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• <br /> et EHLERS <br /> -E , MEMORANDUM <br /> DATE: April 2, 2002 <br /> TO: Lori Johnson, City of Elk River <br /> FROM: Sid Inman and Mark Ruff <br /> RE: Options for Lease Revenue(Public Project)Revenue Bonds for Municipal Facilities <br /> We have discussed three different repayment structures for the proposed$8,000,000 Lease Revenue <br /> Bonds for the municipal facilities. The term of the bonds is anticipated to be 20 years in all options. The <br /> summary of the options are listed below: <br /> 1. Option l: Increasing debt service to match new growth expected in the City. <br /> 2. Option 2: Level debt service for the term of the bonds <br /> 3. Option 3: Lower debt service until the outstanding City Hall lease revenue bonds are retired <br /> in 2010 with higher debt service during the remaining term. <br /> All options would be accepted by the market,but relatively level debt service is more common. This is, <br /> in part, a function of rating agency views on debt service. The rating agencies like to see more principal <br /> amortized in the first 10 years of the debt. Debt which relies upon growth to meet the obligations is more <br /> suspect in the rating agencies' conservative views because of the chance that the growth may not <br /> materialize. <br /> We are recommending that the City consider the Option 2 or level debt for the entire term of the bonds for <br /> the following reasons: <br /> l. The total interest cost is over$1,000,000 cheaper than either of the other options. <br /> 2. The rating agency concerns are lessened under Option 2. <br /> 3. The amount of proceeds available under the$8,000,000 option is higher than under Option 1 <br /> because the amount of debt service reserve which is necessary is lower with a level debt <br /> service rather than an ascending debt service. Debt service reserves are a function of the <br /> average annual debt service and maximum annual debt service. <br /> 4. Level debt allows the City to add additional debt for other capital needs over the next 10 to <br /> 15 years and utilize growth for those capital needs. <br /> We look forward to discussing these issues with you and the Council on Monday. <br />