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EHLERS <br /> <br />& AS$OCIA-ES IIX,:: <br /> <br />MEMORANDUM <br /> <br />DATE: April 2, 2002 <br /> <br />TO: <br /> <br />Loft Johnson, City of Elk River <br /> <br />FROM: <br /> <br />Sid Inman and Mark Ruff <br /> <br />RE: <br /> <br />Options for Lease Revenue (Public Project) Revenue Bonds for Municipal Facilities <br /> <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 /> <br />Option 1: Increasing debt service to match new growth expected in the City. <br />Option 2: Level debt service for the term of the bonds <br />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 /> <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 /> <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 /> <br />The total interest cost is over $1,000,000 cheaper than either of the other options. <br />The rating agency concerns are lessened under Option 2. <br />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 />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 /> <br />We look forward to discussing these issues with you and the Council on Monday. <br /> <br /> <br />