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r <br />Biers and Associates, hiG. <br />Llamas la runic muabce NEWSLEUER <br />OFRCES IN MINNEAPOLIS, MN • WAUKESHA. Wl • JAMESTOWN. NO <br />VOLUME 37. NUMBER 1 <br />FILE: Financial Speciaists: Ehlers and AssociatBS, Inc. <br />Please cSstribute to governing body members <br />JANUARY. 1992 <br />SEASON’S GREETINGS TO ALL OF YOU FROM ALL OF US AT EHLERS AND ASSOCIATESII <br />We are ending a memorable year. The financial markets experienced ups and downs as our nation <br />lived through Desert Storm, a struggling economy^ sweeping changes in the Soviet Union and our <br />ie municTrever-interesting local, state and national politics. The municipal bond market has seen the 20-year <br />Bond Buyer Index rates move from 7.14% in early January to 6.66% In mid-December. As a whole, <br />interest rates were and remain at near historical lows for modern times. <br />Now Is an excellent time to consider financing your next year’s capital needs and/or to review <br />interest rates on your outstanding debt. Current municipal interest rates are extremely attractive. <br />Any financings and refinancings that you undertake in the riar future should result in exceptionally <br />low borrowing costs and/or future interest savings. <br />RERNANCING OPTIONS TO CONSIDER <br />CumentP funding <br />a designated date when the <br />fui <br />lower and documentation is less complicated than an advanc<~ refunding. <br />If a refunding issue is closed 90 days or less before the call date <br />outstanding principal can be paid off), the refunding is a "current refunding." Issuance costs are <br />Advance Reminding <br />If a debt issue is refinanced and closed more than 90 days prior to the call date, it is an "advance <br />refunding" which is more complex and costly. Federal IRS regulations restrict arbitrage earnings <br />and limit the number of advance refundings allowed per issue. Because of these limitations, and in <br />recognition of the higher issuance costs associated with advance refundings, they must be <br />thoroughly analyzed and evaluated to ensure the issuer realizes the maximum possible benefit. <br />Following are two different variations of advance refundings: <br />Net Cash Advance Refunding of Callable Bonds -- With this approach an issuer sells a new set of <br />bonds (refunding bonds) to replace only the callable portion of the old bond issue outstanding <br />(refunded bonds). This advance refunding alternative can lead to attractive near-term savings but <br />may require additional cash or bond over-issuance. Based on this approach, under Minnesota law <br />ssuer can issue only up to 110% of the debt refunded and must show at least a 3% net present <br />value savings. These limitations do not exist in most other states. <br />2950 Norwest Center • 90 South Sever th Street • Minneapolis. MN 55402-4100 • 612-335-B291 • FAX 612-^9-0854