1998-10-19 Redevelopment Authority Minutes

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The South Bend Redevelopment Authority • October 19, 1998 Meeting Minutes 129 is to advance refund the outstanding bond indebtedness that was used to finance the construction of Blackthorn Golf Course. The bonds were issued in 1992 for $5,860,000, and the principal on the bonds will begin to be paid in March 1999. Since 1994 rates have been dropping dramatically, and Crowe Chizek has been watching to see when it would be advantageous to refinance the bonds. Many of the other City bonds have already been refinanced. This refunding is very similar to refinancing a mortgage, except that the old indebtedness cannot be paid off until March 1, 2001 because of the call protection for investors who buy long-term debts for an investment that will mature in 2005. When Advance Refunding Bonds are issued, an escrow agreement must be in place, and from that date forward the interest and principal on the 1992 bonds will be paid solely from that escrow account. In 2001 the balance will be large enough to pay off the 1992 bonds, which will leave only the 1998 bonds outstanding. As of the date of issuance of the 1998 bonds the Redevelopment Authority, the City of South Bend, and the Redevelopment Commission will be free of obligation for the 1992 bonds. It is important to have an escrow verification report in place, signed by an accountant, stating that semiannually on the interest payment dates, and annually on the principal dates, to the year 2001, the funds in the escrow account are sufficient to pay off the 1992 bonds at the appointed time. • Mr. Alvarez asked if the 1992 bonds would be paid by the issue or would the proceeds be used to escrow the amount. Mr. Rompola stated that the proceeds will be used to escrow the amount to pay the 1992 bonds. Through September 1998 only interest payments have been made on the 1992 bonds, but beginning in March 1999 principal payments will be made. The savings from the refinancing will come in two places: lower interest rates and escrowed securities that will generate interest. Mr. Alvarez asked what the interest rates are for the 1992 bonds. Mr. Rompola stated that the interest rate is anot-to-exceed 7%, and rates are presently ranging from 6.2- 6.3%, which is considerably higher than what the 1998 bond rates will be. To make the 1998 bonds worth purchasing they need to be in the 3.2 to 4.7% range. They will be sold to mature on the same term as the 1992 bonds: March 1, 1999 to 2015. By Federal tax law, the term of the bonds cannot be longer, but can be shorter. Mr. Kahn asked if the new bonds will have the same underwriter as the original bonds. Mr. Rompola stated that Crowe Chizek is recommending this bond be sold publicly, as the 1992 bonds were, because of the present market. Because of the complexity of the escrow and the timing of the sale, many bonds axe sold publicly. Both the 1992 and 1998 bonds have tax exempt rates. Crowe Chizek expects the Redevelopment Authority of the City of South Bend to get a "AA" rating from Fitch and Standard and Poor's, and an "A" rating from Moody's, which may bring an even lower interest rate. Moody's was the only company that rated the 1992 bonds. • 3 H:\ W PDATAW UTHORTY\ 101998. MIN