04/01/85 Board of Public Works Minutes

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2 REGULAR MEETING APRIL 1, 1985 RE -INVESTMENT OF ESCROWED FUNDS: The escrowed funds for Equipment payments will be reinvested in money market instruments acceptable to the Lessor, Lessee and trustee until delivery and acceptance of the Equipment. The proceeds of the escrow earnings will be used to pay trustee's fees and to offset the Tease payments due under the lease agreement. ACCEPTANCE: Lessee must acknowledge acceptance of this offering letter by signing and returning this copy of the proposal to the Lessor by April 30, 1985. This proposal expires on that date at 5 p.m. E.S.T. GELCO MUNICIPAL SERVICES David A. Glessner, Vice -President Municipal Sales Manager Three Gelco Drive Eden Prairie, Minnesota 55344 Offer is open for acceptance until August 1, 1985. Any extension must be approved by Gelco Municipal Services. Program 1 - Floating Rate Financing Until Equipment Delivery Gelco offers the City financing at a floating rate, indexed against the Credit Markets 20 Bond Index or other mutually acceptable index. The effective interest rate will be 94% of the 20 Bond Index as of the date of delivery and acceptance. Upon acceptance the implied interest rate will then be fixed throughout the five year lease term. Pay- ments may be made monthly, quarterly, or semi-annually, at the City's option. This Master Lease line will be access- ible to the City for a period of one year following formal award, or until the $2 million in acquisitions have been made. Upon receipt of each final lease payment from the City, respective equipment may be purchased by the City for $1.00. The 20 Bond Index stands at 9.82 as of March 21, 1985. This would translate to an effective simple interest rate to the City of 9.23%, for current equipment acquisitions. Program 2 - Advance Fund, Fixed Rate Gelco also offers an advance funding program, enabling the City to lock in a rate for all acquisitions, irrespective of delivery timing, at time of funding. A basic des- cription of an advance funding program is attached for your reference. The cost of financing under this program would float until establishment of the Equipment Acquisition Fund at 94% of the 20 Bond Index (or other mutually accept- able index). All equipment would then be financed for the entire five year lease term at the same fixed rate. A flexible payment schedule will be established to meet the City's requirements. Gelco assumes that any positive arbitrage earnings would accrue to the benefit of the City, although a trade of those earnings to Gelco for a reduced rate interest is also a possibility. Gelco also assumes that no debt reserve account would be established, although the City may want to consider this option, Gelco believes it would likely reduce the City's overall borrowing costs.