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Home My WebLink AboutA001 - Presale Analysis ' EVENSEN DODGE INC September 8, 1994 1 1 Mr. Steven Schainker, City Manager Ms. Alice Carroll, Finance Director City of Ames 515 Clark Avenue Ames, IA 50010 ' RE: $2,015,000 General Obligation Corporate Purpose Bonds, Series 1994-B City of Ames, Iowa 1 Dear Mr. Schainker and Ms. Carroll: Attached is our Presale Analysis prepared in connection with the City's issuance of $2,015,000 General Obligation Corporate Purpose Bonds, Series 1994-B. The Presale Analysis summarizes the purpose of this issue, describes how the Bonds have been structured and discusses other aspects related to the marketing of the Bonds. We will prepare a Postsale Analysis reporting and analyzing the results of the sale after the ' Bonds have been sold. We look forward to a successful offering. Sincerely, ' EVENSEN DODGE, INC. Wayne S. Burggraaff David M. Dirks ' Senior Vice President Senior Vice President and Principal 1 601 Second Avenue South, Suite 5100, Minneapolis, MN 55402 612/338-3535 800/328-8200 FAX 612/338-7264 371077a/2 TABLE OF CONTENTS Purposeof the Sale...............................................................................................................1 tSources and Uses of Funds Proposed Terms and Conditions of Sale..............................................................................3 ' Preliminary Debt Schedule..................................................................................................4 BiddingRequirements .........................................................................................................6 Rating...................................................................................................................................6 ' Federal Tax Considerations and Regulations ......................................................................7 ' Official Statement Disclosure..............................................................................................9 General Market Conditions................................................................................................10 Proposed Financing Timetable ..........................................................................................12 List of Participants....................................... ' ......................................................................13 ' 371077a/3 PURPOSE OF THE SALE This Presale Analysis presents background information for the City's use in considering ' the issuance of$2,015,000 General Obligation Corporate Purpose Bonds, Series 1994-B at a public sale on September 27, 1994. The Bonds will be issued for the purpose of financing the construction, reconstruction and repair of street improvements and the construction of solid waste facility improvements. EVENSEN DODGE,INC. Page 1 371077a SOURCES AND USES OF FUNDS A schedule presenting the estimated sources and uses of funds for this financing follows. ' ESTIMATED SOURCES: Amount ' Bond Proceeds $2,015,000 ESTIMATED USES: Project Costs: Solid Waste Improvements $ 110,000 e Street Improvements 1,858,000 Costs of Issuance 30,880 Underwriter's Discount 16.120 Total Estimated Uses $2,015,000 ' EVENSEN DODGE,INC. Page 2 171077a PROPOSED TERMS AND CONDITIONS OF SALE ' Principal Amount of Issue $2,015,000 Dated Date of Bonds: October 1, 1994 Proposed Sale Date: September 27, 1994 Type of Sale: Competitive. p ' First Interest Payment: June 1, 1995 Maturity Date and Amounts: June 1 as follows: Year Amount 1995 $170,000 1996 170,000 1997 170,000 1998 170,000 1999 170,000 2000 170,000 2001 170,000 ' 2002 165,000 2003 165,000 2004 165,000 2005 165,000 ' 2006 165,000 Call Feature: Bonds maturing on June 1, 2004 and thereafter are subject to redemption prior to maturity on June 1, 2003 and on any date thereafter at a price of par Qualified plus accrued interest. ' Tax-Exempt Obligation: Bank Qualified. Security: General Obligation. Authorization: Division III of Chapter 384 of the Code of Iowa. EVENSEN DODGE,INC. Page 3 371077a 1 1 PRELIMINARYDEBT SCHEDULE The Bonds will be general obligations of the City. It is expected that $393,000 of special assessment revenue will be available, though not pledged, for the payment of a portion of the debt service on the Bonds. The following schedules present principal and interest payments for the Bonds. The rates ' used for these schedules are an estimate of the rates the City might receive if the Bonds were sold today. The actual rates, however, will vary depending upon the tax exempt ' market on the day the Bonds are sold. i 1 1 1 i 1 1 1 1 1 EVENSEN DODGE, INC. Page 4 371077a ' $2,015,000 G.O. Corporate Purpose Bonds, Series 1994-B City of Ames, Iowa -__--Preliminary -_--- DEBT SERVICE SCHEDULE DATE PRINCIPAL COUPON INTEREST PERIOD TOTAL FISCAL TOTAL ---------- -------------- -------------- -------------- 6/ 1/95 170,000.00 3.600000 64,396.67 234,396.67 234,396.67 12/ 1/95 45,237.50 45,237.50 6/ 1/96 170,000.00 4.100000 45,237.50 215,237.50 260,475.00 12/ 1/96 41,752.50 41,752.50 6/ 1/97 170,000.00 4.300000 41,752.50 211,752.50 253,505.00 12/ 1/97 38,097.50 38,097.50 6/ 1/98 170,000.00 4,500000 38,097.50 208,097.50 246,195.00 12/ 1/98 34,272.50 34,272.50 6/ 1/99 170,000.00 4.700000 34,272.50 204,272.50 238,545.00 12/ 1/99 30,277.50 30,277.50 6/ 1/ 0 170,000.00 4.900000 30,277.50 200,277.50 230,555.00 12/ 1/ 0 26,112.50 26,112.50 6/ 1/ 1 170,000.00 5.000000 26,112.50 196,112.50 222,225.00 12/ 1/ 1 21,862.50 21,862.50 6/ 1/ 2 165,000.00 5.100000 21,862.50 186,862.50 208,725.00 ' 12/ 1/ 2 17,655.00 17,655.00 6/ 1/ 3 165,000.00 5.200000 17,655.00 182,655.00 200,310.00 12/ 1/ 3 13,365.00 13,365.00 6/ 1/ 4 165,000.00 5.300000 13,365.00 178,365.00 191,730.00 12/ 1/ 4 8,992.50 8,992.50 6/ 1/ 5 165,000.00 5.400000 8,992.50 173,992.50 182,985.00 12/ 1/ 5 4,537.50 4,537.50 6/ 1/ 6 165,000.00 5.500000 4,537.50 169,537.50 174,075.00 -------------- -------------- -------------- ' 2,015,000.00 628,721.67 2,643,721.67 ACCRUED 2,015,000.00 628,721.67 2,643,721.67 ' Dated 10/ 1/94 with Delivery of 10/ 1/94 Bond Years 12,338.333 Average Coupon 5.095677 Average Life 6.123242 N I C % 5.226327 t Using 99.2000000 T I C t 5.227735 t From Delivery Date RUNDATE: 09-08-1994 ® 13:48:53 FILENAME: AMES KEY: 94 ' BIDDING REQUIREMENTS ! The bidders will be required to submit their bids in accordance with requirements outlined in the Notice of Sale. Bidders will be required to purchase the Bonds at a price ' not less than 99.2% of Par. The discount is a marketing feature which allows the purchaser to take its profit in the discount bid on the Bonds and to reoffer the Bonds at Par. ' The estimated compensation for issues of this size and maturity length should run between 0.6% and 0.8% depending on market conditions. The appropriate compensation ' of a purchaser varies depending upon the issue size, rating and market conditions. The competitive bid process assures that bidders will keep their profit margins at appropriate levels. A second requirement is that interest rates must be bid in ascending order. This bidding ' restriction is designed to protect the call feature on the Bonds. The call feature, which occurs first in 2003 gives the City the flexibility to refund or call the Bonds at an earlier date if interest rates drop significantly or if the conditions affecting debt repayment change. RATING ! The City will request a rating on the Bonds from Moody's Investors Service and Standard & Poor's Corporation. Evensen Dodge will assist the City with its rating application. i ! ! EVENSEN DODGE,INC. Page 6 371077a ' FEDERAL TAX CONSIDERATIONS AND REGULATIONS The following paragraphs present a brief summary of federal tax regulations and rulings which impact the tax status of the Bonds, as well as allowable uses of proceeds. In ireference to the following paragraphs, it is our understanding that the Bonds: ' 1. will be issued as governmental purpose Bonds; 2. will be designated as qualified tax-exempt obligations; 3. will be subject to arbitrage rebate; 4. will be used in whole or in part for reimbursement of previously expended funds. Tax Exemption The Internal Revenue Code of 1986 divides all debt sold by governmental issuers into the categories of "Governmental Purpose Bonds" and "Private Activity Bonds." Governmental Purpose Bonds are issuable on a tax-exempt basis while Private Activity Bonds, with some exceptions, are taxable. To be considered as Private Activity Bond, an issue must meet the following two tests: (1) More than 10% of the proceeds of the bonds is used in the business of a nongovernmental unit, :'::d (2) More than 10% of debt service on the bonds is paid either directly or indirectly by a nongovernmental unit. If private activity is unrelated to the governmental use, the cutoff is 5%. P tY Private Activity Bonds may be issued on a tax-exempt or partially tax-exempt basis for 501(c)(3) organizations, for Industrial Revenue Bonds issued under a state volume cap and for some special purposes as defined in the Code. The Bonds will be issued as Governmental Purpose Bonds. For the Bonds to maintain their tax-exempt status, the governmental purpose of the projects financed with Bond proceeds must be retained throughout the life of the Bonds. eEVENSEN DODGE, INC. Page 7 371077a ' Another provision of the Internal Revenue Code of 1986 is a 100% disallowance of the interest deduction for banks which purchase tax-exempt bonds. An exception to this provision allows banks to deduct interest earned on governmental bonds when the jurisdiction issues no more than $10 million of tax-exempt debt in the calendar year. When possible, it is to the City's advantage to designate its tax-exempt debt as Qualified Tax-Exempt Obligations because such debt is slightly more marketable under current market conditions. The City will designate the Bonds as Qualified Tax-Exempt Obligations. ' Arbitrage Rebate The Internal Revenue Code of 1986 also requires a rebate to the federal government of 1 any interest earnings on the proceeds of the Bonds that are in excess of the yield on the Bonds ("arbitrage"), with the following exceptions: ' ❖ Issuers who issue less than $5,000,000 of Governmental Purpose Bonds during a calendar year do not have to rebate arbitrage earnings on any Governmental Purpose Bonds issued during that same calendar year. ' ❖ Issuers who expend proceeds on long term issues within the following spending schedule do not have to rebate arbitrage earnings for this specific issue: - 10% of net proceeds in six months - 45% in one year 75% in 18 months - 95% in two years - 100% in three years The last five percent of proceeds left after two years may only represent a reasonably required retainage, such as to ensure compliance with the terms of construction contracts. Since the City expects to issue more than $5,000,000 of governmental purpose bonds ' during 1994, it must rebate the excess arbitrage earnings if the spending schedule is not met. 1 EVENSEN DODGE,INC. Page 8 371077a ' Reimbursement Regulations Treasury Regulations enacted during 1991 impose restrictions on the use of proceeds for reimbursement purposes unless certain steps, including the adoption of an official intent to reimburse costs from bond proceeds, were taken prior to the issuance of debt. If the proceeds of the Bonds will be used for reimbursement purposes, the City should confirm official intent guidelines with bond counsel. ' OFFICIAL STATEMENT DISCLOSURE The Securities Exchange Commission issued rule 15(c)2-12 in 1990 which states that ' underwriters cannot bid on issues of$1,000,000 or more unless they have first reviewed an official statement which has been designated by the issuing municipality as a "near final official statement." Though the rule places an obligation on the underwriter, it is tgenerally understood that the ultimate responsibility for the quality of disclosure provided in an official statement rests with the issuer. Evensen Dodge will assist the City with the preparation and dissemination of a "nearly final official statement" to the underwriting community prior to the issuance of the Bonds. A draft will be provided to the City for review and confirmation as to the accuracy of the Official Statement. After the sale, Evensen Dodge will prepare an addendum for the Official Statement which contains the information determined at the sale, such as the purchaser and the interest rates on the Bonds. Up to 100 copies of the Official Statement and Addendum will be provided to the Purchaser of the Bonds ' EVENSEN DODGE,INC. Page 9 371077a i i GENERAL MARKET CONDITIONS i A graph showing The Bond Buyer's Index (BBI) dated September 1, 1994 follows. This g graph shows the movement of tax-exempt rates since 1982. On February 3, 1994, the iBond Buyer's Index fell to its low for 1994 at 5.25%. After falling to a low of 5.25%, rates rose to a high of 6.34% on April 7, 1994. Since April 7, 1994, rates have fallen islightly and remain quite favorable. We have estimated, based on current market conditions, that the Bonds will receive a net i interest rate of between 5.15% and 5.35%. Nevertheless, the possibility of sudden shifts in the market exists because of its sensitivity to events that cannot be foreseen. Therefore, we cannot predict what the actual rate of interest will be when the Bonds are sold on September 27, 1994. 1 1 1 1 1 1 t 1 i i iEVENSEN DODGE,INC. Page 10 371077a 1 iequieidag ATnj 1tn eunj APW x -� Ir dietuqej � a r -- 00 menus j ` Q� q°7.0 � Q� sequwideg o ('� 00 1 �. a� Imolaf 00 00 N -4-, 00 00 00 .. 1 v 0 M T A A N N O 00 `0 v W ' G l 1 1 1 PROPOSED FINANCING TIMETABLE 1 Date Task 1 August 26 Sale memorandum to Bond counsel. August 29 - September 9 Evensen Dodge prepares Official Statement. 1 September 9 Presale Analysis delivered to City by Evensen Dodge. 1 September 9 Draft Official Statement delivered to City and Bond Counsel. 1 September 13 Council resolution to set hearing. p g 1 September 14 City and Bond Counsel supply Evensen Dodge with comments on Official Statement. 1 September 15 Application for rating and official statement filed with rating agencies. 1 September 15 Official Statement distributed to potential bidders. 1 September 19 - 23 Evensen Dodge contacts potential bidders, answers rating questions. 1 September 27 Bond sale. Council acts on the resolution. 1 September 30 Evensen Dodge prepares final Official Statement. September 30 - October 17 Evensen Dodge coordinates closing arrangements. October 18 Bond closing. 1 October 19 Postsale Analysis prepared by Evensen Dodge. 1 1 1 EVENSEN DODGE,INC. Page 12 371077a ' LIST OF PARTICIPANTS 1 Issuer City of Ames Mr. Steven Schainker 515 Clark Avenue City Manager ' Ames, IA 50010 Ms. Alice Carroll ' (515) 239-5113 Finance Director (515) 239-5325 (FAX) Ms. Sue Rybolt ' Assistant Finance Director ' Financial Consultant Evensen Dodge, Inc. Mr. Wayne S. Burggraaff ' Suite 5100 Senior Vice President 601 Second Avenue South and Principal Minneapolis, MN 55402 (612) 338-3535 ' (612) 338-7264 (FAX) 100 Court Avenue David M. Dirks ' Suite 215 Senior Vice President Des Moines, IA 50309 ' (515) 282-6138 (515) 282-0252 (FAX) ' Bond Counsel Dorsey & Whitney Mr. Robert Helmick 801 Grand Suite 3900 Des Moines, IA 50309 ' (515) 283-1000 (515) 283-1060 (FAX) EVENSEN DODGE,INC. 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