5.2. SR 02-20-2007
City of Elk River
REQUEST FOR COUNCIL ACTION
Agenda Section Meeting Date
Administration Februa 20,2007
Item Description
Consider resolution providing for the sale of $2,875,000 Electric
Revenue Bonds, Series 2007 A
Item Number
5.2.
Prepared by
Tim Simon, Finance Director
Reviewed by
Lori Johnson, City Administrator
Introduction
The Elk River Municipal Utilities Commission has requested that the city issue Electric Revenue Bonds
of $2,875,000 for a new substation and feeders for the City's municipal electric utility.
Discussion
The Elk River Municipal Utilities Commission will meet at 4:00 p.m. on February 20 to approve the
resolution providing for the sale of these bonds. On March 5, 2007, representatives from Ehlers and
Associates will be at the Council meeting to present the results of the sale.
Financial Impact
These bonds will be repaid with revenues from the electric utility.
Attachments
. Resolution 07- _ Concurring in the Action of the Board of Commissioners of the Public
Utilities Commission of the City of Elk River, Minnesota, in providing for the Sale of $2,875,000
Electric Revenue Bonds, Series 2007 A.
Action Requested
It is requested that the Mayor and City Council adopt resolution 07-_Concurring in the Action of the
Board of Commissioners of the Public Utilities Commission of the City of Elk River, Minnesota, in
providing for the Sale of $2,875,000 Electric Revenue Bonds, Series 2007A.
Council Action
Motion by _
Second by _
Vote
Follow Up
C: \Documents and Settings \jjohnson \Local Settings \ Temporary Internet Files \ OLK49\2007 AElectricRevenueBonds.doc
Resolution No.
Council Member
introduced the following resolution and moved its adoption:
Resolution Providing for the Sale of
$2,875,000 Electric Revenue Bonds, Series 2007 A
A. 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 $2,875,000 Electric Revenue Bonds, Series 2007 A (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 March 5, 2007, 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 _ day of
City Clerk
I
Pre-Sale Report
Electric Revenue Bonds, Series 2007 A
February 20, 2007
Proposed Issue: $2,875,000 Electric Revenue Bonds, Series 2007 A
Purpose: Provide funding for a new substation and feeders for the City's municipal electric
utility .
Term/Call Feature: The first interest payment would be August 1, 2007 with interest only payments
for the first two years. The first principal payment will be February 1,2010 and
the final payment is February 1, 2022. We propose a call (pre-payment) date of
February 1,2016, which is in nine 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. Staff has recommended
that the required debt service reserve of approximately $287,500 (10% of issue)
be funded from bond proceeds. Interest earnings on the reserve fund should be
used to write down the interest cost on the bonds, but interest earnings are limited
to the rate paid on the bonds. 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 and another issue in 2006. 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 (Le. 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 cashflow of the electric utility is very strong, the covenants do not
pose a problem for the City at this time.
Other Issues:
The bonds are expected to be rated by Moody's at an "A2" level. They may be
considered for bond insurance up to a "Aaa" level if qualified by private
insurance companies and if the winning bidder chooses to purchase bond
insurance.
Because the City expects to issue more than $5,000,000 in tax-exempt
obligations in 2007, the Bonds will be subject to arbitrage rebate. By meeting
certain spend-down requirements, the bond issue can earn as much interest as
possible on the construction proceeds. The debt service reserve fund will be
subject to rebate of any interest earnings higher than the bond yield.
Because the City expects to issue more than $10,000,000 in tax-exempt
obligations in 2007, the Bonds will not be bank qualified, which carries a slightly
higher interest rate.
Schedule:
Pre-Sale Report and Call for Sale by
Council and Approval of Bonds by
Utility Commission:
February 20, 2007
Distribute Official Statement:
Week of February 26 , 2007
Conference call with Moody's:
February 27, 2007
City Council Resolution approving
Bonds:
March 5, 2007
Estimated Closing Date:
Week of March 26, 2007
Attachment:
Resolution authorizing Ehlers to proceed with bond sale
Preliminary debt service schedules and sources and uses
Ehlers Contacts:
Financial Advisors:
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
Bond Analysts:
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
& ASSOC',us tHC
City of Elk River, MN
$2,875,000 Electric Utility Revenue Bonds, Series 2007
$2,500,000 Net Project Costs - 12 Year Term
Sources & Uses
Dated 03/15/2007 I Delivered 03/15/2007
Sources Of Funds
Par Amount of Bonds
$2,875,000.00
Total Sources
m$2,8?5,~~0~.0~
Uses Of Funds
:rotaIl] ndef\Vfiter' s Discount(1.750%)
50,31250
37,000.00
287,500.00
2,500,00000
to Debt Service Reserve Fund (DSRF)
Deposit to Project Construction Fund
Total Uses
$2,875,000.00
Ser 07 Elctr Util Rev Bds I SINGLE PURPOSE I 2/12/2007 I 2:51 PM
Ehlers & Associates, Inc.
Leaders in Public Finance Page 1
City of Elk River, MN
$2,875,000 Electric Utility Revenue Bonds, Series 2007
$2,500,000 Net Project Costs - 12 Year Term
Debt Service Schedule
Date Principal Coupon Interest Total P+I Fiscal Total
03/15/2007
08/01/2007 49,961.11 49,961.11
02/01/2008 66,125.00 66,125.00 116,086.11
08/01/2008 66,125.00 66,125.00
02/01/2009 .. m . mmm mm .6Ei,125: OOm 6Ei,I?5:00m m. . .mmmmI 3 2,25000
08/01/2009 66,125.00 66,125.00
02/01/2010 170,000.00 4.300% 66,125.00 236,125.00 302,250.00
08/01/2010 62,470.00 62,4 70.00
02/01/2011 175,000.00 4.350% 62,470.00 237,470.00 299,940.00
08/01/2011
02/01/2012 180,000.00 4.400% 58,663.75 238,663.75 297,327.50
08/01/2012 54,703.75 54,703.75
02/01/2013 190,000.00 4.450% 54,703.75 244,703.75 299,407.50
08/01/2013 50,476.25 50,476.25
02/01/2014 ... ....?OQ,QOO.OO.. . 4.500% .. m. m. .. m ..m?0,4?Ei:25 m . .mm . m 250,4?Ei:??m .300,???:?O
08/01/2014 45,976.25 45,976.25
02/01/2015 210,000.00 4.550% 45,976.25 255,976.25 301,952.50
08/01/2015 41,198.75 41,198.75
02/01/2016 215,000.00 4.575% 41,198.75 256,198.75 297,397.50
02/01/2017 225,000.00 4.600% 36,280.63 261,28063 297,561.26
08/01/2017 31,105.63 31,105.63
02/01/2018 240,000.00 4.650% 31,105.63 271,105.63 302,211.26
08/01/2018 25,525.63 25,525.63
02/01/2019 250,000.00 4.700% 25,52563 275,525.63 301,051.26
08/01/2019 19,650.63 19,650.63
02/01/2020 260,000.00 4.750% 19,650.63 279,65063 299,301.26
08/01/2020 13,475.63 13,475.63
02/01/2021 275,000.00 4.800% 13,475.63 288,475.63 301,951.26
02/01/2022 285,000.00 4.825% 6,875.63 291,875.63 298,751.26
Total $2,875,000.00 $1,273,391.17 $4,148,391.17
Yield Statistics
Bond Year Dollars $27,308.61
Years
4.6629657%
4.6537092%
5.0719543%
IRS Form 8038
Net Interest Cost
Weighted Average Maturity
4.6629657%
9.499 Years
Ser 07 Elctr Util Rev Bds I SINGLE PURPOSE I 2/12/2007 I 2:51 PM
Ehlers & Associates, Inc.
Leaders in Public Finance Page 2
City of Elk River, MN
$2,875,000 Electric Utility Revenue Bonds, Series 2007
$2,500,000 Net Project Costs - 12 Year Term
Net Debt Service Schedule
Fiscal
Date Principal Coupon Interest Total P+I DSR Net New D/S Total
03/15/2007
08/01/2007 49,961.11 49,961.11 (5,040.21 ) 44,920.90
02/01/2008 66,125.00 66,125.00 (6,689.71) 59,435.29 104,356.19
08/01/2008 66,125.00 66,125.00 (6,689.71) 59,435.29
02/01/2009 (6,689.71) 59,435.29 118,87058
08/01/2009 66,12500 66,12500 (6,689.71) 59,435.29
02/0] /20 I 0 170,00000 4.300% 66,125.00 236,125.00 (6,689.71) 229,435.29 288,870.58
08/01/20 I 0 62,470.00 62,470.00 (6,689.71) 55,780.29
02/01/2011 175,000.00 4.350% 62,470.00 237,470.00 (6,689.71) 230,780.29 286,560.58
08/01/2011 m .. .m?8,(j(j3}5 m . m .. m .58,6(j~:??m... m{6,(j8971) mm?l,??~:Q~
02/01/2012 180,000.00 4.400% 58,663.75 238,663.75 (6,689.71) 231,974.04 283,948.08
08/01/2012 54,703.75 54,703.75 (6,68971 ) 48,014.04
02/01/2013 190,000.00 4.450% 54,703.75 244,703.75 (6,689.71) 238,01404 286,028.08
08/01/2013 50,476.25 50,476.25 (6,689.71) 43,786.54
02/01/2014 200,000.00 4.500% 50,476.25 250,476.25 (6,689.71) 243,786.54 287,573.08
08/01/2014 45,976.25 45,976.25 (6,689.71) 39,286.54
02/01/2015 210,000.00 4.550% 45,976.25 255,976.25 (6,689.71) 249,286.54 288,573.08
08/01/2015 41,198.75 41,198.75 (6,689.71) 34,509.04
02/01/2016 215,000.00 4.575% 41,198.75 256,198.75 (6,689.71) 249,509.04 284,018.08
08/01/2016 36,280.63 36,280.63 (6,689.71) 29,590.92
02/01/2017 225,000.00 4.600% 36,280.63 261,280.63 (6,689.71) 254,590.92 284,181.84
08/01/2017 31,105.63 31,105.63 (6,689.71) 24,415.92
02/01/2018 240,000.00 4.650% 31,105.63 271,105.63 (6,689.71 ) 264,415.92 288,831.84
08/01/2018 25,525.63 25,525.63 (6,689.71) 18,835.92
02/01/2019 ~50,QQQ:QO... 4.700% 2\?2?:(j} mm m275,52563 . m m.. ((j,689}1)m 268,~35:9~m . . ~g6718~
08/01/2019 19,650.63 19,650.63 (6,689.71) 12,960.92
02/01/2020 260,000.00 4.750% 19,650.63 279,650.63 (6,689.71) 272,960.92 285,921.84
08/01/2020 13,475.63 13,475.63 (6,689.71) 6,785.92
02/01/2021 275,000.00 4.800% 13,475.63 288,475.63 (6,689.71) 281,785.92 288,571.84
08/01/2021 6,875.63 (6,689.71) 185.92
02/01/2022 285,000.00 4.825% 6,875.63 291,875.63 (294,189.71) (2,314.08) (2,128.16)
Total $2,875,000.00 $1,273,391.17 $4,148,391.17 (486,541.80) $3,661,849.37
Ser 07 Elctr Util Rev Bds I SINGLE PURPOSE I 2/12/2007 I 2:51 PM
Ehlers & Associates, Inc.
Leaders in Public Finance Page 3
City of Elk River, MN
$2,875,000 Electric Utility Revenue Bonds, Series 2007
$2,500,000 Net Project Costs - 12 Year Term
Proof of Reserve Fund Requirement
Interest
116,086.11
132,25000
132,250.00
124,940.00
1
109,407.50
100,952.50
91,952.50
82,397.50
72,561.26
62,211.26
51,051.26
39,301.26
26,951.26
13,751.26
$1,273,391.17
TOTAL P+I
116,086.11
132,250.00
302,250.00
299,940.00
297,327.50
299,407.50
300,952.50
301,952.50
297,397.50
297,561.26
302,211.26
301,051.26
299,301.26
301,951.26
298,751.26
$4,148,391.17
Date
02/01/2008
02/01/2009
02/01/2010
02/01/2011
02/01/2012
02/01/2013
02/01/2014
02/01/2015
02/01/2016
02/01/2017
02/01/2018
02/01/2019
02/01/2020
02/01/2021
02/01/2022
Principal
170,000.00
175,000.00
Total
190,000.00
200,000.00
210,000.00
215,000.00
225,000.00
240,000.00
250,000.00
260,000.00
275,000.00
285,00000
$2,875,000.00
PROOF OF RESERVE FUND
AGGREGA TE ISSUE PRICE
Total Par
10 % Issue Price
2,875,000.00
287,500.00
MAXIMUM PERIODIC DEBT SERVICE
100 % of the Maximum Periodic Debt Service
3Q~'??Q.OQ
AVERAGE PERIODIC DEBT SERVICE
Total P+!
BondYears(Delivery Date)
of the
4,148,391.17
14.88
RESERVE REQUIREMENT
<,,:()ITIPlltt:.~..~t:qllir.t:IlIel1t.....
Proofs Requirement
~87,5QQOO
287,500.00
Ser 07 Elclr Util Rev Bds I SINGLE PURPOSE I 2/12/2007 I 2:51 PM
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Ehlers & Associates, Inc.
Leaders in Public Finance Page 4