To: Honorable Mayor and Members of Town Council
Through: David L. Corliss, Town Manager
From: Michael J. Hyman, Town Attorney
Title
Lanterns Metropolitan District No. 2 Proposed 2021 Debt Issuance of Limited Tax Senior Cash Flow General Obligation Bonds, Series 2021A
Body
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Executive Summary
Lanterns Metropolitan District No 2 (the “District”) wishes to issue debt as authorized through an amended a restated service plan approved by Town Council on August 21, 2018. The District desires to issue Limited Tax Senior Cash Flow General Obligation Bonds to raise capital to pay for public improvements in the District.
Given the nature of a bond tender transaction, the precise details and negotiations are on-going, but the District has provided a term sheet outlining the bond issuance not to exceed $22.7M to accomplish completion of the public improvements required for the District. The District is approximately 10% built-out.
The District has submitted documentation to the Town Manager, Town Attorney and Director of Finance showing that the proposed debt issuance will result adherence to the required mill levy in the service plan and shows that the District can repay the proposed debt.
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 in 2002, following the Town’s approval of the original Service Plan. The District currently operates pursuant to its Second Amended and Restated Service Plan, which the Town Council approved on August 21, 2018 (the “Service Plan”). The Service Plan provides that if the District intends to issue general obligation debt above the amount contemplated in the Service Plan, the District shall submit to the Town Manager and Town Attorney a revised financial plan based on verifiable build-out projections, which shows that the District can pay the required debt service payments on the proposed indebtedness.
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 refinancing is authorized by and in compliance with the Service Plan.
The District’s Outstanding Debt. In 2019, the District issued $22,120,000 of general obligation bonds leaving $64,880,000 in remaining general obligation debt authorization under the Service Plan. The aggregate principal amount of the Bonds together with the principal amount of the outstanding District bonds will not exceed the foregoing Service Plan limitation. The District intends to apply the original principal amount of the Bonds against the debt authorization obtained.
Proposed 2021 Tender. The District’s proposes the issuance of 35-year Senior Lien Bonds. These Bonds are cash flow bonds, which means that bondholders receive payment when funds are available from the collection of the District’s Mill Levy. Payments of principal and interest on these Senior Lien Bonds must also be made prior to the payment of principal and interest on any subordinate bonds issued by the District. Available revenues produced from the District’s Mill Levy and specific ownership taxes generated from the Mill Levy will be used to pay current interest, accrued interest, and principal. Additionally, this series allows for compounding interest, with initial an estimated initial interest rate of 5.25%. Any outstanding balance, unpaid principal, and compounded interest is discharged on December 2, 2056. The District’s Mill Levy is approximately 64 mills, adjusted with any valuation method change. The maximum combined tax rate for debt service and operations is 74 mills, which puts the District toward the high end of total mills as compared with other districts Town-wide.
District Submission of Proposed Debt Documents. On June 16, 2021, the District submitted various Proposed Bond Issuance Documents to the Town Attorney and Town Manager, including draft Indentures, a Preliminary Limited Offering Memorandum, and a revised financial plan based on verifiable build-out projections (supported by a draft market study), which show that the District can repay the proposed bond issuance in 30 years.
Staff Recommendation
Based on the Proposed Debt Documents that the District submitted to Town Staff, 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 proposed bond issuance with the following general comments from the Town Council:
1. The term of metropolitan district bonds should not exceed 30 years.
2. Interest on metropolitan district bonds should not compound.
Attachments
Attachment A: District Certificate of Compliance