To: Honorable Mayor and Members of Town Council
From: Michael J. Hyman, Town Attorney
Title
Lanterns Metropolitan District No. 3 - Review of Proposed Bond Issuance
Body
______________________________________________________________________
Executive Summary
Lanterns Metropolitan District No. 3 (the “District”) intends to issue bonds as authorized by its First Amended and Restated Service Plan (the “Service Plan”). Specifically, the District is proposing the issuance of its: (i) Limited Tax General Obligation Bonds, Series 2023A-1, in the estimated amount of $6,000,000; (ii) Limited Tax General Obligation Convertible Capital Appreciation Bonds, Series 2023A-2, in the estimated amount of $7,567,918, and (iii) Subordinate Limited Tax General Obligation Bonds, Series 2023B, in the estimated amount of $3,093,000 (the “2023 Bonds”). The proceeds of the 2023 Bonds will be used primarily to finance public improvement costs authorized by the Service Plan, including a water system, sanitary sewer system, storm sewer system, on and off-site road improvements, and trails.
The District has submitted documentation to the Town Manager, Town Attorney and Director of Finance showing that the District will be able to repay the 2023 Bonds, while remaining within the debt and mill levy parameters authorized by the Service Plan. Under the Castle Rock Municipal Code (the “Town Code”), the proposed transaction is presented for review and comment by the Town Council, but no formal approval is required or authorized.
Background
Organization and Service Plan. The District was organized pursuant to a service plan approved by the Town Council on September 16, 2014, which plan was amended and restated in its entirety and approved by Town Council on August 21, 2018.
Under the Service Plan, the District has a debt cap of $87,000,000. The debt mill levy cap of the District is 63.6 mills, subject to future adjustments in assessed valuation in order to prevent the diminution of actual tax revenues. The maximum term of the debt mill levy is 35 years on any single property developed for residential use.
Section 11.02.110 of the Town Code. Section 11.02.110 of the Town Code provides that metropolitan districts must submit a proposed financing for the issuance or refinancing of debt, including certain information and documents related to the proposed debt, such as the interest rate, financing costs, the type of revenues pledged, the amount of the mill levy pledged, and the offering statement (the “Proposed Debt Documents”), to the Town for review and comment before issuing or refinancing the proposed debt. Such submission must include a certification by the District that the proposed issuance is authorized by and in compliance with the Consolidated Service Plan.
Proposed Bonds. The District’s current Financing Plan proposes the issuance of its Series 2023A-1 Bonds in the estimated amount of $6,000,000. The interest rate currently assumed is 6.50% and is based upon a 30-year maturity. The Plan further proposes the issuance of the District’s Series 2023A-2 Bonds in the estimated amount of $7,567,918. The interest rate currently assumed is 7.00% and is also based upon a 30-year maturity. Lastly, the Plan proposes the issuance of District’s Series 2023B Bonds in the estimated amount of $3,093,000. The interest rate currently assumed is 9.50% and is again based upon a 30-year maturity.
District Submission of Proposed Debt Documents. On September 1, 2023, the District submitted various Proposed Debt Documents to the Town, including a draft term sheet and a Preliminary Limited Offering Memorandum, which show that the District can repay the 2023 Bonds.
Staff Recommendation
Based on the Proposed Debt Documents that the District submitted, Town Staff finds that the proposed bond issuance complies with the Service Plan and Section 11.02.110 of the Town Code. Town Staff further recommends that the District be allowed to move forward with the issuance of the 2023 Bonds as proposed.
Attachments
Attachment A: Letter to Town of Castle Rock
Attachment B: Certificate Concerning District Financing