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HomeMy WebLinkAbout2018A S & P Global RatingS&P Global Ratings RatingsDirect @ Summary: Gem Lake, Minnesota; Non -School State Programs Primary Credit Analyst: Nancy M Denapoli, Chicago (1) 312-233-7013; nancy.denapoli@spglobal.com Secondary Contact: Cora Bruemmer, Chicago + 1 (312) 233 7099; cora.bruemmer@spglobal.com Table Of Contents Rationale Outlook WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 14, 2018 1 Summary: Gem Lake, Minnesota; Non -School State Programs ProfileCredit US$0.665 mil GO imp bnds ser 2018A dtd 07/12/2018 due 02/01/2034 Long Term Rating AA+/Stable New Rationale Minnesota Credit Enhancement Program for Cities and Counties S&P Global Ratings assigned its 'AA+' rating to Gem Lake, Minn.'s series 2018A GO improvement bonds. The outlook is stable. Officials intend to use bond proceeds to finance the construction of the 2018 Schueneman Road Reconstruction Project. The bonds are payable from special assessments levied on benefited property and are also general obligations (GO) of the city for which its full faith, credit and taxing powers are pledged without limitation as to rate or amount. Governing statutes Authorized by Minnesota Statutes, Section 446A.086, the Minnesota Credit Enhancement Program was established in 2000 for counties, and cities were added to the program in 2008, to provide for the timely payment of principal and interest on a debt obligation and prevent a potential city or county default. Payments from the state represent a standing appropriation from the state's general fund. We view this standing appropriation pledge as equivalent to a general fund pledge because the standing appropriation does not require adoption of a budget or any action of the legislature to make payment, although a legislative action could repeal the standing appropriation. Furthermore, the standing appropriation is not subject to executive unallotment authority. Additionally, the credit enhancement program supports projects that are central to the state of Minnesota's operations and purpose. In our opinion, there is no unusual political, timing, or administrative risk related to the debt payment. This rating moves in conjunction with that of the state GO rating. Eligibility requirements To qualify for participation in the Minnesota Credit Enhancement Program, cities and counties must apply to the Minnesota Public Facilities Authority (PFA) prior to issuing the bonds. The issuer must submit the application for program participation, the credit enhancement agreement signed by the city/county and the paying agent, bond counsel opinion, and the authorizing resolution binding it to the provisions of Minnesota Statutes, Section 446A.086. Program provisions Participation in the program is voluntary, and the prospective entity must apply for enhancement before the bond sale of each issue. A participating city or county must covenant in its authorizing resolution to: • Notify the authority no less than 15 business days before the payment date if the city/county is unable to make full or partial payment on the due date; WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 14, 2018 2 Summary: Gem Lake, Minnesota; Non -School State Programs • Deposit with the paying agent three days before the date on which the debt service payment is due an amount sufficient to make that payment; and • Include a provision in the city or county's agreement with the paying agent that requires the paying agent to inform the commissioner of the PFA at least two business days before a debt service payment if it becomes aware of a default, a potential default, or if there are insufficient funds on deposit with the paying agent. Per the state procedures, PFA must submit notice and request an appropriation from Minnesota Management and Budget (MMB) within one hour of notification from the paying agent. MMB will then establish an appropriation account and process the payment to the paying agent within two hours of receiving the request from PFA. State statute requires that MMB pay the paying agent on or before the date due. The amounts needed for this purpose are appropriated from the state general fund. If the state makes a payment on a participating city or county's behalf, the city or county is obligated to repay the state with interest. The commissioner of MMB may reduce state aid payable to the city or county by a corresponding amount, and any reduced aid reverts to the state's general fund. However, participation in the programs does not require that an entity's state aid be more than debt service in any given year, nor is there any sort of coverage test. Once a city or county enters the program and is accepted by the state, it cannot rescind its application as long as any debt obligation of that issue is outstanding. Oversight The PFA tracks each city and county credit enhancement bond issuance and its associated application information. MMB also tracks this information and collects data from PFA on a periodic basis, including the debt service schedules for each issue enrolled in the program. MMB maintains statewide procedures that govern the payment process for the credit enhancement program for cities and counties. We believe the state has strong tracking processes and well -documented payment procedures in place that enhance the state's ability to make timely debt service payment if required. Outlook The stable outlook on the enhanced rating reflects that on Minnesota and moves in tandem with the state GO rating and outlook. 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