5.2. SR 02-20-2007 - Laserfiche WebLink

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I Pre-Sale Report Electric Revenue Bonds, Series 2007 A February 20, 2007 Proposed Issue: $2,875,000 Electric Revenue Bonds, Series 2007 A Purpose: Provide funding for a new substation and feeders for the City's municipal electric utility . Term/Call Feature: The first interest payment would be August 1, 2007 with interest only payments for the first two years. The first principal payment will be February 1,2010 and the final payment is February 1, 2022. We propose a call (pre-payment) date of February 1,2016, which is in nine years. Funding Sources: The funding source will be revenues from the City's electric utility system operated by the Elk River Municipal Utilities. The City has chosen to pledge only electric revenues to the Bonds. Given historical cash flow of the electric utility system, the debt service coverage is more than adequate for the proposed financing. 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. Staff has recommended that the required debt service reserve of approximately $287,500 (10% of issue) be funded from bond proceeds. Interest earnings on the reserve fund should be used to write down the interest cost on the bonds, but interest earnings are limited to the rate paid on the bonds. The actual amount of the reserve will be set on the day of the bond sale. Covenants: The City currently has an outstanding electric utility revenue bond of $940,000 issued in 2004 and another issue in 2006. The bond resolution for the 2004 sale sets the terms for all future bond issues secured by the pledge of electric revenues. 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: Parity of Lien: In order for the City to issue additional bonds on a parity of lien in the future, the bond resolution 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.