05-11-2015 Council Packet - Laserfiche WebLink

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515 Little Canada Road, Little Canada, MN 55117-1600 (651) 766-4029 / FAX: (651) 766-4048 www.ci.little-canada.mn.us MEMORANDUM MAYOR John Keis COUNCIL Rick Montour Michael McGraw Tom Fischer Christian Torkelson ADMINISTRATOR Joel R. Hanson TO: Mayor Keis & Members of the City Council FROM: Joel Hanson, City Administrator DATE: May 5, 2015 RE: Authorize Crossover Refunding of Callable 2008 GO Bonds (TIF Portion Only) Attached is a resolution calling for the sale of $1,365,000 of General Obligation Refunding. Bonds covering the outstanding Tax Increment Financing portion of the 2008 GO Improvement Bonds (the TIF portion was in association with the St. Jude Medical, Inc. project that financed improvements to public utilities in the area as well as the clean-up of the former Hostess Bakery Outlet store. (Note: the original bond issue sold in 2008 was for $2,690,000. $1,790,000 was the TIF portion and $900,000 was for the improvement portion. Because the improvement portion only had a 10 year amortization schedule, we will likely call that portion on 2/1/16 for the remaining $300,000 of principal and pay that off with funds on hand.) The outstanding principal subject to call is $1,295,000. Coupon rates are 3.75% for 2017 and 2018 and 4.0% for the remaining years. The original issue allows us to call coupons maturing in 2017 on 2/1/16 at par. That gives us two options to consider. One is to wait until closer to February 1, 2016 and issue bonds at that time as a standard refunding; i.e. we issue bond to pay off principal due for all bonds maturing 2/1/17 and after. The advantage of that option is less issuance/administration costs because funds do not have to be escrowed between now and the call date. Those savings are estimated at about $15,000. With the crossover program, we issue bonds today and lock in current interest rates and projected savings. This eliminates any risk of an increase in interest rates before February lst, According to Ehlers, if rates rise by only .25%, we would pay $20,000 more in interest costs and more than eat up the $15,000 savings noted above. While projecting future interest rates is far from a certainty, it seems more likely they will increase before February 1st than hold steady or decline. In fact, we have already witnessed a .25% increase in rates during the past couple of weeks we have been reviewing this opportunity.