112706 EDA AgP
CITY OF SHOREWOOD
ECONOMIC DEVELOPMENT AUTHORITY MEETING
MONDAY, NOVEMBER 27,2006
5755 COUNTRY CLUB ROAD
COUNCIL CHAMBERS
Immediately Following
Regular Council Meeting
AGENDA
1. CONVENE ECONOMIC DEVELOPMENT AUTHORITY MEETING
A. Roll Call
President Love
Lizee
Turgeon _
Callies
Wellens
B. Review Agenda
2. APPROVAL OF MINUTES
A. EDA Minutes of September 11, 2006 (Att.- Minutes)
3. NEW BUSINESS
A. Refinancing Bonds for Public Safety Facilities (Att. - Executive Director's
memorandum)
4. ADJOURN
CITY OF SHOREWOOD
ECONOMIC DEVELOPMENT AUTHORITY MEETING
MONDAY, SEPTEMBER 11,2006
5755 COUNTRY CLUB ROAD
COUNCIL CHAMBERS
Immediately Following
Regular Council Meeting
MINUTES
1. CONVENE ECONOMIC DEVELOPMENT AUTHORITY MEETING
President Love called the meeting to order at 7:53 P.M.
Present:
President Love; Boardmembers Callies,
Executive Director Nielsen, Assistant Treasurer
Wellens; Assistant
Attorney DeVolve
A. Roll Call
Absent:
None
B.
Review Agenda
Without objection from the Board, President Love
for the
2. APPROVAL OF MINUTES
4.
of July 24, 2006, as
A. EDA Minutes of July 24,
Wellens moved, Turgeon seconded,
presented. Motion passed 5/0.
3. NEW
A.
of Project Completion
Wellens
and
Motion
of $27,851.67 to the Excelsior Fire District
with regard to the Use of Bond Proceeds.
Approving the Verified Claims List. Motion passes 5/0.
Turgeon moved,
Meeting of September
Adjourning the Shorewood Economic Development Authority
at 7:57 P.M. Motion passed 5/0.
RESPECTFULLY SUBMITTED,
Christine Freeman, Recorder
Woody Love, President
ATTEST:
Craig W. Dawson, Executive Director
1#2A I
SHOREWOOD ECONOMIC DEVELOPMENT AUTHORITY
5755 Country Club Road
Shorewood, Minnesota 55331-8926
952.474.3236 FAX: 952.474.0128
MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
Economic Development Authority Board
Craig W. Dawson, Executive Director
November 22,2006
Refinancing Bonds for Public Safety Facilities
With a very favorable interest rate environment currently, there is a timely opportunity to refinance
most or all of the bonds issued for the Public Safety facilities. Net savings compared to the current
obligations would be $300,000+ for the fire facilities and more than $200,000 for the police facility.
Anticipated interest rates would be one full percentage point lower than the existing issues. In the
mechanics of the structure, existing bonds would be paid until their call dates in 2009 and 2010, and
then the new bonds with the lower interest rates would replace the remaining years of the original
bond issue.
Under the terms of the various bond documents, leases, and subleases, five parties must agree to go
ahead with the financing. Technically, they would need to agree to amendments to the terms of
financing contained in the leases and subleases.
. Excelsior Fire District (EFD), as sub-lessee and affected by the 2002A, 2002C, and 2003A
issues, has approved a resolution giving preliminary authorization to the EDA to refinance
subject to certain net savings be achieved at a minimum.
. South Lake Minnetonka Police Department (SLMPD), as sub-lessee and affected by the
2002B and 2003B issues, has approved a resolution giving preliminary authorization to the
EDA to refinance subject to certain net savings be achieved at a minimum.
. The City of Deephaven, as lessee and affected by the 2002C issue, has approved a resolution
giving preliminary authorization to the EDA to refinance subject to the net savings identified
by the EFD being achieved, and that the sale occur by April 1, 2007.
. The City of Shorewood, as lessee and affected by the 2002A, 2002B, 2003A, and 2003 issues,
will have considered a resolution giving preliminary authorization to the EDA to refinance
subject to the net savings identified by the EFD and SLMPD being achieved.
Amount To Be Refinanced: Refinancing the 2002 issues would be approximately $8.2 million, while
refinancing all of the bonds would be $10 million. The other parties have authorized the EDA to
refinance either amount. Closing on the bonds would occur in 2007.
$10 million is a key threshold. An entity may issue up to $10 million in a calendar year and have
them "bank-qualified", which receives a more favorable tax treatment for bondholders. Above $10
million, they are no longer bank-qualified and will incur a higher interest rate for the issuer. This
premium may vary based on the quality of the issuer and market conditions, but generally it adds
.05% - .25% to the interest rate.
Refinancing Bonds for Public Safety Facilities
November 27,2006, EDA Meeting
Page 2
For purposes of the Internal Revenue Service, the City of Shorewood is an issuer whether it is as the
City or as the EDA. If the EDA were to refinance the entire $10 million, then any additional bonds
issued by the City would not be bank-qualified.
Staff does not foresee the need to issue any bonds for City purposes during 2007, and would
recommend that the EDA issue the full $10 million. It is, of course, the Council's/EDA Board's
decision whether it wishes to retain flexibility for the City and refinance only the 2002 issues
(approximately $8.2 million).
Method of Sale: There are two methods of sale:
1) A competitive bid, which is the process the City has used for the past two water revenue
bonds. This process takes more time than a negotiated sale.
2) A negotiated sale, which is the process that was used for the 2002 and 2003 issues. This
process is better suited to a transaction as complex as the one involving this refinancing, and
can be fine-tuned to achieve the minimum net savings amounts from the refinancing. It
results in more-certain interest rates and terms than what may be submitted based on market
conditions on the bid date in a competitive sale.
Staff and consultants would recommend a negotiated sale for the refinancing.
Costs: With the exception of staff time, work in preparation of the refinancing would be done at no
cost. No fees related to preparation and issuance would be paid unless and until the refinancing
happens. If the market is not favorable, the refinancing would be postponed until favorable
conditions returned and the minimum net savings would be achieved.
Timeframe: Pricing for the refinancing could be secured in mid-December if all of the parties give
their pre-authorization act in accordance with the one in the attached memorandum (dated November
9,2006). Once pricing is secured, each of the five parties will need to adopt resolutions authorizing
the sale, and may require special meetings before the holidays.
EDA Board Action:
The Board should adopt the attached resolution setting the terms for authorizing the sale of
bonds for refinancing of the Public Safety Facilities. Within the resolution, the Board must
identify:
a) To refinance the 2002A-C issues only, or the entirety of the 2002A-C and 2003A-B
issues; and
b) Whether the refinancing will be done by competitive bid or negotiated sale.
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SHOREWOOD ECONOMIC DEVELOPMENT AUTHORITY
RESOLUTION NO.
RESOLUTION GIVING PRELIMINARY APPROVAL TO
ISSUANCE OF REFUNDING BONDS RELATED TO
CERTAIN PUBLIC SAFETY FACILITIES
BE IT RESOLVED By the Board of Commissioners ("Board") of the Shorewood
Economic Development Authority (the "Authority") as follows:
Section 1.
Recitals; The West Side Fire Proiect.
1.01. The Excelsior Fire District ("District"), in conjunction with the City of
Shorewood, Minnesota ("Shorewood") and the Authority financed a portion of the cost to
construct a fire facility located in the City of Shorewood (the "West Fire Side Project"),
through issuance by the Authority of its $3,865,000 Public Safety Fire Facility Lease
Revenue Bonds, Series 2002A (City of Shorewood, Minnesota Lease Obligation) (the
"Series 2002A Bonds"), pursuant to a Trust Indenture dated as of September 1, 2002 (the
"West Side Indenture") between the Authority and U.S. Bank National Association, as
trustee (the "Trustee").
1.02. The District, in conjunction with Shorewood and the Authority, financed
additional costs of the West Fire Side Project through issuance by the Authority of its
$1,195,000 Public Safety Fire Facility Lease Revenue Bonds, Series 2003A (City of
Shorewood, Minnesota Lease Obligation) (the "Series 2003A Bonds") pursuant to the
West Side Indenture as modified by a First Supplemental Trust Indenture dated as of April
15,2003 (the "Supplemental Indenture").
1.03. The District and the South Lake Minnetonka Police Department (the
"Department") lease certain property to the Authority pursuant to the Ground Lease (West
Side) dated as of September 1, 2002, as amended by a First Amendment to Ground Lease
(West Side) dated as of April 15, 2003 (the "West Side Ground Lease"), and the Authority
leases such property, together with the buildings, structures or improvements now or
hereafter located thereon, to Shorewood pursuant to a Lease Purchase Agreement (West
Side Fire Facilities) between the Authority and Shorewood dated as of September 1, 2002,
as amended by a First Amendment to Fire Facility Lease-Purchase Agreement dated as of
April 15, 2003 (the "West Side Fire Facility Lease").
1.04. With the Authority's consent, Shorewood entered into a Sublease Purchase
Agreement (West Side Fire Facilities) with the District dated as of September I, 2002 (the
"West Side Fire Sublease"), under which the District undertakes Shorewood's obligations
under the West Side Fire Facility Lease.
1.05. Pursuant to an Assignment and Security Agreement dated as of September 1,
2002, as amended by a First Supplemental Assignment and Security Agreement dated as of
April 15, 2003 (the "West Side Assignment"), the Authority assigned to the Trustee all of
the Authority's right, title and interest in and to the West Side Ground Lease, the West Side
Fire Facility Lease, the West Side Fire Sublease, and the Lease Payments to be made by the
District thereunder (other than certain rights to indemnification and payment of expenses) as
security for the Series 2002A Bonds and the Series 2003A Bonds.
1.06. The outstanding principal amount of the Series 2002A Bonds is subject to
optional redemption on February 1, 2009 and any date thereafter; and the outstanding
principal amount of the Series 2003A Bonds is subject to optional redemption on
February 1, 2010 and any date thereafter.
Section 2.
Recitals; The West Side Police Proiect.
2.01. The Department, in conjunction with Shorewood and the Authority,
financed a portion of the cost to construct a police facility located in the City of
Shorewood (the "West Side Police Project"), through issuance by the Authority of its
$4,025,000 Public Safety Police Facility Lease Revenue Bonds, Series 2002B (City of
Shorewood, Minnesota Lease Obligation) (the "Series 2002B Bonds"), all pursuant to a
Trust Indenture dated as of September 1, 2002 (the "West Side Indenture") between the
Authority and U.S. Bank National Association, as trustee (the "Trustee").
2.02. The Department, in conjunction with Shorewood and the Authority, financed
additional costs of the West Side Police Project through issuance by the Authority of its
$1,220,000 Public Safety Police Facility Lease Revenue Bonds, Series 2003B (City of
Shorewood, Minnesota Lease Obligation) (the "Series 2003B Bonds"), pursuant to the
West Side Indenture as modified by a First Supplemental Trust Indenture dated as of April
15,2003 (the "Supplemental Indenture").
2.03. The Department and the Excelsior Fire District ("District") lease certain
property to the Authority pursuant to the Ground Lease (West Side) dated as of September
1, 2002, as amended by a First Amendment to Ground Lease (West Side) dated as of April
15,2003 (the "West Side Ground Lease"), and the Authority leases such property, together
with the buildings, structures or improvements now or hereafter located thereon, to
Shorewood pursuant to a Lease Purchase Agreement (West Side Police Facilities) between
the Authority and Shorewood dated as of September 1, 2002, as amended by a First
Amendment to Lease-Purchase Agreement dated as of April 15, 2003 (the "West Side
Police Facility Lease").
2.04. With the Authority's consent, Shorewood entered into a Sublease Purchase
Agreement (West Side Police Facilities) with the Department dated as of September I, 2002
(the "West Side Police Sublease"), under which the Department undertakes Shorewood's
obligations under the West Side Police Facility Lease.
2.05. Pursuant to an Assignment and Security Agreement dated as of September 1,
2002, as amended by a First Supplemental Assignment and Security Agreement dated as of
April 15, 2003 (the "West Side Assignment"), the Authority assigned to the Trustee all of
2
the Authority's right, title and interest in and to the West Side Ground Lease, the West Side
Police Facility Lease, the West Side Police Sublease, and the Lease Payments to be made by
the Department thereunder (other than certain rights to indemnification and payment of
expenses) as security for the Series 2002B Bonds and the Series 2003B Bonds.
2.06. The outstanding principal amount of the Series 2002B Bonds is subject to
optional redemption on February 1, 2009 and any date thereafter; and the outstanding
principal amount of the Series 2003B Bonds is subject to optional redemption on
February 1,2010 and any date thereafter.
Section 3.
Recitals; The East Side Fire Proiect.
3.01. The District, in conjunction with the City of Deephaven ("Deephaven") and
the Authority, financed the costs to construct a fire facility located in the City of Deephaven
(the "East Side Fire Project"), through issuance by the Authority of its $2,060,000 Public
Safety Fire Facility Lease Revenue Bonds, Series 2002C (City of Shorewood, Minnesota
Lease Obligation) (the "Series 2002C Bonds"), pursuant to a Trust Indenture dated as of
September 1,2002 between the Authority and the Trustee (the "East Side Indenture").
3.02. The District leases certain property from Deephaven pursuant to the Ground
Lease (East Side) dated as of September 1, 2002 (the "East Side Ground Lease"), and the
District in turn subleases that property to the Authority pursuant to the Sub ground Lease
(East Side) dated as of September 1, 2002 (the "East Side Subground Lease"); and the
Authority leases such property, together with the buildings, structures or improvements now
or hereafter located thereon, to Deephaven pursuant to a Lease Purchase Agreement (East
Side) between the Authority and Deephaven, dated as of September 1,2002 (the "East Side
Fire Facility Lease").
3.03. With the Authority's consent, Deephaven entered into a Sublease Purchase
Agreement (East Side) with the District dated as of September 1, 2002 (the "East Side
Sublease"), under which the District undertakes Deephaven's obligations under the East
Side Fire Facility Lease.
3.04. Pursuant to an Assignment and Security Agreement dated as of September 1,
2002 (the "East Side Assignment"), the Authority assigned to the Trustee all of the
Authority's right, title and interest in and to the East Side Ground Lease, the East Side
Subground Lease, the East Side Fire Facility Lease, the East Side Sublease, and the Lease
Payments to be made by the District thereunder (other than certain rights to indemnification
and payment of expenses) as security for the Series 2002C Bonds.
3.05. The outstanding principal amount of the Series 2002C Bonds is subject to
optional redemption on February 1,2009 and any date thereafter.
3
Section 4.
Refunding Authorized.
4.01. In order to realize debt service savings, the District and the Department
have proposed that the Authority issue one or more series of advance refunding bonds in
order to refund all or a portion of the Series 2002A Bonds, Series 2002B Bonds, Series
2002C Bonds (together, the "Series 2002 Bonds") and Series 2003A Bonds and Series
2003B Bonds (together, the "Series 2003 Bonds").
4.02. The Authority authorizes and requests, Shorewood, Deephaven, the
District and the Department and their consultants to take all steps necessary to issue
advance refunding bonds to refund the Series 2002 Bonds and the Series 2003 Bonds,
subject only to the following terms and conditions:
(a) The Authority and Shorewood may determine in their joint
discretion whether to refund all the Series 2002 Bonds and Series 2003 Bonds
("Scenario 2"), or only the Series 2002 Bonds ("Scenario 1 "), based on
Shorewood's determination regarding the total amount of bonds expected to be
issued in calendar year 2007 and Shorewood's desire to issue bonds on a "bank
qualified basis" under Section 265(b )(3) of the Internal Revenue Code of 1986, as
amended.
(b) The Authority, in consultation with its financial advisor, may issue
refunding bonds on a negotiated or competitive basis, as they determine to be in
the best interest of the District and the Department.
(c) Authority staff and consultants are authorized to take all actions
necessary to sell refunding bonds under either Scenario 1 or Scenario 2, in
consultation with Shorewood, and to bring before this Board for approval the final
terms of sale and all related documents, provided that the Board will authorize
bids or enter into a bond purchase agreement for each series of bonds only if the
refunding bonds meet the following parameters:
Minimum Net Debt Service Savings*
Scenario 1:
Fire Facilities (East and West)
Combined savings for
Series 2002A and 2002C
$299,557
Police Facilities
Savings for Series 2002B
$213,316
Scenario 2:
4
Fire Facilities (East and West)
Combined savings for
Series 2002A, 2003A
and 2002C
$328,573
Police Facilities
Combined savings for
Series 2002B
and Series 2003B
$242,672
*Debt service savings are net of any savings related to defeasance of a portion of
Series 2002C with unspent proceeds.
Insert the following if Deephaven City Council does not act on November 20:
(d) The approval with respect to refunding the bonds issued for the
West Side Fire Project and the East Side Fire Project (i.e., Series 2002A, Series
2002C and Series 2003A) is conditioned upon approval of such refunding by
Deephaven under terms substantially similar to those set forth in this resolution.
Approved by the Board of Commissioners of the Shorewood Economic
Development Authority this 27th day of November, 2006.
SHOREWOOD ECONOMIC
DEVELOPMENT AUTHORITY
President
ATTEST:
Secretary
5
SHOREWOOD ECONOMIC DEVELOPMENT AUTHORITY
5755 Country Club Road
Shorewood, Minnesota 55331-8926
952.474.3236 FAX: 952.474.0128
MEMORANDUM
TO:
Excelsior Fire District Board
South Lake Minnetonka Police Department Coordinating Committee
Deephaven City Council
Shorewood City Council
Shorewood Economic Development Authority Board
FROM:
DATE:
RE:
Craig W. Dawson, Executive Director
November 9, 2006
Potential Refinancing of Bonds for Public Safety Facilities
The EDA has brought the possibility of refunding the bonds issued for the Excelsior Fire District stations
and the South Lake Minnetonka Police station. The intent is to secure lower interest rates after the 2009
call date on the 2002 issues, and possibly the 2010 call date on the 2003 issues as well. As has been the
case throughout this project, the EDA will take action regarding financing only on the authorization of the
EFD and SLMPD governing boards, and will do so to the extent that it does not adversely affect the
EDA/City of Shorewood.
Below is the process to be followed.
September 27
EFD Board discussed the matter; gave preliminary go-ahead
October 18
SLMPD Coordinating Committee discussed the matter; gave
preliminary go-ahead
Interim
Staff/consultants develop parameters that must exist in order for the
sale to proceed, for EFD and SLMPD, to consider and approve/modify.
These parameters would also need to be approved by the city councils of
Deephaven and Shorewood, but would agree with EFD and SLMPD.
November 15
EFD and SLMPD boards review parameters and approve/modify them,
and make their decisions about whether to request and authorize the
EDA to adopt a resolution to proceed with the sale.
The EFD and SLMPD decision to proceed would be made in a preliminary
authorizing resolution, in which the parameters for the sale - the specific
minimum net savings and present value thresholds to that must be attained.
The resolution will include a proposal to direct the Executive Director of
the EDA to execute the Bond Purchase Agreement with Northland
Securities upon attaining the savings goals. In the absence of such a
provision, the EFD and SLMPD Boards, the Deephaven and Shorewood
city councils, and the EDA Board would need to meet on very short notice
to authorize the sale
Potential Refinancing of Bonds for Public Safety Facilities
November 9,2006
Page 2
If a decision is not made on November 15, then a subsequent
meeting(s) would be scheduled and final go/no-go decision made.
Other subsequent actions (assuming EFD and SLMPD boards approve on November 15):
November 20
Deephaven City Council adopts resolution to agree to make amendments to
pertinent leases and subleases as related to financing
November 27
Shorewood City Council adopts resolution to agree to make amendments to
pertinent leases and subleases as related to financing
November 27
Shorewood EDA adopts Resolution setting terms for authorization of sale
of bonds
If the refinancing is a negotiated sale, as was the original financing:
Week of December 11 - Pricing secured
By December 20 - Special meetings for final approvals ofEFD, SLMPD, Deephaven,
Shorewood, and EDA
January 2007 - Closing on the bonds
Ifthe refinancing is done by a competitive sale:
January 2007 (at earliest) - bids received
Subsequent: Special meetings for final approvals ofEFD, SLMPD, Deephaven,
Shorewood, and EDA
Closing on the bonds
Approval by each city council is not required for the refinancing to proceed.
Caveat: If all of the bond issues (three in 2002 and two in 2003) are refinanced, the anticipated
refinancing would total $10 million. In order for bonds to be "bank -qualified", and hence have better
interest rates, an issue must reasonably expect not to issue more than $10 million in a calendar year. The
issuer of the bonds technically is considered to be the City of Shorewood, through its EDA. If the sale
occurred in 2006, only the 2002 issues could be refinanced as Shorewood has issued $1.5 million in 2006.
If the full amount were refinanced in 2007, then any other bonds issued by Shorewood in 2007 would not
be bank-qualified. Consequently, it would be prudent to plan only to refinance the 2002 issues.
NORTHLAND
SECURITIES
45 South ill Street
Suite 2500
Minneapolis, MN 55402
(800) 851-2920
(612) 851-5900
Fax (612) 851-5918
E X T ERN A L
M E M 0 RAN DUM
DATE: November 2,2006
TO: Mr. Craig Dawson, Executive Director
Ms. Bonnie Burton, Finance Director
City of Shorewood EDA
FROM: Paul R. Donna
Northland Securities
RE: Refunding Feasibility Summary - South Lake Minnetonka Public Safety
Facilities
The unique relationship among long term and short term interest rates we are currently
experiencing coupled with a probable credit rating on new refunding bonds provides an
opportunity to refinance the Excelsior Fire District Bonds and the South Lake Minnetonka Police
Station Bonds for significant interest cost savings. The series of bonds considered for refunding
include the following:
Refunded Bonds:
Issue(s):
Scenario 1
Lease Revenue Bonds, Series 2002A
Lease Revenue Bonds, Series 2002B
Lease Revenue Bonds, Series 2002C
Scenario 2
Lease Revenue Bonds, Series 2002A
Lease Revenue Bonds, Series 2002B
Lease Revenue Bonds, Series 2002C
Lease Revenue Bonds, Series 2003A
Lease Revenue Bonds, Series 2003B
I I !2/2006
N()I~TI It \ND SECURITIES, INC'.
P!:BI.IC FINANe'F
SOUTH
Issuer:
City of Shorewood Economic Development Authority, Minnesota
The Bonds are limited obligations secured by the obligation of the City of
Shorewood to make rental payments pursuant to a lease agreement. The City
Shorewood collects sublease payments from the member cities of the Fire District
and Police Department.
Security:
Call Date:
Series 2002A - February 1, 2009
Series 2002B - February 1, 2009
Series 2002C - February 1, 2009
Series 2003A - February 1, 2010
Series 2003B - February 1, 2010
The old bonds would be refinanced via a "crossover advance refunding" whereby the proceeds
from the new issues are escrowed to the respective call dates at which time the escrow matures and
pays off the principal balance of the existing bonds to be called. The escrow is invested in a
portfolio of U.S. Government Bonds and verified by a qualified certified public accounting firm. A
crossover advance refunding allows the issuer to lock in current borrowing rates and eliminate
future market exposure.
Par Amount Refunded
Net Financing Costs
Funds on Hand
Total New Issue
A vg. Rate Old
Ave. New Rate
Net Savings
P.V. Savings
Net P.V. Benefit*
./\vg, Annual
Negative Arbitrage
Savin s Structure
5UrvUvlARY ()FREFUNDINC 51'A115T1C5
Scenario 1 Scenario 2
Fire Police Total Fire Police Total
$4,825,000 $3,275,000 $8,100,000 $5,710,000 $4,180,000 $9,890,000
125,000 95,000 220,000 140,000 110,000 250,000
(140,000) (140,000) (140,000) (140,000)
$4,810,000 $3,370,000 $8,180,000 $5,710,000 $4,290,000 $10,000,000
5.47% 5.47% 5.47% 5.47-5.05% 5.47-5.06% 5.47-5.06%
4.12% 4.12% 4.12% 4.12% 4.12% 4.12%
$ 37'1,769 $ 206,462 S 581,231 S 416,8.19 S 246,771 $ 663,620
$ 217,395 $ 144,793 $ 362,188 $ 245,576 $ 170,502 $ 416,078
4.45';~l! 4.711;\-, 4,46';'0 4SI':;, 4.29'\.
S3671 'I S14,828 $51,542 S 17 $13 $.57:395
Level
Level
Level
Level
Level
Level
* For a general obligation crossover refunding, the State of Minnesota requires the Net Present
Value benefit to equal 3% or more. Dividing the present value of the savings by the present value
of the refunded debt service derives the calculation. The discount rate is equal to the yield on the
new refunding bonds. Although this refunding is not a general obligation bond, the 3%
threshold savings test is benchmark most issuer's use for advance refunding. A Net Present
Value Benefit of 3.00% would equate to approximately $412,000 of total net savings for Scenario 1
and approximately $493,000 of total net savings for Scenario 2.
I 1/2/2006
N(WIIII
As of October 26, 2006, the Bond Buyers Index (BBI) is back at 4.30%. The BBI is a national index
of 20 General Obligation Bond Yields with a 20-year maturity, rated AA2 by Moody's Investors
Service. Over the last 40 years, this yield has only been lower for brief periods of time in 2005
and in September 2006. In addition, short-term treasury rates are now relatively high compared
to long-term rates resulting in a "flattening" of the yield curve. This combined effect has had a
very positive result on all financings but particularly advance refunding's because the spread
mitigates negative arbitrage.
Please note the BBI graph is only provided to illustrate the trend of tax - exempt interest rates and
is not an indication of interest rates for this particular financing. Refunding bonds for the Public
Safety Facilities have credit and term characteristics different than those bonds included in the
BBL As indicated in the table above, we would expect the average interest rate on the refunding
bonds to be less than that of the BBL
The graphic of the BBI Index is illustrated on the next page.
GRAB
BBWK20GO
Index GY
I~Y 260CT06 16: 38
4,30 %
M ir;] lI!!Ii n e for
P81'iodHl. LJeeklid
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I I !2!2006
NORfHLAND SECURITIES, INC.
PUBL.IC FINANCE
Method of Sale
The EDA has the option of issuing the refunding bonds via a competitive public sale or a
negotiated public sale. There are advantages and disadvantages to either method. We
recommend the negotiated method of sale for this refunding specifically because of the flexibility
it allows the EDA in terms of market timing of the sale and the ability to make changes to the
structure of the refunding should they be necessary in order to enhance the net debt service
savings.
In a negotiated public sale we believe the advantages are as follows:
. Flexibility - The structure of the issue or timing of the sale can be adjusted as necessary
to respond to changing market conditions. Hence, the issue can be modified to meet
changing investor needs while attaining the goals of the EDA. It is important that we
receive a favorable interest rate on the debt while also receiving a favorable interest on
the investments in the escrow fund to payoff the debt. Market flexibility will allow the
EDA to maximize both sides of the market.
. Pre-Sale of the Bonds - A greater incentive exists for the underwriter (Northland) to
engage in pre-sale marketing activities to assess investor interest in an issue, as well as
demand for certain structures or maturities. Pre-selling of the bonds creates
competition amongst the investors, which enhances the EDA's position resulting in
aggressive or low interest rates.
. Net Savings Threshold - The negotiated process allows for the establishment of
minimum savings threshold for the refunding which will provide guidance for staff and
Northland when effecting the transaction.
(1) What is our exposure or risk? - Aside from the staff and elected officials time, we believe there
is no monetary risk should the proposed refunding be canceled for any reason. There are
essentially three parties to a refunding transaction that will have time and resources committed
prior to closing - Northland Securities, Kennedy & Graven (Bond Attorney) and the rating agency
Moody's Investors Service. Northland Securities and Kennedy & Graven will only be
compensated upon the successful closing of the financing. Moody's Investors Service will bill the
EDA upon the acceptance of the rating. We can manage the rating process to avoid financial
exposure.
(2) What happens if interest rates for the escrow account are lower than projected? - Based upon
current market conditions, we expect the yield on investments in the escrow to be equal to the
permitted yield of the escrow. The permitted yield of the escrow is the actual yield on the new
refunding bonds. To the extent the actual yield in the escrow is lower, it could negatively affect
the economic benefit of the refunding. However, their is no future interest rate risk because the
escrow is priced at the same time the bonds are priced and upon successful consideration by the
EDA, the interest rates are locked in for the entire term of the escrow. Additionally, an
independent certified public accountant will provide a verification report essentially opining
upon the sufficiency of the escrow.
11/2/2006
NcmTlTL:\NI) SECUfUIlE:S, INC.
PUBLIC FINANCE