LOS ANGELES — Carson, Calif., executed a bond that propels forward a financial agreement with the Oakland Raiders and the San Diego Chargers in which the teams will jointly fund construction of a $1.7 billion stadium on the site of a former landfill in the city.
Carson priced a $52.2 million refunding on Thursday to pay for the city's share of environmental remediation on a former landfill proposed for a National Football League stadium.
The Chargers, Raiders and city officials announced plans in February to build a joint stadium for the two NFL teams in the city of 92,000 located 40 miles south of Los Angeles. Los Angeles hasn't had a professional football team since the Raiders left Los Angeles for Oakland in 1995.
Over the past decade, both teams have been floated as potential Los Angeles teams in various proposals. The Rams and Chargers also have been working on stadium proposals in their current cities, San Diego and Oakland.
The bonds were a refunding of a $50.5 million non-cash private placement done May 18 as part of a deal to transfer the property into the hands of joint powers authority. The private placement bonds covered the purchase of the property from hedge fund developer, Starwood Capital, as well as the cost to remediate the property.
The subordinate tax allocation 2015 Series B taxable refunding bonds priced Aug. 6 defease the private placement held as part of a settlement agreement with the city, the Carson Reclamation Authority, the successor agency, and Starwood Capital.
In 2008, Starwood purchased the 157-acre site from Lennar, who had proposed a master-planned community with 1,100 residential units and 300,000 or 400,000 square-feet of retail.
Under the city's agreement with Lennar, and then Starwood, it would issue bonds to pay roughly half of the $100 million remediation required for the 157-acre brownfield site.
Carson Marketplace LLP., a joint powers authority between the city and the city's housing authority, purchased the property from Starwood and will act as the landlord to the site.
"The city did not want to take title to a really big piece of contaminated land," Raymond said. "The reclamation authority provides a firewall between the city and the property itself."
The environmental remediation on the property is roughly 85% complete.
The "transfer" agreement with the teams sets forth all the monetary compensation the city will receive if the NFL stadium moves forward, said Sunny Soltani, a partner with Aleshire & Wynder LLP, which represents the city. Aleshire & Wynder is also the city's bond counsel on the refunding.
Under the agreement, Soltani said, the teams would make annual lease payments starting at $1.3 million and escalating to $3.5 million over a 40-year period.
The stadium construction will be privately financed through Goldman Sachs, she said.
The city would also receive a surcharge of $1.50 on each non-NFL ticket sold and 50% of non-NFL sales after 10 years, which includes any non-game events like concerts. The team would also fund the $3 million cost of an entry and stadium corridor improvement program.
The acreage contemplated for the football stadium is part of a 2,263-acre redevelopment area - some of which has already been developed.
Starwood purchased the property and development rights from Lennar Corp. in 2008.
The $100 million environmental remediation work began in 2008, but the timeframe included four or five years for the developer to get approvals from state and local environmental and planning agencies for the remediation and development plans, said John Raymond, Carson's Community Development Director.
The city's former redevelopment agency had agreed to shoulder part of the cost of cleaning up the former landfill site as part of an agreement with the site's original developer, Lennar.
The RDA had agreed to issue bonds when the remediation was nearly complete and repay part of that cost to the developer, Raymond said.
"We would be issuing these bonds - even without the stadium - because they are part of a prior commitment by the RDA to issue bonds to fund a good portion of the remediation," Raymond said.
The private placement bonds were sold at an interest rate of 7.786%, de Crinis said. But the agreement was that if they could be refunded into the public market within 90 days - no interest would accrue, he said.
"What the bonds are refunding is a private placement of bonds that we did earlier in the spring," Raymond said. "We sold the [private placement bonds] to the Carson Reclamation Authority, which is another entity of the city."
The 4.92% average interest rate is a $22.9 million savings over the privately placed bonds assuming interest costs over the life of the privately placed bonds had they remained in place.
But the city had never expected to pay interest on the private placement bonds, because the refunding was part of the initial plan when the private placement bonds were sold, de Crinis said.
The refunded bonds were expected to achieve a lower interest rate over the unrated private placement bonds, because the refunded bonds earned an investment grade rating of BBB-plus from Standard & Poor's. S&P also gave the bonds an AA insurance-based rating as they are insured by Assured Guaranty.
What made the deal unique was that the private placement bonds were new money bonds issued post dissolution of the state's redevelopment agencies, Raymond said.
In order for a successor agency to issue new bonds, the state's Department of Finance had to find that the bond issuance stems from an "enforceable obligation" or contract that pre-dates dissolution of redevelopment agencies. The city received that approval before moving forward with the private placement - always with the intent that the bonds would later be priced in the public markets at a cheaper interest rate, said Curt de Crinis, of C.M. de Crinis & Co., Inc. who acted as financial advisor on the deal.
Any new money bonds issued by the former redevelopment agencies have to be approved by the state's Department of Finance. The idea when the redevelopment agencies were dissolved in late 2011 was that the agencies would wind down and the tax increment used to fund projects would revert back into county coffers to be disbursed to cities, school districts and other municipalities that receive a share of property taxes.
The dissolution generally meant that unless there were contracts with developers struck before 2011, no new bonds could be issued.
The state's Department of Finance didn't have information readily available as to how many former RDAs have been granted permission to issue new money bonds, though a spokesman confirmed Carson is not the first.
If the stadium is built as planned, "the stadium will generate property tax increment on a leasehold basis that will be reflected as new tax increment in the successor agency's property tax trust fund. If not built, other development deals will be pursued for the site," according to the preliminary offering statement.
It is not expected that the site will be developed prior to 2017-18.
The amount of additional tax increment revenues generated by a stadium may be limited given the current expected termination of tax increment collection in Project Area No. 1 in 2024, according to the POS. Like all redevelopment areas - under pre-dissolution law - the RDAs have an expiration date after which the tax increment money flows back into county coffers to be distributed to municipalities in the county like other property taxes assessed.
No assurances can be given that a stadium will be built on the site," according to the preliminary offering statement.
The lease agreement with the Chargers and the Raiders is contingent on the NFL approving the teams moving to Los Angeles County, Soltani said.
In addition to defeasing the private placement bonds, the proceeds will be used to purchase a reserve account surety bond and fund capitalized interest on the 2015 Series B bonds through Feb. 1, 2016. The proceeds also will pay the costs incurred with issuance of the 2015 Series B Bonds, including the premium of Assured Guaranty's bond insurance policy, according to the offering documents.
