ADMINISTRATION - Joe Huss, Finance Director
Title
PROVIDE FOR THE DEFEASANCE OF THE OUTSTANDING GENERAL OBLIGATION TAX INCREMENT REFUNDING BONDS, SERIES 2006A, AND AUTHORIZING AN ESCROW AGREEMENT
Background
In conjunction with the pending sale of Blaine Courts and Cloverleaf Courts, the City's senior housing facilities, Council is requested to approve the following resolution that authorizes the defeasance of outstanding debt on the Series 2006A General Obligation Tax Increment Refunding Bonds. Pursuant to bond covenants, the City will be calling for the redemption and prepayment of the bonds on February 1, 2016. Funding for the prepayment, estimated at $1,976,100, will come from proceeds of the sale of the senior buildings. At the time of closing (as of yet to be determined) this amount will be placed in an escrow account from which funds will be drawn on February 1, 2016 to complete the call and redemption process. The bonds are being duly called pursuant to Minnesota statutes and all applicable federal laws, regulations, and IRS rules.
The following resolution provides for the defeasance of the outstanding bonds and authorizes the Mayor and City Manager to establish an escrow account with a suitable financial institution in the State of Minnesota and execute and deliver an escrow agreement with that institution within 90 days of the sale of the senior facilities. The attached escrow agreement is correct as to form and will be completed with specific terms upon closing.
Recommendation
Approve the following resolution and execute all necessary documents to complete the call and defeasance of the series 2006A bonds.
Body
BE IT RESOLVED By the City Council of the City of Blaine, Anoka and Ramsey Counties, Minnesota (the "City") as follows:
Section 1. Background; Findings.
1.01. Pursuant to a Revenue Bond Resolution adopted by this Board on November 2, 2006 (the "Bond Resolution"), the City issued its General Obligation Tax Increment Refunding Bonds, Series 2006A, dated November 29, 2006, in the original aggregate principal amount of $5,215,000 (the "2006A Bonds"), pursuant to Minnesota Statutes, Chapter 475 and Section 469.178 (collectively, the "Act"). The proceeds of the Series 2006A Bonds were used to refund the City's General Obligation Tax Increment Bonds, Series 1997B, dated June 1, 1997 (the "Series 1997B Bonds") and General Obligation Tax Increment Bonds, Series 1999A, dated May 1, 1999 (the "Series 1999A Bonds"). The proceeds of the 1997B Bonds were used to finance certain improvements and development costs and the proceeds of the 1999A Bonds were used by the Blaine Economic Development Authority (the "EDA") to finance the construction of a 102 unit senior housing rental facility which is owned by the EDA (the "Cloverleaf Courts Seniors Apartments"). The 2006A Bonds are currently outstanding in the principal amount of $1,900,000. The 2006A Bonds maturing on February 1, 2017 and thereafter are subject to redemption and prepayment on February 1, 2016 and on any date thereafter at a price of par plus accrued interest.
1.02. The EDA has authorized the sale of the Cloverleaf Courts Seniors Apartments to with LaNel Financial Group, Inc. (the "Buyer") under certain conditions. The sale of the Cloverleaf Courts Seniors Apartments to the Buyer is proposed to occur on May 1, 2015 (as adjusted, the "Sale Date").
1.03. The City hereby consents to the sale of the Cloverleaf Courts Seniors Apartments and to the termination of that certain Amended and Restated Pledge Agreement, dated as of November 15, 2006, from the EDA to the City (the "Pledge Agreement") on the Sale Date.
1.04. The sale of the Cloverleaf Courts Seniors Apartments to the Buyer, a private entity, will cause the private business use tests delineated in Section 141(b) of the Internal Revenue Code of 1986, as amended (the "Code") to be exceeded with respect to the 2006A Bonds. In order to remediate the deliberate action of the sale of the bond-financed property and cure any negative tax consequences that may have arisen because the private business use tests have been exceeded, the City proposes to use cash from the sale of the Cloverleaf Courts Seniors Apartments or other available funds to prepay and redeem the outstanding principal amount of the 2006A Bonds allocable to the construction and equipping of the Cloverleaf Courts Seniors Apartments, all pursuant to Section 1.141-12(d) of the Treasury Regulations promulgated under Section 141 of the Code (the "Remedial Action Regulations").
1.05. There has been presented to the City Council a Certificate Regarding Remedial Action (the "Remedial Action Certificate"), which sets forth the terms of the remediation.
1.06. In connection with the sale of the Cloverleaf Courts Seniors Apartments, the City has determined to defease the 2006A Bonds by appropriating certain legally available funds in an amount that, if invested in securities authorized by Minnesota Statutes, Chapter 118A and Section 475.67, subdivision 8, will provide for the payment of principal and interest on the 2006A Bonds on or before February 1, 2016.
1.07. It is further found and determined that the 2006A Bonds will be paid as set forth in the Escrow Agreement described below.
1.08. It is further found and determined that it is the intent of the City Council that the defeasance of the 2006A Bonds as provided for in this Resolution is not to be construed as impairing or affecting the covenants with or pledges to the holders of the 2006A Bonds contained in the Bond Resolution.
Section 2. Escrow; Defeasance.
2.01. To accomplish the defeasance of the 2006A Bonds the City will establish an Escrow Account (the "Escrow Account") with the City and a suitable financial institution in the State of Minnesota whose deposits are insured by the Federal Deposit Insurance Corporation and whose combined capital and surplus is not less than $500,000 (the "Escrow Agent"). A form of escrow agreement (the "Escrow Agreement") has been prepared on behalf of the EDA and the City and is hereby approved. The Mayor and City Manager are authorized and directed to execute and deliver the Escrow Agreement on behalf of the City on or before the date required by the Remedial Action Regulations (the "Funding Date").
2.02. As of the Sale Date, in connection with the EDA's sale of the Property, there will be and are hereby transferred, pledged, and appropriated to the Escrow Account funds of the City in the amount that is needed for payment of the principal and interest of the defeased 2006A Bonds on or before February 1, 2016. As of the date of this resolution, the amount needed to fund the Escrow Account is expected to be approximately $1,976,100 (plus transaction costs), but the exact amount will be determined as of the Funding Date based on the price of securities purchased to fund the Escrow Account.
2.03. If the Sale Date has not occurred on or prior to the required Funding Date, the City Finance Director is authorized to identify and deposit other legally available funds to fund the Escrow Account on the Funding Date.
2.04. Under Section 469.178, Subdivision 7 of the TIF Act, the City is authorized to advance or loan money from any fund from which such advances may be legally made in order to finance expenditures that are eligible to be paid with tax increments under the Minnesota Statutes, Sections 469.174 to 469.1799, as amended (the "TIF Act"). Any amounts transferred from the General Fund or any other fund from which such advances, from time to time, may be legally made (the "Fund") to fund the Escrow Account are hereby determined to be an interfund loan pursuant to Minnesota Statutes, Section 469.178, Subd. 7 (the "Interfund Loan"). The City will reimburse repay the Interfund Loan, together with interest at the rate prescribed by the statute (Minnesota Statutes, Section 469.178, Subdivision 7), which is the greater of the rates specified under Sections 270.75 or 549.09 Funding Date, subject to the right of the City Finance Director to specify a lower rate, from Available Tax Increments, as defined in the Pledge Agreement. Principal and interest ("Payments") on the Interfund Loan shall be paid semi-annually on each February 1 and August 1 (each a "Payment Date"), commencing on the first Payment Date on which the EDA has Available Tax Increments, or on any other dates determined by the City Finance Director, until the earlier of the date of last receipt of Available Tax Increments or the date the Interfund Loan and accrued interest thereon are paid in full (the "Final Payment Date"). This resolution is evidence of an internal borrowing by the City in accordance with Section 469.178, subdivision 7 of the TIF Act, and is a limited obligation payable solely from Available Tax Increments pledged to the payment of the Interfund Loan under this resolution. The Interfund Loan shall not be deemed to constitute a general obligation of the State of Minnesota or any political subdivision thereof, including, without limitation, the City and the EDA. Neither the State of Minnesota, nor any political subdivision thereof shall be obligated to pay the principal of or interest on the Interfund Loan or other costs incident hereto except out of Available Tax Increments. The City and the EDA shall have no obligation to pay any principal amount of the Interfund Loan or accrued interest thereon, which may remain unpaid after the final Payment Date.
2.05. The funds in the Escrow Account are to be invested in securities maturing or callable at the option of the holder on such dates and bearing interest at such rates as may be required to provide sufficient monies together with cash or other monies in the Escrow Account to pay when due the principal amount of and interest on the defeased 2006A Bonds on and prior to their maturity dates. The funds may be used only for the purposes stated in this Section, except that any surplus remaining in the Escrow Account when all of the defeased 2006A Bonds and interest thereon have been paid shall be transferred to the general fund of the City or as otherwise directed by the City Finance Director.
2.06. Securities to be purchased from the funds are limited to securities specified in Minnesota Statutes, Chapter 118A and Section 475.67, subdivision 8. The Mayor and City Manager are authorized and directed to purchase the securities for the Escrow Account and to transfer them to the Escrow Agent as provided in the Escrow Agreement.
2.07. The City Council hereby approves the terms of the Remedial Action Certificate and authorizes City staff to take the actions necessary to carry out the City's obligations thereunder. The Mayor and City Manager are authorized and directed to execute the Remedial Action Certificate, in substantially the form now on file with the City, together with any other documents necessary in connection with the defeasance of the 2006A Bonds.
Adopted by the City Council of the City of Blaine, Minnesota this 19th day of March, 2015.