The City of Morgan Hill, as Successor Agency to the Morgan Hill Redevelopment Agency, will issue about $88 million in bonds in order to refund the Agency’s outstanding 2008 variable-rate tax allocation bonds, according to City staff.
The amount includes about $73 million of tax-exempt bonds, and about $15 million in taxable bonds, City staff said. The City has appointed Morgan Stanley as senior manager and De La Rosa & Co. as co-manager for the transaction.
The bonds will be used to refinance the Successor Agency’s remaining obligation on bonds issued by the RDA in 2008, City staff said. With the RDA shut down as of Feb. 1, 2012, the bond payments and other obligations transferred to the Successor Agency, which is run by the City Council.
The bonds issued in 2008 – roughly $100 million worth – have mostly been spent on public infrastructure, downtown improvements including the Third Street Promenade and downtown property purchases for further redevelopment. The City plans to use the remaining 2008 bond proceeds – about $25 million worth – to continue efforts to improve the downtown, and to upgrade the South County Wastewater facility.
The $73 million worth of refunding bonds the City is in the process of issuing will be long-term, fixed-rate bonds, City staff said. The original 2008 bonds are set to be repaid on a short-term, variable-rate schedule.
The bond refinancing will allow the City to pay off the remaining 2008 obligations over the next 20 years at “historically quite low fixed rates – instead of being forced to pay them off over the next six years…on an accelerated” schedule, according to Morgan Hill Finance Director Kevin Riper.
As a result, the City and other taxing jurisdictions – including the Morgan Hill Unified School District, Santa Clara County, Gavilan College, local libraries and the state general fund – will be able to make better and more immediate use of the RDA’s former share of property tax dollars to provide basic services, Riper explained. Without refinancing, “every last dime” of that annual income (about $22 million) would be spent on repaying the original 2008 bond issue.
Though the City will end up paying more in overall interest on the refunding bonds, the transaction is necessary as the letter-of-credit provider for the 2008 bonds is going out of business, Riper added.
The “preliminary official statement” for the new bond issue will be published Friday, City staff said.
