In May 2001, the City issued its Community Facilities District No. 1 Special Tax Bonds, Series 2001 to finance the construction of two parking facilities at the Sunnyvale Town Center. At the time, one facility was under construction and has now been completed. Funds for construction of the other facility (referred to as the "Macy’s Garage") were deposited in an escrow held by the Fiscal Agent for the bonds. The funds were to be released to build the Macy’s garage only if certain conditions were satisfied. If those conditions were not satisfied by March 1, 2002, the funds in the escrow (together with a proportionate share of the Debt Service Reserve Fund) were to be used to redeem a portion of the bonds on June 1, 2002.

The sale of the Sunnyvale Town Center mall from the current owners to the new entity with which it has been negotiating has not yet been completed. Negotiations are ongoing. In the event the sale occurs, the new owners will undertake a remodeling plan anticipated to be completed in late 2004.

A portion of the proceeds from the 2001 bonds was deposited into a Capitalized Interest Account from which debt service payments would be made until the expected completion of the mall. If the redemption of bonds occurs as required by the bond documents, sufficient funds would remain in the capitalized interest account to pay the August 1, 2002 interest payment and a portion of the February 2, 2003 interest payment. With the delay in construction, additional funds must be deposited to the Capitalized Interest Account in order to cover debt service until remodeling is complete and the mall is generating revenues (estimated to be in late 2004). To transfer enough funds to cover interest through August 1, 2004, the amount of bonds redeemed on June 1 would have to be reduced to $12,685,000.

Such a change would require the approval of the city and the two owners of the bonds. The city has discussed such a change with the bondholders. When it appeared that the sale of the mall would occur before June 1, the bondholders expressed interest in considering such a change. However, they will not approve such a change until after the mall is sold, which means they will not be in a position to approve it before the June 1 redemption date.

The attached Resolution addresses this problem. It approves a delay in the redemption date from June 1, 2002 to a date not later than September 1, 2002. This provides three additional months for the sale to be completed so bondholders can make an informed decision about whether to allow more funds to be retained for capitalized interest.

If the bondholders and the City approve such an extension, the full amount of funds remaining in the escrow, plus a proportionate share of the Debt Service Reserve Fund, would be redeemed at that later date. Between now and then, the bondholders and the City could agree to reduce the amount of bonds redeemed so that a portion of the funds in escrow are transferred to the Capitalized Interest Account. If no such further action is taken, the redemption would occur later this summer in the same manner as it is now scheduled to occur on June 1 with no funds being added to the Capitalized Interest Account. In other words, this would merely represent a delay of up to three months in the date of the redemption, not a decision to reduce the amount of bonds redeemed.