01-04-2000 - Approval of Agreement for Exoneration of Surety Bond - 1988 Lease Revenue Refunding Bonds (The Lakes Public Parking Project)City of West Covina "
: Memorandum
AGE
TO: City Council and the City Manager ITEM NO.
DATE January 4, 2000
FROM: Christopher J. Chung, Redevelopment Director i ®PRINTED ON RECYCLED PAPER
SUBJECT: APPROVAL OF AGREEMENT, FOR EXONERATION OF SURETY BOND -
1988 LEASE REVENUE REFUNDING BONDS (THE LAKES PUBLIC
PARKING PROJECT).
SUMMARY: The City. Council and Agency Board shall consider the approval of an
Agreement to substitute a cash deposit for a Surety Bond as security for the
$7,750,000- 1988 Lease Revenue Refunding.Bonds (The Lakes Public Parking
Project).
BACKGROUND:'
The $7,750,000 1988 Lease Revenue Refunding Bonds ("Bonds") was issued on August 1, 1988
and a`cash reserve account was established as partial security for the repayment of the Bonds.
On July 24, 1990, funds deposited with the "Trustee for the cash reserve account were released
and replaced by a surety bond issued by American Home Assurance Company in the principal -
amount of $372,395. �pp
Under the Surety Bond Agreement, the'surety bond could be canceled upon a 60-day written
notice from the bond company. In the event of such cancellation, a replacement surety bond
must be presented or American Home Assurance: Company is obligated to pay the full amount of
the bond to the Trustee.
On. August 16, . 1995; American Home Assurance Company issued , a cancellation notice
terminating the surety bond as of September 20, f995.; ,- Following receipt of the cancellation
notice, City staff had 'numerous discussions with West •Covina Lakes Associates ("WCLA") to
develop alternative solutions to provide the needed security, .however, no, agreements were
reached. Since a replacement surety bond was not submitted, the Bond Trustee, Dai-Ichi
Kangyo Bank, submitted a claim on November .17, 1995 to American Home Assurance
Company for the full, amount of•the Surety Bond ($372,395). In lieu of paying $372,395 to the
Bond Trustee," the American Home Assurance "Company rescinded their cancellation of the
Surety Bond.
In December 1998, the Agency Board approved an Agreement which allowed WCLA to obtain
permanent financing with the condition that WCLA deposit $150,000 with the City to be used
for debt service payments on the Bonds in the event of a default by WCLA. These funds amount
to approximately 7 months of debt service and are currently on "deposit with the City. At that
time, it was WCLA's intention to reduce the Surety Bond by the amount of the deposit; however,
no action has been taken to make this reduction. The face value of the surety bond remains at
DISCUSSION:
WCLA has requested the Redevelopment Agency to exonerate the surety bond. They are proposing .
to replace the $372,395 surety bond with a $372,395 cash deposit consisting of $150,000 previously
deposited with the City by WCLA plus an additional amount of $222,395 to be ;deposited with the
City. Once all the funds. are received from WCLA, the :City would transfer the entire amount of
$372,395 directly to the Trustee to satisfy the. reserve requirement. "Agency General Counsel,
Stradling, Yocca, Carlson & Rauth has reviewed and approved* the, attached Agreement for
Exoneration of the Surety Bond and the structure of the. security deposit. Agency staff supports the .
WCLA proposal based on the understanding that a cash _deposit of the full amount of the "reserve
requirement with the Trustee is superior to a.surety. bond.
FISCAL, IMPACT:
The proposed $372,395 cash'reserve account, would'be equal to approximately 17 months of debt
service. Interest .earned on the $372,395 would go into the reserve ,account and could only be
withdrawn for. the purpose of paying principal and interest on the bonds when due and payable as
required under the "bond' documents.