PRELIMINARY OFFICIAL STATEMENT DATED OCTOBER __, 2014
NEW ISSUE (BOOK-ENTRY ONLY) Ratings: S&P “A-”
(See “Ratings” herein.)
In the opinion of Bond Counsel to the Authority, based on existing laws, regulations, rulings and court decisions and assuming, among other matters, the accuracy of certain certifications and compliance with certain covenants, interest on the Bonds is excludable from gross income for federal income tax purposes. Interest on the Bonds is not a specific preference item for purposes of the federal individual and corporate alternative minimum taxes but such interest is included in adjusted current earnings in computing the federal alternative minimum taxes imposed on certain corporations. Bond Counsel is also of the opinion based on existing laws of the State of California as enacted and construed that interest on the Bonds is exempt from State of California personal income taxes. Bond Counsel expresses no opinion regarding any other tax consequences relating to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See “TAX MATTERS” herein.
$______[*]INDEPENDENT CITIES FINANCE AUTHORITY
MOBILE HOME PARK REVENUE REFUNDING BONDS
(HACIENDA VALLEY ESTATES) SERIES 2014
Dated: Date of Delivery Due: As shown on inside page
The Bonds, defined below, are being issued pursuant to an Indenture of Trust, dated as of November 1, 2014 (the “Indenture”), between the Independent Cities Finance Authority (the “Authority”) and MUFG Union Bank, N.A., as trustee (the “Trustee”). The proceeds of the Bonds are to be used primarily to fund a loan to Millennium Housing, LLC, a California limited liability company (the “Borrower”), to (i) refund in full certain Prior Bonds issued to finance the acquisition and improvement of the Hacienda Valley Estates located in the City of Morgan Hill, California (the “Project”), (ii) fund the Debt Service Reserve Fund, (iii) fund the Restricted Account of the Repair and Replacement Fund and (iv) make deposits to the Cost of Issuance Fund established under the Indenture.
The Bonds will be delivered in fully registered form only and, when issued, will be registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository of the Bonds. Ownership interests in the Bonds may be purchased in denominations of $5,000, or any integral multiple thereof, in book-entry form only as described herein. Upon receipt of payments of principal of, premium, if any, and interest on the Bonds, DTC will in turn remit such principal, premium, if any, and interest to the participants in DTC (as described herein) for subsequent disbursement to the beneficial owners of the applicable series of Bonds. Interest on the Bonds is payable semiannually on May 15 and November 15 of each year, commencing May 15, 2015.*
The Bonds are subject to optional, mandatory and special redemption prior to their respective maturity dates as described herein.
The Bonds are special limited obligations of the Authority, payable solely from Pledged Revenues and secured as to the payment of the interest on and the principal of the Bonds in accordance with their terms and the terms of the Indenture from Pledged Revenues and other funds and a first lien deed of trust on the Project, all as provided therefor in the Indenture.
Pledged Revenues consist of Revenues, except for amounts on deposit in the Unrestricted Account of the Repair and Replacement Fund, the Administration Fund and the Rebate Fund created under the Indenture. Revenues consist of Operating Revenues, Prepayments, the proceeds of certain insurance required to be maintained under the Loan Agreement, the amounts of the funds and accounts held by the Trustee under the Indenture, all proceeds of rental interruption insurance policies, if any, required to be maintained under the Loan Agreement, any proceeds derived from the exercise of remedies under the Deed of Trust and any additional property that may be subjected to the lien of the Indenture by the Authority, all as more fully set forth in the Indenture.
This cover page contains certain information for general reference only. It is not intended as a summary of this transaction. Investors are advised to read the entire Official Statement to obtain information essential to making an informed investment decision with respect to the Bonds.
Maturity Schedule
PLEASE SEE THE INSIDE COVER HEREOF
The Bonds are offered when, as and if executed and delivered, subject to the approval as to their legality of Ballard Spahr LLP, Bond Counsel to the Authority, and certain other conditions. Certain legal matters will be passed upon for the Authority by Best Best & Krieger LLP, Los Angeles, California, Authority Counsel, and Ballard Spahr LLP, as Bond Counsel to the Authority, and for the Borrower by Goldfarb & Lipman LLP, Oakland, California and Charles, Kane & Dye, LLP, Newport Beach, California. It is anticipated that the Bonds will be available for delivery through the facilities of DTC in New York, New York on or about November __, 2014.
The date of this Official Statement is November __, 2014.
MATURITY SCHEDULE[*]
INDEPENDENT CITIES FINANCE AUTHORITY
MOBILE HOME PARK REVENUE REFUNDING BONDS
(HACIENDA VALLEY ESTATES)
$______SERIES 2014
$______Serial Bonds
Principal / Maturity / InterestAmount / Date / Rate / Yield / Price / CUSIP(1)
$______– ______% Term Bonds due November 15, 20__, Price – _____%; CUSIP(1) ______
$______– ______% Term Bonds due November 15, 20__, Price – _____%; CUSIP(1) ______
$______– ______% Term Bonds due November 15, 20__, Price – _____%; CUSIP(1) ______
$______– ______% Term Bonds due November 15, 20__, Price – _____%; CUSIP(1) ______
$______– ______% Term Bonds due November 15, 20__, Price – _____%; CUSIP(1) ______
(1) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein are provided by Standard & Poor’s CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc., and are provided for convenience of reference only. Neither the Authority nor the Underwriter assumes any responsibility for the accuracy of these CUSIP data.
NEITHER THE AUTHORITY, ANY OF ITS MEMBERS (THE “MEMBERS”), NOR ANY PERSON EXECUTING THE BONDS IS LIABLE PERSONALLY ON THE BONDS OR SUBJECT TO ANY PERSONAL LIABILITY OR ACCOUNTABILITY BY REASON OF THEIR ISSUANCE. THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE AUTHORITY AND ARE NOT A DEBT, NOR A PLEDGE OF THE FULL FAITH AND CREDIT, OF THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS, AND NEITHER ARE THEY LIABLE ON THE BONDS, NOR ARE THE BONDS PAYABLE OUT OF ANY FUNDS OR PROPERTIES OTHER THAN THE PLEDGED REVENUES AND FUNDS PLEDGED UNDER THE INDENTURE FOR THE PAYMENT THEREOF. THE ISSUANCE OF THE BONDS DOES NOT DIRECTLY OR INDIRECTLY OR CONTINGENTLY OBLIGATE THE AUTHORITY, THE MEMBERS, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR TO PLEDGE ANY FORM OF TAXATION THEREFOR OR TO MAKE ANY APPROPRIATION FOR THEIR PAYMENT. THE AUTHORITY HAS NO TAXING POWERS.
INDEPENDENT CITIES FINANCE AUTHORITY
GOVERNING BOARD
MEMBERS:
Baldwin Park, Compton, Huntington Park,
Lynwood, San Fernando, South Gate, Vernon
ASSOCIATE MEMBERS:
Alhambra, Apple Valley, Azusa, Barstow, Bell, Bellflower, Brea, Capitola, Carpinteria, Carson, Chino, Claremont, Colton, Commerce, Covina, Downey, Duarte, El Monte, Fairfield, Fontana, Fresno, Gardena, Garden Grove, Glendale, Glendora, Hawaiian Gardens, Hawthorne, Hermosa Beach, Indio, Inglewood, La Habra, La Puente, Lakewood, Lancaster, Lawndale, Long Beach, Los Angeles, Monrovia, Montclair, Montebello, Monterey Park, Morgan Hill, Norwalk, Oceanside, Palmdale, Palm Springs, Paramount, Pico Rivera, Planada Community Services District, Pomona, Rancho Cucamonga, Rialto, Riverside, Rohnert Park, Salinas, San Bernardino, San Bernardino County, San Diego County, San Juan Capistrano, San Marcos, San Mateo County, Santa Clarita, Santa Rosa, Signal Hill, Vista, West Covina, Whittier, Yucaipa
AUTHORITY OFFICERS
W. Michael McCormick, President (City of Vernon)
Deborah J. Smith, Secretary and Executive Director
SPECIAL SERVICES
Financial Advisor to the Authority
Wolf & Company Inc.
Los Angeles, California
Authority Counsel
Best Best & Krieger LLP
Los Angeles, California
Bond Counsel
Ballard Spahr LLP
Trustee
MUFG Union Bank, N.A.
Los Angeles, California
Underwriter
Newcomb Williams Financial Group,
Securities offered through Stinson Securities, LLC
Carlsbad, California
TABLE OF CONTENTS
Page / Pageii
Page / PageINTRODUCTION 1
Forward Looking Statements 3
THE PLAN OF FINANCING 4
ESTIMATED SOURCES AND USES OF FUNDS 4
DEBT SERVICE REQUIREMENTS* 4
THE BONDS 7
General 7
Redemption 7
Purchase of Bonds 11
Book-Entry System 11
SECURITY FOR THE BONDS 13
Net Operating Revenues 13
Pledge 14
The Loan Agreement and the Note 15
Borrower Obligations Non-Recourse 15
Reserve Fund 15
THE INDENTURE 16
Application of Bond Proceeds 16
Project Fund 16
Cost of Issuance Fund 16
Deposits 17
Revenue Fund 17
Debt Service Fund 18
Redemption Fund 19
Debt Service Reserve Fund 20
Rebate Fund 20
Administration Fund 21
Repair and Replacement Fund 21
Surplus Fund 22
Investment and Deposit of Funds 22
Covenants of the Authority 24
Supplemental Indentures 28
Powers of Amendment 28
Bonds Events of Default 29
Remedies 29
Priority of Payments After Event of Default 30
Limitations of Rights of Bondowners 31
Remedies Not Exclusive 31
Limited Liability of the Authority 32
THE LOAN AGREEMENT 32
Amount and Source of Loan 33
Loan Repayment 33
Nature of the Borrower’s Obligations 34
Borrower Not to Dispose of Assets; Conditions Under Which Exceptions Permitted 34
Cooperation in Enforcement of Regulatory Agreement 35
Additional Instruments 35
Books and Records; Annual Reports 35
Notice of Certain Events 36
Consent to Assignment 37
Title to the Project 37
Operation of the Project 37
Continuing Disclosure 37
Minimum Rents; Coverage Requirement Certificate 37
Public Liability and Workers’ Compensation Insurance 38
Casualty Insurance 39
Rental Interruption Insurance 39
Title Insurance 39
Repair and Replacement 40
Other Debt, No Recourse Debt 41
Replenishment of Debt Service Reserve Fund 41
Project Management Agreements 41
Operating Fund 41
Events of Default Under the Loan Agreement 41
Remedies 42
Beneficiaries 43
THE REGULATORY AGREEMENT 44
Residential Rental Property; Qualified Residents 44
Authority Requirements 45
Qualified Residents 46
Sale or Transfer of the Project 48
Term 48
Enforcement 48
THE SUPPLEMENTAL REGULATORY AGREEMENT 49
Additional Project Requirements 49
Management and Operation of Project. 50
Qualified Residents 50
Other Covenants. 52
Sale or Transfer of the Project; Option to Purchase. 53
Term. 53
THE SUBORDINATION AGREEMENT 54
THE BORROWER 55
Organization 55
Operations 57
THE PROJECT 58
Mobile Home Park Overview 58
Vicinity Description 59
The Project 59
Maps 59
Environmental Site Assessment 62
Physical Needs Assessment 62
Historical Operating Results 62
Other Mobile Home Parks 64
Rent Control Ordinance 66
Management Agreement and Qualifications of Manager 66
Rents/Occupancy 67
Projected Operating Results 67
Oversight Agent 69
THE AUTHORITY 69
RISK FACTORS 70
Bonds Are Limited Obligations of the Authority 70
Loan Payments Non-Recourse 70
Loan Payments Not Preference Proof 70
Restrictions Under the Regulatory Agreement and the Supplemental Regulatory Agreement 70
Risk of Taxability 71
Conditions Which May Affect Borrower’s Ability to Pay 71
Value of Project; Economic Feasibility 73
Competing Facilities 74
Risks of Ownership of Real Property 74
Environmental Risks 75
Insufficient Insurance and Sale Proceeds Relating to the Project 75
Enforceability and Bankruptcy 76
Anti-Deficiency Laws of the State of California 76
Forward-Looking Statements 78
Limited Secondary Market 78
TAX MATTERS 78
LEGAL OPINIONS 79
CONTINUING DISCLOSURE 80
LITIGATION 81
The Authority 81
The Borrower 81
RATINGS 81
FINANCIAL ADVISOR 81
UNDERWRITING 81
MISCELLANEOUS 82
ii
Page / PageAppendix A - General Information Regarding the City of Morgan Hill A-1
Appendix B - Definitions B-1
Appendix C - Form of Opinion of Bond Counsel C-1
Appendix D - Appraisal D-1
Appendix E - Form of Continuing Disclosure Agreement E-1
ii
No broker, dealer, salesman or other person has been authorized by the Authority or the Underwriter to give any information or to make any representations in connection with the offer or sale of the Bonds other than as set forth herein and, if given or made, such information or representation must not be relied upon as having been authorized by the Authority or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.
This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts.
The information set forth in this Official Statement has been obtained from sources which are believed to be reliable, but it is not guaranteed as to its accuracy or completeness, and is not to be construed as a representation by the Borrower or the Authority. Except for the information contained under the captions “THE AUTHORITY” AND “LITIGATION—The Authority,” the Authority neither has nor will assume any responsibility as to the accuracy or completeness of the information in this Official Statement. The information and expressions of opinion stated herein are subject to change without notice. Neither the delivery of this Official Statement nor the sale of any of the Bonds implies that the information herein is correct as of any time subsequent to the date hereof. The delivery of this Official Statement shall not, under any circumstances, create any implication that there has been no change in the affairs of the Authority, the Borrower, or the major participants in the Project. All summaries of the Bonds, the resolution authorizing their issuance, the Indenture and the other documents discussed herein are made subject to the provisions of such documents and do not purport to be complete statements of any or all of the provisions thereof. Reference is hereby made to the Bonds, said resolution, the Indenture and such other documents on file with the Trustee for further information.
The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.