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Home My WebLink About2015-04-01 PACKET 04.G. REQUEST OF CITY COUNCIL ACTION COUNCIL AGENDA MEETIfVG ITEM # DATE 4/1/2015 . � � PREPARED BY Finance Robin Roland ORIGINATING DEPARTMENT DEPARTMENT HEAD ****************************�***�*************�* COUNCIL ACTION REQUEST Consider resolution calling the sale of $6,000,000 General Obligation Improvement Bonds 2015A STAFF RECOMMENDATION Adopt resolution calling for the sale of $6,000,000 General Obligation Improvement Bonds of 2015A. BUDGET IMPLICATION BUDGETED AMOUNT ACTUAL AMOUNT ADVISORY COMMISSION ACTION DATE REVIEWED APPROVED DENIED ❑ PLANNING ❑ ❑ ❑ ❑ PUBLIC SAFETY ❑ ❑ ❑ ❑ PUB�IC WORKS ❑ ❑ ❑ ❑ PARKS AND RECREATION ❑ ❑ ❑ ❑ HUMAN SERVICES/RIGHTS ❑ ❑ ❑ ❑ ECONOMIC DEV. AUTHORITY ❑ ❑ ❑ ❑ ❑ ❑ ❑ SUPPORTING DOCUMENTS � MEMO/LETTER: Roland � RESOLUTION: ❑ ORDINANCE: ❑ ENGINEERING RECOMMENDATION: ❑ LEGAL RECOMMENDATION: � OTHER: Pre-Sale Report ADMINISTRATORS COMMENTS � r � r` ,�' , �- ' 1 � �,,� �; �`° City Administrator Date ****�********************��*******************�* H:\Council items\council-action template.docx Cotta�e Grove I � � Mee� � h ere Pride an � I To: Mayor and City Council Members Ryan Schroeder, City Administrator From: Robin Roland, Finance Director � Date: March 25, 2015 Subject: Consider resolution calling for the sale of $6,000,000 General Obligation Improvement Bonds of 2015A Introduction With the 2014 Pavement Management Project completed and the project bids received for the 2015 Pavement Management Project, funding is necessary to reimburse expenditures for the two projects. Discussion This bond issue will finance the 2014 and 2015 Pavement Management projects. The total project costs for the 2014 project were $2,795,083 of which $279,174 was paid by city utility funds. The 2015 costs are estimated at $6,634,865 with a total of $2,393,175 being paid by MSA, city utility and developer funds. The bonds will be repaid over 15 years with special assessments of $2.67 million and approximately $4.96 million in future property tax levies. 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 $6,000,000 General Obligation Improvement Bonds, Series 2015A. i RE�OLl1TION NO. 15m j I Resolution Providing for the Sale of $6,000,000 General Obligation Improvement Bonds, Series 2015A A. WIIEREAS, the City Council of the City of Cottage Grove, Miimesota, has heretofore determined that it is necessary and expedient to issue the City's $6,000,000 General Obligation Improvement Bonds, Series 2015A (the "Bonds"), to finance the costs ofthe 2014 and 2015 Pavement Management Projects; 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 Miimesota 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. Meetin�posal Opening. The City Council shall meet at 7:30 p.m. on May 6, 2015, 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 Meinber introduced the resolution and moved its adoption. The motion for the adoption of the foregoing resolutiou was duly seconded by Council Member and, after full discussion thereof and upon a vote being talcen thereon, the following Council Members voted in favor thereo£ and the following voted against the same: Adopted by the City Council of the City of Cottage Grove this 1 S day of April, 2015. By Myron Bailey, Mayor ATTEST: Caron Stransky, City Clerk , 'LEADERS IPl PUBLIC FINANCE I ' � April 1, 2015 (DRAFT) Pre-Sale Report for City of Cottage Grove, Minnesota $6,000,000 General Obligation Improvement Bonds Series 2015A � �,� � M� � � Prepared by: Shelly Eldridge Senior Financial Advisor And ' Sean Lentz Senior Financial Advisor �1-�Ot�-5�2�-11; 1 ��) t�avv�a.�hl��-;�-ir��;:�C�ri� Executive Summary of Proposed Debt Proposed Issue: $6,000,000 General Obligation Improvement Bonds, Series 2015A Purposes: The proposed issue includes financing for the following purposes: Finance 2014 and 2015 scheduled Pavement Management projects. Debt service will be paid from special assessments and the city's debt levy. Authority: The Bonds are being issued pursuant to Minnesota Statutes, Chapters: • 429 • 475 Because the City is assessing at least 20% of the project costs, 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 16-year term. Principal on the Bonds will be due on February 1 in the years 2017 through 2031. Interest is payable every six months beginning February 1, 2016. The Bonds maturing on and after February 1, 2025 will be subject to prepayment at the discretion of the City on February 1, 2024 or any date thereafter. Bank Qualification: Because the City is issuing less than $10,000,000 in the calendar year, the City will be able to designate the Bonds as "bank qualified" obligations. Bank qualified status broadens the market for the Bonds, which can result in lower interest rates. 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 wiluiing 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. Basis for Recommendation: Based on our knowledge of your situation, your objectives communicated to us, our advisory relationship as well as characteristics of various municipal financing options, we are recommending the issuance of General Obligation Bonds as a suitable financing option because this is the most overall cost- effective option that still maintains future flexibility for the repayment of debt. In addition, it conforms to the city's policy and past practices to finance this Presale Report April 15, 2015 City of Cottage Grove, Minnesota Page 1 type of proj ect with this type of debt issue. '' � Method of Sale/Placement: In order to obtain the lowest interest cost to the City, we will solicit competitive bids for purchase of the Bonds from local banlcs in your area and national underwriters. We have included an allowance for discount bidding equal to 1.20000% of the principal ainount 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 barrowing amount. Premium Bids: Under current market conditions, most investors in municipal bonds prefer "premium" pricing structures. A premium is achieved when the coupon for any maturity (the interest rate paid by the issuer) exceeds the yield to the investor, resulting in a price paid that is greater than the face value of the bonds. The sum of the amounts paid in excess of face value is considered "reoffering premium." 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$Z,000,000 offering may receive bids that result in proceeds of $2,040,000 to $2,200,000. For this issue of Bonds we have been directed to use the premium to 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 ha�e 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 have reviewed all outstanding indebtedness for the City and find that there are some advance refunding opportunities at this tiine. City staff recommends monitoring these issues and waiting on any plans to refinance until they can be done as current refundings (within 90 days of the call date). We will continue to monitor the marlcet 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 Infoi�nation and its Audited Financial Stateinent annually 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 repoi�ts for its existing Presale Report April 15, 2015 City of Cottage Grove, Minnesota Page 2 bonds, and has contracted with Ehlers to prepare and file the reports. Arbitrage Monitoring: Because the Bonds are tax-exempt securities/tax credit securities, the City must ensure compliance with certain Internal Revenue Service (IRS) rules throughout the life of the issue. These rules apply to all gross proceeds of the issue, including initial bond proceeds and investment earnings in construction, escrow, debt service, and any reserve funds. How issuers spend bond proceeds and how they track interest earnings on funds (arbitrage/yield restriction compliance) are common subjects of IRS inquiries. Your specific responsibilities will be detailed in the Nonarbitrage Certificate prepared by your Bond Attorney and provided at closing. You have retained Ehlers to assist you with compliance with these rules. Risk Factors: Special Assessments: We have not assumed any pre-paid special assessments, other than those already in hand, and we have assumed that assessments are levied as projected. If the City receives a significant amount of pre-paid assessments or does not levy the assessments, it may need to increase the levy portion of the debt service to make up for lower interest earnings than the expected assessment interest rate. Other Service Providers This debt issuance will require the engagement of other public finance service providers. This section identifies those other service providers, so Ehlers can coordinate their engagement on your behal£ Where you ha�e previously used a particular firm to provide a service, we have assumed that you will continue that relationship. For services you have not previously required, we have identified a service provider. Fees charged by these service providers will be paid from proceeds of the obligation, unless you notify us that you wish to pay them from other sources. Our pre-sale bond sizing includes a good faith estiinate of these fees, so their final fees may vary. If you ha�e any questions pertaining to the identified service providers or their role, or if you would like to use a different service provider for any of the listed services please contact us. Bond Attorney: Briggs and Morgan, Professional Association Paying Agent: Bond Trust Services Corporation Rating Agency: Standard & Poor's This presale report summarizes our understanding of the City's objectives for the structure and terms of this financing as of this date. As additional facts become known or capital markets conditions change, we may need to modify the structure and/or terms of this financing to achieve results consistent with the City's objectives. Presale Report April 15, 2015 City of Cottage Grove, Minnesota Page 3 Proposed Debt Issuance Schedule � Pre-Sale Review by City Council April 1, 2015 Distribute Official Statement: Week of Apri120, 2015 Conference with Rating Agency: Week of Apri127, 2015 City Council Meeting to Award Sale of the Bonds: May 6, 2015 Estimated Closing Date: May 27, 2015 Attachments Sources and Uses of Funds Proposed Debt Service Schedule Projection of Debt Levy for 2015A Bonds Bond Buyer Index (2-year chart) Ehlers Contacts Financial Advisors: Shelly Eldridge (651) 697-8504 Sean Lentz (651) 697-8509 Disclosure Coordinator: Elizabeth Greiter (651) 697-8550 Financial Analyst: Alicia Gage (651) 697-8551 The Official Statement for this financing will be mailed to the City Council at their home address or e- mailed for review prior to the sale date. Presale Report April 15, 2015 City of Cottage Grove, Minnesota Page 4 City of Cottage Grove, Minnesota $6,000,000 General Obligation Improvement Bonds, Series 2015 Issue Summary Assumes Current Market BQ AA+ Rates plus 25bps Total Issue Sources And Uses Dated 05/27/2075 � Delivered 05/27/2015 Issue 2014 Projects 2015 Projects Summary Sources Of Funds Par Amount of Bonds $2,225,000.00 $3,775,000.00 $6,000,000.00 .... ... — -- - -- --.... .. ---- Pre�aid Assessments 342,884 00 422 607.00 765 491 00 -------- ........ ----- ------------ . City Utility Funds 279 174 00 390,000.00 669 174 00 - ------ -- ., .......... ...... -- --- - - - - ---------- -...... MSA Funds - 1,490,000.00 1,490,000.00 Developer Funds __ _ - 635,000.00 635,000.00 Total Sources $2,847,058.00 $6,712,607.00 $9,559,665.00 Uses Of Funds TotalUnderwntersDiscount (1200%) 26,700.00 45,300.00 72,000.00 ... - ----......... ---. ..... ---- - _ . ........ ... __ . .....- Costs of Issuance 21,879.16 37,120.84 59,000.00 Deposit to Project Constntction Fund _2 ,795,083.00 6,630 ,299.00 9,425,382.00 Rounding Amotmt _ ____ 3,395.84 (112.84) 3,283.00 Tota] Uses $2,847,058.00 $6,712,607.00 $9,559,665.00 Series 2015A GO Imp Bonds � Issue Summary � 3/17/2015 � 826 AM ENI�ERS LEAC�ERS IN PUBLIC fINANCE i i$ tt r , i t $6,000,000 General Obligation lrnprovemenf Bonds, Series 2015 ' i Issue Summary � Assumes Current Market BQ AA+ Rates plus 25bps Debt Service Schedule Date Principal Coupon Interest Total P+1 Fiscal Total os/27/2ois - - - - - 02/Ol/2016 - - 85,050.94 85,050.94 85,050.94 08/O1/2016 - - 62,742.50 62,742.50 - 02/O1/2017 395,000.00 0.850% 62,742.50 457,742.50 520,485.00 08/O1/2017 - - 61,063.75 61,063.75 - 02/O1/2018 390,000.00 1.100% 61,063.75 451,063.75 512,127.50 08/O1/2018 - - 58,918.75 58,918.75 - 02/O1/2019 390,000.00 1.400% 58,918.75 448,918.75 507,837.50 08/O1/2019 - - 56,188.75 56,188.75 - 02/O1/2020 390,000.00 1.550% 56,188.75 446,188.75 502,377.50 08/Ol/2020 - - 53,166.25 53,166.25 - 02/Ol/2021 390,000.00 1.700% 53,166.25 443,166.25 496,332.50 08/O1/2021 - - 49,851.25 49,851.25 - 02/O1/2022 395,000.00 1.900% 49,851.25 444,851.25 494,702.50 08/O1/2022 - - 46,098.75 46,098.75 - 02/O1/2023 395,000.00 2.000% 46,098.75 441,098.75 487,197.50 08/O1/2023 - - 42,148.75 42,148.75 - 02/Ol/2024 395,000.00 2.100% 42,148.75 437,148.75 479,297.50 08/O1/2024 - - 38,001.25 38,001.25 - 02/O1/2025 400,000.00 2.250% 38,001.25 438,001.25 476,002.50 08/O1/2025 - - 33,501.25 33,501.25 - 02/Ol/2026 405,000.00 2.450% 33,501.25 438,501.25 472,002.50 08/O1/2026 - - 28,540.00 28,540,00 - 02/Ol/2027 405,000.00 2.550% 28,540.00 433,540.00 462,080.00 OS/Oi/2027 - - 23,376.25 23,376.25 - 02/01/2028 415,000.00 2.650% 23,376.25 438,376.25 461,752.50 08/Ol/2028 - - 17,877.50 17,877.50 - 02/O1/2029 425,000.00 2.750% 17,877.50 442,877.50 460,755.00 08/O1/2029 - - 12,033.75 12,033.75 - 02/O1/2030 425,000.00 2.900% 12,033.75 437,033.75 449,067.50 08/O1/2030 - - 5,871.25 5,871.25 - 02/O1/2031 385,000.00 3.050% 5,871,25 390,871.25 396,742.50 Total $6,000,000.00 - $1,263,810.94 $7,263,810.94 - Yield Statistics Bond Year pollars $52,551.67 Average Life 8.759 Years Average Coupon 2.4048922% Net Interest Cost (NIC) 2.5419002% True Interest Cost (TIC) 2.53851ll% Bond Yield for Arbitrage Putposes 2.3824752% All inclusive Cost (AIC) 2,6683241 % IRS Form 8038 Net Int erest Cost 2,40 Weighted Average Maturity 8.759 Years Series 2015A GO Imp 8onds � Issue Summary � 3/17/2015 � 8:26 AM EHLERS tEADERS IN PUpLiC FINANCE City of Cottage Grove, Minnesota $6,000,000 General Obligation Improvement Bonds, Series 2015 Issue Summary Assumes Current Market BQ AA+ Rates plus 25bps Debt Service Schedule Date Principal Coupon Interest Total P+I 105% of Total Assessments Levy/(Surplus) 02/O1/2016 - - 85,050.94 85,050.94 89,303.49 85,615.27 3,688.22 02/O1/2017 395,000.00 0.850% 125,485.00 520,485.00 546,50925 212,067.80 334,441.45 02/O1/2018 390,000.00 1.100% 122,127.50 512,127.50 537,733.88 206,843.72 330,890.16 02/O1/2019 390,000.00 1.400% 117,837.50 507,837.50 533,22938 201,619.64 331,609.74 02/O1/2020 390,000.00 1.550% 112,377.50 502,377.50 527,496.38 196,395.54 331,100.84 02/O1/2021 390,000.00 1.700% 106,332.50 496,332.50 521,14913 191,171.47 329,977.66 02/O1/2022 395,000.00 1.900% 99,702.50 494,702.50 519,437.63 185,947.37 333,490.26 02/O1/2023 395,000.00 2.000% 92,197.50 487,197.50 511,557.38 180,72331 330,834.07 02/O1/2024 395,000.00 2.100% 84,297.50 479,297.50 503,262.38 175,49921 327,763.17 02/O1/2025 400,000.00 2250% 76,002.50 476,002.50 499,802.62 170,275.15 329,527.47 02/O1/2026 405,000.00 2.450% 67,002.50 472,002.50 495,602.63 165,051.05 330,551.58 02/Ol/2027 405,000.00 2.550% 57,080.00 462,080.00 485,184.00 159,826.99 325,357.01 02/Ol/2028 415,000.00 2.650% 46,752.50 461,752.50 484,840.13 154,602.89 330,23724 02/Ol/2029 425,000.00 2.750% 35,755.00 460,755.00 483,792.75 149,378.83 334,413.92 02/Ol/2030 425,000.00 2.900% 24,067.50 449,067.50 471,520.88 144,154.73 327,36615 02/Ol/2031 3 85,000.00 3.050° 11,742.50 396,742.50 416,579.63 86,824.74 329,754.89 Total $6,000,000.00 - $1,263,810.94 $7,263,810.94 $7,627,001.49 $2,665,997.71 $4,961,003.78 Significant Dates Dated 5/27/2015 First Coupon Date 2/O1/2016 Yield Statistics Bond Year pollars $52,551.67 _.... _ ............. _..._.............. __.. ----...... ... .....-----------..._.. .... _ _......._..----- Average Life 8.759 Years Average Coupon 2.4048922% NeY Interest Cost (NIC) 2.5419002% True Interest Cost (TIC) ............................................................................. ................_......................................._....._._.._..........................................---......................................................................_._......................................................................................................................................................................._....._................ Bond Yield for Arbitrage Purposes 23824752% All Inclusive Cost ( AIC) 2.6683241% Series 2015A GO Imp Bonds � Issue Summary � 3/17/2015 � 826 AM EHLERS LEA�ERS IN PUBLIC FINANCE 2 YEAR TREND IN MUNICIPAL BOND INDICES Weekly Rates March, 2013 - March, 2015 5.00% 4.50% 4.00% 3.50% 3.00% 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's AA. 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's A+. EHLER LEADERS W PUBUCFINANCE May �3 JUI 13 5ep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 Sep 14 Nov 14 Jan 15 Mar 15 — RBI — BBI (Current: 3.52%)