SUBJECT: SEE BELOW DATE: May 5, 2016

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1 SARA AGENDA: 5/17/16 ITEM: CITY OF SAN IPSE CAPITAL OP SILICON VALLEY TO: SUCCESSOR AGENCY BOARD Memorandum FROM: Julia H. Cooper SUBJECT: SEE BELOW DATE: Approved Date 5/6//fa SUBJECT: MERGED AREA REDEVELOPMENT PROJECT REVENUE BONDS, SERIES 1996 A/B AND SERIES 2003 A/B - JP MORGAN LETTERS OF CREDIT EXTENSION RECOMMENDATION Successor Agency Board adopt a resolution: a) Authorizing the execution and delivery, in substantially final form, of a Second Amendment to the Amended and Restated Reimbursement Agreement ("Second Amendment") with JPMorgan Chase Bank, NA (" JPMorgan") to extend the terms of the letters of credit (the "Letters of Credit") relating to the (1) Redevelopment Agency of the City of San Jose Merged Area Redevelopment Project Revenue Bonds, 1996 Series A and 1996 Series B and (2) Redevelopment Agency of the City of San Jose Merged Area Redevelopment Project Revenue Bonds, 2003 Series A and 2003 Series B and making other changes relating to the release of liens held by JPMorgan and the County of Santa Clara on Successor Agency owned properties and to secure payment of the Letters of Credit; b) Authorizing the execution and delivery, in substantially final form, of an Amended and Restated Fee Letter regarding fees and charges for the Letters of Credit provided by JPMorgan under the Reimbursement Agreement in the amount of 2.10% of the aggregate outstanding face amounts of the Letters of Credit, assuming that two of the three ratings assigned by Moody's, Standard & Poor's, or Fitch on the senior lien Redevelopment Agency of the City of San Jose Merged Area Redevelopment Project Tax Allocation Bonds are not withdrawn suspended or otherwise become unavailable; c) Authorizing the Executive Officer, Chief Financial Officer of the Successor Agency, or their designee, to take any actions and execute the Second Amendment and the Fee Letter and any other documents necessary to complete this transaction; and d) Authorizing the Executive Officer, Chief Financial Officer of the Successor Agency, or their designee, to take any actions and execute any and all documents necessary to extend and amend the Agreements at expiration, provided the fees and charges for the Letters of Credit provided by JPMorgan are equivalent to the Fee Agreement (2.10%) or better.

2 May 5,2016 Page 2 OUTCOME Approval of the recommended action will enable the Successor Agency to extend the Letters of Credit and Fee Agreement through March 31, 2018, reduce Successor Agency liabilities, and increase revenues and provide benefits to the taxing entities. BACKGROUND Reimbursement Agreement and Fee Letter In June 1996, the Redevelopment Agency of the City of San Jose ("Agency") issued the Merged Area Redevelopment Project Revenue Bonds, Series 1996 A and B (collectively, the "1996A/B Bonds") in the aggregate amount of $59,000,000. In August 2003, the Agency issued Merged Area Redevelopment Project Revenue Bonds Series 2003 A and B (collectively, the "2003A/B Bonds"), for an aggregate amount of $60,000,000. The Series 1996A/B and the Series 2003A/B are subordinate to the Agency's Senior Tax Allocation Bonds. The Series 1996A/B and Series 2003A/B Bonds were initially issued as variable rate bonds with daily and weekly interest resets. In May 2013, the 1996A/B and 2003A/B Bonds were converted into callable Commercial Paper ("CP"). The 1996A/B and 2003A/B Bonds have been secured by Letters of Credit ("LOC") provided by JP Morgan since their original respective issuance dates. There have been several key historical amendments to the Reimbursement Agreements (the "Agreements") between the Agency and JP Morgan since 1996 that have included: changes in interest rate mode and annual fees associated with the Agency's change in credit rating; inclusion of a cash funded debt service reserve in the amount of $5,000,000; agreement to pledge certain Agency properties ("Pledged Properties"); conversion from variable rate mode bonds to commercial paper mode; and agreement to apply 100% of proceeds from the sale of Pledged Properties towards the redemption of principal of 1996A/B and 2003A/B Bonds. For a complete chronology of the history and structure of such indebtedness and the agreements between JPMorgan and the Agency, please see the memorandum to the Oversight Board dated March 14, 2014 ( regarding the extension of the LOC Agreement with JP Morgan through March 1, 2017.

3 Page 3 Release of Deeds of Trust on Pledged Properties The Agency and the County of Santa Clara ("County") entered into a Settlement Agreement dated March 16, 2011, which provided for payment to the County of certain monies owed by the Agency to the County under an Amended and Restated Agreement dated May 22, 2001 ("Passthrough Agreement"). As security for its obligation to make the payments to the County under the Settlement Agreement, the Agency and the County entered into an Assignment Agreement dated March 18, In the Assignment Agreement, the Agency assigned the Agency's right, title and interest in one-half of the net sales proceeds from the North San Pedro Project to the County. On March 22, 2011, the Agency, as additional security, also executed and recorded a Deed of Trust with Assignment of Rents ("County Deed of Trust") against certain Agency owned properties, which properties had previously been encumbered by a Deed of Trust with Assignment of Rents to JP Morgan ("JPMorgan Deed of Trust"). On February 1, 2012, upon the dissolution of the Agency, all assets, properties, and contracts of the Agency, including the North San Pedro Development and Disposition Agreements, the Settlement Agreement, the Passthrough Agreement, the Assignment Agreement and the County Deed of Trust, were transferred, by operation of law, to the Successor Agency. Pursuant to the Successor Agency's adopted Long Range Property Management Plan ("LRPMP"), a number of properties which are subject to the JPMorgan Deed of Trust and the County Deed of Trust have been designated for sale. In order for the Successor Agency to dispose of such properties, both JP Morgan and the County must release their liens on the properties. Pursuant to the terms of the First Amendment to the Reimbursement Agreements, the net proceeds from sale of such property would be applied to reduce the principal of the related bonds, the amount of the JP Morgan Letters of Credit would be reduced correspondingly, and JP Morgan would have released its deed on the sold property. On March 10, 2015 the County Board of Supervisors delegated authority to the County Executive, or designee, to release the County Deed of Trust from any applicable Successor Agency owned real property upon "obtaining cash or alternate security in property with available equity to securitize, and in a form satisfactory to the County Executive... " The Successor Agency and the County worked to develop a mechanism to facilitate the sale of Pledged Properties which was consistent with the direction of the County Board of Supervisors while appropriately protecting Successor Agency Assets. Ultimately, the Successor Agency and the County agreed to amend the Assignment Agreement to assign to the County a portion of the Successor Agency's Retained Proceeds associated with sales at North San Pedro, in exchange for the County releasing its liens on two Successor Agency properties (the old Fire Station #1 and the Plaza Hotel). Both the Oversight Board and the Successor Agency Board approved the amendment of the Assignment Agreement. In its review of the action, however, the State of California Department of Finance ("DOF") disallowed the amendment of the Assignment Agreement, contending that AB xl 26, which dissolved the Agency, also prohibits amendment of agreements between public agencies.

4 Page 4 Subsequent to DOF's determination, and in order to facilitate the sale of properties subject to the JP Morgan Deed of Trust and the County Deed of Trust, the City worked with the County and JP Morgan to negotiate an application of net property sale proceeds from the Pledged Properties in the amount of 80% to be used to redeem outstanding obligations on the bonds secured by the JPMorgan Letters of Credit, and 20% to be distributed to the County to reduce amounts owed under the Settlement Agreement. ANALYSIS This section of the memorandum includes a status update on the Letters of Credit, a summary of the Amended Documents, a discussion of additional benefits associated with the extension and an estimated financing schedule. Status of the Letters of Credit The Successor Agency currently is required to pay JPMorgan an annual fee in an amount equal to 2.55% of the aggregate commitment amounts of the Letters of Credit, subject to a Liquidity Coverage Ratio Surcharge, with an additional percentage increase in the annual fee if two or more rating agencies withdraw their ratings on the Senior Tax Allocation Bonds. The current Letters of Credit expire on March 31, Staff has negotiated an extension through March 31,2018, with a reduced annual fee of 2.10% on the aggregate commitment amounts of the Letters of Credit from the time of execution of the Second Amendment through March 31, 2018 at an estimated total savings of $690,000. Amended Bond Documents In order to implement the Letters of Credit extension, the Successor Agency needs to enter into amendments to the Agreements. Pursuant to the Second Amendment to the Amended and Restated Reimbursement Agreement and the Amended and Restated Fee Letter (collectively, the "Amended Documents"), JP Morgan will extend the term of the Letters of Credit providing credit and liquidity support for the 1996 A/B Bonds and 2003 A/B Bonds through March 31, The annual fee payable for the Letters of Credit will be 2.10% of the commitment amount. The commitment amount is equal to the outstanding principal on the Bonds plus approximately 59 days of interest calculated at 12% (the "Commitment"). In the first full year of the extension, the estimated annual payment is approximately $2,170,000. The annual fee remains subject to the existing "Liquidity Coverage Ratio Surcharge" of 0.75% and will be increased if there is a withdrawal of two of three ratings on the Agency's Senior Tax Allocation Bonds, as provided in the Second Amendment to the Amended Fee Agreement.

5 Page 5 The Amended Documents will provide the following benefits: 1. Reduction of Cash in Liquidity Reserve Fund. The proposed Second Amendment to the Amended &Restated Reimbursement Agreement establishes the reserve requirement at $4,000,000 without provision for adjustment for debt service coverage levels. 2. Revision to Pledged Properties Requirement. The Second Amendment retains the Pledged Properties requirement and continues to require the Successor Agency to dispose of Pledged Properties as expeditiously as possible and in a manner aimed at maximizing value pursuant to the Long Range Property Management Plan. The Second Amendment provides for the application of 80% of net proceeds from the sale of Pledged Properties towards the redemption of principal of 1996A/B and 2003A/B bonds. The Second Amendment also provides for payment of the remaining 20% of net proceeds from the sale of Pledged Properties to the County of Santa Clara to reduce the Successor Agency's obligation under the 2011 Settlement Agreement between the County and the former Redevelopment Agency. Upon payment in full to the County of the Successor Agency's obligations under the 2011 Settlement Agreement, the County's lien on any remaining Pledged Projects would be released and, upon the sale of any of the remaining Pledged Properties, 100% of the net sales proceeds would be used towards the redemption of principal on the Bonds. 3. Extension of the expiration date for the Letters of Credit. The Second Amendment extends the expiration date of the Letters of Credit from March 31, 2017 to March 31, 2018; and 4. Reduction of Letters of Credit Fees. The Second Amendment reduces the annual fee for the Letters of Credit from 2.55% to 2.10% - this saves approximately $690,000 in Letters of Credit fees over the entire extended term (as compared to the current fee). Financing Schedule The key dates in the financing schedule: Oversight Board Action April 28,2016 No Further Review by DOF Successor Agency Approval May 17,2016 Letters of Credit Extension Takes Effect June 1, 2016 Closing of Fire Station #1 and Plaza Hotel Sales June 2016

6 Page 6 Conclusion Approval of the Second Amendment and the Fee Agreement will result in the extension of the Letters of Credit providing credit and liquidity support for the 1996A/B Bonds and the 2003A/B Bonds from March 31, 2017 to March 31, Extension of the Letters of Credit will reduce Successor Agency liabilities, increase revenues and provide benefits to the taxing entities as follows: Save approximately $690,000 of Letters of Credit fees over the extended term; Extend the term of the credit and liquidity support, providing additional cost certainty for the Successor Agency; and Provide for payment of a portion of net sales proceeds associated with Pledged Properties to the County of Santa Clara, facilitate the sale of the Pledged Properties, accelerate the disposition of Successor Agency owned real property, and reduce amounts owed under certain enforceable obligations. The proposed amendments effectively ensure earlier availability of future allocation of tax revenues to the taxing entities in the County of Santa Clara that are located in the territorial jurisdiction of the Successor Agency. COST SUMMARY/IMPLICATIONS The Second Amendment reduces the annual fee for the Letters of Credit from 2.55% to 2.10% - and will save approximately $690,000 in Letters of Credit fees over the entire extended term. Fees to accomplish the Second Amendment will include a $3,000 amendment fee payable to JPMorgan and approximately $20,000 in legal expenses, including fees for JPMorgan's counsel. COORDINATION This memorandum has been coordinated with the City Attorney's Office. CEOA Not Project, File No. PP16-066, Agreements and Contracts. /s/. JULIA H. COOPER Chief Financial Officer For more information, contact Derek Hansel, Assistant Director, at

SAN JOSE CAPITAL OF SILICON VALLEY

CITY OF Cr SAN JOSE CAPITAL OF SILICON VALLEY TO: SUCCESSOR AGENCY BOARD BOARD AGENDA: 3/22/16 ITEM: 9.1 Memorandum FROM: Julia H. Cooper SUBJECT: SEE BELOW DATE: Approved Date?/////fc SUBJECT: MERGED