LOS ANGELES - The Palmdale, Calif., Community Redevelopment Agency last week approved the prepayment of about $13 million of assessment liens that help secure two bond issues facing financial difficulties.
The action, when combined with other recent developments affecting property in the assessment districts, is expected to alleviate some of the concern over recent problems with past-due assessment payments, said William Ramsey, Palmdale's finance director.
Those delinquencies have worried bondholders because they could threaten debt service payments unless they are remedied.
Most of the reserves have already been drained - down to $167,000 - to make payments on one of the bond issues, a $29 million deal dated Sept. 1, 1990, for assessment district 90-2, also referred to as 7th Street West.
But Ramsey said he hopes that an upcoming September bond payment for the 90-2 bonds can be met if pending developments pan out.
Specifically, Ramsey said that the California Transportation Department - commonly known as Caltrans - is supposed to close a purchase "on or before June 30" on a small amount of property that includes past-due assessments for the 90-2 district. The purchase, for a freeway interchange, should help provide cash to help meet the September bond payment since Caltrans plans to bring the assessments up to date, Ramsey said.
By contrast, about $1.63 million of reserves still remain to help back up the other issue, a $34.8 million transaction dated July 1, 1989, for assessment district 88-1, also referred to as 10th Street West.
Proceeds from the transactions financed various public improvements - such as streets, curbs, and street lights - in the districts. Assessments on the property that benefits from these improvements provide the security for the bonds.
Some commercial development, including auto dealerships, has occurred in the area.
But development generally has not occurred as fast as anticipated, partly because of the recession, Ramsey said. As a result, a major landowner has been unable to keep up with scheduled assessment payments on undeveloped property.
This spring, however, the redevelopment agency bought some of the vacant land, a move that obligated the agency to pay the annual assessments.
On Thursday night, the Palmdale redevelopment agency approved the use of about $13 million, or roughly half, of an upcoming tax allocation bond issue to prepay those assessments, which total about $6.5 million. The other $6.5 million will go to prepay assessments on parcels involving five car dealerships.
The redevelopment agency is obligated under terms of a development contract to reimburse the auto dealers for their annual assessments, up to the amount of sales tax that each dealership generates for the city.
Prepaying the assessments would free the city from further financial obligation to the dealerships and allow about $660,000 of annual sales tax revenues to flow into Palmdale's general fund, Ramsey noted.
Furthermore, the assessment prepayment would result in a bond call of about $13 million on Sept. 2, the next scheduled bond payment. The call would include a 3% pre-payment premium.
The call, which would affect both bond issues depending on the property involved, would be accomplished on a pro-rated, random basis and reduce the total bonds outstanding in the districts by about 20%, said Mark Northcross of Kelling, Northcross & Nobriga, Palmdale's financial adviser.
California law permits assessment bonds to be called at any interest date with a 30-day call notice, Northcross said.
Paying off the assessments that are the city's responsibility makes sense for at least two reasons, Ramsey said.
By prepaying the assessments with proceeds from a redevelopment bond issue, the city effectively lowers its interest rate, Ramsey said, because the nonrated bonds targeted for redemption carry 8% coupons, while the redevelopment issue could probably be sold with a rate closer to 6%.
Second, by eliminating the assessment liens on vacant land owned by the agency, the property should be much more marketable to potential developers, Ramsey said.
Northcross cautioned that there is still "a lot of work to do," adding that investors need to keep monitoring the situation.
An official at Stone & Youngberg, the underwriter of the assessment bonds, said that bids for the debt have been "all over the place." The market tends to be volatile because the securities are not widely traded, he added.
Generally, however, the official said recent developments have lifted bids into the "low 80s" for the 88-1 senior lien bonds and into the "70s" on the 90-2 junior lien bonds. At one point, he noted by comparison, bids had slipped below 50 cents on the dollar for the 90-2 district bonds.