Presentation Title AGLF Lawyers Panel Juliet H. Huang Presenters Partner Chapman and Cutler LLP Anne L. Barragar Partner Davis Wright Tremaine Maryann Santos Internal Counsel and Business Operations Manager Capital One Public Funding, LLC
Topics for Discussion • Buena Vista, Virginia (or Putting Up City Hall to Finance a Golf Course) § Annual Appropriation Leases for New Mexico Schools § Michigan ESPC Law § Perfecting Vehicle Liens in Various States § Indemnity by Lenders § Appropriation Mechanics § Proposed Changes to MSRB Rule G-34 for CUSIPs and SEC 15c2-12 Amendment § XaaS (anything as a service) 1
City of Buena Vista, Virginia: (or Putting Up City Hall to Finance a Golf Course) 2
City of Buena Vista, Virginia: (or Putting Up City Hall to Finance a Golf Course) • Buena Vista, Virginia is nestled in the Shenandoah Valley at the foothills of the Blue Ridge Mountains • Population around 6,650 • In 2004, the 18-hole Vista Links Golf Course was opened in an attempt to ignite the City’s economy • City believed the Golf Course would anchor and attract economic development • Feasibility study projected the Golf Course would pay for itself • Expectations were that the 70 acres surrounding the Golf Course would be developed with a hotel, homes, small businesses and restaurants • City took out a loan to construct the Golf Course, then refinanced it in 2005 with Lease Revenue Bonds 3
Transaction ¡Diagram: ¡City ¡of ¡Buena ¡Vista, ¡Virginia ¡ Municipal ¡Golf ¡Course ¡and ¡Lease ¡Revenue ¡Bond ¡Issue City of Buena Vista, Virginia Public Recreational (“City”) holds Trustee for Facilities Authority of fee simple title Lease Agreement: City leases Municipal Bondholders the City of Buena Vista Trust Agreement: to City Hall Golf Course from Authority. The rental (“Authority”) holds The Authority issues and Police obligation is secured by Golf Course legal title to Municipal $9,205,000 of Lease Department Revenues and the Deeds of Trust, and Golf Course Revenues Bonds additionally payable from subject to (Golf Course annual appropriation . Project), Series 2005A, which are Essentiality Certificate: City insured by ACA. Authority Deed of declares the refinancing and leasing of the Municipal Golf Trust: Fee simple grant Course to be essential to the of the Vista Links Golf Course (“Municipal government functions of the City. Golf Course”) for benefit of Trustee, securing obligations under the Lease City Deed of Agreement Trust: Fee simple grant of the City Hall and Police Department for benefit of Trustee, ACA Financial Guaranty securing Corporation: insures the obligations under Bonds; subrogated to rights of the Lease bondholders; third-party Agreement beneficiary under Lease Agreement, Deeds of Trust and Trust Agreement. 4
City of Buena Vista, Virginia: (or Putting Up City Hall to Finance a Golf Course) § Soon after Golf Course was completed, the Great Recession hit § Development surrounding Golf Course never materialized § Except for one profitable year, Golf Course lost hundreds of thousands of dollars annually § City had to pay lease payments from its own strained coffers ($665,462 annually) § City’s 2016 CAFR indicates Golf Course has required general fund subsidies totaling $5.6 million since operating § In 2010 City failed to pay $423,000 § Debt service reserve fund paid bondholders for 1 year § City tried to put Golf Course up for sale, cut staff from seven to two and reduced fertilization and watering 5
Buena Vista, Virginia: ACA Financial Guaranty Corporation v. City of Buena Vista § Faced with a decision to either fund essential services (education, public safety, the library and social services) or the Golf Course, in 2010 the City Council decided not to appropriate funds to pay lease payments § Moody’s downgraded City to Ba1 from A1, then withdrew its rating § Actions impacted the City’s ability to finance needed infrastructure – the Virginia Resources Authority denied the City’s request for a loan for its water treatment facility § VRA encouraged City to return to table with bond insurer and work on improving its borrowing profile § Davenport & Co. was informally engaged and likely advised City to workout adjustment with bond insurer rather than nonappropriate 6
Buena Vista, Virginia: ACA Financial Guaranty Corporation v. City of Buena Vista § City asked ACA to forbear from exercising rights and remedies under the Lease Documents and Deeds of Trust § ACA agreed to Forbearance Agreement on July 1, 2011 allowing City to pay 50% of its debt service for five years through January 1, 2016, with the deferred amount to be paid over five years after the Bonds’ original maturity § Under Forbearance Agreement, City and Authority expressly ratified and reaffirmed the validity of the Lease Documents and Deeds of Trust § City sold Wastewater Revenue Bonds in the public market two weeks after the Forbearance Agreement was signed § City made the adjusted lease payments for next 3 and half years 7
Buena Vista, Virginia: ACA Financial Guaranty Corporation v. City of Buena Vista § Then, in January 2015, the City nonappropriated on lease payments and has not made any lease payments since then § City’s perspective: “The amount of payments required over next 27 years are insurmountable.” § Financial burden has forced City to push aside other projects. § ”Almost no infrastructure has been improved, the roads have not been improved, the water and sewer pipes have not been improved, the schools need help, the buildings in the schools need to be repaired.” § The City has raised taxes. But citizens want City’s focus to be on essential improvement projects, not a golf course. 8
Buena Vista, Virginia: ACA Financial Guaranty Corporation v. City of Buena Vista § Interestingly, ACA’s contends that City operations have improved since 2005 and since the Forbearance Agreement was signed in 2011 § In fact, City’s 2015 Annual Report stated: “The City’s economic condition is stabilizing and the long-term economic prospects appear quite positive. The City anticipates significant growth in capital expenditures that will fuel local expenditures. As a result, a substantial increase in the City’s tax base and corresponding local revenues should be attained benefiting its citizens and the surrounding geographic area.” • “However, for political or other reasons – perhaps recognizing in retrospect that the entire Project was a bad idea – the City now refuses to make the appropriations and payments that it originally agreed to make” ~ from ACA complaint 9
Buena Vista, Virginia: Essentiality Certificate Or Putting Lipstick on a Pig § Of course, when the Bonds were issued, t he City signed an Essentiality Certificate, declaring the golf course to be “essential to the governmental functions of the City”: “The Bond proceeds will be used for the purpose of performing one or more governmental or proprietary functions of the City consistent with the permissible scope of the City’s authority…the City has an immediate need for the benefits to be realized by the City as a result of the financing/refinancing of the Project, and the City anticipates that the leasing of the Project pursuant to the Lease Agreement will remain essential throughout the term of the Bonds. The City has determined that the Project is essential to the welfare of the City’s citizens and the economic development of the City .” 10
Buena Vista, Virginia: ACA Financial Guaranty Corporation v. City of Buena Vista “This issue has hindered the City of Buena Vista’s progress for the past decade, and today the City is announcing decisive action to secure our future.” ~ Statement of Buena Vista City Council after voting to stop making payments on Golf Course in December 2014 11
Buena Vista, Virginia: ACA Financial Guaranty Corporation v. City of Buena Vista “The prior City Council acted more responsibly. Once the [2011] City Council heard the reactions of various advisors and state officials they understood that their actions would affect the City’s future access to financing, so they came to ACA and asked for leeway while the City figured out a long-term solution for the golf course…We worked in good faith with the City several years ago to accommodate the City’s needs, and the City was making progress in following the terms of that deal until this abrupt policy change...Now, part way through this forbearance period and even though funds for the required payments were included in the budget the City approved earlier this year, they’ve simply thrown up their hands and have refused to pay the reduced debt schedule that was agreed to by the City.” ~ Statement by head of remediation at ACA Financial Guaranty Corporation 12
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