6.1. SR 12-10-2012 Elk REQUEST FOR ACTION
River
To Item Number
Mayor and City Council 6.1
Agenda Section Meeting Date Prepared by
Work Session December 10, 2012 Tim Simon, Finance Director
Item Description Reviewed by
Refunding the General Obligation Bonds, Series 2007B Cal Portner, City Administrator
Reviewed by
Action Requested
Review draft ordinance authorizing the issuance of General Obligation Refunding Bonds by the
Economic Development Authority.
Background/Discussion
On December 10, 2012, the Economic Development Authority (FDA) will consider a resolution
providing for the sale of General Obligation Refunding Bonds, Series 2013A, for an interest cost savings
on the advance refunding of the General Obligation Bonds, Series 2007B. The original proceeds were
used for the acquisition and betterment of an existing recreation facility (YMCA project). Per the lease
agreement,the city is responsible for two-thirds of the debt service payments and the YMCA the other
one-third.
Mark Ruff from Ehlers will be at the meeting to review this refinancing and any questions the Council
may have regarding the refunding bonds.
This ordinance is essentially the same ordinance adopted on the original issuance of the bonds,which
delegates the pricing to the EDA. If the Council supports the draft ordinance we will put it on the
December 17 consent agenda for formal approval.
The EDA is being asked to approve a "parameters"resolution that will allow flexibility of when the
bonds can be sold in the competitive market. Currently, Ehlers is looking at pricing the bonds in mid-
January and closing after February 1 to be within four years of the call date, as outlined in the city's debt
policy. This process worked extremely well when we refinanced bonds in 2010. A Pricing Committee
will be established to review and either reject or accept the bonds on the sale date. The pricing
committee will consist of the city administrator, finance director,mayor,EDA executive director,and the
EDA president.
The Pricing Committee is authorized and directed,with the advice of the city's financial advisor,Ehlers &
Associates,Inc.,to (a) review proposals for the sale of the Bonds,and (b) award the sale of the Bonds to the
prospective purchaser (the"Purchaser'. The Board of Commissioners will meet on the first practicable date
after acceptance by the Pricing Committee to ratify such acceptance and take any other appropriate action.
P 0 W E 0 E 0 0 r
NAWREI
Per our Debt policy: Advance refunding bonds sball not be utili.Zed unless present value savings of 4%to 5%of
refunded principal is acbieved and unless the call date is witbin 4 years. The state law minimum is 3% of refunded
principal.
Financial Impact
At current rates which are subject to change,refunding the bonds will yield at a minimum a net present
value savings of over 8%. This should result in approximately$850,000 in savings over the next 20 years.
Attachments
• Pre-Sale Report
• An ordinance authorizing the issuance of not to exceed $10,000,000 General Obligation
Refunding Bonds by the Economic Development Authority for the City of Elk River,Minnesota;
providing for the form and details thereof;and authorizing the Economic Development
Authority for the City of Elk River,Minnesota,to pledge the full faith, credit and resources of the
City of Elk River,Minnesota, for the security and payment of the bonds
Action Motion by Second by Vote
Follow Up
Debt Issuance Services
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December 10, 2012
Pre-Sale Report for
$ 9,965,000 General Obligation Refunding
Bonds, Series 2013A
City of Elk River Economic
Development Authority
Prepared and Presented by:
Mark Ruff, CIPFA
Financial Advisor
City of
Elk- And
RiV0 Stacie Kvilvang, CIPFA
✓r Financial Advisor
VV"/,eh1ers-hc,conI
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EHLERS Minnesota phone 651-697-8500 3060 Centre Pointe Drive
LEADERS IN PUBLIC FINANCE Offices also In Wisconsin and Illinois fax 651-697-8555 Roseville, MN 5511 3-11 22
toll free 800-552-1171
Debt Isstia.nce Service
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Executive Summary of Proposed Debt
Proposed Issue: $9,965,000 General Obligation Refunding Bonds, Series 2013A.
Purposes/Funding Sources: In 2006, voters approved a referendum to offer the City's General
Obligation pledge toward the Economic Development Authority's
(EDA) issuance of$12 million in bonds to acquire and renovated a
recreational facility owned by the Authority and leased to the Young
Men's Christian Association (YMCA) of Metropolitan Minneapolis.
The structure assumed that the YMCA pay one-third of the debt
service of the bonds issued, with the remaining two-thirds to come
from an annual tax levy.
The EDA issued two sets of bonds: $10 million in 2007 and $2
million in 2008. Splitting the issues enabled interest savings by
remaining below the $10 million annual tax exempt issuance
threshold required by the federal government for issuers to designate
"bank qualified" bonds. The 2007 Bonds were structured so principal
payment would not start until 2016, after the 2008 Bonds would
mature in 2015, Because of the short duration, the 2008 Bonds were
not offered with the option for early redemption (prepayment).
However, the 2018 to 2033 maturities of the 2007 Bonds are callable
for early redemption at the discretion of the EDA on February 1,
2017 or any date thereafter.
The proposed issue includes financing to execute the advance
refunding of the EDA's General Obligation Bonds, Series 2007,
There is $9,225,000 in principal eligible for prepayment on or after
the February 1, 2017 call date.
This refunding is considered an advance refunding as the new 2013A
Bonds will be issued more than 90 days prior to the call date of the
obligations being refunded. As required by law, in an advance
refunding proceeds of the Bonds are invested in government
securities and held in escrow until the call date. In a crossover
refunding, the money in the escrow is used to pay interest on the
refunding Bonds through February 1, 2017, The EDA will continue
its original schedule of payments on the 2007 Bonds through
February 1, 2017. After this call date, and the 2007 Bonds are
extinguished, the FDA's payments will "crossover" to the new
refunding Bonds. In other words, savings will not be experienced
until after February 1, 2017.
We have limited the issuance amount to $10 million in order to
preserve bank qualification, and structured the payments to maintain
the same term as the original 2007 Bonds and provide level annual
savings.
Using the $10 million limit, a $9.64 million crossover refunding can
refund the 2018 to 2033 maturities of the existing 2007 Bonds._
Presale Report December 10, 2012
City of Elk River Economic Development Authority, Minnesota Page 1
55 ; ... ebt Issuance Services
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Interest rates on this portion of the obligation average 4.2%. Interest
rates on the new Bonds are projected to average 2.1%, The crossover
refunding is expected to reduce total payments by more than
$850,000 over the next 20 years. The net present value benefit of the
crossover refunding is estimated to be over $750,000, equal to over
7% of the refunded debt. As a benchmark test, Minnesota statutes
require at least 3% net present value benefit to advance refund an
obligation.
Authority: The Bonds are being issued pursuant to Minnesota Statutes, Chapter
475 and 469. The Bonds will be issued by the EDA but, as is the case
for the 2007 Bonds, the 2013A Bonds will also be general obligations
of the City, for which its full faith, credit and taxing powers are
pledged.
The 2/3r`, portion of the 2013A Bonds not covered by YMCA lease
payments count against the City's debt limit of 3% of market value.
Term/Call Feature The Bonds are being issued for a 20 year term. For a crossover
refunding, principal on the Bonds will be due on February 1 in the
years 2018 through 2033. Interest is payable every six months
beginning August 1, 2013.
Regardless of the escrow, the Bonds maturing February 1, 2024, and
thereafter will be subject to prepayment at the discretion of the City
on February 1, 2023 or any date thereafter.
Bank Qualification Because the City and EDA are issuing less than $10,000,000 in the
calendar year, the City will be able to designate the Bonds as "bank
qualified" obligations. Bank qualified status broadens the market for
the Bonds, which can result in lower interest rates.
Rating: The City's most recent General Obligation bond issues were rated
"AA+" by Standard & Poor's. The City will request a new rating for
the Bonds,
If the winning bidder on the Bonds elects to purchase bond insurance,
the rating for the issue may be higher than the City's bond rating in
the event that the bond rating of the insurer is higher than that of the
City,
Method of Bale/Placement: In order to obtain the lowest interest cost to the EDA, we will solicit
competitive bids for purchase of the Bonds from local banks in your
area and regional and national underwriters.
We have included an allowance for discount bidding equal to 1.0% of
the principal amount of the issue. The discount is treated as an
interest item and provides the underwriter with all or a portion of its
compensation in the transaction.
If the Bonds are purchased at a price greater than the minimum bid
amount (maximum discount), the unused allowance may be used to
Presale'Report Dec ember 10, 2012
City of Elk River Economic Development Authority, Minnesota Page 2
4-1 Debt Issuance Services
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N.- 1:31 E'-]
lower,your borrowing amount.
Other Considerations: When undertaking an advance refunding ahead of the call date of the
Prior Bonds, the EDA and City are determining that interest rates
today meet its refunding savings goals and that interest rates are
unlikely to stay the same or be lower over that period.
Another option is to wait to refund the bonds until closer to the call
date to reduce the"negative arbitrage" in the escrow.
Review of Existing Debt: We have reviewed all outstanding indebtedness for the EDA and City
and find that, other than the obligation proposed to be refunded with
the Bonds, there are no other refunding opportunities at this time.
We will continue to monitor the market and the call dates for the
EDA and City's outstanding debt and will alert you to any future
refunding opportunities,
Continuing Disclosure: Because the City has more than $10,000,000 in outstanding debt
(including this issue) and this issue is over $1,000,000, the City will
be agreeing to provide certain updated Annual Financial Information
and its Audited Financial Statement annually as well as providing
notices of the occurrence of certain "material events" to the
Municipal Securities Rulernaking Board (the "MSRB"), as required
by rules of the Securities and Exchange Commission (SEC), The
City is already obligated to provide such reports for its existing
bonds, and has contracted with Ehlers to prepare and file the reports.
Arbitrage Monitoring: Because the Bonds are tax-exempt securities/tax credit securities, the
Issuer must ensure compliance with certain Internal Revenue Service
(IRS) rules throughout the life of the issue. These rules apply to all
gross proceeds of the issue, including initial bond proceeds and
investment earnings in construction, escrow, debt service, and any
reserve funds. How issuers spend bond proceeds and how they track
interest earnings on funds (arbitrage/yield restriction compliance) are
common subjects of IRS inquiries. Your specific responsibilities will
be detailed in the Tax Certificate prepared by your Bond Attorney
and provided at closing. You have retained Ehlers to assist you with
compliance with these rules,
Presale Report December 10, 2012
City of Elk River Economic Development Authority, Minnesota Page 3
FlehfIS.-UaR[|e Services
Proposed Debt Issuance Schedule
Pre-Sale Review bvEI)A and City Council;
Adoption ofPormoe1or Resolution Deoon\hur 10, 2012
Distribute Official Statement: (}no,about January 3,2O|3
Conference with Rating Agency: 0nnr about January 7` 2U|3
Approving ComrDittec Meeting to Award Sale of the Bonds: Onor about January )5, 20\3
FMA and City Council Meeting N Adopt Approving TBD (first regular meeting after approval of
Kcuo|udoOu sale)
Estimated Closing Date: 1l0L) no later than June 30, 20l3
lLffaChD1eUfs
Sources and Uses ofFuoda
Proposed Debt Service Schedule
Refunding Savings Analysis
Resolution /\oU odziu8 Ehlers (Vl1n000edWith Bond Gn|e
Ehlers Contacts:
Financial Advisors: Mark Ruff (65|) 697-8505
Qtooin{{vi|vang (05|) 697-8500
Disclosure Coordinator: Pia Troy (05|) 697'8556
Bond Sale("omdi|oHoc Alicia Baldwin (651) 697-8523
Financial Analyst; Alicia Gage (65|) 097-855|
The Official Statement for this financing will be mailed to the Council and Board Members u1their hnnno
address o,s-nzu |ed for review prior to the sale date.
Presa|eRep0rt December 1O. 2V12
City of Elk River Economic Development Authority, Minnesota Page 4
|
ORDINANCE NO. 12-
CITY OF ELK RIVER
AN ORDINANCE AUTHORIZING THE ISSUANCE OF NOT TO EXCEED $10,000,000
GENERAL OBLIGATION REFUNDING BONDS BY THE ECONOMIC DEVELOPMENT
AUTHORITY FOR THE CITY OF ELK RIVER, MINNESOTA;
PROVIDING FOR THE FORM AND DETAILS THEREOF; AND AUTHORIZING THE
ECONOMIC DEVELOPMENT AUTHORITY FOR THE CITY OF ELK RIVER,MINNESOTA,
TO PLEDGE THE FULL FAITH, CREDIT AND RESOURCES OF
THE CITY OF ELK RIVER,MINNESOTA,
FOR THE SECURITY AND PAYMENT OF THE BONDS
THE CITY OF ELK RIVER,MINNESOTA,DOES PAIN:
SECTION 1. Recitals.
(a) The Economic Development Authority for the City of Elk River (the"EDA") has
the powers described in Minnesota Statutes, Sections 469.001 through 469.047, and Minnesota
Statutes, Section 469.090 to 469.108.
(b) The EDA proposes to refund its General Obligation Bonds, Series 2007B (the "Prior
Bonds"), the proceeds of which were used to finance the acquisition and betterment of a recreational
facility owned by the EDA and leased to YMCA of the Greater Twin Cities (formerly known as
The Young Men's Christian Association of Metropolitan Minneapolis, collectively, the "YMCA"))
(the "Project"). The City and the EDA believe that it is desirable and necessary that there be issued
general obligation refunding bonds to refund the Prior Bonds to achieve debt service cost savings.
(c) A public hearing on the issuance of the Bonds and the use of the Project by the
YMCA was held by the EDA on December 10, 2012 following duly published notice, at which time
all persons that desired to speak were heard.
SECTION 2. Bonding Authorization.
(a) Pursuant to and in accordance with the provisions of this Ordinance and the
provisions of Minnesota Statutes, Section 469.102 and Chapter 475 and Section 147(f) of the
Internal Revenue Code of 1986, as amended (the "Code"), the consent of the City Council is
hereby given to the EDA to issue and sell the EDA's general obligation bond or bonds to which
the full faith, credit and resources of the City may and shall be pledged as payment and security
therefor, in one or more series, in fully registered form, and in an aggregate principal amount not to
exceed $10,000,000 (the "Bonds"), for the purpose of providing funds to assist in refunding the
Prior Bonds, together with such costs of issuance and related costs as may be incidental to the
issuance of the Bonds. The EDA shall set the date, denominations, place of payment, form,
content, interest rates and details of the Bonds, and the City Council hereby consents to the issuance
and details of the Bonds, as so determined by the EDA. The City Council hereby gives specific
consent to the pledge of the City's full faith, credit, and resources to the payment and security of
the Bonds.
41527942 JSB EL185-21
(b) The Mayor and City Clerk, or any other officers of the City authorized to act in their
place, (the "City Officials") are authorized and directed to execute on behalf of the City, as the
obligated person with respect to the Bonds, a continuing disclosure undertaking in accordance with
the provisions of Rule 15c2-12 promulgated by the Securities and Exchange Commission pursuant
to the Securities Exchange Act of 1934, as amended.
SECTION 3. Publication. This Ordinance, as adopted on the date hereof, shall be published in
the official newspaper of the City and the EDA.
SECTION 4. Effective Date. The effective date of this Ordinance shall be the date of its
adoption.
415279v2 JSB ELI 85-21
THIS ORDINANCE was introduced and adopted by the City Council of the City of Elk
River, Minnesota on the 17th day of December, 2012 by the following vote:
AYES:
NAYS:
APPROVED:
Mayor
ATTEST:
City Clerk
415279v2 JSB ELI 85-21