MEMORANDUM

TO:  Mayor Tom Potter

 Commissioner Sam Adams

 Commissioner Randy Leonard

 Commissioner Dan Saltzman

 Commissioner Erik Sten

 City Auditor Gary Blackmer

FROM:  Eric Johansen, Debt Manager

DATE:  January 10, 2005

SUBJECT:  Ordinance Authorizing Issuance of Limited Tax Revenue Refunding Bonds

Attached is an ordinance for Council consideration and approval on January 19, 2005. The proposed Ordinance authorizes the issuance of limited tax revenue refunding bonds in order to refinance outstanding bonds originally issued to fund the City’s portion of the Oregon Arena Project. The estimated amount of refunding bonds to be issued is approximately $31.3 million. The primary purposes of the refunding are to realize debt service savings, to restructure the debt to more closely match projected revenues from the Arena Project, and to simplify the lien structure associated with the bonds.

Proceeds of the proposed refunding bonds will be used to advance refund the City’s Arena Limited Tax Revenue Bonds 1996 Series A and B, the Arena Limited Tax Bonds, 1996 Series A and the Arena Gas Tax Revenue Bonds, 1996 Series A (collectively “the 1996 Bonds”).

Based on current market conditions, the amount of projected present value savings from the refunding is approximately $5.6 million. The projected savings ratio of 18.1% (present value savings divided by the amount of refunding bonds) is well is excess of the City’s debt policy requirement of 5.0%.

The proposed refunding bonds will also restructure the debt service associated with the Arena Project to more closely track the projected revenues from the Arena Project. The 1996 Bonds were originally structured based on revenue projections prepared prior to the existence of a lengthy operating history for the Arena Project. Now, based on nine years of operating history, a more accurate projection of future revenues justifies a restructuring of debt in a manner that is likely to accelerate the final maturity of the Arena Bonds.

A final element of the proposed refinancing is a change is the security structure underlying the bonds. The 1996 Bonds are secured by a complex three-tiered pledge of the Arena Net Revenues. First tier bonds are secured by a first priority pledge of the Arena Net Revenues. Second tier bonds are secured by a second priority pledge of Arena Net Revenues and by a pledge of the City’s Net Meter Revenues. Both the first and second tier bonds are additionally and ultimately secured by a pledge of the Available General Funds of the City.

The third tier bonds are secured by a third priority pledge of Arena Net Revenues and by a pledge of the City’s gas tax revenues. The third tier bonds are not secured by the City’s Available General Funds.

The proposed ordinance simplifies the security structure to eliminate the formal pledge of Arena Net Revenues to the refunding bonds. While the bonds will still be payable from the net revenues of the Arena Project, eliminating the formal pledge of the revenues to the bonds, will allow more flexible use of the excess arena revenues for other needs including PGE Park.

In addition, the proposed ordinance eliminates the formal pledge of the Net Meter Revenues and Gas Tax Revenues to their respective shares of the refunding bonds. While the formal pledge of such revenues is proposed to be eliminated, the Office and Management and Finance and Office of Transportation will enter into an internal agreement whereby PDOT will continue to provide a contingent pledge of Net Meter Revenues and Gas Tax Revenues to their respective shares of the refunding bond debt service. Based on current projections of Arena revenues, it is not anticipated that Net Meter Revenue or Gas Tax Revenues will be needed to support the debt service on the refunding bonds; nonetheless, should such a situation arise, such revenues would be available to service a portion of the refunding bond debt service.

In total, the proposed changes to the security structure of the Arena bonds are intended to simplify the financial management of the Arena project, to provide greater flexibility in the use of excess Arena revenues and to reduce debt service costs by securing all Arena bonds by the full faith and credit of the City.

If you have any questions, please call Eric Johansen at x3-6851.