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Home My WebLink About[06] Bond Sale Crry OF till JOSEPH Council Agenda Item MEETING DATE: February 2, 2012 AGENDA ITEM: Bond Sale, Monte Eastvold SUBMITTED BY: Finance BOARD / COMMISSION /COMMITTEE RECOMMENDATION: None PREVIOUS COUNCIL ACTION: Staff informed Council of a potential bond refunding. BACKGROUND INFORMATION: Monte Eastvold, Northland Securities, has been watching the market rates to refund the 2005D GO Water Revenue Bonds that become callable on December 1, 2014. The 2012A crossover refunding bonds will pay for the 2005D bonds on December 1, 2014. Proceeds from the 2012A bonds will be held in an escrow account until then. Current payments on the 2005D bonds will continue through the call date based on the old schedule. The Average Coupon Rate of the 2005D bonds is 4.13 %. The Average Coupon Rate of the proposed refunding bonds is estimated to be 1.91 %. This decrease in interest expense contributes to an overall reduction in future debt service payment s of approximately $487,338. This is a true savings figure in that all issuance - related expenses have been taken into account. The average interest rate on 20 -year bonds has reached a level not seen since April 1967. Moody's Al rating is assumed for the refunding based on the rating analysis of the most recent bond issue in the fall of 2011. The size of the refunding would warrant a bond rating. Under the Dodd -Frank Act the bonding underwriter and financial advisor must be separate entities. In addition, the role of underwriter and financial advisor must be in writing for each bond issue. Firms acting as underwriters may switch roles before bonds are sold to financial advisor, but must be done in writing and cannot be in the reverse order. Staff recommends Northland Securities acts as underwriter to expedite the bond sale. This will also allow the City to "lock in" an interest rate when rates are most favorable. Staff recommends appointing the Mayor, Administrator and Finance Director to lock in an interest rate on the day rates on behalf of the city council as they become most favorable. BUDGET/FISCAL IMPACT: Reduction of appx. $487,338 in future debt payments — Water Fund New debt of $4,885,000 incurred. ATTACHMENTS: RCA Bond Sale GO Water Revenue Refunding Bonds of 2012 analysis Letter authorizing Northland Securities to act as Underwriter Resolution 2012 -002 REQUESTED COUNCIL ACTION: Authorize Resolution 2012 -002 appointing Northland Securities to act as the underwriter for the 2012 crossover water refunding bonds and appoint the Mayor, Administrator and Finance Director to lock in favorable interest rates for the bond issue. Judy Weyrens From: Monte Eastvold < meastvold @northlandsecurities.com> Sent: Friday, January 20, 2012 7:41 AM To: Judy Weyrens Cc: Lori Bartlett Subject: FW: Potential Refinancing of GO Water Rev Bonds of 2005 -D Attachments: St Joseph 1- 19- 12.pdf Good Morning Judy, Last week, average interest rates on 20 -year municipal bonds hit a low -point not seen since April of 1967. An update of the potential refunding of the City's GO Water Revenue Bonds of 2005 -D (see attached) indicates that the Average Interest Rate of the new bonds is estimated to be 1.91%. The reduction in future debt service payments is now estimated to be $487,337. Please call me if you have any questions regarding this information. Thanks, Monte From: Monte Eastvold Sent: Monday, January 09, 2012 10:10 AM To: 'Judy Weyrens' Cc: 'Lori Bartlett' Subject: Potential Refinancing of GO Water Rev Bonds of 2005 -D Good Morning Judy, Municipal bond interest rates continue to decrease. In this interest rate climate, Northland has reviewed the City's long- term debt and has found the following refunding candidate: General Obligation Water Revenue Bonds of 2005 -D: this issue partially financed the City's water treatment plant, and is callable on December 1, 2014. The Average Interest Rate of the 2005 -D bonds is 4.13 %. The Average Interest Rate of the proposed refunding bonds is estimated to be 2.27 %. This decrease in Interest expense contributes to an overall reduction in future debt service payments of approximately $295,053. This is a true savings figure to the City in that all issuance - related expenses have been taken into account. The attached refunding analysis is intended solely for informational purposes. The analysis provides an indicator of the potential savings from the refunding of outstanding debt and does not provide advice on the structure, timing, terms and issuance of refunding bonds. This analysis does not constitute a relationship between the City of St. Joseph and Northland Securities for the issuance of refunding bonds. I would be happy to discuss the refunding analysis in greater detail with you and the City Council at your convenience. Please call me if you have any questions regarding this information. Thanks, Monte Eastvold Vice President - Public Finance Northland Securities, Inc 45 South 7th Street 1 RESOLUTION 2012 -002 APPROVING THE ISSUANCE OF GENERAL OBLIGATION WATER REVENUE CROSSOVER REFUNDING BONDS, SERIES 2012A BE IT RESOLVED by the City Council of the City of St. Joseph, State of 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 water revenue crossover refunding bonds in the total aggregate principal amount of not to exceed $5,000,000 (herein, the "Bonds "). The proceeds of the Bonds will be used, together with any additional funds of the City which might be required for (i) a crossover refunding of all or a portion of the December 1, 2017 through 2028 maturities, aggregating up to $4,595,000 in principal amount, of the City's General Obligation Water Revenue Bonds, Series 2007A, dated December 1, 2005 as date of original issue, and (ii) to pay the costs associated with issuing the Series 2012A Bonds 2. The City Council desires to proceed with the sale of the Bonds by direct negotiation with Northland Securities, Inc. ( "NSI "). NSI will purchase the Bonds in an arm's - length commercial transaction with the City. 3. The Mayor and the Administrator are hereby authorized to approve the sale of the Bonds in an aggregate principal amount of not to exceed $5,000,000 and to execute a bond purchase agreement for the purchase of the Bonds with NSI, provided 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 Administrator, 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 Administrator 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. Adopted this day of , 2012 Rick Schultz, Mayor Judy Weyrens, Administrator THIS PAGE INTENTIONALLY LEFT BLANK - - City of Saint Joseph , Minnesota G.O. Water Revenue Refunding Bonds of 2012 2005D Refunding Summary Dated 04/0112012 I Delivered 0410112012 Sources Of Funds Par Amount of Bonds $4,885,000.00 Total Sources $4,885,000.00 Uses Of Funds Deposit to Crossover Escrow Fund 4,793,129.83 Total Underwriter's Discount (1.300%) 63,505.00 , Costs of Issuance 24,800.00 Rounding Amount 3,565.17 Total Uses $4,885,000.00 Flow of Funds Detail State and Local Govemment Series (SLGS) rates for 1/18/2012 Date of OMP Candidates .. Crossover Escrow Fund Solution Method Net Funded Total Cost of Investments $4,793,129.83 Interest Earnings 0 0 .2 68% 33,69oxi Total Draws $4,826,820.00 Issues Refunded An4'11te_s_D 05dold ( ... 2 . 01 ....... 2014 PV Analysis Summary (Net to Net) Net PV Cashfiow Savings 0 1.899%(Bond 11d . 9 Contingency or Rounding Amount 3,565.17 Net Present Value Benefit $407,094.17 , Net PV Benefit / $4,595,000 Refunded Principal 8.860% , Net PV Benefit / $4,885,000 Refunding Principal 8.334% Bond Statistics Average Life 9.985 Years , Average Coupon 1.9100270% Net Interest Cost (NIC) 2.0402224% Bond Yield for Arbitrage Purposes 1.8988738% True Interest Cost (TIC) 2.0438783% All Inclusive Cost V_1/4IC) 2.101129a% .. , 05dref 1 SINGLE PURPOSE 1 1/19/2012 11:54 PM Northland Securities ll Public Finance Page 1 City of Saint Joseph, Minnesota G.O. Water Revenue Refunding Bonds of 2012 2005D Debt Service Comparison Date Total P +I PCF Existing DM Net New D/S s • Net DI Savin s 12/01/2012 57,955.00 (57,955.00) 189,143.76 185,578.59 189,143.76 3,565.17 12/01/2013 86,932.50 (86,932.50) 189,143.76 189,143.76 189,143.76 - 12/01/2014 86,932.50 (4,681,932.50) 4,784,143.76 189,143.76 189,143.76 0.00 12/01/2015 151,932.50 - - 151,932.50 189,143.76 37,211.26 12/01/2016 156,380.00 - - 156,380.00 189,143.76 32,763.76 12/01/2017 555,680.00 - - 555,680.00 589,143.76 33,463.76 12/01/2018 560,275.00 560,275.00 593,143.76 32,868.76 12/01/2019 554,035.00 - - 554,035.00 586,343.76 32,308.76 12/01/2020 542,075.00 - - 542,075.00 578,606.26 36,531.26 12/01/2021 544,475.00 - - 544,475.00 580,456.26 35,981.26 12/01/2022 545,987,50 - - 545,987.50 581,481.26 35,493.76 12/01/2023 546,582.50 - - 546,582.50 581,681.26 35,098.76 12/01/2024 551,230.00 - - 551,230.00 586,056.26 34,826.26 12/01/2025 555,050.00 - - 555,050.00 589,400.00 34,350.00 12/01/2026 102,745.00 - - 102,745.00 136,575.00 33,830.00 12/01/2027 105,465.00 - - 105,465.00 141,475.00 36,010.00 12/01/2028 112,915.00 - - 112,915.00 145,950.00 33,035.00 Total $5,816,647.50 (4,826,820.00) $5,162,431.28 $6,148,693.61 $6,636,031.38 1487,337.77 • PV Analysis Summary (Net to Net) Gross PV Debt Service Savings 403,529.00 Net PV Cashfiow Savings _ @_1.899 %(Bond Yield) 403 529.00 Contingency or Rounding Amount 3,565.17 Net Present Value Benefit $407,094.17 Net PV Benefit / $5,063,610.54 PV Refunded Debt Service 0 % 44---• 8.04 Net PV Benefit / $4,595,000 Refunded Principal... 8.860% Net PV Benefit / $4,885,000 Refunding Principal.. 8.334% Refunding Bond Information Refunding Dated Date 4 Refunding Delivery Date 4/01/2012 • • • 95dref i SINGLE PURPOSE 1 1/19/2012 1 1:54 PM Northland Securities Public Finance Page 2 City of Saint Joseph, Minnesota G.O. Water Revenue Refunding Bonds of 2012 2005D Debt Service Schedule Date Principal Coupon Interest Total P +I Fiscal Total 04/01/2012 - - - - - 12/01/2012 - - 57,955.00 57,955.00 57,955.00 06/01/2013 - - 43,466.25 43,466.25 - 12/01/2013 - - 43,466.25 43,466.25 86,932.50 06/01/2014 - - 43.466.25 43,466.25 - 12/01/2014 - - 43,466.25 43,466.25 86,932.50 06/01/2015 - - 43,466.25 43,466.25 - 12/01/2015 65,000.00 0.850% 43,466.25 108,466.25 151,932.50 06/01/2016 - - 43,190.00 43,190.00 - 12/01/2016 70,000.00 1.000% 43,190.00 113,190.00 156,380.00 06/01/2017 - - 42,840.00 42,840.00 - 12/01/2017 470,000.00 1.150% ........_.. - 42,840.00 512,840.00 555,680.00 06/01/2018 - - 40,137.50 40,137.50 - 12/01/2018 480,000.00 1.300% 40,137.50 520,137.50 560,275.00 06/01/2019 - - 37,017.50 37,017.50 - 12/01/2019 480,000.00 1.450% 37,017.50 517,017.50 554.035.00 06/01/2020 - - 33,537.50 33,537.50 - 12/01/2020 475,000.00 1.600% 33,537.50 508,537.50 542,075.00 06/01/2021 - - 29,737.50 29,737.50 12/01/2021 485,000.00 1.750% 29,737.50 514,737.50 544,475.00 06/01/2022 - - 25,493.75 25,493.75 - 12/01/2022 495,000.00 1.900% 25,493.75 520,493.75 545,987.50 06/01 /2023 - - 20,791.25 20,791.25 - 12/01/2023 505,000.00 2.050% 20,791.25 525,791.25 546,582.50 06/01/2024 - - 15,615.00 15,615.00 - 12/01/2024 520,000.00 2.150% 15,615.00 535,615.00 551,230.00 06/01/2025 - - 10,025.00 10,025.00 - 12/01/2025 535.000.00 2.300% 10,025.00 545,025.00 555,050.00 06/01/2026 - - 3,872.50 3,872.50 - 12/01/2026 95,000.00 2.400% 3,872.50 _,.. 98 ,872.50 __._.. 102,745.00 06/01/2027 - 2,732.50 2,732.50 - 12/01/2027 100,000.00 2.550% 2,732.50 102,732.50 105,465.00 06/01/2028 - - 1,457.50 1,457.50 - 12/01/2028 110,000.00 2.650% 1,457.50 111,457.50 112,915.00 Total $4,885,000.00 - $931,647.50 $5,816,647.50 - Dated 4/01/2012 Delivery Date 4 First Coupon Date 12/01/2012 First available call date Cali Price - Bond Year Dollars $48,776.67 Average Life 9.985 Years Averge a Cot o 1 ;9100270% 0402 -- `'....._.__..... .._.._... Net Interest Cost (NIC) 2. 2 4% • True Interest Cost (TIC) 2.0438783% Bond Yield for Arbitrage Purposes 18988738% Net Interest Cost 1.9100270% Weighted Average Maturity 9.985 Years O5dret 1 SINGLE PURPOSE 1 1/19/2012 l 1:54 PM Northland Securities Public Finance Page 3 THIS PAGE INTENTIONALLY LEFT BLANK