Bond, Consulting or Both:
NHA Contributions: NHA worked with the City to analyze dozens of options for both restructurings. NHA conducted several stress tests to ensure that the ultimate structures could withstand downturns in the economy with a low impact to the City’s general fund. In order to achieve this resiliency for the City, NHA helped structure debt service on the 2020 POBs to achieve an overall pension cost profile (inclusive of Normal Costs) would grow at 1% each year in order to better mimic the projected growth rate in assessed valuation and the pension tax override. NHA managed the credit analysis on both transactions to achieve “A” category ratings and bond insurance on the POBs. The refinancing will generate critical upfront savings and long-term resiliency during a time of financial challenges from reduced sales tax revenues due to COVID-19.
Project Completion: June 2020
NHA Contact: Eric Scriven and Mike Meyer
Unique Characteristics of Project: The City of El Monte closed two very creative pension UAL restructurings over a 2-week period in June. The $118.7 million POB was secured by a pension tax revenue override and structured to insulate the City’s general fund to economic shocks over the next 30 years. The $20 million lease revenue bond funded the City’s UAL with PARS and generated over $8 million of upfront relief to address COVID-19 related sales tax declines. Rates achieved for both transactions were under 3.9%.
Executive Summary: NHA was engaged by the City in the summer of 2019 to evaluate UAL restructuring options for both its $130 million CalPERS UAL and its $16 million UAL with PARS (non-CalPERS plan). In addition to interest rate savings, the City wanted to optimally leverage its pension tax override revenue stream in way that would insulate its General Fund to future economic shocks (such as assessed value declines or poor CalPERS returns). The $120 million 2020 POBs funded the portion of the City’s UAL that was secured by the pension tax override and re-shaped the payments to better mimic projected revenues. The structure was validated in the courts and uniquely structured to enhance the creditworthiness of this double-barreled security. Over 20 million of benefit to the General Fund is expected, as well as the ability to reduce the tax override rate in the future, which will benefit City residents.
The 2020 Lease Revenue Bonds funded the majority of the City’s UAL with PARS, generated $6 million of upfront proceeds to bolster reserves that were pressured due to COVID-19, and extended payments to 20 years from 10 years to better match assets to liabilities.