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HomeMy WebLinkAbout10-4-01 SUMMARY OF TERMS REVENUE BONDS October 4, 2001 $8,070,000* CITY OF ORONO, MINNESOTA SENIOR HOUSING REVENUE BONDS (ORONO WOODS APARTMENT PROJECT) SERIES 2001 Summary of Terms Amount: Series A: $7,585,000* Series B (Taxable): $235,000* Series C(Subordinate): $250,000* Issuer: The City of Orono,Minnesota(the"City"), a body corporate and politic,will serve as Issuer for the Bonds. Borrower: Orono Senior Housing LLC, a Minnesota limited liability company. The sole member of the Borrower is the Wedum Foundation, a Minnesota not-for-profit corporation, qualified to do business in the State of Minnesota("Wedum"). Wedum is an organization described in Section 501(c)3 of the Code and exempt from taxation under Section 501(a) of the Code. Trustee: US Bank Trust will serve as the Trustee for the Project. Developer: The Developer for the Project will be Dunbar Development Company, a Minneapolis based limited liability corporation. The Project: The Project to be known as the Orono Senior Living Facility is a 62-unit independent living project to be located in the City of Orono,Minnesota. Use of Proceeds: Bond proceeds will be used for: the construction of the Project, partial funding of the costs of issuing the Bonds, funding of a Debt Service Reserve Fund for the Bonds, and funding capitalized interest during the construction period plus five (5) months. Form of Bond Sale: The Bonds shall be sold on a negotiated sale basis to the retail and institutional marketplace. Managing Underwriter: Miller Johnson Steichen Kinnard shall serve as the exclusive managing underwriter for the structuring and sale of the Bonds. Tax Status: Interest earnings on the Bonds shall be exempt from taxation under Federal law. The Bonds shall not be subject to the Alternative Minimum Tax under Federal tax law. The Bonds will be subject to bank qualification and consequently will be eligible for purchase by banks. *Preliminary,subject to change. Miller Johnson Steichen Kinnard, Inc. • Amortization of the Bonds: Series A. The Bonds shall have a 10-year final maturity and shall amortize over a 35-year term schedule. Series B. The Bonds shall amortize in years 2004-2007. Series C. The Bonds shall amortize over 30 years. Interest Rate: Estimated interest rates are as follows: Series A: 6.125% Series B: 8.00% Series C: 9.00% Optional Redemption (Series A&B): The Borrower,with the approval of the Issuer, and at their option may redeem any or all of the outstanding principal of the Bonds on any interest payment date with 60 days prior notice according to the following schedule: Years 1-4 No Optional Redemption Year 5 102%of Par Value Outstanding Year 6 101% of Par Value Outstanding Year 7 and Thereafter Par Mandatory Redemption: The Borrower shall redeem Series C bonds with 50% of excess annual cash flow upon project stabilization. Annual excess cash flow shall be defined as cash flow after the Series A and Series B Bonds have been paid and after the repair and replacement fund has been funded. Management Contract: The Borrower will enter into a Management Contract with Great Lakes Management Incorporated, a Minnesota for-profit corporation. The Management Contract entered into with Great Lakes will conform to the "Management Contract Rules" as provided for in Federal tax law, without any impairment to the tax-exempt nature of the Bonds. Sources and Uses of Funds: An approximation of the Sources and Uses of Funds for the Project is as follows: Sources: Par Amount of Series A $7,585,000.00 Par Amount of Series B 235,000.00 Par Amount of Series C 250,000.00 Deferred City Fees(1) 200,000.00 Total Sources: $8,070,000.00 Uses: City Fees(Park dedication,water&sewer) $ 200,000.00 Underwriter's Discount 195,500.00 Cost of Issuance, 194,806.00 Debt Service Reserve Fund 547,828.76 Capitalized Interest Fund(thru 4/1/03) 575,267.76 2 Miller Johnson Steichen Kinnard, Inc. Project Construction Fund 5,139,780.76 Land Acquisition 822,000.00 Development Fee 235,000.00 Architectural and Engineering 164,300.00 Furniture,Fixtures&Equipment 73,211.00 Management 70,000.00 501(c)3 Organizational Costs 50,000.00 Rounding Amount 2,305.72 Total Uses: $8,070,000.00 (1)To be forgiven if the project remains Senior Housing. Operating Deficits Guarantee: The Borrower shall provide an Operating Deficit Guarantee in the form of cash or a Letter of Credit in an amount equal to $250,000. This Guarantee will expire upon twenty-four months of continuous operations of the Project at a debt service coverage ratio of 1.15x. Debt Service Reserve Fund: A Debt Service Reserve Fund will be created and funded from Bond proceeds in an amount equal to the average one year principal and interest payment on the Bonds. The Debt Service Reserve Fund will be held by the Trustee for the benefit of the Bondholders and invested to the benefit of the Borrower. Income Restriction: 20% of the units will be leased to tenants with 50% of area median income. Security for the Bonds (Series A&B): The Bonds will be secured as follows: • First security interest and mortgage on the property including the land,building and personal property associated with the Project. • The City of Orono will hold title to the land and ground lease the property to the borrower for 99 years. The annual ground lease payment shall be $1.00. • City of Orono Tax Increment assistance(assigned to trustee). • Debt Service Reserve Fund as described above. • Operating Deficits Guarantee as described above. • An assignment of the Management Contract and any and all operating licenses and permits which may be assigned under Minnesota State Law. 3 Miller Johnson Steichen Kinnard, Inc. Security for the Bonds (Series C): The Bonds will be secured as follows: • A second mortgage on the Project. • Payment on the Series C Bonds will be subordinate to the Series A&B. Financial Covenants/ Conditions Precedent To Closing: • Maintenance of 501(c)3 tax-exempt statues. • Executed Development Agreement with the City of Orono. • The Borrower shall maintain all excess project cash flows in an operating reserve fund until the balance equals $275,000. • Agreement to provide a rate structure which will insure a 1.10x debt service coverage for the life of the Bonds. • Other financial covenants to be negotiated between the Borrower and the Underwriter. • An MAI appraisal on the land showing a market value of a minimum of$822,000. • A repair and replacement fund requirement equal to $150 per unit per year commencing 24 months after Certificate of Occupancy. Estimated Completion Date: If construction commences November 1, 2001, units will be available October 1, 2002. Financial Forecast: A 5-year financial forecast prepared by an independent accounting firm showing 1.20x or greater debt service coverage of the Series A and B Bonds is to be provided prior to marketing of the bonds. Market Study: Maxfield Research Inc. has prepared a market analysis on the project. Maxfield believes the market rate units could reach stabilized occupancy (95%) within 6-7 months with 30% pre- leased, and the affordable units could reach stabilization within 1-2 months from opening. Tax Increment Assistance: The City of Orono shall provide a pay-as-you-go Tax Increment Note to the project in the amount of 90% of property taxes owed for 20 years. • 4 Miller Johnson Steichen Kinnard, Inc.