10-13-1997 EDA Packet - Laserfiche WebLink

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Line Lakes Economic Development Authority, Minnesota October 9, 1997 DISCUSSION The bonds will be issued as revenue bonds by the EDA which will lease the building to the City pursuant to a lease agreement (the "Lease") to be executed by both parties. The lease payments will be made by the City directly to a bank who will act as trustee for the bonds. The required semi-annual lease payments will match the actual debt service due on the bonds, as estimated on page 4. These bonds are not general obligations of either the EDA or the City. Under State law, the City must budget the annual lease payments every year as an operating expenditure. The City has the right, under the Lease, to make the decision not to appropriate the lease payment in any year, which would terminate the Lease, and the building would be taken back by the EDA. If this were to happen, the EDA would have to try to find a new tenant for the building. There is no pledge by the EDA or the City to continue to make debt service payments to bondholders except by re -leasing the building or using money in the debt service reserve fund which is equal to approximately $350,000, which represents 10% of the amount of principal issued. Page 4 shows the debt service schedule for this issue. The twenty-year debt service requirement was structured around new and existing debt giving a combined level debt service requirement for both issues as requested by City staff. The bonds will be dated December 1, 1997. The lease payments made by the City, are anticipated to be made from an annually appropriated tax levy and lease payments received from Independent School District 12, Centennial, Minnesota, in the initial amount of $120,000, with a 3% increase in rental payments on an annual basis for ten years. See column 10 on page 4. While the City has the option not to appropriate funds annually, the City should be entering into this lease with the full understanding that adequate appropriations will be made. Failure to appropriate funds will result in an adverse rating action that would affect the City's ability to finance future capital projects. Because of the less secure nature of this obligation in the eyes of the bondholders, a debt service reserve fund (in the amount of the maximum annual debt service) will be required and will be pledged to the payment of debt service as needed. We understand the City will fund this reserve at closing from proceeds of the Bonds. The trustee for the bonds will hold the reserve fund, as well as all other bond proceeds and debt service payments. The EDA and the trustee will enter into a Trust Indenture for this service. Respectfully submitted, fi / 0,0v) SPRINGSTED Incorporated jmm a,b41 Page 3