06/22/2005 Council Packet - Laserfiche WebLink

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City of Lino Lakes YMCA Financing Options June 22, 2005, page 4 would be required. In the case of a default, the City would be expected to levy for the remaining outstanding bonds, but is not obligated to do so. If the City assumes responsibility for the payments, the City would then own the facility and the land. A default would impact the City's bond rating. The YMCA is providing $3,000,000 of funding upfront which lessens the likelihood of default. While this option protects the City's initial investment, it also requires the City to issue bonds to cover more than just their commitment. 2) Tax Exempt Private Debt a. Bonds would be issued by the City and repaid solely from loan payments pledged by the YMCA. There would be no obligation to the City legally or implied as long as due diligence was met prior to issuing the bonds. The interest rate would be 20 to 30 basis points higher than a GO backed bond and a debt service reserve would be required. The documents may be structured to allow the City first right of refusal in the case of default, but that would require agreement by the YMCA, trustee and bondholders. The City may choose to issue bonds to pay off conduit debt if it decided to own and operate the facility. The bond documents would provide for this. Any default by the YMCA would not impact the City's credit rating. The YMCA has a strong credit history and the likelihood of default is remote. The YMCA's financial statements for this project would be made public. Both options for the $2.500,000 YMCA financed share provide tax exempt financing which provides cost savings to the City's partner, the YMCA. While there are benefits to both options, the most appropriate tool depends on whether the City would like to issue direct debt to finance the YMCA's share of debt to insure their ability to control the facility if the YMCA defaults, or if the City would like to issue conduit debt and then decide whether to be responsible for the $2,500,000 share, should a default occur. We recommend pursuing the Tax Exempt Private Debt option (conduit debt) because it eliminates any risk to the City's credit rating. Bond Counsel is comfortable issuing GO Abatement Bond to finance the same facility that is being privately financed. We condition this recommendation on the bondholder agreeing to grant the City a right of first refusal to protect the City's investment. The YMCA is currently in discussions with banks and has asked the City to commit to issuing less than $10 million of bonds in 2005 so that the Tax Exempt Private Debt