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06. Resolution 5560 - Authorizing Refinancing of Water BondsL � 0 Charles A. Harball Office of City Attorney City Attorney 201 First Avenue East P.O. Box 1997 Kalispell, NIT 59903-1997 TO: Mayor Tammi Fisher and Kalispell City Council FROM: Charles Harball, Interim City Manager Tel 406.758.7709 Fax 406.758.7771 charbail@kalispell.com SUBJECT: Resolution No. 5560 and 5561— Resolutions Authorizing the Refinancing of the City's Water and Sanitary Sewer Bonds BACKGROUND: The City of Kalispell has issued debt over the years for capital projects related to its water and sanitary sewer utilities. Currently the market rate for debt is appreciably lower than the rate the City is paying on its existing utility bonds. Resolutions No. 5560 and 5561 authorize a committee consisting of the mayor, the city manager and the finance director, with the advice of bond counsel, to investigate and negotiate the refinancing of the existing bonds. The parameters set by the resolution ensure that any refinancing shall result in a significant reduction to the City in its cost of servicing the utility debt. RECOMMENDATION: City Council should give consideration to and pass Resolutions No. 5560 and 5561. FISCAL IMPACTS: This resolution authorizes the investigation and negotiation for the refinancing of existing debt with parameters clearly delineated. If the parameters are met the Council will then be presented with a final resolution to approve the refinanced debt. The purpose and goal of the refinancing is to reduce the cost of servicing the debt. Respectfully submitted, Char all, Inte/rim City Manager r Elm- r r r 111. BE IT RESOLVED by the City Council (the "Council") of the City of Kalispell, Montana (the "City"), as follows: Section 1. Recitals and Determinations. 1.01 Authorization for Outstanding Bonds. The City is authorized pursuant to Title 7, Chapter 13, Part 43, Montana Code Annotated, to establish, operate and maintain a water system. The City is authorized pursuant to Title 7, Chapter 7, Parts 44 and 45, Montana Code Annotated, as amended (the "Act"), to issue its revenue bonds to finance in whole or in part the cost of the acquisition, purchase, construction, reconstruction, improvement, betterment or extension of its water system facilities and to refund its revenue bonds issued for such purpose. Pursuant to the Act, the City has issued and currently has outstanding the following bonds payable from its water system: Water System Revenue Bond (DNRC Drinking Water Revolving Loan Program), Series 2001, issued in the maximum principal amount of $761,000 (the "Series 2001 Bond"); Water System Revenue and Refunding Bonds, Series 2004, issued in the aggregate principal amount of $1,840,000 (the "Series 2004 Bonds"); Water System Revenue Refunding Bond (DNRC Drinking Water State Revolving Loan Program), Series 2007A, issued in the maximum principal amount of $1,283,159 (the "Series 2007A Bond"), and Water System Revenue Bond (DNRC Drinking Water State Revolving Loan Program), Series 2007B, issued in the maximum principal amount of $1,500,000 (the "Series 2007B Bond"). The Series 2001 Bond, Series 2004 Bonds, Series 2007A Bond, and Series 2007B Bond are payable on a parity basis from the Net Revenues of the City's Water System. 1.02 Outstanding Bonds. The Series 2004 Bonds were sold to the general public, with D.A. Davidson & Co., of Great Falls, Montana, acting as underwriter. The Series 2004 Bonds are currently outstanding in the aggregate principal amount of $905,000, and are subject to redemption at the option of the City on July 1, 2014 in respect of the Series 2004 Bonds maturing in 2015 and thereafter and outstanding in the aggregate principal amount of $735,000 (the "Series 2004 Refunded Bonds"). The Series 2001 Bond, Series 2007A Bond, and Series 2007B Bond were issued to and are held by the Department of Natural Resources and Conservation of the State of Montana (the "DNRC"). All of the authorized principal amount of the Series 2001 Bond has been advanced, of which $424,000 in principal amount is currently outstanding. All of the authorized principal amount of the Series 2007A Bond has been advanced, of which $608,000 in principal amount is currently outstanding. All of the authorized principal amount of the Series 2007B Bond has been advanced, of which $1,390,000 in principal amount is currently outstanding. It is proposed that Series 2004 Refunded Bonds and that the Series 2001 Bond, the Series 2007A Bond, and the Series 2007B Bond outstanding in the total aggregate principal amount of up to $2,422,000 (the "DNRC Bonds") will be refunded in one series of bonds to be issued by the City. The Series 2004 Refunded Bonds and the DNRC Bonds (collectively, the "Refunded Bonds") are currently outstanding in the aggregate principal amount of $3,157,000. Section 2. Authorization for Refunding Bonds. For the purposes of reducing the interest cost on the Refunded Bonds and reducing the Net Revenues necessary to pay the principal of and interest on the Refunded Bonds, it is hereby determined that it is in the best interests of the City and the users of the water system of the City to pursue the sale of water system revenue refunding bonds, pursuant to the Act, to refund the Refunded Bonds. Such refunding bonds shall be denominated "Water System Revenue Refunding Bonds, Series 2012" (the "Bonds"), and shall be issued in the aggregate principal amount necessary to provide funds, with other available funds of the City, to pay the interest on and principal of the Refunded Bonds, as determined by the officers of the City identified pursuant to Section 3 and within the limitations therein established so as to maximize debt service savings, assuming that the Refunded Bonds are called for redemption as soon as reasonably practicable at a redemption price equal to the principal amount thereof plus interest accrued to the date of redemption, without premium. Section 3. Sale of Bonds, Bond Purchase Agreement. The Council hereby determines that it is in the best interest of City to sell the Bonds at a private, negotiated sale to D.A. Davidson & Co., of Great Falls, Montana (the "Purchaser"). The Bonds shall be sold to the Purchaser on terms and at a purchase price within the following limitations. (1) the underwriter's discount shall not exceed 1. 10% of the principal amount of the Bonds, exclusive of original issue premium or discount, and any net premium amount will be paid to the City to accomplish the financing and pay costs at closing; (2) the net interest cost rate on the Bonds shall not exceed 3.00% (for comparison the average coupon rate on the Refunded Bonds 4.05%); (3) the aggregate principal amount of the Bonds shall not exceed $3,250,000, which accounts for the required amount to refund the Refunded Bonds at closing plus costs; (4) the final maturity date on the Bonds for purposes of the refunding is not later than the final maturity date of the Refunded Bonds; (5) as required by Montana Code Annotated, the average annual interest rate on the Bonds, computed to their stated maturity dates and excluding any premium from the computation, is at least 3/8 of 1% (0.375%) less than the average annual interest rate on the Refunded Bonds, computed to their respective stated maturity dates; (6) the debt service payable on the Bonds is such that the net present value of debt service savings to be achieved by the refunding is not less than 3.00% of the principal amount of the Refunded Bonds, using the yield of the Bonds as the discount factor; and (7) the prior written consent of the DNRC to the payment of the DNRC Bonds is obtained. All costs of issuing the Bonds (including, without limitation, underwriter's compensation, the fees and expenses of bond counsel, the fees of the Paying Agent and Registrar, the Escrow Agent fees, the escrow verification fees, the rating agency fees, the Preliminary and final Official 10 Statement costs, the costs of printing the Bonds and any miscellaneous costs) shall be paid by the City. The Mayor, the City Attorney/Acting City Manager and the Finance Director are hereby authorized and directed to approve the principal amounts, purchase price, maturity dates, basic and additional interest rates, original issue discount or original issue premium, and redemption provisions of or relating to the Bonds, subject to the limitations contained in the preceding paragraph. Upon approving such terms, the Mayor, the City Attorney/Acting City Manager and the Finance Director are hereby authorized and directed to approve, execute and deliver to the Purchaser a bond purchase agreement (the "Bond Purchase Agreement"), containing the agreement of the City to sell, and the agreement of the Purchaser to purchase, the Bonds on the terms so approved, and containing such other provisions as such officers shall deem necessary and appropriate. In the event of the absence or disability of any of the Mayor, the City Attorney/Acting City Manager or the Finance Director, another member of this Council shall make such approvals and execute and deliver the Bond Purchase Agreement. The execution and delivery by two appropriate officers of the City of the Bond Purchase Agreement shall be conclusive as to the approval of such officers of the terms of the Bonds and the agreement of the City to sell the Bonds on such terms in accordance with the provisions thereof. The form of the Bonds and the security therefor shall be prescribed by a subsequent resolution to be adopted by this Council. Section 4. Preliminary Official Statement. The City Attorney/Acting City Manager, the Finance Director and other officers of the City, in cooperation with the Purchaser, are hereby authorized and directed to prepare a Preliminary Official Statement to be distributed by the Purchaser to potential purchasers of the Bonds. The City Attorney/Acting City Manager and the Finance Director (or in the event of the absence or disability of either of them, a member of this Council) are hereby authorized and directed on behalf of the City to approve the Preliminary Official Statement, and to deem it a near "final" official statement as of its date in accordance with Rule 15c2-12(b)(1) promulgated by the Securities and Exchange Commission under the Securities and Exchange Act of 1934. Section 5. Continuing Disclosure. To permit the Purchaser to comply with paragraph (b)(5) of Rule 15c2-12 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934 (the "Rule"), the Council will covenant and agree, for the benefit of the registered holders and beneficial owners from time to time of the outstanding Bonds, to provide annual reports of specified information and notice of the occurrence of certain events. A description of the undertaking will be set forth in the Preliminary Official Statement. PASSED AND APPROVED BY THE CITY COUNCIL AND SIGNED BY THE MAYOR OF THE CITY OF KALISPELL, THIS 7TH DAY OF MAY, 2012. Judi Funk Deputy City Clerk Tammi Fisher Mayor 3