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REVISED MOTION...ITEM #12...SEPTEMBER 6TH COUNCIL AGENDA
Motion:
That staff be directed, in cooperation with the
Blood Bank, to prepare the proper documentation for
entering into contracts authorizing the sale of
certificates of participation and payments under
those agreements; and to retain Brown and Wood as
Bond Counsel and Bank of America or an acceptable
equivalent substitute as Underwriter for the Blood
Bank project.
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CITY OF SAN BERtS;(RDINO - REQUEst fIOR COUNCIL ACTION
From: James E. Robbins
Deputy City Administrator
Dept: City Administrator
Date: August 23, 1989
Subject: City of San Bernardino serve as
conduit relative to issuer of
tax exempt financing in the amount
of $3.5 million for the Blood Bank
of San Bernardino and Riverside
Counties.
Synopsis of Previous Council action:
Recommended motion:
That staff be directed, in cooperation with the Blood Bank, to prepare
the proper documentation for entering into contracts authorizing the
sale of certificates of participation and payments under those agree-
ments; retain Brown and Wood as Bond Counsel and Bank of America as
Underwriter for the Blood Bank project.
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Signature
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Contact person:
James E. Robbins
Phone:
5122
Supporting data attached:
Staff Report
Ward:
FUNDING REOUIREMENTS:
Amount:
Source: (Acct. No.)
(Acct. Descriotion)
Finance:
Council Notes:
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CITY OF SAN BERN2RDINO - REQUEST ~R COUNCIl. ACTION
STAFF REPORT
The Blood Bank of San Bernardino and Riverside Counties is
requesting that the city of San Bernardino serve as conduit
issuer of tax exempt financing in the amount of $3.5 million.
The Blood Bank has outgrown its current facilities on Blood
Bank Drive. The vacant Angels building on Orange Show Road
has been purchased for renovation into their new facility. It
will provide more space for donor accommodations and expanded
laboratory services. This organization now serves
approximately 30 hospitals in both San Bernardino and
Riverside Counties. Its ability to provide sufficient and
quality product is critical to .the well being of both
Counties.
The city has assisted other health facilities, Saint
Bernardines, Community, and Loma Linda, by similar issuances.
In this instance, the City buys the land and facilities from
the Blood Bank; the city, as owner, issues tax exempt
certificates; then the Blood Bank purchases the land and
facilities from the city. The Blood Bank, as the subsequent
owner, with proper documents, makes payments equal to the
repayment of the certificate issue. This repayment process
will be set up so that the City does not incur any cost in
the accomplishment of this funding process.
The underwriting and bond counsel costs of this project will
be paid from the proceeds of the sale. Because the City is
the issuer, both the bond counsel and the underwriter must be
employed by the City to perform their required tasks. The
Blood Bank has been working with Bank of America and Brown
and Wood. Bank of America is an "A" rated institution, and
Brown and Wood is a well-established bond counsel who worked
with the City in establishng the BICEP JPA. It will be
appropriate to retain these firms if this project is to
proceed.
This effort will not affect the City's bonding ~apacity,
because the payments are made from a specially designated and
dedicated fund.
As noted earlier, the Bank of America will serve as
underwriter and as credit enhancer. The City's position is
as a conduit for funding this acquisition and development of
a larger centralized Blood Bank facility in San Bernardino
through a tax exempt issue.
It is recommended that staff be directed, in cooperation with
the Blood Bank, to prepare the proper documentation for
entering into contracts authorizing the sale of certificates
of participation and payments under those agreements; retain
Brown and Wood as Bond Counsel and Bank of America as
Underwriter for the Blood Bank project.
Attachments
75-0264
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1.,/..,01 ,..
August 17, 1989
Mayor W.R. "Bob" Holcomb
and City council Members
300 N. D Street
San Bernardino, CA 92418
Dear Mayor Holcomb and City Council Members:
I am writing to request that the City of San Bernardino
support the acquisition and construction of a larger central
facility for the Blood Bank of San Bernardino & Riverside
counties by serving as a conduit issuer of tax exempt bonds
totalling approximately $3.5 million. Representatives of the
Blood Bank along with our Bond Council, David G. Casnocha of
Brown and Wood, met with Deputy city Administrator/
Administrative Services, Jim Robbins, and City Treasurer,
Craig Graves, to discuss the feasibility of such a project and
the financial implications for the city of San Bernardino.
It was pointed out that through the mechanism of certificates
of participation, and with the additional support of a letter
of credit, the City of San Bernardino could be completely
insulated from any financial obligation; its sole commitment
would be the use of its good name to create the tax exempt
situation for the bonds.
As you know, the Blood Bank of San Bernardino & Riverside
Counties was formed as a private non-profit corporation in
1951, and it has served as the sole provider of blood and
blood services to 30 hospitals in San Bernardino and Riverside
counties since that time. The Blood Bank's main facility and
processing laboratories have always been in the city of San
Bernardino, first at the Orange Show and, since 1967, on Blood
.Bank Road. Given the growth in the population served by the
Blood Bank, and given the myriad of new tests required to
assure the safety of the blood supply, the current facility
on Blood Bank Road has become inadequate, particularly with
regard to donor accommodations and laboratory needs. As a
result, the Blood Bank is seeking to expand significantly by
renovating the old Angel's building on Orange Show Road. In
order to effect this renovation and expansion in a manner
consistent with our need to provide the most economical blood
services to patients in the Inland Empire we would like to be
able to benefit from the lower interest rates that would be
available from a tax exempt bond issue. Given that our
central laboratory and administrative offices are in the city
of San Bernardino, and given our central role in the health
care of patients in San Bernardino we would hope that the city
Council would look favorably upon this request.
YOUR COMMUNITY NON.PROFIT BLOOO BANK
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Mayor W.R. "Bob" Holcomb
and City Council Members
Page 2
August 17, 1989
Enclosed with this letter are copies of letters from two area
hospitals supporting our efforts, a copy of a letter from Bond
Council David Casnocha, indicating that this type of financing
is fairly common and relatively straightforward, and a copy
of a proposal from the Bank of America indicating that
financial support for the Blood Bank is available. These are
the items that were requested by Jim Robbins and Craig Graves
after our preliminary discussion with them. If there are
additional items required prior to this proposal coming before
the Council (hopefully, at its earliest convenience), please
do not hesitate to contact me immediately. Thank you very
much for your consideration of this request.
Arthur J. S lvergleid, M.D.
Medical and Executive Director
AJS:jkdj1744
Enclosures
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SAN BERNARDINO courOi
MEDICAL CENTER
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COUNTY OF SAN BERNARDINO
780 Eost Gilbert Str..t . San Barnsrdlno. CA 92404 . 17141387-8111
CHARLES R. JERVIS
Director, Medical Center
FRANCIS L COMUNALE. M.O.
Medical Director
July 28, 1989
Mayor W. R. "Bob" Holcomb and
City Council Members
300 North "D" Street
San Bernardino, CA 92418
Dear Mayor Holcomb and City Council Members:
I am writing you this letter at the request of the Blood Bank of
San Bernardino and Riverside Counties. As you know, this is the
only source for area hospitals other than donations received
directly by the various health care facilities. The importance
of the Blood Bank to the health care del i very system and the
health of the citizens of the area cannot be overstated.
This institution requests that in order to ob.tain the lowest
possible financing costs and, parenthetically, to reduce the
costs of blood and blood products, that the City of San
Bernardino Ifnd its name to the proposed bond issue.
Ve~y t~0rf/y~S'
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CbARL~ R'. .;lERtIS, Director
C~t~ M;fticalf Center
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I<AlSER PERMANENTE
Kaiser Foundation
Hospitals
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August 1, 1989
Mayor W.R. "Bob" Holcomb
City of San Bernardino
300 North "0" Street
San Bernardino, CA 92418-0001
RE: BLOOD BANK OF SAN BERNARDINO & RIVERSIDE COUNTIES
Dear Mayor Holcomb:
The purpose of this letter is to offer the support of Kaiser Permanente Medical
Center, Fontana, to the Blood Bank of San Bernardino and Riverside Counties in
its effort to solicit your support in assisting and financing its expansion
requirements.
Kaiser Permanente Medical Center, Fontana, is dependent on the blood bank for
large quantities of blood which enable us to maintain our daily patient care
requirements. Given that the blood bank is our first choice in blood
procurement, it is important that this organization remain viable and stable.
We believe the expansion being sought by the Blood Bank will ensure the
availability of blood supplies for the hospitals of San Bernardino and
Riverside County.
We also would support the City of San Bernardino in lending its name to the $3
mill ion bond request sought by the Blood Bank. We hope you will seriously
consider approving this request, as it is extremely important that the two
counties have assurance that an adequate supply of blood is available through
our Blood Bank at all times.
Respectfully submitted,
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Kenneth L. Washington
Acting Hospital Administrator
KLW:pej
. Fontana
<)')61 SiertJ Avenue
. California ')233'j
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PROPOSAL TO ACT AS UNDtRWRITER
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THE BLOOD BANK Or SAN BtRNARDINO AND
RIVERSIDE COUNTItS
BANK Or AMERI CA
Public Finance Department
July 18, Ha9
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Bank of America
Public Finane. O.p.rtm_nt
July lB, 19B9
Mr. Craig Scott
The Bood Bank of San
RiversIde Counties
399 Blood Bank Dr,
San BernardIno, CA
Bernardino 8.
92412
Dear Mr. Scott:
Bank of' America Is pleased to propose a structure which would allow
The Blood Bank of San Bernardino 8. RIversIde CountIes. (liThe Blood
Bank") to access the lowest cost funds available through a tax-exempt
bond Issue, Bank of America would act as a full-servIce underwriter.
managing all aspects of the transactIon.
This proposal addresses the various structural aspects of a long-term
tax-exempt security. such as whether to use credit enhancement and a
comparIson of variable vs. fIxed rate securities,
The successful execution of this type of munIcIpal bond Issue,
especIally when markets are volatIle. depends upon creative
structurIng. market knowledge and tIming. and dIstrIbution power, Our
experIenced team of professIonals Is expert In each and every step or
the process. Bank of AmerIca's track record in structurIng and
underwriting long term tax-exempt financlngs, Including issues for
501(c)3 facIlitIes Is second to none,
~e welcome the opportunity to access
1 n the capital markets. Shoul d you
me at (415) 953-7314.
low cost funds for The Blood Bank
have any questIons. please contact
Sincerely,
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omas p, KIng
As soel ate
Robert E. Giles
VIce President
10 3i ~ II
Bank 1,)1 AmQric~ Nahona! Trust al1d Savingl; AS;r:'lr..i~lir.ln
Puu!iL: Fii:i11)Oe Departmer,l #329G 555 CallfOtnia $\('!l'el S81"', F=rar"ciaco, Caldornia. Q4104 41S/0S3.91t1~
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[XECUTIVE SUMMARY
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. The Blood Bank of San Bernardino 8. Riverside CountIes has a 501<c)3 tax
status. which legally allows It to raise tax-exempt funds If the proceeds
are limited to 501 (C)3 purposes with non qualifyIng portions fundetJ from
other sources. are not used for rel 'gious purposes, and if the Cl ty of San
Bernardino approves and issues certifIcates through the financing
structure outlined in the next section.
. Bank of AmeriCa will act as full-service underwriter. managIng or driving
every facet of the transaction Including:
. Recommending the optimal financing structure
. Recommending members of the financing team
. ArrangIng credit enhancement on the most favorable terms
. Working with counsel to structure documentatIon
. CoordInating with the City of San Bernardino and any other
public entities which may become Involved
. Placement of the securities upon closing
. Credl t enhancement from a AA or better rated commerclal bank or a AAA
municipal bond Insurer Is essential to structuring and placing a cost
effectIve securities Issue for The Blood Bank. Bank of AmerIca has
extensive relatIonships with bond insurers and letter of credit bonds
banks, knows theIr unIque credIt standards for organizations with 501(c)3
tax status, and can persuasIvely present The Blood Bank to secure a cost
effectIve credit enhancement package.
. While a fixed rate Issue Is possible. Bank of America recommends Variable
Rate Demand Bond's for three reasons:
. First, the spread is signIfIcant between fIxed and floating rates
(approxImately 150 basis poInts on July 10. 1989). At the current
market. Interest rates could be as low as 6.0% for a varIable rate
securIty and 7.5% for a fixed rate transaction.
. Secondly. the term of a variable rate Issue Is typIcally much longer
than that of a fl xed rate bond, This Is because the term of the
letter of credit for a fixed rate bond has to match the maturIty for
the bond Issue (I.e. a 20 year fixed rate issue must be supported by
a 20 year letter of credIt). CommercIal banks typIcally Issue
letters of credIt of up to 10 years. which would limit a fixed rate
bond maturity to 10 years.
. ThIrdly. the prepayment optIon Is much more flexible for a variable
rate demand Issue than for a fIxed rate Issue. Under a variable rate
demand issue. The Blood Bank can prepay princIpal at any time with no
prepayment penalty. Under a fixed rate Issue. The Blood BanI<. could
prepay only after a certain period and may Incur a prepayment
penalty. A basIc comparison between fixed and floating rates appears
on the following page.
. Certificates of PartIcipatIon can be Issued as soon as 12 weeks from the
tIme that Bank of America is hIred. with a prelImInary commitment for
credit enhancement obtained wIthIn 30 days.
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BROWN & WOOD
OtOI?Y
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ONE WORLD TRADE CENTER
NEW 'fORK, N. Y. 10048
TELE"'~ONE: 212-839-5300
FACSIMILE: 212 -839 -5599
555 CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA 94104
TELEPHONE; 415-398-3909
FACSIMILE; 415-397-4621
815 CONNECTICUT AVENUE,N.W.
W.ASMIHGTON, D. C. 20006
TELEPHONE: 202-223 -0220
FACSIMILE: 202 -223 -0485
10 EAST 53RO STREET
NEW YORK,N.Y,I0022
TELEPHONE: 212 -308-9300
FACSIMILE: 212 -593 '3599
10900 WILSHIRE BOULEVARD
LOS ANGELES, CA.900204
TELEPHONE: 213 -208-4343
FACSIMILE: 213 ~208 -5740
August 3, 1989
BLACKWELL HOUSE
GUIL.DHALL. YARD
LONDON EC2V SAS
TELEPHONE: 606-1888
F',ACSIMILE: 796 -1807
Dr. Arthur J. Silvergleid
Medical and Executive Director
Blood Bank of San Bernardino
and Riverside Counties
399 Blood Bank Road
San Bernardino, CA 92412
Dear Dr. Silvergleid:
At your request we have reviewed the availability of
tax-exempt financing for the acquisition of land and the
construction of various facilities for the Blood Bank of San
Bernardino and Riverside Counties (the "Blood Bank"). We
believe that tax-exempt financing through a conduit issuer is
available to the Blood Bank, and as bond counsel we are
prepared to render an unqualified opinion with respect to the
exemption from state and federal income tax of obligations
issued by the City of San Bernardino (the "City") to finance
such acquisition and construction.
Our analysis assumes that the Blood Bank is a properly
formed and designated non-profit corporation in compliance with
Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended (the "Code"). We have further assumed that the City
could make the necessary findings of public purpose and Dublic
benefit to the health and welfare of thp. ciLizp.ns of San
Bernardino Tp."ulting from tJlf> health facilities financing in
questJ.on. I assume' that you can provide factual information to
the City which would support such a finding.
The financing structure which I would recommend is
certificates of participation. The Blood Bank would enter into
an Installment Purchase Agreement wherein the Blood Bank sells
to the City the land and facilities in question, which
Installment Purchase Agreement would obligate the City to make
Installment Payments to the Blood Bank in consideration for
their purchase of the facilities.
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Dr. Arthur J. Silvergleid
August 3, 1989
Page Two'
Simultaneously, the City would sell back to the Blood Bank
through an Installment Sale Agreement, which Installment Sale
Agreement would obligate the Blood Bank to make Purchase
Payments to the City. Certificates of participation would be
sold in the City's Installment payment obligation. Since those
obligations are of a pOlitical subdivision, the interest
component of those Installment Payments is tax exempt.
However, in order to completely insulate and protect the City's
general fund and other financial resources of the City from
payment of such obligations, a sole source of monies which the
City would use to make such Installment Payments would be those
Purchase Payments made by the Blood Bank pursuant to the
Installment Sale Agreement. Consequently, the City's
obligation to pay will be solely from a special fund consisting
of monies derived from the Blood Bank itself. Consequently,
there is no general fund exposure to the City. The financing
could be arranged so that through a variety of assignment
agreements the obligations to make payments would be assigned
to a certificate of participation trustee thereby permitting
the Blood Bank to make payments to such trustee directly. This
would obviously eliminate any administrative burden on the part
of the City to collect monies or to write any checks in
connection with the financing.
As I indicated to you, we have completed several financings
of this nature and have a high level of confidence that they
can be expeditiously processed.
I also received and reviewed your letter of July 20, 1989
in which you enclosed copies of the minutes of the meeting of
the Board of Directors of the Blood Bank of November 2l, 1988,
which adequately expressed the Director's intent to pursue
tax-exempt financing for the acquisition of land and
facilities. We are satisfied that this action taken by the
Board of Directors is sufficient basis for reimbursing the
Blood Bank for costs expended pursuant to that November 2l,
1988 intent. Consequently, those monies can appropriately be
included in the sizing of any certificates of participation
transaction.
We look forward to working with you and the City on this
and any other financing needs you might have.
Very truly yours,
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David G. Casnocha
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