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PR ESA]L,IE ANALYSIS
$3,510,000 SEWER REVENUE
REFUNDING BONDS,
SERIES 1996
' CITY OF AMES, IOWA
EVENSEN DODGE INC
F I NANCIAL CONSULTANTS
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EVENSEN DODGE INC
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February 26, 1996
' Mr. Steven Schainker, City Manager
Ms. Alice Carroll, Finance Director
City of Ames
' 515 Clark Avenue
Ames, IA 50010
RE: $3,510,000 Sewer Revenue Refunding Bonds, Series 1996
City of Ames, Iowa
' Dear Mr. Schainker and Ms. Carroll:
Attached is our Presale Analysis prepared in connection with the City's issuance of
$3,510,000 Sewer Revenue Refunding Bonds, Series 1996 proposed for sale on March 5,
1996.
' 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
' /aj b
Enclosure
' 37uoo 601 Second Avenue South, Suite 5100, Minneapolis, MN 55402
612/338-3535 800/328-8200 FAX 612/338-7264
' TABLE OF CONTENTS
' Page
Purposeof the Sale.........................................................................................................l
Proposed Terms and Conditions of Sale........................................................................2
' Preliminary Debt and Savings Report Schedule............................................................3
BiddingRequirements ...................................................................................................5
Rating.............................................................................................................................5
Federal Tax Considerations ...........................................................................................6
Official Statement Disclosure........................................................................................8
General Market Conditions..........................................................................................10
' Proposed Financing Timetable 12
P g
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' List of Participants.......................................................................................................13
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PURPOSE OF THE SALE
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This Presale Analysis presents background information for the City's use in
considering the issuance of $3,510,000 Sewer Revenue Refunding Bonds, Series
1996 at a public sale on March 5, 1996. The $3,510,000 amount has not been
finalized and will not be finalized until the day of sale after bids have been received.
' We are using that amount for the purpose of this Presale Analysis on the assumption
that any variation from this amount will be small.
tThe Bonds will be issued to current refund the 1996-2002 maturities of the Revenue
Bonds dated May 1, 1987, and the 1996-2002 maturities of the Sewer Revenue
Bonds, Series 1987B, dated December 1, 1987. The purpose of the transaction is to
take advantage of lower interest rates and reduce the utility's debt service cost.
A schedule presenting the sources and uses of funds for the Bonds follows.
' ESTIMATED SOURCES: Amount
' Bond Proceeds $3,510,000.00
Reserve Fund (Series 1987A and B Bonds) 708,837.50
Projected Investment Earnings 38,464.08
Total Sources: $4.257301.58
ESTIMATED USES:
Redemption Price of Series 1987A Bonds $2,450,000.00
Redemption Price of Series 1987B Bonds 1,400,000.00
Cost of Issuance 40,000.00
Underwriters Discount 15,795.00
Debt Service Reserve 351,000.00
' Contingency 506.58
Total Estimated Uses: $4,257,301.58
' MEEVENSEN DODGE INC Page 1
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PROPOSED TERMS AND CONDITIONS OF SALE
Principal Amount of Issue: $3,510,000
Dated Date of Bonds: March 15 1996
' Proposed Sale Date: March 5, 1996
' Type of Sale: Competitive
First Interest Payment: December 1, 1996
Maturity Date and Amounts: December 1 as follows:
Year Amount
1996 $440,000
1 1997 510,000
1998 520,000
' 1999 520,000
2000 595,000
2001 600,000
2002 285,000
Call Feature: The Bonds are not subject to prior
redemption and prepayment.
Qualified Tax-Exempt
Obligation: Not Bank Qualified.
Security: Pledge of net revenues of the sewer
utility.
EVENSEN DODGE INC Page 2
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FiRELIMINARY DEBT AND SAVINGS REPORT SCHEDULE
The following schedule presents principal and interest payments for the Bonds and
the projected savings to be realized through the refunding transaction. The rates used
for this schedule are estimates 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.
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M-EVENSEN DODGE INC Pale 3
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City of Ames, Iowa
$3,510,000 Sewer Revenue Refunding Bonds, Series 1996
Scenario: Current Refunding 11 Market as of 2/08/96
Debt Service Schedule
Date Principal Coupon Interest Period Total Fiscal Total
-------- -------------- ---------- -------------- -------------- --------------
12/ 1/96 440,000.00 3.400000 96,910.22 536,910.22
6/ 1/97 60,660.00 60,660.00 597,570.22
12/ 1/97 510,000.00 3.500000 60,660.00 570,660.00
6/ 1/98 51,735.00 51,735.00 622,395.00
12/ 1/98 520,000.00 3.750000 51,735.00 571,735.00
' 6/ 1/99 41,985.00 41,985.00 613,720.00
12/ 1/99 560,000.00 3.950000 41,985.00 601,985.00
6/ 1/ 0 30,925.00 30,925.00 632,910-00
12/ 1/ 0 595,000.00 4.100000 30,925.00 625,925.00
6/ 1/ 1 18,727.50 18,727.50 644,652.50
12/ 1/ 1 600,000.00 4.200000 18,.727.50 618,727.50
6/ 1/ 2 6,127.50 6,127.50 624,855.00
12/ 1/ 2 285,000.00 4.300000 6,127.50 291,127.50
6/ 1/ 3 291,127.50
-------------- -------------- --------------
3,510,000.00 517,230.22 4,027,230.22
ACCRUED
3,510,000.00 517,230.22 4,027,230.22
Dated 3/15/96 with Delivery of 3/15/96
Bond Tears 12,816.000
Average Coupon 4.035816
Average Life 3.651282
N I C % 4.159061 % Using 99.5500000
T I C % 4.161317 % From Delivery Date
Prepared by Evensen Dodge, Inc.
Micro-Muni Sizing Date: 02-08-1996 8 10:52:01 Filename: AMES-S Key: REF-C
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BIDDING RE UIRE Q MENTS
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 99.55% 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 0.5% 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.
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
applications.
EVENSEN DODGE INC Page 5
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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 reference to the following paragraphs, it is our understanding that the
Bonds:
l. will be issued as governmental purpose bonds;
2. will not be designated as qualified tax-exempt obligations;
3. will be not subject to arbitrage rebate;
Tax Exemption
The Internal Revenue Code of 1986 divides all debt sold by governmental issuers into
1 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 a 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, and
(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%.
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.
EVENSEN DODGE INC Page 6
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' 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 expense allocated to purchasing or
carrying 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 cannot designate the Bonds as Qualified Tax-Exempt Obligations since it
will issue more than$10,000,000 of tax exempt obligations in calendar 1996.
Arbitrage Rebate
The Internal Revenue Code of 1986 also requires a rebate to the federal government
of 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 spend all the bond proceeds of an issue within six months are not
required to rebate any excess earnings from the issue.
Since the City will issue more than $5,000,000 of governmental purpose bonds during
1996, it must rebate the excess arbitrage earnings if the spending schedule is not met.
1 The refunding proceeds of the issue will be spent within 90 days so no rebate will be
required for that portion of the issue; however, since the reserve fund will not be spent
within the required time period, the City will need to rebate any excess earnings on its
investments.
' IM EVENSEN DODGE INC Page 7
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i OFFICIAL STATEMENT DISCLOSURE
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IThe 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 generally 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 150 copies of the Official Statement and
Addendum will be provided to the Purchaser of the Bonds.
Amendments to the Rule went into effect on July 3, 1995 which have the effect of
requiring issuers of municipal securities to covenant to provide continuing disclosure
of financial information relating to their bonds before underwriters are allowed to
purchase their bonds. Beginning with the 1996 fiscal year the City must provide to
national repositories of such information (NRMSIR's) an annual financial report
consisting of its audit report and updated financial information relating to the bonds
of the type appearing in the official statement for the bonds. The City must also
provide timely notice of the occurrence of 11 types of events if material. The
following is the list of the 11 events which must be disclosed:
1. Principal and interest payment delinquencies;
2. Non-payment related defaults;
3. Unscheduled draws on debt service reserves reflecting financial difficulties;
4. Unscheduled draws on credit enhancements reflecting financial difficulties;
5. Substitution of credit or liquidity providers, or their failure to perform;
+`EVENSEN DODGE INC Page 8
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6. Adverse tax opinions or events affecting the tax-exempt status of the Bonds;
7. Modification to rights of holders of the Bonds;
8. Bond calls;
9. Defeasances;
10. Release, substitution or sale of property securing repayment of the Bonds; and
11. Rating changes.
The City can make the required disclosures directly or employ a dissemination agent
to act on its behalf. The annual financial report may cross-reference other documents
such as subsequent official statements.
-=EVENSEN DODGE INC Page 9
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GENERAL MARKET CONDITI
ONS
A graph showing The Bond Buyer's Index (BBI) dated February 22, 1996 follows.
This graph shows the movement of tax-exempt rates since 1982. Even though
interest rates have risen when compared to their lowest point in recent years, interest
rates are still favorable and have been fairly stable over the last six months.
We have estimated, based on current market conditions, that the Bonds will receive a
net interest rate of between 4.00% and 5.50%. 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 March 5, 1996.
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EVENSEN DODGE INC Page 10
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PROPOSED FINANCING TIMETABLE
Date Task
February 12 Final sale memorandum to bond counsel.
February 26 Presale Analysis delivered to City by Evensen Dodge.
February 22 Draft Official Statement delivered to City and Bond Counsel.
' February 26 City and Bond Counsel supply Evensen Dodge with comments on
draft of Official Statement.
February 26 Application for rating and official statement filed with rating
agencies.
February 26 Official Statement distributed to potential bidders.
' February 27-29 Evensen Dodge contacts potential bidders, answers rating questions.
' March 5 Bond sale. Council acts on the resolution awarding the sale of the
Bonds.
March 12 Evensen Dodge prepares final Official Statement.
March 13-26 Evensen Dodge and Dorsey & Whitney coordinate closing
arrangements.
March 27 Bond closing.
April 3 Postsale Analysis prepared by Evensen Dodge.
EVENSEN DODGE INC Page 12
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' LIST OF PARTICIPANTS
Issuer Bond Counsel
' City of Ames Dorsey & Whitney
515 Clark Avenue 801 Grand, Suite 3900
Ames, IA 50010 Des Moines, IA 50309
Mr. Steven Schainker, City Manager Mr. Robert Helmick
515/283-1000
Ms. Alice Carroll, Finance Director 515/283-1060 (FAX)
Ms. Sue Rybolt, Asst. Finance Director
515/239-5113
515/239-5325 (FAX)
Financial Consultant
' Evensen Dodge, Inc.
601 Second Avenue South, Suite 5100
Minneapolis, MN 55402
Mr. Wayne S. Burggraaff,
Sr. Vice President and Principal
Mr. Cory Hoeppner, Associate
612/338-3535
612/338-7264 (FAX)
' 100 Court Avenue, Suite 215
Des Moines, IA 50309
Mr. David M. Dirks, Senior Vice President
515/282-6138
1 515/282-0252 (FAX)
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' �EVENSEN DODGE INC Page 13
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