Pursuant to an indenture dated May 1, 2008, the City issued the “City of Sparks, Nevada, Tourism Improvement District No.1 (Legends at Sparks Marina) Senior Sales Tax Anticipation Revenue Bonds, Series A” in the aggregate principal amount of $83,290,000.  Also, pursuant to a Subordinate Indenture dated May 1, 2008, the City has issued the “City of Sparks, Nevada, Tourism Improvement District No. 1 (Legends at Sparks Marina) Subordinate Sales Tax Anticipation Revenue Bonds, Series A” in the aggregate principal amount of $36,600,000 (which are solely owned by the developer of the Legends at Sparks Marina, Sparks Legends Development, Inc., aka, RED Development, Inc.).

Since that time, RED Development, Inc. has requested that the City issue refunding STAR bonds for the purposes of 1) reducing interest costs; 2) reducing the amount of the 2008 Subordinate STAR Bonds Series A that are held by RED Development per the provisions of the Disposition, Development and Financing Agreement (DDFA) with an effective date of March 30, 2006, as amended and restated April 2, 2008; and 3) changing the tax status from taxable to tax-exempt of a portion of the outstanding 2008 Subordinate STAR Bonds Series A in accordance with the Internal Revenue Code. 

The outcomes listed above as requested by RED Development, Inc. can be accomplished in accordance with the provisions of Article 7 of the DDFA through the issuance of the following three series of STAR Bonds that would be authorized by the ordinance being considered for approval today:

• Senior STAR Bonds Series 2019A in an amount not to exceed $86,000,000;
• Subordinate STAR Bonds Series 2019B (Tax exempt) in an amount not to exceed $11,500,000;
• Subordinate STAR Bonds Series 2019C (Taxable) in an amount not to exceed $4,500,000.

The proposed Senior STAR Bonds Series 2019A will be sold by way of a limited negotiated public offering to qualified institutional buyers, whereas the Subordinate STAR Bonds Series 2019B (Tax exempt) and Series 2019C (Taxable) will be privately placed solely with RED Development, Inc. 

In accordance with NRS 350.155, the bond ordinance approves a certificate of the City Manager (Exhibit C), as the chief administrative officer of the City, and a report of the City’s financial advisor (also Exhibit C), which describe the substantial benefits in utilizing a negotiated sale for each series of the refunding bonds.

As it pertains to the sale of the Senior STAR Bonds Series 2019A, upon approval of the attached bond ordinance being considered today, a Preliminary Limited Offering Memorandum will be published for review by potential qualified institutional investors.  Sale of the Senior STAR Bonds Series 2019A is anticipated to occur on or around December 10, 2019, with the closing date (to also include the Subordinate STAR Bonds Series 2019B and Series 2019C) anticipated to subsequently occur on or around December 19, 2019.  At closing, the 2008 Senior STAR Bonds Series A and the 2008 Subordinate STAR Bonds Series A will be paid and cancelled.

The following analyses represent expectations of bond sizing and pricing based on current market conditions as of the time this staff report and agenda item was published.  The proposed bond ordinance allows for bonds to be issued up to a maximum value which provides the City flexibility to subsequently finalize the various bond sizes and financial components according to market conditions at the time of sale.

Senior STAR Refunding Bonds Series 2019A Summary Analysis

Issuing 2019 Senior STAR Refunding Bonds will allow for the release of the 2008 Senior STAR Bond reserves and accrued principal of approximately $10.0M in addition to providing approximately $78.9M par value of new Senior refunding bonds (combined total resources equaling $88.9M) which will be used to 1) refund approximately $63.5M of outstanding 2008 Senior STAR Bonds Series A; 2) pay off approximately $15.9M of outstanding 2008 Subordinate STAR Bonds Series A; 3) fund a new Senior STAR Bond Series 2019A reserve fund by approximately $7.9M; and 4) pay bond issuance costs equal to approximately $1.6M.

Interest cost savings are expected to be significant due to reducing the interest rate from 6.50% - 6.75% (depending on date of maturity) currently applied to the outstanding 2008 Senior STAR Bonds Series A to an estimated 2.75% - 3.00% (depending on date of maturity) for the proposed Senior STAR Refunding Bonds Series 2019A.  The aggregated “true interest cost” (including issuance costs, etc.) for the proposed refunding bonds is expected to be approximately 3.359% and result in interest costs savings of approximately $11.4M over the life of the Refunding Bonds Series 2019A (if held to maturity).

Subordinate STAR Refunding Bonds Series 2019B (Tax-exempt) Summary Analysis

Approval of the bond ordinance being considered for approval today will allow approximately $10.4M of Subordinate STAR Refunding Bonds Series 2019B to be issued to be held by RED Development, Inc.  These refunding bonds will have the net effect of reducing the outstanding interest rate from 5.75% to 3.75% as well as changing the tax status from taxable to tax exempt compared to the terms of the previously issued 2008 Subordinate STAR Bonds Series A held by RED Development, Inc.

Subordinate STAR Refunding Bonds Series 2019C (Taxable) Summary Analysis

Approval of the bond ordinance being considered for approval today will also allow for the refunding of approximately $3.9M of outstanding taxable bonds that were authorized in 2008 (the final draw of which was completed earlier this month).  The purpose of the refunding provides the benefit of slightly reducing the outstanding interest rate from 5.75% to 5.50%, as well as the administrative convenience of replacing 2008 bonds with Series 2019C Bonds.

General Summary and Related Items of Note

If approved, the final maturity of all refunding bonds will be June 15, 2028 which is the same as the bonds which were originally issued in 2008.  According to Nevada law, all STAR bonds must be paid only from sales taxes generated from within the Tourism Improvement District (TID) which those bonds were issued to benefit.  When the City created the TID (i.e., Legends at the Sparks Marina), the City pledged 75% of the sales taxes generated within Legends (after the deduction of administrative fees imposed by the Department of Taxation) for the purpose of paying off any relatedly issued STAR bonds. 

Should the retail center perform well (i.e., if retail sales are more than expected), it’s possible that the refunding bonds authorized today to be sold (upon approval of the attached ordinance), could be paid off sooner than June 15, 2028.  However, it’s also true that if the retail center does not perform well (i.e., if retail sales are less than expected), the City assumes no obligation to pay the proposed refunding bonds from any other resource or source of funds.  In other words, STAR bonds are issued solely at the risk of the investor which, when considering the inherent risk of such bonds, is a key factor for requiring the Senior STAR Refunding Bonds Series 2019A to be sold only to qualified institutional investors (in minimum increments of $25,000).

A separate agenda item is also being presented today seeking approval of a non-binding Memorandum of Understanding (MOU) designed to clarify the understanding between the City and RED Development, Inc. regarding the conditions precedent needed to issue the final series of Senior STAR bonds should the retail center perform well and create further bonding capacity at some point in the future.  That MOU is designed to clarify our understanding (both the City’s and RED Development Inc.’s) that there may be one more final Senior STAR bond issued sometime before June 15, 2028 when the TID terminates (the date of that final issuance being unknown as it’s dependent upon the future retail performance of the center), and if the final series of Senior STAR Bonds is issued, there will be no additional Subordinate STAR bonds issued in connection therewith.  Also, the MOU being presented today as a separate agenda item is not required to be approved by the Sparks Redevelopment Agency since it is not amending or modifying the DDFA (to which the Sparks Redevelopment Agency is a party), but merely clarifying the understanding of existing provisions of the DDFA between the City and RED Development, Inc.

Pertaining to the sale of and issuance of the proposed refunding bonds, the bond ordinance authorizes the execution and delivery of the following documents and agreements on file with the City Clerk:

• The proposed form of the Supplemental Senior Indenture pertaining to the 2019A Bonds;
• The proposed form of the Bond Purchase Agreement pertaining to the 2019A Bonds;
• The proposed form of the Continuing Disclosure Agreement pertaining to the 2019A Bonds;
• The proposed form of the Preliminary Limited Offering Memorandum pertaining to the 2019A Bonds; and
• The proposed form of the Supplemental Subordinate Indenture pertaining to the 2019B and 2019C Bonds

These forms on file with the City Clerk are in “proposed substantially final form” at this point which means they are essentially complete but lack certain bond terms that may be delegated (such as final pricing terms) which won’t be known until a later date (e.g., after the bond sale date which is expected to be on or around December 10, 2019).

In order to provide the flexibility needed to proceed with the proposed bond sale that will require timely execution of pricing terms according to rapidly fluctuating market conditions, City Council is being asked to pass the proposed bond ordinance as if an emergency exists as allowed within the provisions of NRS 350.579.  This section of the NRS requires passage of such a bond ordinance by two-thirds vote (i.e., 4 votes from Sparks Council members) regardless of how many Council members are in attendance the day of the vote.

1. Council may choose to approve Bill No.2768 creating an ordinance authorizing the issuance of the three    aforementioned refunding bonds and authorizing the execution and delivery of specified agreements, documents and instruments in connection therewith.

2. Council may choose to not approve Bill No.2768, thus not creating an ordinance authorizing the issuance of the three aforementioned refunding bonds and provide the City Manager with further guidance authorizing the execution and delivery of specified agreements, documents and instruments in connection therewith.

“I move to approve Bill No. 2768, creating an ordinance authorizing the issuance by the City of Sparks, Nevada of its Tourism Improvement District No. 1 (Legends at Sparks Marina) Senior Sales Tax Anticipation Revenue Refunding Bonds, Series 2019A in the maximum principal amount of $86,000,000, its Tourism Improvement District No. 1 (Legends at Sparks Marina) Subordinate Sales Tax Anticipation Revenue Refunding Bonds, Series 2019B (Tax-Exempt) in the maximum principal amount of $11,500,000 and its Tourism Improvement District No. 1 (Legends at Sparks Marina) Subordinate Sales Tax Anticipation Revenue Refunding Bonds, Series 2019C (Taxable) in the maximum principal amount of $4,500,000, authorizing the execution and delivery of specified agreements, documents and instruments in connection therewith; providing other matters relating thereto; and providing for its adoption as if an emergency exists.”