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.
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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
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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
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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%
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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
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DEBT MATERIALS - 6