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HomeMy WebLinkAbout9A General Obligation Bonds 4646 Dakota Street SE Prior Lake, MN 55372 CITY COUNCIL AGENDA REPORT MEETING DATE: MARCH 28, 2016 AGENDA #: 9A PREPARED BY: DON URAM, FINANCE DIRECTOR PRESENTED BY: DON URAM AGENDA ITEM: CONSIDER APPROVAL OF A RESOLUTION AUTHORIZING THE NEGOTI- ATED SALE OF GENERAL OBLIGATION BONDS, SERIES 2016A DISCUSSION: Introduction The City’s fiscal consultant, Rusty Fifield, from Northland Securities Inc., will be present during the Council meeting to request Council approval for the negotiated sale of general obligation bonds for the following projects and the refunding of all or a portion of the 2018 through 2022 maturities of the 2007A Water Treatment Fa- cility bonds:  TH13 / 150th Street  Manitou Road Project  2016 Equipment Purchases A resolution is attached that approves the issuance of general obligation bonds, 2016 in an amount not-to-exceed $4 million. This will provide flexibility in the amount to bond based on any last minute change orders, change in funding, rate fluctuation, etc. History The following table includes significant dates related to the projects included in this bond issue: Council Action TH13 / 150th Manitou Road 2016 Equipment Purchases Feasibility Report Accepted N/A 11/26/2015 Res 15-191 Public Hearing for Improvement N/A 1/11/2016 Improvement Ordered N/A 1/11/2016, Res 16-006 Contract Awarded 7/27/2015, Res 15-124 Award in April/May? 2/08/2016, Res 16-017 Res 16-018 2 Current Circumstances In previous sales the Council has authorized negotiated bond sales directly from Northland Securities. The current economic market climate is favorable for the issuance of low cost bonds due to continued low interest. Based upon current market conditions, Northland Securities anticipates the actual sale in early May but will delay it if it appears that rates will be declining in the near future. Ms. Omdal and Mr. Fifield will review the market conditions with the Mayor, City Manager and Finance Director prior to marketing the bonds. Ultimately, the final purchase price and interest rate will be subject to Council approval. The structure of the bond issue itself will be based upon the following components in rounded amounts for the new projects: TH13 / 150th Manitou Road 2016 Equip- ment Pur- chases TOTAL Estimated Project Costs $3,852,542 $2,966,692 $416,000 $7,235,234 Less: Water Fund < 1,187,651 > < 1,187,651> Less: Sewer Fund < 477,933 > < 477,933> Less: Water Quality Fund < 12,378> <12,378> Previous Bonding $2,288,000(1) Project Costs to Bond $350,000 $1,300,000(1) $416,000 $2,066,000 Capitalized Interest 17,155 Bond Issuance Costs 95,983 Rounding Amount < > Total New Money $2,179,740 2007 Bond Refunding (2) 1,649,030 Total Bond Issue $3,828,770 (1) Difference due to rounding; (2) Assumes refunding of 2007A Attached is a Finance Plan Summary that provides additional detail with respect to the sources and uses of funds, interest rates, debt service principal/interest pay- ments, saving analysis on the outstanding 2007A bonds, and sources of repay- ment. The two primary sources of repayment are special assessments and prop- erty taxes. The 2007A Water Treatment Facility bond is funded by Water Fund revenues, not property tax levies. Assuming the remaining bonds from the 2007A bond issue (2017 – 2022) are refunded, the refunding portion will continue to be funded by Water Fund revenues. 3 The City’s bond counsel, Briggs & Morgan, has reviewed all of the necessary bond documents. Northland Securities has prepared the attached resolution providing for the issuance and sale of the general obligation bonds. During the week of April 11, 2016 the City Manager, Finance Director, and Ms. Omdal will participate in a bond rating call with the rating agency. The City cur- rently has AA+ from Standard & Poor’s and an Aa2 bond rating from Moody’s In- vestor Rating Services. Conclusion The City Council should consider adopting the attached resolution which provides for the issuance and sale of bonds. ISSUES: The projects that are included in this bond issue are in varying stages. The con- struction contract for the TH13/150th Street project was awarded in 2015 and con- struction is underway and anticipated for completion this fall. The Manitou Road project will be bid and contract awarded in late April/May. Lastly, the equipment purchases that the Council approved at the first meeting in February has been or- dered with an expected delivery late summer/early fall. FINANCIAL IMPACT: The size of the new money bond issue was originally anticipated in the 2016-2020 CIP to be approximately $3.9 million with the tax levy supporting $2.9 million. Based on these figures, the estimated annual tax levy was $478,000. The current bond issue has been significantly reduced primarily due to projects be- ing delayed for a variety of reasons including funding concerns, etc. At the same time, there have been increases and decreases in some of the costs for the TH13/150th Street project. The proposed bonding is expected to cover the remain- ing costs of the project. Overall, the new money portion of the bond issue amount will be reduced to $2.2 which will reduce the annual tax levy impact from $478,000 to approximately $265,000. ALTERNATIVES: The following alternatives are available to the City Council: 1. Adopt the Resolution Authorizing the Issuance of General Obligation Bonds, Series 2016A. 2. Table this item for a specific reason. RECOMMENDED MOTION: Alternative 1. CERTIFICATION OF MINUTES RELATING TO GENERAL OBLIGATION BONDS, SERIES 2016A ISSUER: City of Prior Lake, Minnesota BODY: City Council KIND, DATE, TIME AND PLACE OF MEETING: A regular meeting held on Monday, March 28, 2016, at 7:00 p.m., in the City Offices MEMBERS PRESENT: Mayor Hedberg, Councilor Keeney, Councilor McGuire, Councilor Thompson MEMBERS ABSENT: Councilor Morton Documents Attached: Extract of Minutes of said meeting. RESOLUTION 16-XXX APPROVING THE ISSUANCE OF GENERAL OBLIGATION BONDS, SERIES 2016A 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 ti me 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 March 28, 2016. City Manager EXTRACT OF MINUTES OF A MEETING OF THE CITY COUNCIL OF THE CITY OF PRIOR LAKE, STATE OF MINNESOTA HELD: Monday, March 28, 2016 Pursuant to due call and notice thereof, a regular meeting of the City Council of the City of Prior Lake, State of Minnesota, was duly held on Monday, March 28, 2016 at 7:00 p.m. Member ___________________ introduced the following resolution and moved its adoption: RESOLUTION 16-XXX APPROVING THE ISSUANCE OF GENERAL OBLIGATION BONDS, SERIES 2016A BE IT RESOLVED by the City Council of the City of Prior Lake, Minnesota (herein, the “City”), as follows: 1. 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 not to exceed $4,000,000 (herein, the “Bonds”). A portion of the proceeds of the Bonds will be used to finance improvement construction costs, street reconstruction costs and purchase new vehicles (the “new money portion”) and a portion of the proceeds will be used to crossover refund all or a portion of the December 15, 2018 through 2022 maturities, aggregating up to $1,630,000 in principal amount, of the City’s General Obligation Water Treatment Plant Revenue Bonds, Series 2007A, (the “refunding portion”) and to pay the costs of issuing the Bonds. 2. The City Council 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. 3. The Mayor and City Manager are hereby authorized to approve the sale of the Bonds in an aggregate principal amount not to exceed $4,000,000 and to execute a bond purchase agreement for the purchase of the Bonds with NSI, provided the true interest cost is less than 2.75% on the new money portion and the savings on the refunding portion 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 or special 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 September 30, 2016, 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: VOTE Hedberg Keeney McGuire Morton Thompson Aye ☐ ☐ ☐ ☐ ☐ Nay ☐ ☐ ☐ ☐ ☐ Abstain ☐ ☐ ☐ ☐ ☐ Absent ☐ ☐ ☐ ☐ ☐ Whereupon said resolution was declared duly passed and adopted. FOR CITY OF PRIOR LAKE,MINNESOTA $3,825,000 GENERAL OBLIGATION BONDS, SERIES 2016A 45 South 7 th Street Suite 2000 Minneapolis, MN 55402 612-851-5900 800-851-2920 March 28, 2016 FINANCE PLAN SUMMARY Page 2 City of Prior Lake, Minnesota $3,825,000 General Obligation Bonds, Series 2016A FINANCING OVERVIEW This Finance Plan Summary describes the recommended terms and process for the issuance of $3,825,000 General Obligation Bonds, Series 2016A (the “Bonds”) through a negotiated sale process. PURPOSE Proceeds from the Bonds will be used to finance the following: Improvement construction costs (the “Improvement Portion”) Street reconstruction project costs (the “Street Reconstruction Portion”) Purchase of new vehicles (the “Equipment Portion”) Crossover refund the 2018 through 2022 maturities of the City’s General Obligation Water Treatment Plant Revenue Bonds, Series 2007A (the “2007A Bonds”) on December 15, 2017 (the “Crossover Refunding Portion”) The estimated financing requirements for these projects and the crossover refunding is $3,715,030 allocated to include $1,649,030 of crossover refunding costs, $1,300,000 of improvement costs, $416,000 of equipment costs, and $350,000 of street reconstruction project costs. The total borrowing required, including financing costs, is $3,825,000 and is detailed in Figure 1 that follows on page 3. Figure 1 also includes the estimated interest rates (the “Bond Statistics”) for the Bonds. Page 3 FIGURE 1 STATUTORY AUTHORITY The Bonds will be issued pursuant to Minnesota Statutes, Chapters 475, 429, 444, and Section 412.301. The City’s bond attorney from Briggs and Morgan, Professional Association is assuring compliance with Minnesota and Federal laws. DEBT SERVICE STRUCTURE The total repayment generally reflects a level annual requirement over a term of ten years for the Improvement Portion, a term of ten years for the Street Reconstruction Portion, a term of seven years on the Equipment Portion, and a term of six years for the Crossover Refunding Portion, with an assumed average interest rate of 1.65% and an all inclusive cost of 2.15%. Individual repayment schedules for the Improvement Portion, Street Reconstruction Portion, Equipment Portion, and Crossover Refunding Portion have been reviewed with City staff regarding projected revenues to repay the debt service and compliance with the City’s Debt Management Policies. The total estimated combined debt service is illustrated in Figure 2 on page 4. Refunding Improvement Equipment Street Reconstruction Issue Summary Sources Of Funds Par Amount of Bonds $1,690,000.00 $1,345,000.00 $425,000.00 $365,000.00 $3,825,000.00 Planned Issuer Equity contribution --3,770.67 -3,770.67 Total Sources $1,690,000.00 $1,345,000.00 $428,770.67 $365,000.00 $3,828,770.67 Uses Of Funds Deposit to Project Construction Fund -1,300,000.00 416,000.00 350,000.00 2,066,000.00 Deposit to Crossover EscrowFund 1,649,030.01 ---1,649,030.01 Total Underwriter's Discount (1.750%)29,575.00 23,537.50 7,437.50 6,387.50 66,937.50 Costs of Issuance 12,832.96 10,213.20 3,227.22 2,771.62 29,045.00 Deposit to Capitalized Interest (CIF) Fund -13,457.11 -3,697.56 17,154.67 Rounding Amount (1,437.97)(2,207.81)2,105.95 2,143.32 603.49 Total Uses $1,690,000.00 $1,345,000.00 $428,770.67 $365,000.00 $3,828,770.67 Bond Statistics Average Life 4.714 Years 6.105 Years 4.658 Years 6.266 Years 5.345 Years Average Coupon 1.4995084%1.7799451%1.5423858%1.7996528%1.6498753% Net Interest Cost (NIC)1.8707479%2.0665722%1.9181225%2.0789353%1.9772781% Bond Yield for Arbitrage Purposes 1.6440647%1.6440647%1.6440647%1.6440647%1.6440647% True Interest Cost (TIC)1.8883356%2.0823740%1.9360216%2.0947831%1.9930269% All Inclusive Cost (AIC)2.0605372%2.2190038%2.1112277%2.2281871%2.1469986% Page 4 FIGURE 2 Debt Service Schedule Date Principal Coupon Interest Total P+I Fiscal Total 05/26/2016 ----- 12/15/2016 --36,092.01 36,092.01 36,092.01 06/15/2017 --29,002.50 29,002.50 - 12/15/2017 230,000.00 1.000%29,002.50 259,002.50 288,005.00 06/15/2018 --27,852.50 27,852.50 - 12/15/2018 540,000.00 1.150%27,852.50 567,852.50 595,705.00 06/15/2019 --24,747.50 24,747.50 - 12/15/2019 550,000.00 1.300%24,747.50 574,747.50 599,495.00 06/15/2020 --21,172.50 21,172.50 - 12/15/2020 565,000.00 1.450%21,172.50 586,172.50 607,345.00 06/15/2021 --17,076.25 17,076.25 - 12/15/2021 585,000.00 1.550%17,076.25 602,076.25 619,152.50 06/15/2022 --12,542.50 12,542.50 - 12/15/2022 600,000.00 1.700%12,542.50 612,542.50 625,085.00 06/15/2023 --7,442.50 7,442.50 - 12/15/2023 235,000.00 1.800%7,442.50 242,442.50 249,885.00 06/15/2024 --5,327.50 5,327.50 - 12/15/2024 175,000.00 1.950%5,327.50 180,327.50 185,655.00 06/15/2025 --3,621.25 3,621.25 - 12/15/2025 175,000.00 2.050%3,621.25 178,621.25 182,242.50 06/15/2026 --1,827.50 1,827.50 - 12/15/2026 170,000.00 2.150%1,827.50 171,827.50 173,655.00 Total $3,825,000.00 - $337,317.01 $4,162,317.01 - Page 5 METHOD OF REFUNDING FOR CROSSOVER REFUNDING PORTION We recommend utilizing a “crossover” refunding technique to achieve the refunding objective for the 2007A Bonds. The 2018 through 2022 maturities of the 2007A Bonds are callable on December 15, 2017 and will be “crossover” refunded on that date. The original payments on the 2007A Bonds will be made until the call, or “crossover,” date, at which time the City will crossover and begin making payments on the Crossover Refunding Portion of the Bonds. A portion of the Bond proceeds will be invested in government securities and held in an escrow account until that date. The investments in the escrow will be used to pay a portion of the interest on the Bonds until the 2007A call date and will then “crossover” to pay off the principal of the 2007A Bonds. A complete and detailed refunding analysis illustrating the preliminary structure of the refunding has been provided and reviewed with City staff. In 2015, the City crossover refunded the 2023 through 2032 maturities of the 2007A Bonds, so with the completion of this refunding in 2016, all maturities of the 2007A Bonds will have been refinanced at lower rates. SAVINGS ANALYSIS The average interest rate on the outstanding 2007A Bonds is 4.00%. Given current market conditions, we estimate these maturities could be refunded with a new bond issue at an average interest rate of approximately 1.50%. This interest rate spread between the old and new bonds would result in a total debt service cost savings of approximately $63,845 with a present value benefit of $59,511. The savings is net of all financing costs and is an estimated amount. The debt service comparison showing the scheduled debt service versus the new estimated combined debt service is illustrated in Figure 3 below. FIGURE 3 Debt Service Comparison Date Total P+I PCF Existing D/S Net New D/S Old Net D/S Savings 12/15/2016 15,166.67 (15,166.67)325,200.00 326,637.97 325,200.00 (1,437.97) 12/15/2017 24,375.00 (1,654,375.00)1,965,600.00 335,600.00 335,600.00 - 12/15/2018 334,375.00 --334,375.00 345,200.00 10,825.00 12/15/2019 340,810.00 --340,810.00 354,000.00 13,190.00 12/15/2020 351,650.00 --351,650.00 367,000.00 15,350.00 12/15/2021 366,792.50 --366,792.50 379,000.00 12,207.50 12/15/2022 376,290.00 --376,290.00 390,000.00 13,710.00 Total $1,809,459.17 (1,669,541.67) $2,290,800.00 $2,432,155.47 $2,496,000.00 $63,844.53 PV Analysis Summary(Net to Net) Gross PVDebt Service Savings.....................60,949.34 Net PVCashflowSavings @ 1.644%(Bond Yield).....60,949.34 Contingency or Rounding Amount....................(1,437.97) Net Present Value Benefit $59,511.37 Net PVBenefit / $1,700,941.28 PVRefunded Debt Service 3.499% Page 6 SECURITY AND SOURCES OF REPAYMENT The Bonds will be a general obligation of the City of Prior Lake. In addition, the City will pledge special assessments of approximately $510,000 on the Improvement Portion. The assessment revenue assumes first collection in 2017 over a term of 10 years and an interest rate of 4.05% (2% over the net interest cost on the Bonds). We have assumed the remaining Crossover Refunding debt service portion of the bond issue will be supported from the water enterprise fund and have therefore pledged those sources accordingly. The Street Reconstruction Portion and the Equipment Portion of the financing will be paid entirely from tax levies. An illustration of the projected debt service fund cash flow for the Improvement Portion is shown in Figure 4, below. Figure 5 on page 7, shows the 105% Levy required for the Street Reconstruction Portion. Figure 6 on page 7, shows the 105% Levy required for the Equipment Portion. FIGURE 4 105%Levy - Improvement Portion Date Total P+I CIF 105%Levy Revenue CityNet Levy LevyYear Collection Year 12/15/2016 13,457.11 (13,457.11)--- 12/15/2017 156,627.50 -164,458.88 72,573.00 91,885.88 2016 2017 12/15/2018 155,277.50 -163,041.38 69,589.50 93,451.88 2017 2018 12/15/2019 153,725.00 -161,411.25 67,524.00 93,887.25 2018 2019 12/15/2020 151,970.00 -159,568.50 65,458.50 94,110.00 2019 2020 12/15/2021 150,012.50 -157,513.13 63,393.00 94,120.13 2020 2021 12/15/2022 147,920.00 -155,316.00 61,327.50 93,988.50 2021 2022 12/15/2023 145,625.00 -152,906.25 59,262.00 93,644.25 2022 2023 12/15/2024 143,195.00 -150,354.75 57,196.50 93,158.25 2023 2024 12/15/2025 140,562.50 -147,590.63 55,131.00 92,459.63 2024 2025 12/15/2026 132,795.00 -139,434.75 53,065.50 86,369.25 2025 2026 Total $1,491,167.11 (13,457.11) $1,551,595.50 $624,520.50 $927,075.00 Page 7 FIGURE 5 FIGURE 6 105%Levy - Street Reconstruction Portion Date Total P+I CIF 105%Levy CityNet Levy LevyYear Collection Year 12/15/2016 3,697.56 (3,697.56)-- 12/15/2017 40,942.50 -42,989.63 42,989.63 2016 2017 12/15/2018 40,592.50 -42,622.13 42,622.13 2017 2018 12/15/2019 40,190.00 -42,199.50 42,199.50 2018 2019 12/15/2020 39,735.00 -41,721.75 41,721.75 2019 2020 12/15/2021 39,227.50 -41,188.88 41,188.88 2020 2021 12/15/2022 38,685.00 -40,619.25 40,619.25 2021 2022 12/15/2023 38,090.00 -39,994.50 39,994.50 2022 2023 12/15/2024 42,460.00 -44,583.00 44,583.00 2023 2024 12/15/2025 41,680.00 -43,764.00 43,764.00 2024 2025 12/15/2026 40,860.00 -42,903.00 42,903.00 2025 2026 Total $406,160.06 (3,697.56) $422,585.63 $422,585.63 105%Levy - Equipment Portion Date Total P+I Issuer Contribution 105%Levy CityNet Levy LevyYear Collection Year 12/15/2016 3,770.67 (3,770.67)-- 12/15/2017 66,060.00 69,363.00 69,363.00 2016 2017 12/15/2018 65,460.00 68,733.00 68,733.00 2017 2018 12/15/2019 64,770.00 68,008.50 68,008.50 2018 2019 12/15/2020 63,990.00 67,189.50 67,189.50 2019 2020 12/15/2021 63,120.00 66,276.00 66,276.00 2020 2021 12/15/2022 62,190.00 65,299.50 65,299.50 2021 2022 12/15/2023 66,170.00 69,478.50 69,478.50 2022 2023 Total $455,530.67 $478,307.20 $478,307.20 $478,307.20 $34,272.00 $34,289.00 Page 8 RELATED CONSIDERATIONS Bank Qualification - We understand the City (in combination with any subordinate taxing jurisdictions or debt issued in the City’s name by 501(c)3 corporations) anticipates issuing $10 million or less in tax-exempt debt during this calendar year. Therefore the Bonds will be designated as “bank qualified” obligations pursuant to Federal Tax Law. Arbitrage and Rebate – All tax-exempt issues are subject to federal rebate requirements which require all arbitrage earned to be rebated to the U.S. Treasury. However, bond proceeds may be exempt from rebate if certain expenditure requirements are met. o Improvement and Street Reconstruction Project Funds - These portions of the Bonds will qualify for a 24-month expenditure exemption. o Equipment Project Fund – This portion of the Bonds will qualify for a 6-month expenditure exemption. o Crossover Refunding Fund – This portion of the Bonds is subject to Rebate. o Debt Service Fund – The City must maintain a bona fide debt service fund for the bonds or be subject to yield restriction in the debt service fund. A bona fide debt service fund involves an equal matching of revenues to debt service expense with a balance forward permitted equal to the greater of the investment earnings in the fund during that year or 1/12 of the debt service of that year. The City should become familiar with the various Arbitrage Compliance requirements for this bond issue. The Bond Resolution explains the requirements in greater detail. We are also available to assist the City in meeting these requirements. Continuing Disclosure - Because this issue is greater than $1 million, and the City’s outstanding debt exceeds $10 million, it is subject to the Securities and Exchange Commission’s continuing disclosure requirements related to annual reporting and material events notification. Northland Securities is prepared to assist the City with this obligation. Book Entry - The Bonds will be global book entry (electronic or “paperless” certificates) with a bank designated as the paying agent. The Paying Agent will invoice you for the interest semiannually and on an annual basis for the principal coming due. Page 9 SUMMARY OF RECOMMENDED TERMS 1.Type of Bond Sale Negotiated Sale with Northland Securities 2.Bond Pricing Thursday, May 5, 2016 3.Council Consideration Monday, May 9, 2016 @ 7:00 P.M. 4.Statutory Authority The Bonds are being issued pursuant to Minnesota Statutes, Chapters 475, 429, 444 and Section 412.301. 5.Repayment Term The Bonds will mature annually each December 15, 2017-2026. Interest on the Bonds will be payable on December 15, 2016 and semiannually thereafter on each June 15 and December 15. 6.Security General Obligation of the City. In addition, the City will pledge special assessment revenues collected from benefitted properties, water treatment plant revenues and tax levies. 7.Prepayment Option The Bonds maturing December 15, 2024– 2026 will be subject to prepayment on December 15, 2023 and any date thereafter at a price of par plus accrued interest. 8.Tax Status Briggs and Morgan, Professional Association Minneapolis, Minnesota, will provide a tax-exempt legal opinion on the Bonds. 9.Credit Rating We believe a credit rating will be cost beneficial. The City’s general obligation debt is currently rated AA+ by Standard and Poor’s Rating Services (“S&P”) and Aa2 by Moody’s Investor Services. The City plans to seek a rating from S&P for the Bonds.