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Home My WebLink About2014-04-02 PACKET 04.G.REQUEST OF CITY COUNCIL ACTION COUNCIL AGENDA MEETING ITEM # DATE 04/02/14 • � PREPARED BY Finance Robin Roland ORIGINATING DEPARTMENT DEPARTMENT HEAD ***********************************�*�********** COUNCIL ACTION REQUEST: Consider calling for the sale of $1,430,000 Taxable General Obligation Tax Increment Refunding Bonds 2014A. STAFF RECOMMENDATION: Adopt resolution calling for the sale of $1,430,000 Taxable General Obligation Tax Increment Refunding Bonds of 2014A on May 7, 2014 BUDGET IMPLICATION: ADVISORY COMMISSION ACTION ❑ PLANNING ❑ PUBLIC SAFETY ❑ PUBLIC WORKS ❑ PARKS AND RECREATION ❑ HUMAN SERVICES/RIGHTS ❑ ECONOMIC DEV. AUTHORITY ❑ BUDGETED AMOUNT DATE ACTUAL AMOUNT APPROVED ❑ ❑ ❑ ❑ ❑ ❑ ❑ SUPPORTING DOCUMENTS � MEMO/LETTER: Roland � RESOLUTION: ❑ ORDINANCE: ❑ ENGINEERING RECOMMENDATION: ❑ LEGAL RECOMMENDATION: � OTHER: Ehlers Pre-Sale Report ADMINISTRATORS COMMENTS REVIEWED ❑ ❑ ❑ ❑ ❑ ❑ ❑ DENIED ❑ ❑ ❑ ❑ ❑ ❑ ❑ � City dministrator � ate � *********************************************:�*:� H:\Council items\council-action.doc Cottage J Grove � Pride ana PCOSperity Meet To: From: Date: Subject: Mayor and City Council Members Ryan Schroeder, City Administrator � Robin Roland, Finance Director ��' March 27, 2014 Consider resolution calling for the sale of $1,430,000 Taxable General Obligation Tax Increment Refunding Bonds of 2014A Introduction The City continuously reviews its outstanding debt position in order to take advantage of any refinancing opportunities which may avail themselves. Such an opportunity is currently available. Discussion The City issued $1,775,000 Taxable General Obligation Tax Increment Bonds, Series 2004B in July of 2004. The bonds financed improvements in the City's Gateway TIF District 1-12. Annual debt service is paid by TIF revenues generated by the district. Final payment for these bonds is due in February 2021. Market interest rates are currently at a level where the City could experience interest savings by "calling" the existing bonds and refinancing them with the sale of new debt. Future debt service payments would continue to be paid from TIF revenues. Staff has included a pre-sale report from Ehlers which includes a timetable for the bond sale as well as other estimates and general information. Requested Action Review the attached Pre-Sale report from Ehlers. Adopt the resolution calling for the sale of $1,430,000 Taxable General Obligation Tax Increment Refunding Bonds, Series 2014A. RESOLUTION NO. 14 Resolution Providing for the Sale of $1,430,000 Taxable General Obligation Tax Increment Refunding Bonds, Series 2014A A. WIIEREAS, the City Council of the City of Cottage Grove, Minnesota, has heretofore determined that it is necessary and expedient to issue the City's $1,430,000 Taxable General Obligation Tax Increment Refunding Bonds, Series 2014A (the "Bonds"), to refund the outstanding principal of the Taxable General Obligation Tax Increment Bonds Series 2004B; and B. WIIEREAS, the City has retained Ehlers & Associates, Inc., in Roseville, Minnesota ('Bhlers"), 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 the City of Cottage Grove, Minnesota, as follows: 1. Authorization; Findin�s. The City Council hereby authorizes Ehlers to solicit proposals for the sale of the Bonds. 2. Meeting; Pro�osal Opening. The City Council shall meet at 7:30 p.m. on May 7, 2014, for the purpose of considering sealed proposals for and 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. Council Member introduced the resolution and moved its adoption. 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: Adopted by the City Council of the City of Cottage Grove this 2° day of April, 2014. : Myron Bailey, Mayor ATTEST: Caron Stransky, City Clerk EHLERS LEADERS IN PUBLIC FINANCE April 2, 2014 Pre-Sale Report for City of Cottage Grove, Minnesota $1,430,000 Taxable General Obligation Tax Increment Refunding Bonds, Series 2014A � Prepared by: Shelly Eldridge Financial Advisor And Sean Lentz Financial Advisor And Stacie Kvilvang Financial Advisor �—�-- � 1�3�0-557_ 11 � 1 I �vti�uY��.E�l��lers-inc.com Executive Summary of Proposed Debt Proposed Issue: $1,430,000 Taxable General Obligation Tax Increment Refunding Bonds, Series 2014A Purposes: The proposed issue includes financing to provide funds sufficient for a current refunding/refinancing of the 2015 to 2021 maturities of the City's Taxable General Obligation Tax Increment Bonds, Series 200B (the "Prior Bonds"). The Prior Bonds were issued in the amount of $1,775,000 and are being paid by annual tax increment revenues from TaY Increment Financing District No. 1-12. There is $1,355,000 in outstanding principal. The Prior Bonds are first callable on February 1, 2014 or any day thereafter. Current interest rates average 5.66%. With current market interest rates a�eraging just over 1.8%, total savings is estimated to be $151,977 (11.217%) present value and over $161,000 future value savings. This refunding is considered to be a Current Refunding as the obligations being refunded are callable (pre-payable) now. Authority: The Bonds are being issued pursuant to Minnesota Statutes, Chapters 475 and 469. Because the City paying for at least 20% of the project costs with tax increments from District No. 1-12, the Bonds can be a general obligation without a referendum and will not count against the City's debt limit. The Bonds will be general obligations of the City for which its full faith, credit and taxing powers are pledged. Term/Call Feature: The Bonds are being issued for a 7 year term. Principal on the Bonds will be due on February 1 in the years 2015 through 2021. Interest is payable every six months beginning August 1, 2014. The Bonds are being offered without option of prior redemption. Bank Qualification: Because the Bonds are taxable obligations they will not be designated as "bank qualified" obligations. Rating: The City's most recent bond issues were rated "AA+" by Standard & Poor's. The City will request a new rating for the Bonds. If the winning bidder on the Bonds elects to purchase bond insurance, the rating for the issue may be higher than the City's bond rating in the event that the bond rating of the insurer is higher than that of the City. Method of Sale/Placemenfi In order to obtain the lowest interest cost to the City, we will solicit competitive bids for purchase of the Bonds from local banks in your area and regional underwriters. We have included an allowance for discount bidding equal to 1% of the Presale Report April 2, 2014 City of Cottage Grove, Minnesota Page 1 principal amount of the issue. The discount is treated as an interest item and provides the underwriter with all or a portion of their compensation in the transaction. If the Bonds are purchased at a price greater than the minimum bid amount (maximum discount), the unused allowance may be used to lower your borrowing amount. Premium Bids: The current generational low in interest rates has caused concerns amongst investors as to the impacts to the value of existing bonds in the case interest rates generally increase in the future. When interest rates rise, the value of existing bonds generally falls. In order to mitigate the decline in value of existing bonds, many investors are demanding "premium" pricing structures. A premium is achieved when the coupon for any maturity exceeds the yield, resulting in a price greater than the face value. The amount of the premium varies, but it is not uncoinmon to see premiums for new issues in the range of 2.00% to 10.00% of the face amount of the issue. This means that an issuer with a$2,000,000 offering may receive bids that result in proceeds of $2,040,000 to $2,200,000. For this issue of Bonds we ha�e been directed to use the premium to reduce the size of the issue/increase the net proceeds for the project. The adjustments may slightly change the true interest cost of the original bid, either up or down. You have the choice to limit the amount of premium in the bid specifications. This may result in fewer bids, but it may also eliminate large adjustments on the day of sale and other uncertainties. Review of Existing Debt: We ha�e reviewed all outstanding indebtedness for the City and find that, other than the obligations proposed to be refunded by the Bonds, there are no other refunding opportunities at this time. We will continue to monitor the market and the call dates for the City's outstanding debt and will alert you to any future refunding opportunities. Continuing Disclosure: Because the City has more than $10,000,000 in outstanding debt (including this issue) and this issue is over $1,000,000, the City will be agreeing to provide certain updated Annual Financial Information and its Audited Financial Statement anmially as well as providing notices of the occurrence of certain "material events" to the Municipal Securities Rulemaking Board (the "MSRB"), as required by rules of the Securities and Exchange Commission (SEC). The City is already obligated to provide such reports for its existing bonds, and has contracted with Ehlers to prepare and file the reports. Arbitrage Monitoring: The Bonds are taxable obligations and are therefore not subject to IRS arbitrage and yield restriction requirements. Presale Report April 2, 2014 City of Cottage Grove, Minnesota Page 2 Risk Factors: The Bonds are being issued for the purpose of current refunding prior City debt obligations. Those priar debt obligations are "callable" now and can therefore be paid off within 90 days or less. The new Bonds will not be pre- payable. This refunding is being undertaken based in part on an assumption that the City does not expect to have future revenues to pay off this debt and that market conditions warrant the refinancing at this time. Presale Report April 2, 2014 City of Cottage Grove, Minnesota Page 3 Proposed Debt Issuance Schedule Pre-Sale Review by City Council April 2, 2014 Distribute Official Statement: Week of April 21, 2014 Conference with Rating Agency: Week of Apri128, 2014 City Council Meeting to Award Sale of the Bonds: May 7, 2014 Estimated Closing Date: May 29, 2014 Redemption Date for May 29, 2014 Attachments Sources and Uses of Funds Proposed Debt Service Schedule Refunding Sa�ings Analysis Bond Buyer Index Resolution Authorizing Ehlers to Proceed With Bond Sale Ehlers Contacts Financial Advisors: Disclosure Coordinator: Bond Sale Coordinator Financial Analyst: Shelly Eldridge Sean Lentz Jen Chapman Alicia Baldwin Alicia Gage (651)697-8504 (651)697-8509 (651) 697-8566 (651) 697-8523 (651)697-8551 The Official Statement for this financing will be distributed to the City Council at their home address or e-mailed for review prior to the sale date. Presale Report City of Cottage Grove, Minnesota April 2, 2014 Page 4 City of Cottage Grove, Minnesota $1,435,000 Taxabie General Obligation Tax Increment Refunding Bonds, Series 2014 Current Refunding of Series 2004B Assuming Current GO Tax "AA+" Market Rates Sources & Uses Dated OS/29/2014 � Delivered OS/29/2014 Sources Of Funds Par Amount of Bonds $1,435,000.00 Total Sources $1,435,000.00 _ _.....__ ....... ........... . _. . __ ................ __......_ ...... .._........ _........................ Uses Of Funds Total Underwritei s Discount (1.000%) 14,350.00 Costs of Issuance 33,000.00 - - - -- .......... _._ _.. Deposit to Cunent Refunding Fund 1 386,606.25 _ _.._ — Rounding Amoimt 1,043.75 Total Uses $1,435,000.00 Series 2014A TXBL GO TIF � SINGLE PURPOSE � 3/27/2014 � 8:06 AM `�".�v':n �s EHLERS LEADERS IN PUBLIC FINANCE City of Cottage Grove, Minnesota $1,435,000 Taxable General Obligation Tax Increment Refunding Bonds, Series 2014 Current Refunding of Series 2004B Assuming Current GO Tax "AA+" Market Rates Debt Service Schedule Date Principal Coupon Interest Total P+I Fiscal Total OS/29/2014 - - - - - 02/O1/2015 175,000.00 0.250% 14,167.08 189,167.08 189,167.08 08/O1/2015 - - 10,318.75 10,318.75 - 02/Ol/2016 180,000.00 0.700% 10,318.75 190,318.75 20Q637.50 08/01/2016 - - 9,688.75 9,688.75 - 02/Ol/2017 195,000.00 1.050% 9,688.75 204,688.75 214,377.50 08/O1/2017 - - 8,665.00 8,665.00 - 02/Ol/2018 210,000.00 1.450% 8,665.00 218,665.00 227,330.00 08/Ol/2018 - - 7,142.50 7,142.50 - 02/O]/2019 230,000.00 1.800% 7,142.50 237,142.50 244,285.00 08/01/2019 - - 5,072.50 5,072.50 - 02/O1/2020 245,000.00 2.100% 5,072.50 250,072.50 255,145.00 08/01/2020 - - 2,500.00 2,500.00 - 02/O1/2021 200,000.00 2.500% 2,500.00 202,500.00 205,000.00 Total $1,435,000.00 - $100,942.08 $1,535,942.08 - Yield Statistics Bond Year pollars Averaee Life Net Interest Cost ( True Interest Cost Bond Yield for Ai All Inclusive Cost $5,5 09.64 3.839 Years 1.8320997% 2.0925524% 2.0973587% 1.8234599% 2.7423413% IRS Form 8038 Net Interest Cost 1.8320997% WeiQhted AveraQe Maturity 3.839 Years Series 2014A TXBL GO TIF � SINGLE PURPOSE � 3/27/2014 � 8:06 AM s aa�� EHLERS LEADERS IN PUBLIC FINANCE City of Cottage Grove, Minnesota $1,435,000 Taxable General Obligation Tax Increment Refunding Bonds, Series 2014 Current Refunding of Series 2004B Assuming Current GO Tax "AA+" Market Rates Debt Service Comparison Date Total P+I Net New D/S Old Net D/S Savings 02/O1/2015 189,167.08 188,12333 210,855.00 22,731.67 02/O1/2016 200,637.50 20Q637.50 223,632.50 22,995.00 02/Ol/2017 214,377.50 214,377.50 235,262.50 2Q885.00 02/Ol/2018 227,330.00 227,330.00 250,637.50 23,307.50 02/O1/2019 244,285.00 244,285.00 264,437.50 20,152.50 02/Ol/2020 255,145.00 255,145.00 276,612.50 21,467.50 02/Ol/2021 205,000.00 205,000.00 227,362.50 22,362.50 Total �1,535,942.08 $1,534,898.33 $1,688,800.00 $153,901.67 PV Analysis Summary (Net to Net) Gross PV Debt Service Savings ..................... 144,201.93 Net PV Cashflow Savings @ 1.823%(Bond Yield)..... 144,201.93 Contingency or Rounding Amount ............. ..... 1 043.75 --_ _.._.._ Net Present Value Benefit $145,245.68 Net PV Benefit /$1,579,201.93 PV Refunded Debt Service 9197% Net PV Benefit /$1,355,000 Refunded Principal... 10.719% _...... __.._..-- - ........ . _ ......._..._._..---.._... ...._. Net PV Benefit /$1,435,000 Refunding PrincipaL 10122% Refunding Bond Information Dated Date _ ..._....... Deliverv Date Series 2014A TXBL GO TIF � SINGLE PURPOSE � 3/27/2014 � 8:06 AM 5/29/2014 5/29/2014 ��,�.<.nd.t: `"�s EHLERS LEADERS IN PUBLIC FINANCE City of Cottage Grove, Minnesota $1,355,000 Taxable General Obligation Tax Increment Bonds, Series 2004B Prior Original Debt Service Date Principal Coupon Interest Total P+I Fiscal Total 02/O1/2014 - - - - - 08/O1/2014 - - 37,927.50 37,927.50 - 02/O1/2015 135,000.00 5350% 37,927.50 172,927.50 210,855.00 08/O1/2015 - - 34,31625 34,316.25 - 02/O1/2016 155,000.00 5.400% 34,316.25 189,316.25 223,632.50 08/Ol/2016 - - 30,131.25 30,13125 - 02/01/2017 175,000.00 5.500% 30,131.25 205,131.25 235,262.50 08/O1/2017 - - 25,318.75 25,318.75 - 02/O]/2018 200,000.00 5.600% 25,318.75 225,318.75 250,637.50 08/O1/2018 - - 19,718.75 19,718.75 - 02/O1/2019 225,000.00 5.700% 19,718.75 244,718.75 264,437.50 08/O1/2019 - - 13,30625 13,30625 - 02/O1/2020 250,000.00 5.700% 13,306.25 263,30625 276,612.50 08/O1/2020 - - 6,18125 6,181.25 - 02/Ol/2021 215,000.00 5.750% 6,18125 221,181.25 227,362.50 Total $1,355,000.00 - $ 333,800.00 $1,688,800.00 - Yield Statistics Base date for Avg. Life & Avg. Coupon Calculation 5/29/2014 Average Life 4.026 Years Average Coupon 5.6624685% We ighted Average Mat urity (Par Basis) 4.026 Years Refunding Bond Information Refun D ated Date 5/29 _.....—. _.—.. - ---._.._._....— -------.... _ Refunding Delivery Date 5/29/2014 Series 2004B TAXABLE GO T � SINGLE PURPOSE � 3/27/2014 � 8:06 AM � EHLERS LEADERS IN PUBLIC FINANCE 2 YEAR TREND IN MUNICIPAL BOND INDICES Weekiy Rates March, 2012 - March, 2014 ' 5.00% 4.50% 4.00% 3.50% 3.00% May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 — RBI — BBI (Current: 4.51 %) _ _. _ . _ _ _ _ _ . _._ . _ _ _ _ _ The Bond Buyer "20 Bond Index" (BBI) shows average yields on a group of municipal bonds that mature in 20 years and have an average rating equivalent to Moody's Aa2 and S&P �. E H L E R S Source: The Bond Buyer The Revenue Bond Index (RBI) shows the average yield on a group of revenue bonds that mature in 30 years and have an average rating equivalent to Moody's A1 and S&P A+. LEADERS IN PUBLIC FINANCE