3.20. SR 01-09-2006
Item 3.20.
MEMORANDUM
TO: Mayor and City Council
FROM: Lori johnson, City Administrator
DATE: january 9,2006
SUBJECT: Resolution Providing for the Sale of $3,595,000 Electric Revenue
Bonds 2006A
Attached is a presale report and a resolution for the electric revenue bond series 2006A in
the amount of $3,595,000 to pay for improvements to the electric utility system. The
attached resolution authorizes the city to proceed with the bond sale as discussed at a
previous Council meeting.
Action Requested
The City Council is asked to approve the attached resolution.
Pre-Sale Report
Electric Revenue Bonds, Series 2006A
January 9, 2006
Proposed Issue: $3,595,000 Electric Revenue Bonds, Series 2006A
Purpose: Provide funding for improvements to the City's municipal electric utility.
Term/Call Feature: The first principal payment will be August 1, 2007 and the final payment is
August 1, 2021. The first interest payment will be August 1, 2006. We propose a
call (pre-payment) date of February 1,2014, which is in eight years.
Funding Sources: The funding source will be revenues from the City's electric utility system
operated by the Elk River Municipal Utilities. The City has chosen to pledge
only electric revenues to the Bonds. Given historical cash flow of the electric
utility system, the debt service coverage is more than adequate for the proposed
financing.
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 approximately $350,000 of cash assets in an account to serve as the
debt service reserve instead of funding the reserve out of bond proceeds. 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 actual amount of the reserve will be set on the day of the bond sale.
Covenants:
The City currently has an outstanding electric utility revenue bond of $940,000
issued in 2004. The bond resolution for the 2004 sale sets the terms for all future
bond issues secured by the pledge of electric revenues. 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:
Parity of Lien: In order for the City to issue additional bonds on a parity of lien
in the future, the bond resolution 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 cash flow of the electric utility is very strong, the covenants do not
pose a problem for the City.
Marketing Issues:
We propose to sell the bonds non-rated. Because these are not general obligation
bonds, the City's rating from Moody's does not apply. We can ask Moody's to
give us an indication on what the rating would be for the electric revenue system
without cost. The City would have a choice of rejecting the rating or utilizing it
for this bond issue. Once a rating is received, however, it would be necessary to
rate all subsequent electric revenue issues.
Because the City expects to issue less than $10,000,000 in tax-exempt
obligations in 2006, the Bonds will be bank qualified, which carries a slightly
lower interest rate.
Schedule:
Pre-Sale Report and Call for Sale:
Distribute Official Statement:
January 9, 2006
Week ofJanuary 23,2006
February 6, 2006
Utility Commission Approval:
(Special Meeting)
City Council Resolution Approving
Sale of the Bonds:
Estimated Closing Date:
February 6, 2006
Week of February 27, 2006
Attachment:
Resolution authorizing Ehlers to proceed with bond sale
Ehlers Contacts:
Bond Analysts:
Mark Ruff (651 )697 -8505
Sid Inman (651)697-8507
Bruce Dejong (651) 697-8548
Diana Lockard (651) 697-8534
Debbie Holmes (651) 697-8536
Connie Kuck (651) 697-8527
Financial Advisors:
Bond Sale Coordinator:
The Official Statement for this financing will be mailed to the Council Members at their home address for review
prior to the sale date.
. I ~A~t~I~E~I~
Resolution No.
Council Member
introduced the following resolution and moved its adoption:
Resolution Providing for the Sale of
$3,595,000 Electric Revenue Bonds, Series 2006A
A. WHEREAS, the City Council ofthe City of Elk River, Minnesota, has heretofore determined that it is
necessary and expedient to issue the City's $3,595,000 Electric Revenue Bonds, Series 2006A (the
"Bonds"), to fund certain improvements to the City's electric utility system; and;
B. 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.
2. Meeting; Proposal Opening. The City Council shall meet at City Hall on February 6, 2006, for the
purpose of considering a resolution awarding the sale of the Bonds.
3. 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 9th day of January, 2006.
Mayor, Stephanie Klinzing
ATTEST
Joan Schmidt, City Clerk