10/06/2008 Council Packet (2) - Laserfiche WebLink

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City of Lino Lakes Assessment Bonds Options September 29, 2008 Considerations to Ease Cash Flow through Restructuring Springsted explored several financial options for funding the ongoing debt service through restructuring rather than the City using internal funds or levies to fund debt service. • Full Advance GO Fixed Rate Refunding delaying payments through 2011, assuming delinquent payments paid in full in May of 2010. There was concern that 2010 may be too early to expect the delinquencies to be paid in full. • Full Advance GO Fixed Rate Refunding delaying payments through 2013, assuming delinquent payments paid in full in May of 2012. This allowed two extra years in case the sheriff sale went through and more time was needed for collection. This option could be expensive as the debt payment is deferred and the payment could be received in 2010. • Full Advance GO Variable Rate Refunding allowing flexible payments throughout the remainder of the bond term. The risk of variable rate bonds during a time where inflation looks eminent was of concern to the Council. • Interest rate swap done in conjunction with a variable rate bond with an effective date of 2013 would allow flexible rates until the swap date, after assumed collection of delinquent assessments. This option would require several years of interest rate risk until the swap occurred. Since the time we explored these options, there have been negative changes in the economy that caused us to halt any plans for refunding the 2005A bonds at this time. First, the stock market crashed. Then, the liquidity in the market place became limited as freezes on assets were imposed. Unemployment increased and at most expansion or economic development is stalled. While these bonds are GO backed, the types of securities that we would utilize to refinance the 2005A bonds, due to the irregular revenue stream projections, are all products that investors are skeptical of at this time. Variable rates bonds and swaps to fixed rate bonds are non - conventional tools and the City would likely obtain higher interest rates in this market. While we did explore fixed rate GO bonds, their use would require the City to accurately determine the timing for the delinquent collections in order to be cost effective. There are too many variables, not only with the project, but with the economy for the City to estimate this with any degree of confidence. In subsequent conversations with Al Rolek, Finance Director, he noted that an internal loan for the January 2009 payment could be made from a utility fund that has sufficient reserves. Public Sector Advisors