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ITEM 3 Debt Service Refunding City of Otsego│13400 90th Street NE, Otsego, MN 55330│Tel. (763) 441-4414 Fax (763) 441-9163 TO: Mayor and City Council FROM: Adam Flaherty, City Administrator & Finance Director DATE: October 28, 2019 SUBJECT: Debt Service Refunding G.O. Series 2009A The City originally financed much of the current-day water and sanitary sewer plants and infrastructure with bond issues intended to be repaid with utility access and connection charges. During the last recession, the intended revenues decreased with the slowed new home construction. Given that environment, the City issued refunding bonds, where the principal repayments were strategically structured with future cash flows in mind. One of the current outstanding issues, the 2009A, has $6,360,000 in principal outstanding. The structure does not provide for any principal repayment until 2024, with only interest payments until then. Option #1 The opportunity exists for the City to refund this bond again. The new structure would provide for very minimal principal repayments beginning in 2020 (compared to 2024) and will provide for interest savings. The current estimate of interest savings is $1,336,897.39 (97 RECs), with a net present value benefit of $988,523.40. Option #2 The opportunity exists for the City to call (prepay) certain individual maturities of the current debt issue beginning on December 1, 2019. The City has the ability to call the entire remaining principle or choose individual maturities. The most advantageous installment for the City to call would be the 2027 maturity. This would require the City to make a principal payment of $2,400,000 as well as the originally scheduled interest payment of $130,305 by December 1, 2019. The interest savings of this option is estimated to be $792,000 (57 RECs). City of Otsego│13400 90th Street NE, Otsego, MN 55330│Tel. (763) 441-4414 Fax (763) 441-9163 Other Bond Issues Preliminary analysis of the City’s other debt issues show that the following bond issues could also be considered for refunding, along with currently estimated interest savings: - G.O. Series 2010B; City Hall and Public Works $7,027.96 - G.O. Series 2010D; Queens Avenue & CSAH 42 $50,345.16 - G.O. Series 2011A; Queens Avenue & CSAH 42 $65,617.38 Action Items City staff would specifically request a motion (s) from the City Council authorizing the City Administrator/Finance Director to proceed with the items below. Call Resolution If the Council chooses to move forward with the debt service call (prepay) option (s); the City would need to adopt a resolution calling for the redemption of a portion of the bonds. Rating Engagement If the Council chooses to move forward with the debt service refunding option (s); the City would need to enter into an engagement letter with S&P Global Ratings. The fees associated with such an engagement would be $13,000, and would be reimbursed with proceeds of the refunding bond issue. In Summary The City has multiple options, which are summarized below: 1) No action. 2) Call the 2027 maturity of the 2009A bond issue. 3) Call multiple (or all) maturities of the 2009A bond issue. 4) Call the 2027 maturity of the 2009A bond issue and refund the remaining principal. 5) Call the 2027 maturity of the 2009A bond issue and refund all other bonds. 6) Call the 2027 maturity of the 2009A bond issue and refund certain other bonds. 7) Refund the 2009A bond issue. 8) Refund the 2009A bond issue and all other bonds. 9) Refund the 2009A bond issue and certain other bonds. 10) Other Materials Attached for Discussion 1) Current Debt Service Schedule – 2009A Issue 2) Interest Savings Calculation – Call 2027 Maturity 3) Interest Savings Calculation – Call 2027 Maturity and Refund Remaining Principal 4) Cash Flow Analysis (Will be available electronically at the meeting). DEBT MATERIALS - 1 City of Otsego, Minnesota G.O. Water And Sewer Refunding Bonds, Series 2009A Debt Service To Maturity And To Call Date Principal to Call Date Principal & Interest to Call Date Principal Coupon Interest Refunded D/S Fiscal Total 12/01/2019 2,400,000.00 2,400,000.00 - - - - - 06/01/2020 - - - - 49,500.00 49,500.00 - 12/01/2020 - - - - 49,500.00 49,500.00 - 12/15/2020 - - - - - - 99,000.00 06/01/2021 - - - - 49,500.00 49,500.00 - 12/01/2021 - - - - 49,500.00 49,500.00 - 12/15/2021 - - - - - - 99,000.00 06/01/2022 - - - - 49,500.00 49,500.00 - 12/01/2022 - - - - 49,500.00 49,500.00 - 12/15/2022 - - - - - - 99,000.00 06/01/2023 - - - - 49,500.00 49,500.00 - 12/01/2023 - - - - 49,500.00 49,500.00 - 12/15/2023 - - - - - - 99,000.00 06/01/2024 - - - - 49,500.00 49,500.00 - 12/01/2024 - - - 4.000% 49,500.00 49,500.00 - 12/15/2024 - - - - - - 99,000.00 06/01/2025 - - - - 49,500.00 49,500.00 - 12/01/2025 - - - 4.100% 49,500.00 49,500.00 - 12/15/2025 - - - - - - 99,000.00 06/01/2026 - - - - 49,500.00 49,500.00 - 12/01/2026 - - - 4.100% 49,500.00 49,500.00 - 12/15/2026 - - - - - - 99,000.00 06/01/2027 - - - - 49,500.00 49,500.00 - 12/01/2027 - - 2,400,000.00 4.125% 49,500.00 2,449,500.00 - 12/15/2027 --- --- 2,499,000.00 Total $2,400,000.00 $2,400,000.00 $2,400,000.00 -$792,000.00 $3,192,000.00 - Payment due on December 1, 2019 to pay off the 2027 maturity of the 2009A Bonds is $2,400,000. Total remaining payments on the 2027 maturity if not paid off early is $3,192,000. Total savings by paying maturity off on December 1, 2019 is $792,000. 09aold | SINGLE PURPOSE | 8/31/2018 | 10:40 AM Northland Securities, Inc. Public Finance Page 1 DEBT MATERIALS - 2 City of Otsego, Minnesota $4,050,000 G.O. Refunding Bonds, Series 2019A (Preliminary AA+ Rates as of 10/15/19) Sources & Uses Dated 12/17/2019 | Delivered 12/17/2019 Sources Of Funds Par Amount of Bonds $4,050,000.00 Planned Issuer Equity contribution 2,400,000.00 Total Sources $6,450,000.00 Uses Of Funds Total Underwriter's Discount (1.250%)50,625.00 Costs of Issuance 27,000.00 Deposit to Current Refunding Fund 6,371,582.67 Rounding Amount 792.33 Total Uses $6,450,000.00 19 Ref2 | 2009A | 10/15/2019 | 4:08 PM Northland Securities, Inc. Public Finance Page 1 DEBT MATERIALS - 3 City of Otsego, Minnesota $4,050,000 G.O. Refunding Bonds, Series 2019A (Preliminary AA+ Rates as of 10/15/19) Debt Service Comparison Date Total P+I Net New D/S Old Net D/S Savings 12/01/2020 83,319.94 2,482,527.61 260,610.00 (2,221,917.61) 12/01/2021 80,707.50 80,707.50 260,610.00 179,902.50 12/01/2022 85,437.50 85,437.50 260,610.00 175,172.50 12/01/2023 85,087.50 85,087.50 260,610.00 175,522.50 12/01/2024 834,737.50 834,737.50 1,010,610.00 175,872.50 12/01/2025 1,628,500.00 1,628,500.00 1,805,610.00 177,110.00 12/01/2026 1,624,800.00 1,624,800.00 1,801,035.00 176,235.00 12/01/2027 --2,499,000.00 2,499,000.00 Total $4,422,589.94 $6,821,797.61 $8,158,695.00 $1,336,897.39 PV Analysis Summary (Net to Net) Gross PV Debt Service Savings.....................3,387,731.07 Net PV Cashflow Savings @ 1.513%(Bond Yield).....3,387,731.07 Total Cash contribution...........................(2,400,000.00) Contingency or Rounding Amount....................792.33 Net Present Value Benefit $988,523.40 Net PV Benefit / $7,437,731.07 PV Refunded Debt Service 13.291% Net PV Benefit / $6,360,000 Refunded Principal...15.543% Net PV Benefit / $4,050,000 Refunding Principal..24.408% Refunding Bond Information Refunding Dated Date 12/17/2019 Refunding Delivery Date 12/17/2019 19 Ref2 | 2009A | 10/15/2019 | 4:09 PM Northland Securities, Inc. Public Finance Page 2 DEBT MATERIALS - 4 City of Otsego, Minnesota $4,050,000 G.O. Refunding Bonds, Series 2019A (Preliminary AA+ Rates as of 10/15/19) Debt Service Schedule Date Principal Coupon Interest Total P+I Fiscal Total 12/17/2019 ----- 06/01/2020 --27,803.69 27,803.69 - 12/01/2020 25,000.00 1.300%30,516.25 55,516.25 83,319.94 06/01/2021 --30,353.75 30,353.75 - 12/01/2021 20,000.00 1.350%30,353.75 50,353.75 80,707.50 06/01/2022 --30,218.75 30,218.75 - 12/01/2022 25,000.00 1.400%30,218.75 55,218.75 85,437.50 06/01/2023 --30,043.75 30,043.75 - 12/01/2023 25,000.00 1.400%30,043.75 55,043.75 85,087.50 06/01/2024 --29,868.75 29,868.75 - 12/01/2024 775,000.00 1.450%29,868.75 804,868.75 834,737.50 06/01/2025 --24,250.00 24,250.00 - 12/01/2025 1,580,000.00 1.500%24,250.00 1,604,250.00 1,628,500.00 06/01/2026 --12,400.00 12,400.00 - 12/01/2026 1,600,000.00 1.550%12,400.00 1,612,400.00 1,624,800.00 Total $4,050,000.00 -$372,589.94 $4,422,589.94 - Date And Term Structure Dated 12/17/2019 Delivery Date 12/17/2019 First available call date Call Price - Yield Statistics Bond Year Dollars $24,615.00 Average Life 6.078 Years Average Coupon 1.5136703% Net Interest Cost (NIC)1.7193376% True Interest Cost (TIC)1.7312849% All Inclusive Cost (AIC)1.8487314% IRS Form 8038 Net Interest Cost (NIC)1.7193376% Weighted Average Maturity 6.078 Years Bond Yield for Arbitrage Purposes 1.5134836% 19 Ref2 | 2009A | 10/15/2019 | 4:09 PM Northland Securities, Inc. Public Finance Page 3 DEBT MATERIALS - 5 City of Otsego, Minnesota G.O. Water And Sewer Refunding Bonds, Series 2009A Debt Service To Maturity And To Call Date Refunded Bonds Refunded Interest D/S To Call Principal Coupon Interest Refunded D/S Fiscal Total 12/17/2019 6,360,000.00 11,582.67 6,371,582.67 - ---- 06/01/2020 ---- - 130,305.00 130,305.00 - 12/01/2020 ---- - 130,305.00 130,305.00 260,610.00 06/01/2021 ---- - 130,305.00 130,305.00 - 12/01/2021 ---- - 130,305.00 130,305.00 260,610.00 06/01/2022 ---- - 130,305.00 130,305.00 - 12/01/2022 ---- - 130,305.00 130,305.00 260,610.00 06/01/2023 ---- - 130,305.00 130,305.00 - 12/01/2023 ---- - 130,305.00 130,305.00 260,610.00 06/01/2024 ---- - 130,305.00 130,305.00 - 12/01/2024 --- 750,000.00 4.000% 130,305.00 880,305.00 1,010,610.00 06/01/2025 ---- - 115,305.00 115,305.00 - 12/01/2025 --- 1,575,000.00 4.100% 115,305.00 1,690,305.00 1,805,610.00 06/01/2026 ---- - 83,017.50 83,017.50 - 12/01/2026 --- 1,635,000.00 4.100% 83,017.50 1,718,017.50 1,801,035.00 06/01/2027 ---- - 49,500.00 49,500.00 - 12/01/2027 --- 2,400,000.00 4.125% 49,500.00 2,449,500.00 2,499,000.00 Total $6,360,000.00 $11,582.67 $6,371,582.67 $6,360,000.00 - $1,798,695.00 $8,158,695.00 - Yield Statistics Base date for Avg. Life & Avg. Coupon Calculation 12/17/2019 Average Life 6.849 Years Average Coupon 4.1024256% Weighted Average Maturity (Par Basis) 6.849 Years Weighted Average Maturity (Original Price Basis) 6.849 Years Refunding Bond Information Refunding Dated Date 12/17/2019 Refunding Delivery Date 12/17/2019 09aold | SINGLE PURPOSE | 10/15/2019 | 4:09 PM Northland Securities, Inc. Public Finance Page 4 DEBT MATERIALS - 6