$52,950,000 Lease Revenue Bonds Series 2020A (Federally Taxable)
Kosmont Transactions Services, Inc. (KTS) was instrumental in reducing the overall pension costs of City of Placentia (City) by developing and implementing a groundbreaking financing structure where taxable Lease Revenue Bonds were issued by the City to refinance its pension debt.
Like many government agencies, the City has seen geometric growth in its pension costs primarily due to increases in the unfunded liabilities of its pension plan that is administered by the California Public Employees’ Retirement System (CalPERS). Some cities in California have issued taxable “Pension Obligation Bonds” in the municipal bond markets to refinance their pension plans’ Unfunded Accrued Liabilities (UAL), but the process is slow as it requires a validation by the courts.
KTS took the time and made the effort to educate ourselves about the City’s financial condition and circumstances from a holistic perspective and devised an innovative strategy to issue Lease Revenue Bonds against the values of certain park assets to raise the capital needed to refinance the UAL debt. Thanks to the real estate and economic expertise of KTS’s independent affiliate, Kosmont Companies, KTS was able to assemble a roster of City properties that contained adequate value to support the size of the Bond issue and that were acceptable to the rating agencies and investors for use in the lease/leaseback structure as security for the Bonds.
This pioneering structure led to an excellent market reception for the Bonds, reducing the City’s pension costs even more than initially estimated. Moreover, the City also earned a rating upgrade which further served to increase market interest and reduce the City’s total borrowing costs, contributing to even greater pension cost reductions over the next 25 years.
Refinancing of the City’s approximately $48.1 million in UAL payments owed to CalPERS resulted in a reduction of annual repayments from an anticipated peak of $5.4 million in FY2032 to approximately $4.3 million, or $1.1 million in budgetary savings for FY2032 alone. Estimated reductions in UAL repayment expense over the 25 term of the Lease Revenue Bonds are over $14.3 million with average annual cost reductions of over $600,000 per year during the first 17 years. Critically, the average annual savings for the 10 years from FY2026 through FY2035 are over $740,000 per year, which is significant because these were the years with the steepest UAL repayment increases that would have been due to CalPERS.
KTS’s bond structuring expertise and outside-the-box innovations, combined with the resources of the greater Kosmont operation, were all brought to bear on behalf of the City of Placentia to bring meaningful and tangible benefits to the community that will put its budget on more solid footing for years to come.
In Progress – Bond issuance using tax increment generated by the EIFD
To support economic revitalization and development near the City of Placentia’s future MetroLink station, the City and the County of Orange formed an Enhanced Infrastructure Finance District (“EIFD”). The EIFD comprises approximately 300 acres with future development to include residential, commercial, office, retail and hotel.
Incremental tax generated within the EIFD will be used to assist the funding of transit-supportive public infrastructure, including improvements to bicycle and pedestrian connectivity, sidewalks, landscaping, signage, lighting, beautification, public safety access, parking, roadway, circulation, open space, water, sewer and other utility capacity improvements.
The City is working with Kosmont Transactions Services, Inc. to create a financing program and structure the first bond issuance using the tax increment generated by the EIFD.