LOS ANGELES — The successor to Monrovia, Calif.’s redevelopment agency has refinanced a five-year note that went into default last summer while it was trying to get approval from the state for the refinancing.
Monrovia, a city of 36,727 in northeast Los Angeles County, is only the second California city to return to the bond markets with tax-allocation debt after legislation dissolving the state’s 400 redevelopment agencies went into effect in February 2012.
Southwest Securities Inc. was the underwriter on Monrovia’s $13.3 million bonds that sold Feb. 13 at an average interest rate of 4.5% and have a final maturity of Aug. 1, 2022.
They replaced $11.7 million in 2007 subordinate tax allocation notes.
The bonds are subordinate debt, meaning they get paid after senior redevelopment agency debt that is still outstanding. The bonds will be paid by tax increment or additional taxes accrued by the increase in property taxes that resulted from redevelopment.
Before the dissolution of RDAs, Monrovia had a plan to refinance the notes, which had a $11.7 million principal balloon payment at maturity last summer. Instead, the bonds went into default on June 1 because California lacked a process for refinancing the debt of its defunct redevelopment agencies, according to Mark Alvarado, the city’s deputy executive director and finance officer.
“We were not able to refinance because the language in the original legislation eliminating redevelopment didn’t allow it,” he said.
Clean-up legislation in July rectified that problem, but it took until mid-January for the city to get approval from the state’s Department of Finance to refinance the debt, Alvarado said.
“Dealing with the DOF is very difficult and it takes a lot of time,” Alvarado said. “It’s a very bureaucratic process.”
The new issuance received the lowest investment-grade rating, BBB-minus, from Standard & Poor’s but the city still achieved the same interest rates it had anticipated last summer, Alvarado said.
Standard & Poor’s also downgraded Monrovia’s senior redevelopment agency bonds to BBB-plus from A-minus on January 17.
“The downgrade reflects our assessment of management practices after the successor agency did not previously reserve for future debt service on its recognized obligation-payment schedule and set aside all pledged tax revenue for senior debt service, as required in the trust indenture provisions,” Standard & Poor’s senior credit analyst Sussan Corson wrote in the report.
The interest rates on the defaulted notes had soared to 12% from 4.25%, which cost the city an additional $600,000, Alvarado said.
“That was one of things we told the state from beginning, ‘Can you hurry this up, this is costing not just us, but you as well,’ ” he said.
Monrovia likely paved the way for other cities hoping to refinance RDA bonds at lower interest rates, he said.
Stradling Yocca Carlson & Rauth was bond counsel.
Monrovia also settled a lawsuit with a developer for $106 million on Feb. 12, the day before the bonds sold.
S&P had downgraded the city’s issuer rating to BBB-plus from A in September, citing the lawsuit.
Monrovia-based Samuelson & Fetter sued the succesor agency last year contending officials had violated a development agreement and claiming losses of nearly $100 million in future values and profits.
The deal, which still has to be approved by an oversight committee and the Department of Finance, would result in the successor agency transferring two acres to the developer as compensation and paying $610,000 in infrastructure costs for the project.