5.4. SR 07-19-2004 - Laserfiche WebLink

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City of Elk River, Minnesota Pre-Sale Report Electric Revenue Bonds, Series 2004A July 19, 2004 Proposed Issue: Purpose: Term/Call Feature: Funding Sources: Discussion Issues: $940,000 Electric Revenue Bonds, Series 2004A Provide funding for improvements to the City's municipal utility. The first principal payment is 2/1/06 and the final payment is 2/1/15. We propose a call (pre-payment) date of 8/1/11, which is in 7 years. Revenues from the operation of the City's electric utility system operated by the Elk River Municipal Utilities. The City can choose to pledge only electric revenues or both water and electric revenues to the bonds. Typically, bond buyers would want to see at least 150% to 200% debt service on a projected basis. Higher coverage levels usually mean lower interest rates. Electric revenue bonds typically require a debt service reserve equal to the lesser of one year of debt service or 10% of the issue amount. We recommend that the City restrict $94,000 of cash assets in an account to serve as the debt service reserve instead of bond funding the reserve. A cash reserve will reduce costs of issuance and will still allow for the interest earnings on the fund to be used for any purpose. No trustee will be required to hold the funds. The City currently has no outstanding electric utility revenue debt. Because these types of obligations are not backed by the City's general obligation, it is necessary to set certain covenants in the bond documents which restrict the issuance of future debt unless certain debt service requirements are met. Specifically: Pari _ty of Lien: In order for the City to issue additional bonds on a parity of lien in the future, the bond resolution will require that the net revenues of the utility in the preceding two fiscal years be at least 1.25 times the average annual principal and interest coming due on all outstanding bonds and the additional bonds (the "Coverage Test"). The bond resolution defines the method used to determine the net revenues for the preceding two fiscal years. Rate Covenant: The City covenants to cause to be established, charged and collected such lawfully established rates and charges for the services provided by the Public Utility so that net revenues (i.e. gross revenues derived from said rates and charges less all costs of operation and maintenance, exclusive of debt service and depreciation) will be sufficient to pay at least 110% of the average annual principal and interest coming due on all outstanding bonds each year. Because the City expects to issue less than $10,000,000 in tax-exempt obligations in 2004, the Bonds will be bank qualified, which carries a slightly lower interest rate.