5.3. SR 03-05-2007
City of Elk River
REQUEST FOR COUNCIL ACTION
Agenda Section Meeting Date
Administration March 5, 2007
Item Description
Resolution Accepting Proposal and 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
Issuance and Sale of $2,875,000 Electric Revenue Bonds, Series
2007A
Item Number
5.3.
Prepared by
Tim Simon, Finance Director
Reviewed by
Lori Johnson, City Administrator
Introduction
Mark Ruff of Ehlers and Associates will be at the Council meeting to present the results of the sale of
Electric Revenue Bonds of $2,875,000, Series 2007 A, for a new substation and feeders for the City's
municipal electric utility.
DISCUSSION
Bids for this bond sale will be received on March 5, 2007. The Elk River Municipal Utilities Commission
met at 4:00 p.m. on February 20, 2007 to approve the PUC resolution providing for the Issuance and Sale
of these bonds. A conference call with Moody's was held on Tuesday, February 27 and Moody's
maintained the A2 rating for all the outstanding debt of the electric utility.
Financial Impact
These bonds will be repaid with revenues from the electric utility.
Attachments
. Resolution 07- _ Accepting Proposal and 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 Issuance and Sale of $2,875,000 Electric Revenue Bonds, Series 2007 A.
. Moody's rating analysis
Action Requested
It is requested that the Mayor and City Council adopt resolution 07-_Accepting Proposal and
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 Issuance and Sale of $2,875,000 Electric Revenue Bonds,
Series 2007 A.
Council Action
Motion by _
Second by _
Vote
Follow Up
C:\Documcnts and Settings\jmiller\Local Settings\Ttmporary Internet Fi1cs\OLK3E\2007AElectricRevenueHond~salc.doc
EXTRACT OF MINUTES OF A MEETING OF THE
CITY COUNCIL OF THE
CITY OF ELK RIVER, MINNESOTA
HELD: March 5, 2007
Pursuant to due call and notice thereof, a regular or special meeting of the City Council
of the City of Elk River, Minnesota, was duly called and held at the City Hall in the City of Elk
River, Minnesota on March 5, 2007, at 6:30 o'clock P.M.
The following members were present:
and the following were absent:
Member
introduced the following resolution and moved its adoption:
RESOLUTION ACCEPTING PROPOSAL AND 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 ISSUANCE AND SALE OF
$2,875,000 ELECTRIC REVENUE BONDS, SERIES 2007A
A. WHEREAS, the Public Utilities Commission of the City of Elk River, Minnesota
(the "Commission") has determined to undertake capital improvements to the municipal electric
light and power plant and distribution system of the City (the "Electric System") consisting of
improvements and extensions to the Electric System (the "Project"); and will finance the Project
by the issuance of the City's $2,875,000 Electric Revenue Bonds, Series 2007 A (the "Series
2007 A Bonds"); and
B. WHEREAS, the Commission has presented to the City Council a copy of a
resolution entitled "Resolution Providing for the Issuance and Sale of $2,875,000 Electric
Revenue Bonds, Series 2007 A and Pledging Net Revenues for the Security Thereof," duly
adopted by the Commission at its February 20, 2007, meeting (the "Bond Resolution"); and
C. WHEREAS, the Bond Resolution delegated to the City Council the authority to
accept, on the Commission's behalf (a) the most favorable proposal for the purchase of the Series
2007 A Bonds, (b) the interest rates for the Series 2007 A Bonds, and ( c) the amount of the
Purchaser's discount.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Elk River,
Minnesota:
I. The City Council hereby joins in, concurs with, adopts and makes the
determinations and findings set forth in the Bond Resolution with the same force and effect as if
the Bond Resolution had been adopted by the City Council.
2. Based on the delegation of the Commission by the Bond Resolution, the City
Council hereby accepts the proposal of (the "Purchaser"), to
purchase the Series 2007A Bonds in accordance with the Terms of Proposal, at the rates of
1995343v1
interest hereinafter set forth, and to pay therefore the sum of $ , plus interest accrued
to settlement. The Purchaser's proposal is hereby found, determined and declared to be the most
favorable proposal received and the Series 2007 A Bonds are hereby awarded to the Purchaser.
The Clerk is directed to retain the deposit of the Purchaser and to forthwith return to the
unsuccessful bidders their good faith checks or drafts.
3. The Series 2007 A Bonds shall bear interest at the respective rates per armum set
forth opposite the maturity years as follows:
Maturitv Year
Interest Rate
Maturitv Year
Interest Rate
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
The motion for the adoption of the foregoing resolution was seconded by member
and upon a vote being taken thereon, the following voted in favor
thereof:
and the following voted against the same:
Whereupon the resolution was declared duly passed and adopted.
STATE OF MINNESOTA
COUNTY OF SHERBURNE
CITY OF ELK RIVER
I, the undersigned, being the duly qualified and acting Clerk of the City of Elk River,
Minnesota, DO HEREBY CERTIFY that I have compared the attached and foregoing extract of
minutes with the original thereof on file in my office, and that the same is a full, true and
complete transcript of the minutes ofa meeting of the City Council, duly called and held on the
date therein indicated, relating to $2,875,000 Electric Revenue Bonds, Series 2007 A.
WITNESS my hand on March 5, 2007.
Clerk
Simon. Tim
From:
Sent:
To:
Subject:
GID - Moody's Investors Service [epi@moodys.com]
Thursday, March 01, 20074:11 PM
mark@ehlers-inc.com
Elk River Utilities, MN
MOODY'S ASSIGNS A2 RATING TO THE CITY OF ELK RIVER'S (MN) $2.9 MILLION ELECTRIC REVENUE
BONDS, SERIES 2007A
A2 AFFIRMATION AFFECTS $3.6 MILLION OF OUTSTANDING DEBT
Elk River utilities, MN
Electric Utilities
Minnesota
Moody's Rating
Issue
Rating
Electric Revenue Bonds,
Sale Amount
Expected Sale Date
Rating Description
Series 2Q07A
$2,875,000
03/05/07
Electric Revenue Bonds
A2
NEW YORK, March 1, 2007 -- Moody's Investors Service has assigned an A2 rating to the City
of Elk River's (MN) $2.9 million Electric Revenue Bonds, Series 2007A. Concurrently,
Moody's has affirmed the A2 rating on the city's outstanding revenue bonds, affecting $3.6
million. ProceedS of the 2007A bonds will be used to fund improvements and extensions on
the city's electric utility. The bonds are secured by a first lien on the system's net
revenues and are on parity with the system's Series 2004 and Series 2006A bonds. The A2
rating reflects the system's modest yet quickly growing customer base, ample coverage of
historical and projected debt service with satisfactory legal provisions, and recently
increased debt ratio that is expected moderate going forward given the lack of additional
borrowing plans.
MODEST, YET QUICKLY GROWING, CUSTOMER BASE IN NORTHERN SUBURB OF TWIN CITIES; SLIGHT
CONCENTRATION RISK ASSOCIATED WITH LARGEST CUSTOMERS
Moody's believes the system will continue to experience strong growth in both the number
of customers and the total demand for energy over the next several years, due largely to
continuing expansion of the region's residential and commercial sectors. The system is
located 35 miles northwest of Minneapolis (general obligation rated Aal) and provides
service to the City of Elk River (rated AI) as well as neighboring Otsego, Dayton, and Big
Lake (each rated A2) as well as surrounding rural areas.
The utility serves more than 8,500 customers, of which are 89% are residential, 9% are
commercial and 2% are industrial. The number of customers and the demand for electricity
has seen strong growth over the last five years, annually averaging 6.2% and 7.5%,
respectively. There is slight concentration risk as the system's ten largest customers
comprised 18.3% of the systems 2006 total billings and consumed 21.9% of the power sold.
System officials report that the current largest customers' demand trends have been stable
and are expected to remain so in the foreseeable future. In addition, management reports
that Target Corporation (senior unsecured All the United Health Group will be opening data
processing facilities within the system's boundaries. Both facilities will be significant
users; Target's estimated annual usage is lOMW and United Health Carers is 20 MW. In
comparison, in 2006 the system's ten largest users drew approximately 43MW. The
concentration risk posed by such large users is heavily mitigated by the utility's role as
a distribution system and its take-and-pay contract.
POWER PURCHASE CONTRACT INSULATES FROM SHORT-TERM CHANGES IN POWER SUPPLY COSTS
1
The system purchases almost all of its power from Great River Energy and generates a small
portion of power for its landfill operations. The contract with Great River Energy allows
the system to draw an unlimited amount of power on a take-and-pay basis at an annually set
rate. Peak demand in fiscal 2006 was 46MW. This agreement insulates the system from price
shocks and exposure to the spot market. According to officials, either party may cancel
the contract, which would take effect 10 years from the notice date, The potential for
unexpected increases in operational costs is again mitigated by the system's role as a
distributor and its purchase agreement with Great River Energy.
SOUND FINANCIAL OPERATIONS DEMONSTRATED BY ADEQUATE NET WORKING CAPITAL; SATISFACTORY
LEGAL PROVISIONS
Moody'S believes system's financial operations will remain healthy due to brisk growth of
the system and sound financial management of the utility. Net working capital stood at an
adequate $2.1 million in fiscal 2005, or 15.6% of fiscal 2005 operating expenditures. Rate
setting authority is ultimately held by a three person Utility Commission appointed by the
City Council. The system raises rates on an annual basis, given the annual rate increases
of Great River Energy. Though the system absorbs a portion of the rate increase by Great
River Energy, its goal is to accumulate reserves equal to 3-4 months of expenditures.
Coverage of system debt is somewhat limited because most of the system's borrowing has
occurred in the last three years. Previous to 2004, the system only had a 2002 Promissory
Note payable from the system's revenues, which had annual payments of a little more than
$100,000. However, operating revenues are expected to provide healthy coverage,
approximating four times the maximum annual debt service (of $877,000) that is expected to
occur in 2015. Going forward, the system's annual rate increases are expected to support
continued strong debt service coverage.
The legal provisions outlined in the bond ordinance specify a rate covenant of
1.1 times coverage with an additional bonds test of 1.25 times. The additional bonds test
does allow for any rate increase put in place after the beginning of the fiscal year to be
applied to the entire year. No bonds may be issued with a prior claim on system revenues.
The flow of funds specifies that the bonds, together with outstanding parity debt, enjoy a
first claim on the system's net revenues (defined as gross revenues less operational
expenses). A debt service reserve is required equivalent to (a) maximum annual principal
and interest; (b) 10% of the stated principal amount of the bonds, or (c) 125% of the
average annual principal and interest coming due, all of which Moody's considers
satisfactory.
DEBT RATIO EXPECTED TO MODERATE DUE TO LACK OF FUTURE BORROWING NEEDS
Moody's believes the system's debt profile will remain manageable due to limited future
borrowing needs. In recent years, the system's debt ratio has significantly increased from
about 13.4% in 2005 to an estimated 36%, including the current offering. Although this is
notable 1 the system's expected debt burden is considered manageable. Debt retirement is
above average, with 58.7% of principal retired within 10 years. According to system
officials, the strong ongoing commercial and residential growth is expected to support
future capital needs.
KEY STATISTICS:
Nature of system: Electric distribution (open loop)
Number of system customers (2006): 8,562
Five-year Average annual growth in system customers: 6.2%
Customer demand (FY2005): 193,700 MWh
Ten largest customers as a percentage of operational revenues (FY2006): 18.3%
FY2005 Net Working Capital: $2.1 million (15.6% operating expenditures)
FY2005 operating ratio: 82.9%
FY2005 debt ratio: 13.4%
Debt ratio, including current issue: 36.7%
2
Projected MADS coverage: approximately 4 times
Post-sale rated revenue debt outstanding: $6.5 million ($9.8 million total)
ANALYSTS:
Beth A. Dougherty, Analyst, Public Finance Group, Moody's Investors Service Jonathan
North, Backup Analyst, Public Finance Group, Moody1s Investors Service
CONTACTS:
Journalists: (212)
Research Clients:
553-0376
(212) 553-1653
Copyright 2007, Moody's Investors Service,
including Moody1s Assurance Company, Inc.
All rights reserved.
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and Shareholder Affiliation Policy."
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your own objectives, financial situation and needs.
3
BID TABULATION
c C ~,^"\0<\~
ne~ '5.3.
~h'l 0 l
$2,875,000 Electric Revenue Bonds, Series 2007 A
CITY OF ELK RIVER, MINNESOTA
SALE: March 5, 2007
AWARD: CRONIN & COMPANY, INC.
RATING: AMBAC Insured (Moody's Investors Service, Inc. "AaaT
UNDERLYING RATING: Moody's Investors Service, Inc. "A2"
NAME OF BIDDER
MATURITY
(February 1)
$2,859,848.20 $1,103,343.47 4.0699%
CRONIN & COMPANY, INC.
Minneapolis, Minnesota
UBS INVESTMENT BANK
Dallas, Texas
CITIGROUP GLOBAL MARKETS, INC.
Chicago, Illinois
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
NORTHLAND SECURITIES, INC.
Minneapolis, Minnesota
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
WACHOVIA SECURITIES, LLC
Richmond, Virginia
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
*AMBAC insurance purchased by Cronin & Co., Inc.
RATE
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.050%
3.750%
3.750%
3.750%
3.750%
3.750%
3.750%
3.750%
4.000%
4.000%
4.000%
4.000%
4.100%
4.125%
REOFFERING
YIELD
3.500%
3.520%
3.550%
3.600%
3.650%
3.700%
3.750%
3.800%
3.850%
3.920%
4.000%
4.050%
4.100%
BBI: 4.10%
PRICE
NET
INTEREST
COST
TRUE
INTEREST
RATE
$2,852,015.70 $1,113,290.90 4.1132%
$2,836,237.40 $1,115,915.84 4.1296%
.
EHLERS
& ASSOCIATES INC
3060 Centre Pointe Drive. Roseville, MN 55113
651.697.8500 fax 651.697.8555 www.ehlers-inc.com
Offices in Rosellille, MN Brookfield, WI and Lisle, fL
..2,875,000 Electric Revenue Bonds, Series 2007A
:ity of Elk River, Minnesota
Page 2
iMME OF BIDDER
MATURITY
(February 1)
RATE
REOFFERING
YIELD
PRICE
NET
INTEREST
COST
TRUE
INTEREST .
RATE
,iBC CAPITAL MARKETS
!vlinneapolis, Minnesota
WELLS FARGO BROKERAGE SERVICES, LLC
iv1inneapolis, Minnesota
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.100%
4.125%
4.200%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.000%
4.125%
4.125%
4.250%
4.250%
$2,858,177.90 $1,121,570.56 4.1349%
$2,861,622.60 $1,129,533.96 4.1592%