff recommends
V VI1111lul nlr VIJUIVI LV IV- I/ `VI V V1G11 recommends 114J the
City Council approve a Debt Management Policy in compliance with Government Code
Section (GC) 8855(i) for the City of Moorpark.
BACKGROUND
On October 4, 2017, the City Council adopted Ordinance 453 which approved the
residential planned developments RPD-9U and RPD-20U on application of Pacific
Communities Builder, Inc. City Council Ordinance 454 approved the development
agreement between the City and Pacific Communities Builder, Inc. Sections 6.21 and
7.3 of the Development Agreement discuss the formation of Mello-Roos Community
Facilities District and the issuance of debt.
Prior to the issuance of any new debt the City must approve a debt management policy
in compliance with GC 8855(i), which reads:
(i) (1) The issuer of any proposed debt issue of state or local government
shall, no later than 30 days prior to the sale of any debt issue, submit a
report of the proposed issuance to the commission by any method approved
by the commission. This subdivision shall also apply to any nonprofit public
benefit corporation incorporated for the purpose of acquiring student loans.
The commission may require information to be submitted in the report of
proposed debt issuance that it considers appropriate. Failure to submit the
report shall not affect the validity of the sale. The report of proposed debt
issuance shall include a certification by the issuer that it has adopted local
debt policies concerning the use of debt and that the contemplated
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Honorable City Council
December 6, 2017
Page 2
debt issuance is consistent with those local debt policies. A local debt
policy shall include all of the following:
(A) The purposes for which the debt proceeds may be used.
(B) The types of debt that may be issued.
(C) The relationship of the debt to, and integration with, the issuer's capital
improvement program or budget, if applicable.
(D) Policy goals related to the issuer's planning goals and objectives.
(E) The internal control procedures that the issuer has implemented, or will
implement, to ensure that the proceeds of the proposed debt issuance
will be directed to the intended use.
The attached Debt Management Policy includes all the items listed above.
This policy is adopted for the City of Moorpark. If needed in the future, the related
entities of the City of Moorpark will need to adopt a debt management policy. The
related entities include, but are not limited to: Public Financing Authority, Industrial
Development Authority and the Successor Agency to the Redevelopment Agency of the
City of Moorpark.
FISCAL IMPACT
None.
STAFF RECOMMENDATION
Approve new Policy 5.10 Debt Management Policy and direct staff to incorporate the
new Policy 5.10 into the next comprehensive update of the City Council Policies
Resolution.
Attachment:
Debt Management Policy
579
RESOLUTION NO. 2017-
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
MOORPARK, CALIFORNIA, ADOPTING THE DEBT
MANAGEMENT POLICY
WHEREAS, the City of Moorpark (the "City") has issued bonds or other financing
obligations (collectively, "Local Debt") subject to the filing of reports with the California
Debt and Investment Advisory Commission ("CDIAC") pursuant to Section 8855 of the
California Government Code ("Section 8855"); and
WHEREAS, Senate Bill No. 1029 ("SB 1029"), effective January 1, 2017,
amended Section 8855 to augment the information that must be provided by municipal
issuers of Local Debt to CDIAC; and
WHEREAS, prior to SB 1029, Section 8855 has required municipal issuers of
Local Debt to file a Report of Proposed Debt Issuance at least 30 days prior to the sale
of any Local Debt issue; and
WHEREAS, SB 1029 amends the requirements of the Report of Proposed Debt
Issuance to require that this report include a certification by the municipal issuer that it
has adopted local debt policies concerning the use of Local Debt and that the
contemplated Local Debt issuance is consistent with those local debt policies; and
WHEREAS, the City may also, in the future, issue Local Debt for which a Report
of Proposed Debt Issuance, including the aforementioned certification, will need to be
filed with CDIAC; and
WHEREAS, to facilitate issuance of Local Debt in the future and the ability of the
City to make the requisite local debt policies certification required in connection
therewith by subdivision (i) of Section 8855, as amended by SB 1029, the City desires
to adopt the Debt Management Policy (the "Policy"), as set forth in Exhibit A hereto.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF MOORPARK
DOES HEREBY RESOLVE AS FOLLOWS:
SECTION 1. The above recitals, and each of them, are true and correct.
SECTION 2. The Policy, as set forth in Exhibit A, is hereby approved and
adopted and shall be made applicable to all Local Debt issued by or on behalf of the
City.
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Resolution No. 2017-
Page 2
SECTION 3. The City Manager, the City Treasurer, the Finance Director, and all
other officers of the City are hereby authorized and directed, jointly and severally, to do
any and all things to effectuate the purposes of this Resolution and to implement the
Policy, and any such actions previously taken by such officers are hereby ratified and
confirmed.
SECTION 4. This Resolution shall take effect immediately upon adoption.
SECTION 5. The City Clerk shall certify to the adoption of the resolution and
shall cause a certified resolution to be filed in the book of original resolutions.
PASSED AND ADOPTED this 6th day of December, 2017.
Janice S. Parvin, Mayor
ATTEST:
Maureen Benson, City Clerk
Attachment: Exhibit "A" — Debt Management Policy
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Resolution No. 2017-
Page 3
Policy 5.10: Debt Management Policy
1. PURPOSE
The purpose of this Debt Management Policy (Policy) is to establish guidelines and
parameters for the effective governance, management and administration of debt and
other financing obligations issued by the City of Moorpark (City).
As used in this Policy, "City" shall mean the City. As used in this Policy, "debt" shall be
interpreted broadly to mean bonds, notes, certificates of participation, financing leases,
or other financing obligations, but the use of such term in this Policy shall be solely for
convenience and shall not be interpreted to characterize any such obligation as an
indebtedness or debt within the meaning of any constitutional debt limitation where the
substance and terms of the obligation comport with exceptions thereto.
2. BACKGROUND
The City is committed to fiscal sustainability by employing long-term financial planning
efforts, maintaining appropriate reserves levels and employing prudent practices in
governance, management, budget administration and financial reporting_
Debt levels and their related annual costs are important long-term obligations that must
be managed within available resources. A disciplined, thoughtful approach to debt
management includes policies that provide guidelines for the City to manage their
collective debt program in line with those resources. Therefore, the objective of this
policy is to provide written guidelines and restrictions concerning the amount and type of
debt and other financing obligations issued by the City and the ongoing management of
the debt portfolio.
This Policy is intended to improve the quality of decisions, assist with the determination
of the structure of debt issuance, identify policy goals, and demonstrate a commitment
to long-term financial planning, including a multi-year capital plan. Adherence to a local
debt policy signals to rating agencies and the capital markets that a government is well
managed and should meet its obligations in a timely manner.
3. CONDITIONS AND PURPOSES OF DEBT ISSUANCE
A. Acceptable Conditions for the Use of Debt
The City believes that prudent amounts of debt can be an equitable and cost-
effective means of financing major infrastructure and capital project needs of
the City. Debt will be considered to finance such projects if:
1) The capital project has been, or will be, included in the City's capital
improvement plan or has otherwise been coordinated with the City's
planning goals and objectives.
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Resolution No. 2017-
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2) The capital project can be financed with debt not exceeding the term
specified in Section 5.A. of this Policy, to assure that long-term debt is not
issued to finance projects with a short useful life.
3) It is the most cost-effective funding means available to the City, taking into
account cash flow needs and other funding alternatives.
4) It is fiscally prudent and meets the guidelines of this Policy. Any
consideration of debt financing shall consider financial alternatives,
including pay-as-you-go funding, proceeds derived from development or
redevelopment of existing land and capital assets owned by the City, and
use of existing or future cash reserves, or combinations thereof.
B. Acceptable Uses of Debt and Proceeds of Debt
The primary purpose of debt is to finance one of the following:
1) The City will consider financing for the acquisition, substantial
refurbishment, replacement, or expansion of physical assets, including land
improvements, for the following purposes:
i. Acquisition and or improvement of land, right-of-way or long-term
easements.
ii. Acquisition of a capital asset with a useful life of 3 or more years.
iii. Construction or reconstruction of a facility.
iv. Although not the primary purpose of the financing effort, project
reimbursables that include project planning design, engineering and
other preconstruction efforts; project-associated furniture fixtures and
equipment; capitalized interest, original issue discount, underwriter's
discount, and other costs of issuance.
2) Refunding, refinancing, or restructuring debt (including without limitation the
refinancing or advance funding of City pension obligations), subject to
refunding objectives and parameters discussed in Section G.
3) In the event of temporary shortfalls in cash flow for City operation costs due
to timing of receipt of revenues and the lack of cash on hand to cover the
temporary deficit, the City may consider interim or cash flow financing, such
as anticipation notes. In compliance with applicable state law, any such
notes shall be payable either (i) not later than the last day of the fiscal year
in which it is issued, or (ii) during the fiscal year succeeding the fiscal year
in which issued, but in no event later than 15 months after the date of issue,
and only if such note is payable only from revenue received or accrued
during the fiscal year in which it was issued.
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C. Prohibited Uses of Debt and Proceeds of Debt
Prohibited uses of debt include the following:
1) Financing of operating costs, except for anticipation notes satisfying the
criteria set forth in Section 3.B.3).
2) Debt issuance used to address budgetary deficits.
3) Debt issued for which the term of the debt exceeds the term specified in
Section 5.A. of this Policy.
D. Internal Control Procedures Concerning Use of Proceeds of Debt
One of the City's priorities in the management of debt is to assure that the
proceeds of the debt will be directed to the intended use for which the debt has
been issued. In furtherance of this priority, the following procedures shall
apply:
1) The Finance Director shall retain, for the applicable period specified in
Section 8.D. of this Policy, a copy of each annual report filed with the
California Debt and Investment Advisory Commission (CDIAC) pursuant to
Section 8855(k) of the California Government Code concerning (1) debt
authorized during the applicable reporting period (whether issued or not),
(2) debt outstanding during the reporting period, and (3) the use during the
reporting period of proceeds of issued debt. A copy of the annual report
shall be provided to the City Council, City Manager and City Clerk.
2) In connection with the preparation of each annual report to be filed with
CDIAC pursuant to Section 8855(k) of the California Government Code, the
Finance Director or the designee of the Finance Director shall keep a
record of the original intended use for which the debt has been issued, and
indicate whether the proceeds spent during the applicable one-year
reporting period for such annual report comport with the intended use (at
the time of original issuance or as modified pursuant to the following
sentence). If a change in intended use has been authorized subsequent to
the original issuance of the debt, the Finance Director or the designee of
the Finance Director shall indicate in the record when the change in use
was authorized and whether the City Council, City Manager, or another City
official has authorized the change in intended use. The Finance Director
shall report apparent deviations from the intended use in debt proceeds to
the City Manager for further discussion, and if the City Manager determines
•
appropriate in consultation with legal counsel (which may be bond counsel,
if applicable, or the City Attorney), to the City Council.
3) If the debt has been issued to finance a capital project and the project
timeline or scope of project has changed in a way that all or a portion of the
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Resolution No. 2017-
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debt proceeds cannot be expended on the original project, the Finance
Director shall consult with the City Manager and legal counsel (which may
be bond counsel, if applicable, or the City Attorney) as to available
alternatives for the expenditure of the remaining debt proceeds (including
prepayment of the debt). After such consultation, the Finance Director shall
seek the direction of the City Council as to an alternative for the expenditure
or use of such remaining debt proceeds.
4. TYPE OF FINANCING INSTRUMENTS; AFFORDABILITY AND PLANNING
POLICIES
The City recognizes that there are numerous types of financing structures and funding
sources available, each with specific benefits, risks, and costs. All potential funding
sources are reviewed by management within the context of this Policy and the overall
portfolio to ensure that any financial product or structure is consistent with the City's
objectives. Regardless of what financing structure(s) is utilized, due diligence review
must be performed for each transaction, including the quantification of potential risks
and benefits, and analysis of the impact on City creditworthiness and debt affordability
and capacity.
Prior to the issuance of debt or other financing obligations to finance a project, the City
will carefully consider the overall long-term affordability of the proposed debt issuance.
The City shall not assume more debt or other financing obligations without conducting
an objective analysis of the City's ability to assume and support additional debt service
payments. The City will consider its long-term revenue and expenditure trends, the
impact on operational flexibility and the overall debt burden on the taxpayers. The
evaluation process shall include a review of generally accepted measures of
affordability and will strive to achieve and or maintain debt levels consistent with its
current operating and capital needs.
A. General Fund-Supported Debt
General Fund Supported Debt generally include Certificates of Participation
(COPs) and Lease Revenue Bonds (LRBs) which are lease obligations that are
secured by an installment sale or by a lease-back arrangement between the
City and another public entity. Typically, the City appropriates available
General Fund moneys to pay the lease payments to the other public entity and,
in turn, the public entity uses such lease payments received to pay debt service
on the bonds or Certificates of Participation.
General Fund Supported Debt may also include bonds issued to refund
obligations imposed by law, such as judgments (judgment obligation bonds
(JOBs)) or unfunded accrued actuarial liabilities for pension plans (pension
obligation bonds (POBs)).
These obligations do not constitute indebtedness under the state constitutional
debt limitation-and, therefore, are not subject to voter approval.
585
Resolution No. 2017-
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Payments to be made under valid leases are payable only in the year in which
use and occupancy of the leased property is available, and lease payments
may not be accelerated. Lease financing requires the fair market rental value of
the leased property to be equal to or greater than the required debt service or
lease payment schedule. The lessee (City) is obligated to include in its Annual
Budget and appropriate the rental payments that are due and payable during
each fiscal year the lessee has use of the leased property.
The City should strive to maintain its net General Fund-backed annual debt
service at or less than 10% of available annually budgeted revenue. This ratio
is defined as the City's annual debt service requirements on General Fund
Supported Debt (including, but not limited to, COPs, LRBs, JOBs, and POBs)
compared to total annual General Fund Revenues net of interfund transfers.
B. Revenue Bonds
Long-term obligations payable solely from specific special fund sources, in
general, are not subject to a debt limitation. Examples of such long-term
obligations include those which are payable from a special fund consisting of
restricted revenues nr user fees (Enterprise revenues derived
from the system of which the project being funded is a part.
In determining the affordability of proposed revenue bonds, the City will perform
an analysis comparing projected annual net revenues (exclusive of depreciation
which is a non-cash related expense) to estimated annual debt service. The
City should strive to maintain a coverage ratio of 110% (or such higher
coverage ratio included in the City's existing financing documents), using
historical and/or projected net revenues to cover annual debt service for bonds.
To the extent necessary, the City shall undertake proceedings for a rate
increase to cover both operations and debt service costs, and create debt
service reserve funds to maintain the required coverage ratio.
C. Special Districts Financing
The City's special districts primarily consist of Community Facilities Districts
(CFDs) and 1913/1915 Act Assessment Districts (Assessment Districts). The
City will consider requests for special district formation and debt issuance when
such requests address a public need or provide a public benefit. Each
application will be considered on a case by case basis, and the Finance
Department may not recommend a financing if it is determined that the
financing could be detrimental to the debt position or the best interests of the
City.
D. General Obligation Bonds
Notwithstanding their name, General Obligation Bonds are not general
- obligations of the City, but instead they are payable from and secured by a
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Resolution No. 2017-
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dedicated, voter-approved property tax override rate (i.e., a property tax in
excess of the 1`)/0 basic ad valorem property tax rate which has received the
approving two-thirds vote of the City's electorate). While the dedicated revenue
stream to repay the debt makes General Obligation Bonds an attractive option,
additional considerations for this financing mechanism include the time and
expense of an election, the possibility that the electorate will not approve the
ballot measure, and the legal bonding capacity limit (3.75% of the assessed
value of all taxable property within the City as of the adoption date of this
Policy).
E. Tax Increment Financing
Tax Increment Financing is payable from and secured by a portion of ad
valorem property taxes that are allocated to the Successor Agency, an
enhanced infrastructure financing district (EIFD), or a community revitalization
and investment authority (CRIA) subject to a plan adopted for such entity and
the applicable law. While tax increment debt for redevelopment agencies and
Successor Agencies is entitled to the benefits of Article XVI, Section 16, of the
California Constitution, no similar provision exists for EIFDs and CRIAs at the
time ,VF adoption Uf this Policy. Therefore, VVen considering EIFD or CRIA
financing, debt limit concerns should be analyzed with respect to the proposed
structure and taken into account in determining the practical viability of the
proposed financing.
F. Conduit Debt
Conduit financing provides for the issuance of securities by a government
agency to finance a project of a third party, such as a non-profit organization or
other private entity. The City may sponsor conduit financings for those activities
that have a general public purpose and are consistent with the City's overall
service and policy objectives. Unless a compelling public policy rationale
exists, such conduit financings will not in any way pledge the City's faith and
credit.
5. STRUCTURE OF DEBT
A. Term of Debt
In keeping with Internal Revenue Service regulations for tax-exempt financing
obligations, the weighted average maturity of the debt should not exceed 120
percent of the weighted average economic life of the facilities or projects to be
financed, unless specific circumstances exist that would mitigate the extension
of time to repay the debt and it would not cause the City to violate any
covenants to maintain the tax-exempt status of such debt, if applicable.
B. Rapidity of Debt Payment; Level Payment
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To the extent practical, bonds will be amortized on a level repayment basis, and
revenue bonds will be amortized on a level repayment basis considering the
forecasted available pledged revenues to achieve the lowest rates possible.
Bond repayments should not increase on an annual basis in excess of 2%
without a dedicated and supporting revenue funding stream.
Accelerated repayment schedules reduce debt burden faster and reduce total
borrowing costs. The Finance Department will amortize debt through the most
financially advantageous debt structure and to the extent possible, match the
City's projected cash flow to the anticipated debt service payments.
"Backloading" of debt service will be considered only when one or more of the
following occur:
1) Natural disasters or extraordinary or unanticipated external factors make
payments on the debt in early years prohibitive.
2) The benefits derived from the debt issuance can clearly be demonstrated to
be greater in the future than in the present.
3) Such structuring is beneficial to the City's aggregate overall debt payment
schedule or achieves measurable interest savings.
4) Such structuring will allow debt service to more closely match projected
revenues, whether due to lower project revenues during the early years of
the project's operation, inflation escalators in the enterprise user rates, or
other quantifiable reasons.
C. Serial Bonds, Term Bonds, and Capital Appreciation Bonds
For each issuance, the City will select serial bonds or term bonds, or both. On
the occasions where circumstances warrant, Capital Appreciation Bonds
(CABs) may be used. The decision to use term, serial, or CAB bonds is driven
based on market conditions.
D. Reserve Funds
To the extent a reserve fund provides an economic benefit that offsets the cost
of funding the reserve fund, as determined by the Finance Director in
consultation with the City's municipal advisor and, if applicable, the underwriter
for the bonds, the City may fund a reserve fund for the proposed bonds, up to
the maximum amount permitted by applicable law or regulation. Typically, this
amount is equal to the least of (i) maximum annual debt service on the bonds,
(ii) 10% of the principal amount of the bonds (or 10% of the sale proceeds of
the bonds, within the meaning of Section 148 of the federal Internal Revenue
Code), or (iii) 125% of average annual debt service on the bonds.
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6. USE OF ALTERNATIVE DEBT INSTRUMENTS
Alternative debt instruments and financing structures sometimes can provide a lower
cost of borrowing in the short run, but may involve greater medium-term or long-term
risk. Due diligence review must be performed for each transaction, including the
quantification of potential risks and benefits, analysis of the impact on City
creditworthiness and debt affordability and capacity, and an evaluation of the ability of
the City to withstand the medium-term or long-term risk attendant to alternative debt
instruments, including the feasibility of exit strategies.
A. Variable Rate Debt
Variable rate debt affords the City the potential to achieve a lower cost debt
depending on market conditions. However, the City will seek to limit the use of
variable-rate debt due to the potential risks of such instruments.
1) Purpose
The City shall consider the use of variable rate debt for the purposes of:
i. Reducing the costs of debt issues.
ii. Increasing flexibility for accelerating principal repayment and
amortization.
iii. Enhancing the management of assets and liabilities (matching short-
term "priced debt" with the City's short-term investments).
2) Considerations and Limitations on Variable-Rate Debt
The City may consider the use of all alternative structures and modes of
variable rate debt to the extent permissible under State law and will make
determinations among different types of modes of variable rate debt based
on cost, benefit, and risk factors. The Finance Director shall consider the
following factors in considering whether to utilize variable rate debt:
i. With respect to General Fund supported debt, any variable rate debt
should not exceed 50% of total City General Fund supported debt.
ii. Any variable rate debt should be fully hedged by expected future capital
fund reserves or unrestricted General Fund reserve levels, as
applicable.
iii. Whether interest cost and market conditions (including the shape of the
yield curves and relative value considerations) are unfavorable for
issuing fixed rate debt.
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iv. The likelihood of projected debt service savings when comparing the
cost of fixed rate bonds.
v. Costs, implementation and administration are quantified and
considered.
vi. Cost and availability of liquidity facilities (lines of credit necessary for
variable rate debt obligations and commercial paper in the event that
the bonds are not successfully remarketed) are quantified and
considered.
vii. Whether the ability to convert debt to another mode (daily, monthly,
fixed) or redeem at par at any time is permitted.
viii. Cost and availability of derivative products to hedge interest rate risk.
ix. The findings of a thorough risk management assessment.
3) Risk Management
Any issuance of variable rate debt shall require a rigorous risk assessment,
including, but not limited to factors discussed in this section. Variable rate
debt subjects the City to additional financial risks (relative to fixed rate
bonds), including interest rate risk, tax risk, and certain risks related to
providing liquidity for certain types of variable rate debt.
The City will properly manage the risks as follows:
i. Interest Rate Risk and Tax Risk — The risk that market interest rates
increase on variable-rate debt because of market conditions, changes
in taxation of municipal bond interest, or reductions in tax rates.
Mitigation — Limit total variable rate exposure per the defined limits,
match the variable rate liabilities with short term assets, and/or
purchase appropriate derivative products to hedge against the risk (see
also Section 6.B below).
ii. Liquidity/Remarketing Risk — The risk that holders of variable rate
bonds exercise their "put" option, tender their bonds, and the bonds
cannot be remarketed requiring the bond liquidity facility provider to
repurchase the bonds. This will result in the City paying a higher rate of
interest to the facility provider and the potential rapid amortization of the
repurchased bonds. Mitigation - Limit total direct variable-rate
exposure. Seek liquidity facilities which allow for longer (5-10 years)
amortization of any draws on the facility. Endeavor to secure credit
support facilities that result in bond ratings of the highest short-term
ratings and long-term ratings not less than AA. If the City's bonds are
downgraded below these levels (or such other rating levels as provided
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in the applicable financing documents) as a result of the facility
provider's ratings, a replacement provider shall be sought.
iii. Liquidity/Rollover Risk — The risk that arises due to the shorter term
of most liquidity provider agreements (1-5 years) relative to the longer-
term amortization schedule of the City's variable-rate bonds. Liquidity
and rollover risk includes the following risks: (1) the City may incur
higher renewal fees when renewal agreements are negotiated, and (2)
the liquidity bank market may constrict such that it is difficult to secure
third party liquidity at any interest rate. Mitigation — Negotiate longer
terms on provider contracts to minimize the number of rollovers.
B. Derivatives
The use of certain derivative products to hedge variable rate debt, such as
interest rate swaps, may be considered to the extent the City has such debt
outstanding or under consideration. The City will exercise extreme caution in
the use of derivative instruments for hedging purposes, and will consider their
utilization only when sufficient understanding of the products and sufficient
expertise for their appropriate uIse has been developed A comprehensive
derivative policy will be adopted by the City prior to any utilization of such
instruments.
7. REFUNDING GUIDELINES
The Finance Director shall monitor at least annually all outstanding City debt obligations
for potential refinancing opportunities. The City will consider refinancing of outstanding
debt to achieve annual savings or to refinance a bullet payment or spike in debt service.
Except for instances in which a bullet payment or spike in debt service is being
refinanced, absent a compelling reason or financial benefit to the City, any refinancing
should not result in an increase to the weighted average life of the refinanced debt.
Except for instances in which a bullet payment or spike in debt service is being
refinanced, the City will generally seek to achieve debt service savings which, on a net
present value basis, are at least 5% of the debt being refinanced. The net present
value assessment shall factor in all costs, including issuance, escrow, and foregone
interest earnings of any contributed funds on hand. Any potential refinancing shall
additionally consider whether an alternative refinancing opportunity with higher savings
is reasonably expected in the future. Refundings which produce a net present value
savings of less than 5% will be considered on a case-by-case basis. Notwithstanding
the foregoing, a refunding of Successor Agency bonds shall be determined based on
the requirements of Health and Safety Code Section 34177.5.
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8. MARKET COMMUNICATION, ADMINISTRATION, AND REPORTING
A. Rating Agency Relations and Annual or Ongoing Surveillance
The Finance Director shall be responsible for maintaining the City's
relationships with S&P Global Ratings, Fitch Ratings and Moody's Investor's
Service. The City is committed to maintaining its existing rating levels. In
addition to general communication, the Finance Director shall:
1) Ensure the rating agencies are provided updated financial statements of the
City as they become publically available.
2) Communicate with credit analysts at each agency at least once each year,
or as may be requested by the agencies.
3) Prior to each proposed new debt issuance, schedule meetings or
conference calls with agency analysts and provide a thorough update on
the City's financial position, including the impacts of the proposed debt
issuance.
B. Council Communication
The Finance Director should report feedback from rating agencies, when and if
available, regarding the City's financial strengths and weaknesses and areas of
concern relating to weaknesses as they pertain to maintaining the City's
existing credit ratings.
C. Continuing Disclosure Compliance
The City shall remain in compliance with Rule 15c2-12, promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of
1934, by filing (to the extent required by the applicable continuing disclosure
undertaking) its annual financial statements and other financial and operating
data for the benefit of its bondholders within 270 days of the close of the fiscal
year, or by such other annual deadline required in any continuing disclosure
agreement or certificate for any debt issue. The City shall maintain a log or file
evidencing that all continuing disclosure filings have been made promptly.
D. Debt Issue Record-Keeping
A copy of all debt-related records shall be retained at the City's offices. At
minimum, these records shall include all official statements, bond legal
documents/transcripts, resolutions, trustee statements, leases, and title reports
for each City financing (to the extent available).
Such records shall be retained while any bonds of an issue are outstanding and
during the three-year period following the final maturity or redemption of the
bond issue or, if later, while any bonds that refund bonds of that original issue
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are outstanding and for the three year period following the final maturity or
redemption date of the latest refunding bond issue.
E. Arbitrage Rebate
The use of bond proceeds and their investments must be monitored to ensure
compliance with all arbitrage rebate requirements of the Internal Revenue Code
and related Internal Revenue Service regulations, in keeping with the covenants
of the City in the tax certificate for any federally tax-exempt financing. The
Finance Director shall ensure that all bond proceeds and investments are
tracked in a manner which facilitates accurate calculation; and, if a rebate
payment is due, such payment is made in a timely manner.
9. CREDIT RATINGS
The City will consider published ratings agency guidelines regarding best financial
practices and guidelines for structuring its capital funding and debt strategies to
maintain the highest possible credit ratings consistent with its current operating and
capital needs.
Whenever the City of Moorpark receives a credit rating, the City will strive to maintain
`investment grade' standings in the municipal market (BBB-/Baa3 and higher). Below is
the credit rating scale of the three (3) major rating agencies:
Standard & . Fitch Moody's
Poor's Investors Investor's
Corporation Service. Inc. Service, Inc. Definition
AAA AAA Aaa Highest grade credit
AA+ AA+ Aal Very high grade credit
AA AA Aa2
AA- AA- Aa3
A+ A+ Al High grade credit
A A A2
A- A- A3
BBB+ BBB+ Baal Good grade credit
BBB BBB Baa2
BBB- BBB- Baa3
BB+ BB+ Bal Non-investment grade
BB BB Ba2 Speculative credit
BB- BB- Ba3
B+ B+ B1 Very speculative credit
B B B2
B- B- B3
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CCC+ CCC+ Caa1 Substantial risk
CCC CCC Caa2 In or near default with
CCC- CCC- Caa3 possibility of recovery
CC CC Ca
C C
SD DDD C Default
D DD Minimal chance of recovery
D
10. SB 1029 COMPLIANCE
Senate Bill 1029, signed by Governor Brown on September 12, 2016 and enacted as
Chapter 307, Statutes of 2016, requires issuers to adopt debt policies addressing each
of the five items below:
A. The purposes for which the debt proceeds may be used.
Section 3.B (Acceptable Uses of Debt and Proceeds of Debt) and Section 3.C.
/Drohihi+.-d 1 Ise of Deb+ and Ori..+....ds of debt) ...J.,l.-ess the F ..I..ich
`1 1 VI IluILGU VJG ul L./GUI al lu 1 Iul'GGUJ ul VGUL) auui oo LI IG 1.JUI pl JGJ ivr W IU I
debt proceeds may be used.
B. The types of debt that may be issued.
Section 4 (Types of Financing Instruments; Affordable and Planning Policies),
Section 5 (Structure of Debt) and Section 6 (Use of Alternative Debt
Instruments) provide information regarding the types of debt that may be
issued.
C. The relationship of the debt to, and integration with, the issuer's capital
improvement program or budget, if applicable.
Section 3.A (Acceptable Conditions for the Use of Debt) provides information
regarding the relationship between the City's debt and Capital Improvement
Program.
D. Policy goals related to the issuer's planning goals and objectives.
As described in Section 2 (Background), Section 4 (Types of Financing
Instruments; Affordable and Planning Policies), and other sections, this Policy
has been adopted to assist with the City's goal of maintaining fiscal
sustainability and financial prudence.
E. The internal control procedures that the issuer has implemented, or will
implement, to ensure that the proceeds of the proposed debt issuance will be
directed to the intended use.
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Section 3.D (Internal Control Procedures Concerning Use of Proceeds of Debt)
provides information regarding the City's internal control procedures designed
to ensure that the proceeds of its debt issues are spent as intended.
595