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City of Elk River, Minnesota <br />June 25, 1997 <br /> <br />7. Sources of Payment and Payment Cycles <br /> <br />8. Prepayment Provisions <br /> <br />9. Credit Rating Status <br /> <br />10. Bank Qualification <br /> <br />11. Rebate Requirements <br /> <br />12. Bona Fide Debt Service Fund <br /> <br />provision because the length of the issue is <br />too short to benefit from the term bond <br />provision. The advantage to the underwriter <br />is that term bonds provide a large block of <br />bonds which is more attractive to bond funds <br />and certain pension funds which deal only <br />with large blocks of bonds. This in turn is a <br />benefit to the City since selling larger blocks <br />of bonds reduces the risk to the underwriter, <br />allowing them to lower their costs and the <br />interest coupons. Since the Series 1997A <br />Bonds are being offered on a competitive bid <br />basis and awarded on the lowest true <br />interest cost, the City will award the <br />Series 1997A Bonds to the best bid <br />regardless of whether term bonds are <br />chosen or not. <br /> <br />The sources of payment and payment cycles <br />for the issues are discussed in the <br />Discussion section of these <br />recommendations. <br /> <br />The Series 1997A and the Series 1997B <br />Bonds maturing on or after February 1, 2006 <br />will be callable on February 1, 2005, and on <br />any day thereafter, at a price of par plus <br />accrued interest. <br /> <br />The City is currently rated "Baal" by <br />Moody's Investors Service. These issues <br />require a rating application to assure <br />continuation of the rating. <br /> <br />The City does not expect to issue over <br />$10,000,000 in tax-exempt obligations in <br />1997; therefore these issues are eligible for <br />bank-qualification. Issues which are <br />bank-qualified receive slightly lower interest <br />rates than issues which are not bank- <br />qualified. <br /> <br />Proceeds of the obligations are subject to <br />the federal arbitrage rebate requirements. <br />However, the City does not expect to issue <br />over $5,000,000 in tax-exempt financing in <br />1997 and is therefore exempt from rebating <br />arbitrage earnings to the federal government <br />if all proceeds from the Issues are expended <br />within three years. <br /> <br />The City must maintain a bona fide debt <br />service fund for each of the issues or be <br />subject to yield restriction. A bona fide debt <br />service fund is a fund for which there is an <br /> <br />Page 2 <br /> <br /> <br />