CCP 06-24-1996 - Laserfiche WebLink

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.. There is no obligation beyond revenues of the facility to provide for debt service payments I themselves. Lease Purchase Revenue Bonds -. An Economic Development Authority ("EDA") or under certain circumstances, a Housing and I Redevelopment Authority ("HRA") could issue lease purchase revenue bonds to pay for the facility, supporting the bonds through the receipt of lease payments from obligors under the lease. For this project it is possible that the lease would be with MASC or one or more of the I primary users with subleases to the other contractually obligated users. Bond opinions have differed on whether an HRA can fund projects that are not redevelopment projects involving removal of existing structures. I The lease payments could be met with net revenues of the facility and any other moneys the lessors are obligated to pay under the lease(s). In order for a participant to enter into such a lease, it would usually need to be an annual appropriation lease, subject to budgetin'il by the I governing body each year. Exceptions to this rely on either the passage of an authorizing election by each lessor or compliance by each lessor with the terms of the MSA 475.58 ("Mighty Ducks Legislation", to be discussed later). If the obligation is an annual appropriation, . payment is subject to inclusion of any deficits in the lessor's budget(s) each year. The risk is great for an investor since provision of ice arenas is not generally considered to be an essential service such as provision of water and sewer service. Future governing bodies have the ability to decline to appropriate under an annual appropriation lease and conceivably I budgetary constraints could lead to non-appropriation for this type of facility if difficult financial decisions needed to be made. If on the other hand, the underlying leases were general obligations of the lessor(s), there would be no question of the governing body's legal obligation e. to make payment. A lease purchase bond that is not secured by general obligation leases will be difficult to I market because of i) the nonessential nature of the project ii) recent non-appropriations for similar bond structures sold for other purposes and iii) the investors' expectations of net revenues available to pay debt service. Collaborative efforts such as this one that rely on underlying general obligation pledges should be marketable, although the coordination of . business obligations of the various parties can be challenging. Assuming a full general taxing obligation pledge behind all leases securing the bonds, the . rating of this issue would be slightly below the rating of the guarantor with the lowest credit rating. The full amount of debt service would need to be covered by general obligation pledges and the logistics of budgeting for the facility, application of revenues, notification of . deficiencies, and collections of pledged amounts would need to be set out in detail for bondholder review. General Obligation Bonds. General Discussion . General obligation bonds are primarily authorized under Minnesota Statutes, Chapter 475. I They provide the best security for bond holders (translating into the lowest borrowing cost), but unless otherwise specifically authorized, require the passage of a bond referendum. Because of the pledge of property taxes if needed for debt service, general obligation bonds are the I most attractive to the market of any type of credit. It is possible for a single or a small group of primary users to finance bonds under their general obligation with underlying general obligation pledges from other users, or alternatively, the full group of identified users could finance the bonds. There are several disadvantages of the second alternative. They include -. the administrative coordination required for the bond issuance process, the difficulty of DRAFT REPORT 5/30/96 Page 9 . ---.---