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5. EDSR 10-08-2007ITEM # 5. ~~~~ ~•- iver MEMORANDUM TO: Economic Development Authority FROM: Tim Simon, Finance Director DATE: October 2, 2007 SUBJECT: Upcoming bond pre-sale report review Action Requested Call special Economic Development Authority meeting for October 15, 2007 at 6:30 p.m. to award the sale of the bonds. Background/Discussion Bonds are being issued to finance the 55,000 s.f. recreational facility to be leased to the YMCA. The Economic Development Authority (EDA) will be issuing the bonds due to the legal authority necessary to utilize bond proceeds for a recreational facility leased to a non- profit. If the EDA issues over $10,000,000 in a calendar year, the bonds will not be bank qualified which means they carry a higher interest rate and will be taxable bonds. The spread in today's market between bank qualified and non-bank qualified bonds is between .2% and .25%. As a result, the EDA will be issuing $10,000,000 in calendar year 2007 and $2,000,000 in calendar year 2008, which will result in an estimated debt service savings of approximately $280,000 in present value dollars. Next Steps October 15, 2007 -Public Hearing and the City Council and EDA will issue the bonds Financial Impact $10,000,000 will be issued in 2007 and $2,000,000 will be issued early in 2008 for a total bond issue of $12,000,000. Attachments Pre-sale report ELK RIVER ECONOMIG DEVELOPMENT AUTHORITY AND CITY OF ELK RIVER, MINNESOTA PRE-SALE REPORT Oc7oBER, 2007 Proposed Issue: $10,000,000 G.O. Bonds, Series 2007 to be issued by the Economic Development Authority (EDA) and secured by the general obligation of the taxpayers of the City of Elk River. The EDA is the issuer because of the legal authority necessary to utilize bond proceeds for a recreational facility leased to anon-profit. Purpose: The Bonds will finance a 55,000 s.f. recreational facility to be leased to the YMCA of Metropolitan Minneapolis pursuant to an election held on September 12, 2006. The ballot language was: "Shall the City of Elk River, Minnesota, be authorized to pledge its full faith, credit and resources to bonds to be issued by the Economic Development Authority of the City of Elk River in an amount not to exceed $12,000,000 to defray the expense of the acquisition and betterment of a recreational facility owned by the Authority and leased to the YMCA? The maximum amount of increased levy as a percentage of market value is .052%. The maximum amount that would be raised by the new referendum tax rate in first year if it were to be levied is $902,982. NOTICE: BY VOTING "YES" ON THIS BALLOT QUESTION, YOU ARE VOTING FOR A PROPERTY TAX INCREASE. The Economic Development Authority of the City of Elk River anticipates entering into a lease with The Young Men's Christian Association of Metropolitan Minneapolis (the "YMCA") pursuant to which the YMCA will pay one-third of the debt service of the bonds to be issued by the Economic Development Authority of the City of Elk River." :Description: The Bonds are being issued pursuant to Minnesota Statues, Chapter 469 and 475. The Bonds are anticipated to be rated by Moody's at an "A1" level. Bank Qualification: Because the federal government restricts banks from investing in "non-bank qualified bonds", we are recommending that the first bond issue for the referendum be limited to $10,000,000. The reduction in the size of the issue should result in .2% to .25% savings in the interest rate which equates to a reduction in debt service costs of approximately $280,000 in present value dollars. In early 2008, the EDA can issue the final $2,000,000. TermlCall Feature: The Bonds are being issued fora 25-year period. Principal on the Bonds will be due on February 1 in the years 2016 through 2033. Bonds maturing February 1, 2018, and thereafter will be subject to prepayment at the discretion of the City on February 1, 2017. The remaining $2,000,000 of debt will be amortized from February 1, 2009 to 2015, thereby allowing the City and EDA to lock in the lower, longer term rates now. Funding Sources: The Bonds are general obligations of the EDA/City and as such are secured by a pledge of the EDA/City's full faith, credit and taxing powers, with or without payments from the YMCA. It is the intent of the EDA to levy property taxes to support the two-thirds of the debt service beginning with taxes payable in 2008 for the interest payment due August 1, 2008. The bond resolution will show the EDA levying 100% of the debt service, which can be written down an annual basis. Currently, the estimated interest rates would result in an annual debt service that would be $20,000 less than shown in the ballot question. Bond proceeds of $11,790,000 are higher than expected as well because the capitalized interest for the Bonds was able to be eliminated. Discussion :Issues: The Bonds will be deemed 501(c)(3) bonds due to the involvement of a non-profit (the YMCA) in payment of the debt. The non-profit designation requires a public hearing, limits costs of issuance to 2% paid from bond proceeds, and changes restrictions on earning interest on the Bonds (arbitrage). Arbitrage: With increasing short-term investment rates, IRS rules regarding the amount of interest that the City may earn on bond proceeds is more of a concern. If the City spends the bond proceeds within 24 months according to specific measurements each six months, interest earned on the proceeds above the bond interest rate does not need to be rebated or repaid interest (the excess interest earnings are known as arbitrage). The City will also need to keep its debt service funds within IRS parameters to avoid penalties on carrying too high of a balance during the life of the issue. Schedule: Pre-Sale Review by Council: October 1, 2007 Pre-Sale Review by EDA: October 8, 2007 Distribute Official Statement: October 5, 2007 Conference with Rating Agency: Week of October 8, 2007 Bond Sale (EDA and City Council meeting to award): October 15, 2007 Estimated Closing Date: Week of November 5, 2007 Attachments: Sources and Uses and Debt Service Estimates Ehlers Contacts: Financial Advisors: Mark Ruff (651) 697-8505 Sid Inman (651) 697-8507 Bond Analysts: Diana Lockard (651) 697-8534 Debbie Holmes (651) 697-8536 Bond Sale Connie Kuck (651) 697-8527 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. -- City of Elk River/Elk River EDA $12,000,000 G.O. Bonds, Series 2007 and 2008 (YMCA Project - 2 Issues) Table of Contents Report ISSUE SUMMARY Total Issue Sources And Uses _ ~_ Debt Service Schedule ? 10 M Issued in Oct. 2007 Debt Service Schedule _ 4 2 M Issued in early 2008 Debt Service Schedule _ _ 6 Ser 07 ymca no int eam b I Issue Summary 19/18/2007 ~ 11:05 PM • ~ ~ • i f ~. i ~.. ~Ity OT tIK KIV@~/tIK KIV@f CUN $12,000,000 G.O. Bonds, Series 2007 and 2008 (YMCA Project - 2 Issues) Total Issue Sources And Uses 10 M in 2007 2 M in early 2008 Issue Summary Sources Of Funds Par Amount of Bonds $10,000,000.00 $2,000,000.00 $12,000,000.00 Total Sources Uses Of Funds $10,000,000.00 $2,000,000.00 $12,000,000.00 Total Underwriter's Discount (1.000%) 100,000.00 20,000.00 120,000.00 Costs of Issuance 65,000.00 - 25,000.00 - 90,000.00 -- Deposit to Project Construction Fund 9,835,000.00 1,955,000.00 11,790,000.00 Total Uses $10,000,000.00 $2,000,000.00 _ $12,000,000.00 City of Elk River/Elk River EDA $12,000,000 G.O. Bonds, Series 2007 and 2008 (YMCA Project - 2 Issues) .-.-~-. i.------- ^-'---'--'_ Dorf 1 nf9 City of Elk River/Elk River EDA $12,000,000 G.O. Bonds, Series 2007 and 2008 (YMCA Project - 2 Issues) Debt Service Schedule Part 2 of 2 Date Principal Coupon Interest Total P+I _Fiscal Total 02/01/2030 08/01 /2030 02/01/2031 08/01/2031 690,000.00 - 720,000.00 - 4.750% - 4.750% - 70,181.25 53,793.75 53,793.75 36,693.75 760,181.25 53,793.75 773,793.75 36,693.75 830,362.50 - 827,587.50 _ - __ 02/01/2032 08/01 /2032 02/01/2033 755,000.00 - 790,000.00 __ _ 4.750% - 4.750% 36,693.75 18,762.50 18,762.50 791,693.75 18,762.50 808,762.50 828,387.50 827,525.00 Total $12,000,000.00 - $8,512,665.00 $20,512,665.00 Yield Statistics Bond Year Dollars - _ $188,553.33 -- Average Life - - 15.713 Years Average Coupon 4.5147253% Net Interest Cost (NIC) __ _ 4.5783677% True Interest Cost (TIC) _ - - - -_ - 4.6008446% - Bond Yield for Arbitrage - Purposes _ __ _ 4.5062982% All Inclusive Cost (AIC) _ _ _ _ 4.6726779% IRS Form 8038 Net Interest Cost _ 4.5147253% 15.713 Years Weiohted Average Maturity Ser 07 ymca no int eam b I Issue Summary ~ 9/18/2007 ~ 11:05 PM City of Elk River/Elk River EDA $10,000,000 G.O. Bonds, Series 2007 (YMCA Project) Debt Service Schedule Part 1 of 2 Date Principal .Coupon Interest Total P+I Fiscal Total 11 /01 /2007 - - - - - 08/01/2008 - - 336,367.50 336,367.50 - 02/01 /2009 - - 224,245.00 224,245.00 560,612.50 08/01/2009 - - 224,245.00 224,245.00 - 02/01/2010 - - 224,245.00 224,245.00 448,490.00 08/01/2010 - - 224,245.00 224,245.00 - - - - -- 02/01/2011 - - - - 224,245.00 224,245.00 448,490.00 08/01/2011 - - 224,245.00 224,245.00 - 02/01/2012 - - 224,245.00 224,245.00 448,490.00 08/01/2012 - - 224,245.00 224,245.00 - 02/01/2013 - - 224,245.00 224,245.00 448,490.00 08/01/2013 - - 224,245.00 224,245.00 - 02/01 /2014 - - 224,245.00 224,245.00 448,490.00 08/01/2014 - - 224,245.00 224,245.00 - 02/01/2015 - - 224,245.00 224,245.00 448,490.00 08/01/2015 - - 224,245.00 224,245.00 - 02/01/2016 380,000.00 4.100% 224,245.00 604,245.00 828,490.00 08/01 /2016 - - 216,455.00 2_16,455.00 _ _ - __ 02/01/2017 __ 395,000.00 4.100% 216,455.00 611,455.00 827,910.00 08/01/2017 - - 208,357.50 208,357.50 - 02/01/2018 410,000.00 4.100% 208,357.50 618,357.50 826,715.00 08/01/2018 - - 199,952.50 199,952.50 - 02/O1/2019 430,000.00 4.100% 199,952.50 629,952.50 829,905.00 08/01/2019 - - 191,137.50 __ 191,137.50 _ - 02/01/2020 _ 445,000.00 4.150% 191,137.50 636,137.50 827,275.00 08/01/2020 - - 181,903.75 181,903.75 - 02/01/2021 465,000.00 4.200% 181,903.75 646,903.75 828,807.50 08/01/2021 - - 172,138.75 172,138.75 - 02/01/2022 485,000.00 4.250% 172,138.75 657,138.75 829,277.50 08/01 /2022 - - 161,832.50 _ 161,832.50 - _ 02/01/2023 505,000.00 4.300% 161,832.50 666,832.50 828,665.00 08/01/2023 - - 150,975.00 150,975.00 - 02/01/2024 525,000.00 4.350% 150,975.00 675,975.00 826,950.00 08/01/2024 - - 139,556.25 139,556.25 - 02/01/2025 550,000.00 4.450% 139,556.25 689,556.25 829,112.50 08/01/2025 - - 127,318.75 127,318.75 - _ 02/01/2026 _ 575,000.00 _ 4.500% __ 127,318.75 702,318.75 829,637.50 08/01/2026 - - 114,381.25 114,381.25 - 02/01/2027 600,000.00 4.600% 114,381.25 714,381.25 828,762.50 08/01/2027 - - 100,581.25 100,581.25 - 02/01/2028 625,000.00 4.750% 100,581.25 725,581.25 826,162.50 08/01/2028 - - 85,737.50 85,737.50 _- 02/01/2029 655,000.00 4.750% _ 85,737.50 740,737.50 826,475.00 08/01 /2029 - - 70,181.25 70,181.25 - Ser 07 ymca no int eam b ~ 10 M ~ 9/18/2007 ~ 11:05 PM i City of Elk River/Elk River EDA $10,000,000 G.O. Bonds, Series 2007 ~, (YMCA Project) Debt Service Schedule Part 2 of 2 Date Principal Coupon Interest __ _ Total P+I Fiscal Total 02/01/2030 690,000.00 4.750% 70,181.25 760,181.25 830,362.50 08/01 /2030 - - 53,793.75 53,793.75 - 02/01/2031 720,000.00 4.750% 53,793.75 773,793.75 827,587.50 08/01/2031 - - 36,693.75__ 36,693.75 - __ _ 02/01/2032 755,000.00 ___ 4.750% 36,693.75 791,693.75 828,387.50 08/01 /2032 - - 18,762.50 18,762.50 - 02/01/2033 790,000.00 4.750% 18,762.50 808,762.50 827,525.00 Total $10,000,000.00 - $8,159,560.00 $18,159,560.00 - Yield Statistics Bond Year Dollars ____ _ $179,040.00 Average Life __ 17.904 Years Average Coupon ___ 4.5573950% Net Interest Cost (NIC) _ 4.6132484% True Interest Cost (TIC) 4.6183295% Bond Yield for Arbitrage Purposes __ 4.5062982% All Inclusive Cost (AIC) 4.6822408% IRS Form 8038 Net Interest Cost __ ____ 4.5573950% Weighted Average Maturity 17.904 Years Ser 07 ymca no int eam b 110 M 19/18/2007 ~ 11:05 PM - _ - - - City of Elk River/Elk River EDA $2,000,000 G.O. Bonds, Series 2008 (YMCA Project) Debt Service Schedule Date Principal Coupon _ Interest __ Total P+I _Fiscal Total_ -- --- -- ~ o2rov2oo8 - - - - - ~ 08/01 /2008 - - 40,490.00 40,490.00 - 02/01/2009 155,000.00 4.000% 40,490.00 195,490.00 235,980.00 08/01!2009 - - 37,390.00 37,390.00 - 02/01/2010 275,000.00 4.000% 37,390.00 312,390.00 349,780.00 08/01/2010 - 31,890.00 _ 31,890.00 _ - __ _ j 02/01/2011 290,000.00 _ 4.000% _ 31,890.00 321,890.00 353,780.00 08/01/2011 - - 26,090.00 26,090.00 - ~ 02/01/2012 300,000.00 4.000% 26,090.00 326,090.00 352,180.00 08/01/2012 - - 20,090.00 20,090.00 - 02/Ol/2013 315,000.00 4.100% 20,090.00 335,090.00 355,180.00 08/01/2013 - - 13,632.50 13,632.50_ - 02/01/2014 325,000.00 4.100% 13,632.50 338,632.50 352,265.00 08/01 /2014 - - 6,970.00 6,970.00 - 02/01/2015 340,000.00 4.100% 6,970.00 346,970.00 353,940.00 Total $2,000,000.00 - $353,105.00 $2,353,105.00 - Yield Statistics Bond Year Dollars _ _ $8,680.00 Average Life 4.340 Years Average Coupon 4.0680300% Net Interest Cost (NIC) _ _ 4.2984447% _ True Interest Cost (TIC) _ _ _ _ 4.3260832% Bond Yield for Arbitrage Purposes _ _ 4.5062982% _ All Inclusive Cost (AIC) _ _ _ 4.5229626% __ IRS Form 8038 Net Interest Cost 4.0680300% Weighted Average Maturity - -- 4.340 Years - -- _ I Ser 07 ymca no int eam b ~ 2 M ~ 9/18/2007 111:05 PM • ~ f ~ ~ .~' ~ • .~'