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Home My WebLink About9B General Obligation Capital Improvement Plan Refunding BondsPRIU\ U 4646 Dakota Street SE Prior Lake. MN 55372 CITY COUNCIL AGENDA REPORT MEETING DATE: JANUARY 3, 2012 AGENDA #: 9B PREPARED BY: JERILYN ERICKSON, FINANCE DIRECTOR PRESENTED BY: JERILYN ERICKSON AGENDA ITEM: CONSIDER APPROVAL OF A RESOLUTION AUTHORIZING THE NEGO- TIATED SALE OF $9,985,000 GENERAL OBLIGATION CAPITAL IMPROVE- MENT PLAN REFUNDING BONDS OF 2012 DISCUSSION: Introduction The City's fiscal consultant, Steve Mattson from Northland Securities Inc., will be present during the Council meeting to request Council approval for the negotiated sale of general obligation bonds in the amount of $9,985,000 to refund the EDA Public Project Revenue Bonds, Series 2005B. The resolution includes a not -to- exceed amount of $10,000,000 to provide flexibili- ty in the amount to bond based on any last minute change orders, change in fund- ing, etc. History The Economic Development Authority Public Project Revenue Bonds, Series 2005B (also commonly referred to as the EDA Lease Revenue Bonds) were is- sued on 05/15/2005 in the amount of $10,000,000. Outstanding principal balance is $9,070,000. Bonds are callable 12/15/2013. This refunding is considered an "advanced refunding." The bond proceeds will be deposited in an Escrow Fund and will be used to pay the old 2005B bonds. During the October 17, 2011 workshop, Mr. Steve Mattson /Northland Securities presented some refunding opportunities to the Council. One of the opportunities included refunding the EDA Public Project Revenue Bonds of 2005. Mr. Mattson indicated that we could obtain the best interest rates for refunding the EDA Bonds if we converted them to general obligation debt. The conversion process would require several steps. The Council would need to add an adden- dum to the current Capital Improvement Plan. The requirements are provided in State Statute 475.521. This addendum would identify the City's intent to issue Capital Improvement Plan Bonds for purposes of refunding the EDA Public Project Revenue Bonds. On December 19, 2011 a public hearing was held to receive public comment on the Addendum to the 2012 -2016 Capital Improvement Program. There were no comments from the public during the hearing. The Council adopted a resolution approving the Addendum and preliminary authorization to issue bonds. It should be noted that the public has 30 days from the date of the public hearing (December 19, 2011) to file a petition requesting a vote on the issuance. Since the refunding saves taxpayers upwards of $1 million, it seems unlikely that a peti- tion would be filed. Assuming there are no petitions within 30 days from the public hearing date, the City will be positioned to take advantage of market conditions that provide the best opportunity to reduce future interest costs. Current Circumstances In previous sales the Council has authorized negotiated bond sales directly from Northland Securities. Mr. Mattson will provide some estimates regarding the timing of the bond sale. The current economic market climate is favorable for the is- suance of low cost bonds due to very low interest rates. Ultimately, the final pur- chase price will be subject to Council approval. Mr. Mattson has been in consultation with the City's bond counsel, Briggs & Mor- gan regarding all issues associated with this bond issue. The attached resolution authorizing the negotiated sale of general obligation capital improvement plan re- funding bonds was prepared by Northland Securities and reviewed by Briggs & Morgan. Briggs & Morgan will be preparing a legal opinion after the authorization has been granted to enter into a negotiated sale of bonds but prior to the final ap- proval of the bond sale. The final legal opinion is not actually signed until a day or two before the final closing. Staff will include a draft of the legal opinion with the agenda report that is prepared for the approval of the bond sale (later in January or February). Attached is a copy of the proposed CIP bond issue based on rates as of 12/27/2011. Conclusion The City Council will consider a resolution providing for the issuance and sale of bonds at a future regular meeting. FINANCIAL The bond issue will have maturities on December 15 of each year and will be IMPACT: structured with a final maturity in 2029. This is the same maturity as the original bond issue. As of 12/27/2011, the projected savings for refunding the EDA Public Project Rev- enue Bonds were about $1,209,000 ($981,000 net present value) over the remain- ing life of the bonds. These amounts include any negative arbitrage which may be applicable. ALTERNATIVES: The following alternatives are available to the City Council: 1. Adopt a Resolution Authorizing the Negotiated Sale of $9,985,000 General Obligation Capital Improvement Plan Refunding Bonds of 2012. 1. Table this item for a specific reason. RECOMMENDED Alternative 1. MOTION: 2 CERTIFICATION OF MINUTES RELATING TO GENERAL OBLIGATION CAPITAL IMPROVEMENT PLAN REFUNDING BONDS, SERIES 2012A ISSUER: City of Prior Lake, Minnesota BODY: City Council KIND, DATE, TIME AND PLACE OF MEETING: A regular meeting held on Tuesday, January 3, at 7:00 o'clock p.m., in the City Offices MEMBERS PRESENT: MEMBERS ABSENT: Documents Attached: Extract of Minutes of said meeting. RESOLUTION APPROVING THE ISSUANCE OF GENERAL OBLIGATION CAPITAL IMPROVEMENT PLAN REFUNDING BONDS, SERIES 2012A I, the undersigned, being the duly qualified and acting recording officer of the public corporation issuing the obligations referred to in the title of this certificate, certify that the documents attached hereto, as described above, have been carefully compared with the original records of said corporation in my legal custody, from which they have been transcribed; that said documents are a correct and complete transcript of the minutes of a meeting of the governing body of said corporation, and correct and complete copies of all resolutions and other actions taken and of all documents approved by the governing body at said meeting, so far as they relate to said obligations; and that said meeting was duly held by the governing body at the time and place and was attended throughout by the members indicated above, pursuant to call and notice of such meeting given as required by law. WITNESS MY HAND officially as such recording officer on January , 2012. City Manager EXTRACT OF MINUTES OF A MEETING OF THE CITY COUNCIL OF THE CITY OF PRIOR LAKE, STATE OF MINNESOTA HELD: Tuesday, January 3, 2012 Pursuant to due call and notice thereof, a regular meeting of the City Council of the City of Prior Lake, Minnesota, was duly held on Tuesday, January 3, 2012 at 7:00 o'clock p.m. Member introduced the following resolution and moved its adoption: RESOLUTION APPROVING THE ISSUANCE OF GENERAL OBLIGATION CAPITAL IMPROVEMENT PLAN REFUNDING BONDS, SERIES 2012A BE IT RESOLVED by the City Council of the City of Prior Lake, Minnesota (herein, the "City "), as follows: The City Council hereby finds and declares that it is necessary and expedient for the City to sell and issue its fully registered general obligation bonds in the total aggregate principal amount of not -to- exceed $10,000,000 (currently expected to be approximately $9,985,000), herein referred to as the "Bonds ". The proceeds of the Bonds will be used, together with any additional funds of the City which might be required, to (i) conduct a full net advance refunding of all outstanding maturities, in the principal amount of $9,070,000, of the Public Project Revenue Bonds, Series 2005B, dated May 15, 2005, issued by the Economic Development Authority of the City of Prior Lake; and (ii) pay the costs associated with issuing the Series 2012A Bonds. 2. The City desires to proceed with the sale of the Bonds by direct negotiation with Northland Securities, Inc. (herein, "NSI "). NSI will purchase the Bonds in an arm's - length commercial transaction with the City. The Mayor and the City Manager are hereby authorized to approve the sale of the Bonds in an aggregate principal amount of not -to- exceed $10,000,000 and to execute a bond purchase agreement for the purchase of all or a portion of the Bonds with NSI, provided the total net savings on the bond issue is at least $ and the savings meet the 3% savings test as set forth in Minnesota Statutes 475.67, subdivision 12. 4. Upon approval of the sale of the Bonds by the Mayor and the City Manager, the City Council will take action at its next regularly scheduled meeting thereafter to adopt the necessary approving resolutions as prepared by the City's bond counsel. 5. NSI is authorized to prepare an Official Statement related to the sale of the Bonds. 6. If the Mayor and the City Manager have not approved the sale of the Bonds to NSI and executed the related bond purchase agreement by June 30, 2012, this resolution shall expire. The motion for the adoption of the foregoing resolution was duly seconded by Member , and upon vote being taken thereon, the following voted in favor thereof: and the following voted against the same: Whereupon said resolution was declared duly passed and adopted. ■ City of Prior Lake EDA, Minnesota G.O. Refunding Bonds of 2012 (ASSUMES BQ G.O. BONDS) Revenue Bonds of 2005B Refunding Summary Dated 03/01/2012 1 Delivered 03/01/2012 I Sources Of Funds Par Amount of Bonds $ 9,990,000.00 Total Sources $9,990,000.00 Uses Of Funds Deposit to Net Cash Escrow Fund 9,837,404.08 Total Underwriter's Discount (1.150 %) 114,885.00 Costs of Issuance 34,425.00 Roun Amount 3,285.92 Total Uses $9,990,000.00 Flow of Funds Detail State and Local Government Series (SLGS) rates for 12/19/2011 Date of OMP Candidates Net Cash Escrow Fund Solution Method _ Net Funded Total Cost of Investments $9,837,404.08 Interest Earnings @ 0.196% _ _ 32,890.92 Total Draws $9,870,295.00 Issues Refunded And Call Dates 05bold 12/15/2013 PV Analysis Summary (Net to Net) Net PV Cashflow Savings @ 2.452 %(Bond Yield) 981,503.87 C ontingency or Rounding Amount _ _ 3,285.92 Net Present Value Benefit $984,789.79 Net PV Benefit / $9,070,000 Refunded Principal 10.858% Net PV Benefit / $9,990,000 Refunding Principal 9.858% Bond Statistics Average Life 10.532 Years Average Coupon 2.4829245% Net Interest Cost (NIC) 2 Bond Yield for Arbitrage Purposes 2.4523943% True Interest Cost (TIC) - - — 2.5799225% -- — - - All Inclus Cost (AIC) — 2.618534 % 05bref I SINGLE PURPOSE 1 12/27/2011 1 1:08 PM Northland Securities Public Finance Page 1 1 05bref I SINGLE PURPOSE 1 12/27/2011 1 1:08 PM Northland Securities Public Finance Page 2 City of Prior Lake EDA, Minnesota G.O. Refunding Bonds of 2012 (ASSUMES BQ G.O. BONDS) Revenue Bonds of 2005B Debt Service Comparison Date Total P +I Net New D/S Old Net D/S Savings 12/15/2012 567,958.81 564,672.89 634,747.50 70,074.61 12/15/2013 579,947.50 579,947.50 645,547.50 65,600.00 12/15/2014 602,885.00 602,885.00 670,547.50 67,662.50 12/15/2015 610,085.00 610,085.00 679,147.50 69,062.50 12/15/2016 621, 600.00 621,600.00 691,185.00 69, 585.00 12/1512017 6 42,137.50 642,137.50 707,160.00 65,022.50 12/15/2018 666,512.50 666,512.50 731,860.00 65,347.50 12/15/2019 674,552.50 674,552.50 739,860.00 65,307.50 12/15/2020 691,385.00 691,385.00 756,797.50 65,412.50 12/15/2021 711,765.00 711,765.00 777,247.50 65,482.50 12/15/2022 715,490.00 715,490.00 784,997.50 69,507.50 12/15/2023 732,777.50 732,777.50 801,412.50 68,635.00 12/15/2024 748,497.50 748,497.50 815,762.50 67,265.00 12/15/2025 767,560.00 767,560.00 832,397.50 64,837.50 12/15/2026 789,740.00 789,740.00 856,940.00 67,200.00 12/15/2027 805,140.00 805,140.00 873,925.00 68, 785.00 12/15/2028 823,825.00 823,825.00 893,585.00 69,760.00 12/15/2029 850,575.00 850,575.00 915,687.50 65,112.50 Total $12,602,433.81 $12,599,147.89 $13,808,807.50 $1,209,659.61 PV Analysis Summary (Net to Net) Gross PV Debt Service Savings ..................... 981 Net PV Cas hflow Savings @ 2.452 %(Bond Yield) ..... 981,5 Contingency or Rounding Amount .................... 3,285.92 N et Prese Value Ben $984,789.79 Net PV Benefit / $10,971,503.87 PV Refunded Debt Service Net PV Benefit / $9,070,000 Refunded Principal... _8 .976% 10.858% N et PV Benefit / $9,990,000 Refunding Principal.. _ 9.858% Refunding Bond Information Refunding Dated Date 3/01/2012 Refunding Delivery Date 3/01/2012 I 05bref I SINGLE PURPOSE 1 12/27/2011 1 1:08 PM Northland Securities Public Finance Page 2