5.4. SR 07-19-2004Item # 5.4.
MEMORANDUM
TO:
Mayor and City Council
FROM:
Lori Johnson, Finance Director
DATE: July 19, 2004
SUBJECT: Consider Resolution Providing for the Sale of $940,000 Electric
Revenue Bonds, Series 2004A
The Elk River Mumcipal Utilities Commission has requested that the city issue Electric Revenue
Bonds for electric system improvements that are already underway. Attached is a resolution
providing for the sale of $940,000 Electric Revenue Bonds and the pre-sale report for these bonds.
Due to timing, the sale of the bonds will be on August 3 with City Council approval on August 2
contingent upon review by a Pricing Committee appointed by the City Council. This is being done
because the bond sale calendar for August 2 is full and m order to get the best bids, an alternate date
has been chosen. I will have additional information for the Council on this issue at the meeting.
Action Requested
The City Council is asked to approve the resolution providing for the sale of $940,000 Electric
Revenue Bonds, Series 2004A.
S:~CouncilM.ori\ 2004~ electricrcvbonds.doc
Council Member
Resolution No.
introduced the following resolution and moved its adoption:
Resolution Providing for the Sale of
$940,000 Electric Revenue Bonds, Series 2004A
mo
Bo
WHEREAS, the City Council of the City of Elk River, Minnesota, has heretofore determined that it is
necessary and expedient to issue the City's $940,000 Electric Revenue Bonds, Series 2004A (the
"Bonds"), to fund certain improvements to the City's electric utility system; and;
WHEREAS, the City has retained Ehlers & Associates, Inc., in Roseville, Minnesota ("Ehlers"), as its
independent financial advisor for the Bonds and is therefore authorized to solicit proposals in
accordance with Minnesota Statutes, Section 475.60, Subdivision 2(9);
NOW, THEREFORE, BE IT RESOLVED by the City Council of Elk River, Minnesota, as follows:
1. Authorization; Findings. The City Council hereby authorizes Ehlers to solicit proposals for the sale
of the Bonds.
Meeting; Proposal Opening. The City Council shall meet at City Hall on August 2, 2004, for the
purpose of considering a resolution awarding the sale of the Bonds, contingent upon the actual sealed
bids being received on August 3rd and reviewed by a pricing committee appointed by the City
Council.
o
Official Statement. In connection with said sale, the officers or employees of the City are hereby
authorized to cooperate with Ehlers and participate in the preparation of an official statement for the
Bonds and to execute and deliver it on behalf of the City upon its completion.
The motion for the adoption of the foregoing resolution was duly seconded by Council Member
and, after full discussion thereof and upon a vote being taken thereon, the
following Council Members voted in favor thereof:
and the following voted against the same:
Whereupon said resolution was declared duly passed and adopted.
Dated this __ day of ., __
City Clerk
Prepared by Ehlers & Associates, Inc.
City of Elk River, Minnesota
Pre-Sale Report
Electric Revenue Bonds, Series 2004A
July 19, 2004
Proposed Issue:
Purpose:
Term/Call Feature:
Funding Sources:
Discussion Issues:
$940,000 Electric Revenue Bonds, Series 2004A
Provide funding for improvements to the City's municipal utility.
The first principal payment is 2/1/06 and the final payment is 2/1/15.
We propose a call (pre-payment) date of 8/1/11, which is in 7 years.
Revenues from the operation of the City's electric utility system operated by the
Elk River Municipal Utilities. The City can choose to pledge only electric
revenues or both water and electric revenues to the bonds. Typically, bond
buyers would want to see at least 150% to 200% debt service on a projected
basis. Higher coverage levels usually mean lower interest rates.
Electric revenue bonds typically require a debt service reserve equal to the lesser
of one year of debt service or 10% of the issue amount. We recommend that the
City restrict $94,000 of cash assets in an account to serve as the debt service
reserve instead of bond funding the reserve. A cash reserve will reduce costs of
issuance and will still allow for the interest earnings on the fund to be used for
any purpose. No trustee will be required to hold the funds.
The City currently has no outstanding electric utility revenue debt. Because
these types of obligations are not backed by the City's general obligation, it is
necessary to set certain covenants in the bond documents which restrict the
issuance of future debt unless certain debt service requirements are met.
Specifically:
Pari _ty of Lien: In order for the City to issue additional bonds on a parity of lien
in the future, the bond resolution will require that the net revenues of the utility in
the preceding two fiscal years be at least 1.25 times the average annual principal
and interest coming due on all outstanding bonds and the additional bonds (the
"Coverage Test"). The bond resolution defines the method used to determine the
net revenues for the preceding two fiscal years.
Rate Covenant: The City covenants to cause to be established, charged and
collected such lawfully established rates and charges for the services provided by
the Public Utility so that net revenues (i.e. gross revenues derived from said rates
and charges less all costs of operation and maintenance, exclusive of debt service
and depreciation) will be sufficient to pay at least 110% of the average annual
principal and interest coming due on all outstanding bonds each year.
Because the City expects to issue less than $10,000,000 in tax-exempt
obligations in 2004, the Bonds will be bank qualified, which carries a slightly
lower interest rate.
Schedule:
Pre-Sale Review:
Distribute Official Statement:
Rating Agency Interview
Utility Commission Review:
City Council Resolution approving
Bonds on an "not-to-exceed" basis:
Bond Sale & Pricing Committee
Approval:
Estimated Closing Date:
July 19, 2004
Week of July 26, 2004
Non-rated (due to size of issue)
TBD
August 2, 2004
August 3, 2004
Week of August 23, 2004
Attachment:
Resolution authorizing Ehlers to proceed with bond sale
Ehlers Contacts:
Financial Advisors:
Bond Analysts:
Bond Sale Coordinator:
Mark Ruff (651)697-8505
Sid Inman (651)697-8507
Diana Lockard (651) 697-8534
Debbie Holmes (651) 697-8536
Connie Kuck (651) 697-8527
The Official Statement for this financing will be mailed to the Council Members at their home address for review
prior to the sale date.
EHLERS
ASSOCIATES INC
City of Elk River
$940,000 Electric Revenue Bonds, Series 2004A
Debt Service Reserve Funded from Cash
Sources & Uses
Dated 08/01/2004 I Delivered 08/01/2004
Sources Of Funds
Par Amount of Bonds
$940,000.00
Cip~ Cash for Debt Service Reserve ~ i)0'(~ 0~
Total Sources
Uses Of Funds
Total Underwriter's Discount (1 500% ......
: ) 1,4 !~u ou
Costs of Issuance
22 000 00
Deposit to Debt Service Reserve Fund (DSRF) ¢4 00000
900 000 00
Total Uses
$1,034,000.00
2004a 900k 10 year I SINGLE PURPOSE ] 7/15/2004 I 9:13 AM
City of Elk River
$940,000 Electric Revenue Bonds, Series 2004A
Debt Service Reserve Funded from Cash
Debt Service Schedule
Date Principal Coupon Interest Total P+l Fiscal Total
08/01/2004
02/01/2005 20,737.50 20,737.50 20,737.50
08/01/2005 20,737.50 20,737.50
02/01/2006 75,000.00 3.000% 20,737.50 95,737.50 116,475.00
08/01/2006 - 19,612.50 19,612.50
02/01/2007 80,000.00 3.500% 19,612.50 99,612.50 119,225.00
08/01/2007 18,212.50 18,212.50
02/01/2008 85,000.00 4.250% 18,212.50 103,212.50 121,425.00
08/01/2008 16,406.25 16,406.25
02/01/2009 85,000.00 4.250% 16,406.25 10 !.,4~:~
08/01/2009 14,600.00 14,600.00
02/01/2010 90,000.00 4.500% 14,600.00 104,600.00 119,200.00
08/01/2010 12,575.00 12,575.00
02/01/2011 95,000.00 4.500% 12,575.00 107,575.00 120,150.00
08/01/2011 - 10,437.50 10,437.50
02/01/2012 100,000.00 4.750% 10,437.50 110,437.50 120,875.00
08/01/2012 8,062.50 8,062.50
02/01/2013 105,000.00 4.750% 8,062.50 113,062.50 121,125.00
08/01/2013 5,568.75 5,568.75
~.~.~.~ 1 !0~00:00 ~.:~.0~ .......................................................... ~.~.~1}:7.~ ~..! ~,.~:7~ ~ 21,!37
08/01/2014 2,846.25 2,846.25
02/01/2015 115,000.00 4.950% 2,846.25 117,846.25 120,692.50
Total $940,000.00 $278,855.00 $1,218,855.00
Yield Statistics
~,y,¢[~ge Cpupp~ ~:6~75833~o
IRS Form 8038
Net Interest Cost 4.6475833%
Weighted Average Maturity 6.383 Years
2004a 900k 10year I SINGLE PURPOSE I 7/15/2004 I 9:13 AM