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5.3a ERMUSR 03-09-2021
City of Elk River,Minnesota Pre-Sale Summaryfor Issuance of Bonds $14,460,000Electric Revenue Bonds, Series 2021B The City Counciland Utilities Commission have under consideration the issuance of bonds (the “Bonds”) to finance the construction of a field house facility to accommodateservice trucks, inventory, and offices. This document provides information relative to the proposed issuance. KEY EVENTS:The following summary schedule includes the timing of some of the key events that will occur relative to the bond issuance: March 9, 2021Utilities Commissionsetssale date and terms March 15, 2021City Council sets sale date and terms and authorizes Utilities Commission to award the Bonds Week ofMarch 29,2021Rating conferenceis conducted April 13, 2021, 10:30a.m.Competitive bidsare received April 13,2021,3:30p.m.Utilities Commissionconsiders award of the Bonds May 13, 2021Proceeds are received RATING:An application will be made to Moody’s Investors Service (Moody’s) forarating on the Bonds.The City’selectric revenue supported debt is currently rated “Aa3” by Moody’s. THE MARKET:Performance of the tax-exempt market is often measured by the Bond Buyer’s Index (“BBI”) th which measures the yield of high grade municipal bonds in the 20year for general obligation bondsrated Aa2 by Moody’s or AA by S&P (the BBI 20-Bond GO Index)and the th 30year for revenue bondsrated A1 by Moody’s or A+ by S&P (the BBI 25-Bond Revenue Index). The following chart illustrates these two indices over the past five years: 894.138_1723355 : March 4, 2021 Study No.: 0Date 329 PURPOSE:Proceeds of the Bonds will be used to finance the construction of a field house facility to accommodateservice trucks, inventory, and offices. AUTHORITY: Statutory Authority:The Bonds are being issued pursuant to Minnesota Statutes, Chapters 453 and 475. Existing Covenants/Policies:The Bonds are being issued on a parity (same pledge of revenue) as the Utility’soutstanding electric utility revenue bonds. Existing covenants and the Resolution authorizing the Bonds establishes certain conditions and/orrequirements including but not limited to (i) the issuance of additional bonds (ii) rate covenants and (iii) funding a parity debt service reserve requirement, all of which are further detailed below: Additional Bonds: Additional bonds may be issued on a parity of lien with the Utility’s existing electric utility bonds (Parity Bonds) so long as the net revenues of the Electric System for the audited fiscal year immediately preceding the issuance of such additional bonds are not less than 125% of the average annual principal and interest due on all outstanding parity bonds and the additional bonds to be issued, during the remaining term of the outstanding bonds. A coverage ratio of 470%is projected based on the December 31, 2019Electric Fund audited financial statements and the projected average annual principal and interest payment on the Parity Bonds and the Bonds of $1,515,845 The Utility has threeother outstanding issues payable from net revenues of its electric utility system (the “Electric System”): Electric Revenue Bonds, Series 2016A (the “Series 2016A Bonds”), outstanding in the aggregate principal amount of $8,465,000with a final maturity of February 1, 2036 Electric Revenue Refunding Bonds, Series 2016B (the “Series 2016B Bonds”) outstandingin the aggregate principal amount of $240,000with a final maturity of February 1, 2022 Electric Revenue Bonds, Series 2018A (the “Series 2018B Bonds”) outstanding in the aggregate principal amount of $9,600,000with a final maturity of August 1, 2048 Rate Covenant:The Utility has pledged to establish user rates and charges for the Electric System so that annual net revenues shall not be less than 110% of the average annual debt service on the Bonds, the Parity Bonds and any additional parity bonds. Debt Service Reserve Account:The Utility will maintain a Debt Service Reserve Account (the “Reserve Account”) in the amount of the Reserve Requirement. “Reserve Requirement” means, as of the date of issuance of aseries of bonds, an amount equal to the least of: (i) 10% of the original principal amount of the outstanding bonds and Additional Bonds, or (ii) the maximum amount of principal and interest payable during the then current Fiscal Year or any future FiscalYear on all outstanding bonds and Additional Bonds as of the date of issuance of a series of bonds, or (iii) 125% of the average annual principal and interest payable on all outstanding bonds and Additional Bonds as of the date of issuance of a series of bonds. Pursuant to the issuance of the Bonds, the new Reserve Requirement is estimated to be $1,901,494, which is based on 125% of average annual debt service on the Bonds and Page 2 330 Parity Bonds. The current amount on deposit in the Reserve Account is $1,261,359.The difference of $640,135 will be funded with proceeds of the Bonds. SECURITY ANDThe Bonds will be special limited obligations of the City payable solely from net revenues of the City’s Electric System. SOURCE OF PAYMENT: The Bonds are being issued as Additional Bonds, on parity with the outstanding Parity Bondsas listed above. STRUCTURINGIn consultation with the Utility, the Bonds have been structured to provide for SUMMARY: approximately level annual debt service over a term of 30years. SCHEDULESSchedules attached include (i) sources and uses, (ii) debt service, given the current interest rate environment, (iii) proof of reserve requirement, (iv) coverage ratioand ATTACHED: additional bonds test, and (v) aggregate electric parity debt service including the Bonds. RISKS/SPECIALThe outcome of this financing will rely on the market conditions at the time of the sale. CONSIDERATIONS: Any projections included herein are estimates based on current market conditions. The Bonds are payable solely from net revenues of the City’s Electric Fund. The City and Utility will need to continually review the Electric Fund budget, and user fees and charges, to ensure annual net revenues of the Electric Fund are not less than 110% of the average annual debt service on the Bonds and Parity Bonds. SALE TERMS ANDVariability of Issue Size:A specific provision in the sale terms permits modifications to MARKETING:the issue size and/or maturity structure to customize the issue once the price and interest rates are set on the day of sale. Prepayment Provisions:Bonds maturing on or after August 1, 2032may be prepaid at a price of par plus accrued interest on or after August1, 2031. Bank Qualification:The City expects to issue more than $10 million in tax-exempt obligations in 2018; therefore the Bonds are not designated as bank qualified. Post Issuance Compliance POST ISSUANCEThe issuance of the Bonds will result in post-issuance compliance responsibilities. The responsibilities arein two primary areas: (i)compliance with federal arbitrage COMPLIANCE: requirements and (ii)compliance with secondary disclosure requirements. Federal arbitrage requirementsinclude a wide range of implications that have been taken into account as this issue has been structured. Post-issuance compliance responsibilities for thistax-exempt issue include both rebate and yield restriction provisions of the IRS Code. In general terms the arbitrage requirements control the earnings on unexpended bond proceeds, including investment earnings, moneys held for debt service payments (which are considered to be proceeds under the IRS regulations), and/or reserves. Under certain circumstances any “excess earnings” will need to be paid to the IRS to maintain thetax-exempt status of the Bonds.Any interest earnings on gross bond proceeds or debt service funds should not be spent until it has been determined based on actual facts that they are not “excess earnings” as defined by the IRS Code. The arbitrage rules provide for spend-down exceptions for proceeds that are spent within either a 6-month, 18-month or, for certain construction issues, a 24-month period each in Page 3 331 accordance with certain spending criteria. Proceeds that qualify for an exception will be exempt from rebate. These exceptions are based on actual expenditures and not based on reasonable expectations, and expenditures, including any investment proceeds will have to meet the spending criteria to qualify for the exclusion. The Utility expects to meet the 24-month spendingexception. Regardless of whether the issue qualifies for an exemption from the rebate provisions, yield restriction provisions will apply to Bond proceeds (including interest earnings) unspent after three yearsand the debt service fund throughout the term of the Bonds. These moneys should be monitored until the Bonds are retired. Secondary disclosure requirementsresult from an SEC requirement that underwriters provide ongoing disclosure information to investors. To meet this requirement, any prospective underwriter will require theCity to commit to providing the information needed to comply under a continuing disclosure agreement. Baker Tilly currently provides continuing disclosure services to the Municipal Utilities and the City. Baker Tilly will work with staff to include the Bonds under the existing Agreement for Municipal Advisor Services. SUPPLEMENTALSupplementary information will be available tostaff including detailed terms and conditions of sale, comprehensive structuring schedules and information to assist in INFORMATION AND meeting post-issuance compliance responsibilities. BOND RECORD: Upon completion of the financing, a bond record will be provided that contains pertinent documents and final debt service calculations for the transaction. Baker Tilly Municipal Advisors, LLC is a registered municipal advisor and controlled subsidiary of Baker Tilly US, LLP, an accounting firm. Baker Tilly US, LLP trading as Baker Tilly, is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. © 2021 Baker Tilly Municipal Advisors, LLC. Page 4 332 $14,460,000 City of Elk River, Minnesota Electric Revenue Bonds, Series 2021B Issue Summary Sources & Uses Dated 05/13/2021 | Delivered 05/13/2021 Sources Of Funds Par Amount of Bonds.........................................................................................................................................$14,460,000.00 Total Sources...................................................................................................................................................$14,460,000.00 Uses Of Funds Deposit to Project Construction Fund...................................................................................................................13,500,000.00 Deposit to Debt Service Reserve Fund (DSRF)......................................................................................................640,134.56 Total Underwriter's Discount (1.600%).................................................................................................................231,360.00 Costs of Issuance..............................................................................................................................................85,000.00 Rounding Amount..............................................................................................................................................3,505.44 Total Uses........................................................................................................................................................$14,460,000.00 File | Working Elk River MN.sf | 2021 Electric Rev Bonds 3 | SINGLE PURPOSE | 1/22/2021 | 1:45 PM Page 5 333 $14,460,000 City of Elk River, Minnesota Electric Revenue Bonds, Series 2021B Issue Summary DEBT SERVICE SCHEDULE DatePrincipalCouponInterestTotal P+I 08/01/2021---- 02/01/2022--191,882.13191,882.13 08/01/2022335,000.000.500%133,871.25468,871.25 02/01/2023--133,033.75133,033.75 08/01/2023395,000.000.550%133,033.75528,033.75 02/01/2024--131,947.50131,947.50 08/01/2024395,000.000.600%131,947.50526,947.50 02/01/2025--130,762.50130,762.50 08/01/2025400,000.000.650%130,762.50530,762.50 02/01/2026--129,462.50129,462.50 08/01/2026400,000.000.750%129,462.50529,462.50 02/01/2027--127,962.50127,962.50 08/01/2027405,000.000.850%127,962.50532,962.50 02/01/2028--126,241.25126,241.25 08/01/2028410,000.001.000%126,241.25536,241.25 02/01/2029--124,191.25124,191.25 08/01/2029410,000.001.150%124,191.25534,191.25 02/01/2030--121,833.75121,833.75 08/01/2030415,000.001.350%121,833.75536,833.75 02/01/2031--119,032.50119,032.50 08/01/2031420,000.001.550%119,032.50539,032.50 02/01/2032--115,777.50115,777.50 08/01/2032430,000.001.700%115,777.50545,777.50 02/01/2033--112,122.50112,122.50 08/01/2033435,000.001.750%112,122.50547,122.50 02/01/2034--108,316.25108,316.25 08/01/2034445,000.001.850%108,316.25553,316.25 02/01/2035--104,200.00104,200.00 08/01/2035450,000.001.900%104,200.00554,200.00 02/01/2036--99,925.0099,925.00 08/01/2036460,000.002.000%99,925.00559,925.00 02/01/2037--95,325.0095,325.00 08/01/2037470,000.002.050%95,325.00565,325.00 02/01/2038--90,507.5090,507.50 08/01/2038480,000.002.050%90,507.50570,507.50 02/01/2039--85,587.5085,587.50 08/01/2039490,000.002.050%85,587.50575,587.50 02/01/2040--80,565.0080,565.00 08/01/2040500,000.002.100%80,565.00580,565.00 02/01/2041--75,315.0075,315.00 08/01/2041510,000.002.150%75,315.00585,315.00 02/01/2042--69,832.5069,832.50 08/01/2042520,000.002.300%69,832.50589,832.50 02/01/2043--63,852.5063,852.50 08/01/2043535,000.002.300%63,852.50598,852.50 02/01/2044--57,700.0057,700.00 08/01/2044545,000.002.300%57,700.00602,700.00 02/01/2045--51,432.5051,432.50 08/01/2045560,000.002.300%51,432.50611,432.50 02/01/2046--44,992.5044,992.50 08/01/2046570,000.002.300%44,992.50614,992.50 02/01/2047--38,437.5038,437.50 08/01/2047585,000.002.500%38,437.50623,437.50 02/01/2048--31,125.0031,125.00 08/01/2048600,000.002.500%31,125.00631,125.00 02/01/2049--23,625.0023,625.00 08/01/2049615,000.002.500%23,625.00638,625.00 02/01/2050--15,937.5015,937.50 08/01/2050630,000.002.500%15,937.50645,937.50 02/01/2051--8,062.508,062.50 08/01/2051645,000.002.500%8,062.50653,062.50 Total$14,460,000.00-$5,359,965.88$19,819,965.88 SIGNIFICANT DATES Dated Date..........................................................................................................................................................5/13/2021 Delivery Date.......................................................................................................................................................5/13/2021 First Coupon Date................................................................................................................................................2/01/2022 Yield Statistics Bond Year Dollars................................................................................................................................................$247,858.00 Average Life........................................................................................................................................................17.141 Years Average Coupon..................................................................................................................................................2.1625148% Net Interest Cost (NIC).........................................................................................................................................2.2558585% True Interest Cost (TIC)........................................................................................................................................2.2498337% Bond Yield for Arbitrage Purposes.........................................................................................................................2.1335381% All Inclusive Cost (AIC).........................................................................................................................................2.2932331% IRS Form 8038 Net Interest Cost.................................................................................................................................................2.1625148% Weighted Average Maturity...................................................................................................................................17.141 Years File | Working Elk River MN.sf | 2021 Electric Rev Bonds 3 | SINGLE PURPOSE | 1/22/2021 | 1:45 PM Page 6 334 $14,460,000 City of Elk River, Minnesota Electric Revenue Bonds, Series 2021B Issue Summary Proof of Reserve Fund Requirement DatePrincipalInterestExisting D/STOTAL P+I 08/01/2021--490,090.63490,090.63 08/01/2022335,000.00325,753.381,489,081.252,149,834.63 08/01/2023395,000.00266,067.501,240,531.251,901,598.75 08/01/2024395,000.00263,895.001,240,906.251,899,801.25 08/01/2025400,000.00261,525.001,240,331.251,901,856.25 08/01/2026400,000.00258,925.001,246,431.251,905,356.25 08/01/2027405,000.00255,925.001,249,031.251,909,956.25 08/01/2028410,000.00252,482.501,245,881.251,908,363.75 08/01/2029410,000.00248,382.501,243,881.251,902,263.75 08/01/2030415,000.00243,667.501,250,512.501,909,180.00 08/01/2031420,000.00238,065.001,245,531.251,903,596.25 08/01/2032430,000.00231,555.001,244,118.751,905,673.75 08/01/2033435,000.00224,245.001,246,162.501,905,407.50 08/01/2034445,000.00216,632.501,240,656.251,902,288.75 08/01/2035450,000.00208,400.001,243,456.251,901,856.25 08/01/2036460,000.00199,850.001,249,906.251,909,756.25 08/01/2037470,000.00190,650.00560,706.251,221,356.25 08/01/2038480,000.00181,015.00561,106.251,222,121.25 08/01/2039490,000.00171,175.00560,906.251,222,081.25 08/01/2040500,000.00161,130.00562,081.251,223,211.25 08/01/2041510,000.00150,630.00562,731.251,223,361.25 08/01/2042520,000.00139,665.00562,856.251,222,521.25 08/01/2043535,000.00127,705.00562,456.251,225,161.25 08/01/2044545,000.00115,400.00561,531.251,221,931.25 08/01/2045560,000.00102,865.00559,493.751,222,358.75 08/01/2046570,000.0089,985.00561,912.501,221,897.50 08/01/2047585,000.0076,875.00563,606.251,225,481.25 08/01/2048600,000.0062,250.00559,575.001,221,825.00 08/01/2049615,000.0047,250.00-662,250.00 08/01/2050630,000.0031,875.00-661,875.00 08/01/2051645,000.0016,125.00-661,125.00 Total$14,460,000.00$5,359,965.88$26,145,471.88$45,965,437.76 PROOF OF RESERVE FUND MAXIMUM PERIODIC DEBT SERVICE Omit First Period?...............................................................................................................................................Yes 100 % of the Maximum Periodic Debt Service........................................................................................................1,909,956.25 AVERAGE PERIODIC DEBT SERVICE Total P+I............................................................................................................................................................45,965,437.76 Bond Years (Delivery Date)..................................................................................................................................30.22 125 % of the Average Periodic Debt Service..........................................................................................................1,901,493.56 PERCENT OF PAR Existing Par.......................................................................................................................................................21,125,000.00 Total Par (Existing + New)...................................................................................................................................35,585,000.00 10 % of Par........................................................................................................................................................3,558,500.00 RESERVE REQUIREMENT Computed Requirement.......................................................................................................................................640,134.56 Proof's Requirement............................................................................................................................................1,901,493.56 Portion of reserve requirement funded externally.....................................................................................................1,261,359.00 Lowest Requirement less external funding.............................................................................................................640,134.56 2021 Electric Rev Bonds 3 | SINGLE PURPOSE | 3/ 1/2021 | 1:28 PM Page 7 335 $14,460,000 City of Elk River, Minnesota Electric Revenue Bonds, Series 2021B Coverage Ratio and Additional Bonds Test DateNet ElectricTotal Electric ParityCoverage Fund RevenuesDebt Service 08/01/2021-490,090.63- 08/01/20227,123,454.002,149,834.633.3134893x 08/01/20237,123,454.001,901,598.753.7460342x 08/01/20247,123,454.001,899,801.253.7495785x 08/01/20257,123,454.001,901,856.253.7455270x 08/01/20267,123,454.001,905,356.253.7386468x 08/01/20277,123,454.001,909,956.253.7296425x 08/01/20287,123,454.001,908,363.753.7327548x 08/01/20297,123,454.001,902,263.753.7447247x 08/01/20307,123,454.001,909,180.003.7311589x 08/01/20317,123,454.001,903,596.253.7421034x 08/01/20327,123,454.001,905,673.753.7380239x 08/01/20337,123,454.001,905,407.503.7385462x 08/01/20347,123,454.001,902,288.753.7446755x 08/01/20357,123,454.001,901,856.253.7455270x 08/01/20367,123,454.001,909,756.253.7300331x 08/01/20377,123,454.001,221,356.255.8324129x 08/01/20387,123,454.001,222,121.255.8287621x 08/01/20397,123,454.001,222,081.255.8289529x 08/01/20407,123,454.001,223,211.255.8235681x 08/01/20417,123,454.001,223,361.255.8228540x 08/01/20427,123,454.001,222,521.255.8268550x 08/01/20437,123,454.001,225,161.255.8142991x 08/01/20447,123,454.001,221,931.255.8296684x 08/01/20457,123,454.001,222,358.755.8276296x 08/01/20467,123,454.001,221,897.505.8298294x 08/01/20477,123,454.001,225,481.255.8127809x 08/01/20487,123,454.001,221,825.005.8301754x 08/01/20497,123,454.00662,250.0010.7564424x 08/01/20507,123,454.00661,875.0010.7625367x 08/01/20517,763,588.56661,125.0011.7429965x Total$214,343,754.56$45,965,437.76- 2019 Net Revenues Available for Debt Service* Operating Revenue $38,094,633 Operating Expense (34,555,086) Net Operating Income (Loss) $3,539,547 Add Back Depreciation 2,856,258 Add Other Income 727,649 Average Annual Debt Service $7,123,454 Additional Bonds Test 470% *Source: City of Elk River Comprehensive Annual Financial Report 2019. The 2020 Comprehensive Annual Financial Report is not yet available. 2021 Electric Rev Bonds 3 | SINGLE PURPOSE | 3/ 1/2021 | 2:14 PM Page 8 336 $14,460,000 City of Elk River, Minnesota Electric Revenue Bonds Aggregate Electric Parity Debt Service Including the Bonds Calendar Series 2016BSeriesSeries SeriesTOTAL Year 2016A 2018A 2021B Projected 20214,800.00110,912.50374,378.13-490,090.63 2022244,800.00684,775.00559,506.25660,753.382,149,834.63 2023-680,525.00560,006.25661,067.501,901,598.75 2024-680,900.00560,006.25658,895.001,899,801.25 2025-680,825.00559,506.25661,525.001,901,856.25 2026-682,925.00563,506.25658,925.001,905,356.25 2027-687,275.00561,756.25660,925.001,909,956.25 2028-686,375.00559,506.25662,482.501,908,363.75 2029-684,575.00559,306.25658,382.501,902,263.75 2030-686,806.25563,706.25658,667.501,909,180.00 2031-683,025.00562,506.25658,065.001,903,596.25 2032-683,212.50560,906.25661,555.001,905,673.75 2033-682,256.25563,906.25659,245.001,905,407.50 2034-679,350.00561,306.25661,632.501,902,288.75 2035-680,150.00563,306.25658,400.001,901,856.25 2036-690,200.00559,706.25659,850.001,909,756.25 2037--560,706.25660,650.001,221,356.25 2038--561,106.25661,015.001,222,121.25 2039--560,906.25661,175.001,222,081.25 2040--562,081.25661,130.001,223,211.25 2041--562,731.25660,630.001,223,361.25 2042--562,856.25659,665.001,222,521.25 2043--562,456.25662,705.001,225,161.25 2044--561,531.25660,400.001,221,931.25 2045--559,493.75662,865.001,222,358.75 2046--561,912.50659,985.001,221,897.50 2047--563,606.25661,875.001,225,481.25 2048--559,575.00662,250.001,221,825.00 2049---662,250.00662,250.00 2050---661,875.00661,875.00 2051---661,125.00661,125.00 -$491,750.00$10,928,900.00$15,721,162.50$19,819,965.88$45,475,347.13 Average Annual Debt Service$1,515,845 Par Amounts Of Selected Issues 2016B….................................................................................................................................................1,370,000.00 2016A ...................................................................................................................................................9,755,000.00 2018A ...................................................................................................................................................10,000,000.00 2021B ...................................................................................................................................................14,460,000.00 TOTAL...................................................................................................................................................35,585,000.00 Aggregate | 1/20/2021 | 12:30 PM Page 9 337