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02-147�-�oR���NA�. Council File # aS r w}� Resolution # Presented By Green Sheet # � � � RESOLUTION OF SAINT PAUL, MINNESOTA � S Referred To Committee: Date ����y��� 4 The Port Authority of the City of Saint Paul (the "Port Autharity") has given its approval to the issuance 5 of up to $13,000,000 of its revenue bonds to be issued in one or more series (collectively, the "Bonds"), to finance 6 the costs to be incurred by District Cooling St. Paul, Ina (the "Borrower") in connection with the construction 7 of a new chiller £acility located in the northeast quadrant area of the City of Saint Paul, Minnesota (the "City"), 8 the construction of related distribution lines, and the refunding of bonds previously issued by the Housing and 9 Redevelopment Authority of the City of Saint Paul, Minnesota (collectively the "ProjecY'); and 10 11 2. The Bonds are to be issued by the Port Authority pursuant to the terms of a Joint Powers Agreement 12 to be entered into between the Port Authority and the Housing and Redevelopment Authority of the City of Saint 13 Paul, Minnesota (the "HRA"), and on a parity with District Cooling Bonds previously issued by the ARA under 14 an Indenture of Trust dated October 1,1991(the "Original Indenture") between the HRA and First Trust Nafional 15 Association (now known as U.S. Bank Trust National Association) (the "Trustee"); and l6 ' 7 3. Bonower has secured its obligation to repay the loans of the proceeds of the Bonds, together with 8 all bonds previously issued under the Original Indenture, by granting a first lien leasehold mortgage and security 9 interest in certain real property and assets ofthe Bonower (collectively the "Mortgaged Property") to the Trustee 0 and executing and delivering a Leasehold Mortgage, Fixture Financing Statement and 5ecurity Agreement dated 1 as of October 1,1991 and subsequent amendments thereto in connection with the issuance of each series of Bonds ? (collectively the "Bond Mortgage"); and 4 4. In connection with the issuance of other series of revenue bonds pursuant to the Original Indenture, the City has previously authorized and executed a Subordination and Nondisturbance Agreement dated as of October 1, 1991 (the "City Subordination"), pursuant to which the City has subordinated the liens and security interests granted in the City Mortgage, Fixtwe Financing Statement and Security Agreement dated as of December 1, 1982 (the "Ciry Mortgage") executed by District Heating to secure amounts payable under the City Loan Agreement dated as of December 1, 1982 (the "City Loan Agreement"} to the rights of the Trustee under the Bond Mortgage; and zissi9�i �aRt��Na� 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 SQ 51 52 53 54 55 S6 57 58 59 o�.- ►4'7 5. The I3RA made a loan in the amounf of $3,000,000 to the Borrower concurrently with the 1991 issuance of Bonds pursuant to the Original Indenture (the "I�2A Loan"), and the Borrower has secured its obligations to repay the HI2A Loan by granting a leasehold mortgage Lien and security interest in the Mortgaged Property and other District Cooling system equipment, by executing and delivering a Mortgage, Fixture Financing Statement and Security Agreement dated as of October l, 1991 between the Bonower, as Mortgagor, and the IIRA as Mortgagee (the "FIRA Mortgage"); and 6. The �IRA has subordinated the lien and encumbrance of the I�2A Mortgage to the rights of the Trustee under the Bond Mortgage pursuant to the I�RA Mortgage itself, and IiRA Subordination Agreements dated as of March 1, 1993, September l, 1995, June 1, 1998 and March 1, 2001 (collectively, together with the �TRA Subordina#ion Agreement executed in connection with the issuance of the Bonds, the "HRA Subordinarion"); and 7. The HRA has adopted its resolurion authorizing the execution ofan HRA Subordination Agreement in connection with the issuance of the Bonds; and 8. The HRA has assigned ali of its rights to the repayment of the HRA Loan to the City pursuant to the Special Fund Agreement dated as of 3anuary 1,1998 and entered into by and between the City and the HRA; and 9. It is necessary and desirable for the City to recognize that the subordination provided by the City Subordination Agreement applies to the Bonds issued by the Port Authority, as well as any other bonds issued pursuant to the Original Indenture, whether by the Port Authority or the HRA; and 10. It is further nacessary and desirable fox the City to recognize that the subordination of the HRA Loan provided by the HRA Mortgage and subsequent HRA Subordination Agreements is approved by the City as the assignee of the HRA's rights under the I Loan; and 60 11. Minnesota Statutes, Chapter 469.084(11), provides that any issue of revenue bonds authorized by 61 the Port Authority shall be issued only with the consent of the City Council of the Ciry of Saint Paul, by 52 resolution adopted in accordance wifli law; and i3 i4 12. To tneet the requirements o£state law, the Port Authotity has xequested that the City Council gives �5 its requisite approval to the issuance of the proposed Bonds by the Port Authority, subject to final approval of 6 the details of said Bonds by the Port Authority. 7 $ 13. A public hearing on the Project was held by the Port Authority after notice was published and 4 materials made available far public inspection at the offices of the Port Authoriry, as xequixed by Section 147 ( fl 3 of the Internal Revenue Code of 1986, as amended (the "Code"), at which pubiic hearing all those appearing who desired to speak were heard. NOW, THEREFORE, BE IT RESOLVED by the Council of the City of Saint Paul as foilows: 2155199v1 77o418a.01 ..� OR(G4NAL o �. -�y'1 75 1. In accordance wiih Minnesota Statutes 469.084(11) and Section 147 ( fl ofthe Code the City hereby 76 approves the issuance of the Bonds by the Port Authority for the purposes described in the Port Authoriry 77 resolution adopted August 28, 2041, and with the maturities, interest rates, discount, and redemption provisions 78 approved by the Port Authority. 79 80 81 82 83 84 85 86 2. The City hereby finds thai the subordination effected by the Ciry 5ubordination Agreement is effective to subordinate the liens and security interests of the City under the City Mortaage to the Iiens and security interests securing all bonds issued under the Originai Indenture, whether such bonds are issued by the Port Authority or the HRA, including specificaliy the Bonds. 3. The City hereby ratifies and approves the HRA 5ubordination effected in connection with the issuance of the Bonds and prior revenue bonds issued pursuant to the Original Indenture. by Department o£_ ❑in & I DBVe].O RIeRt �� ed by Ci Att ney �.vG�,G✓!�/A.v+w�. ' •- Z � _ e' 3 2155199v1 17oa7aa.o1 Y� AEPATt: I4�NTlOFFICE/CQL7NCQ.: PE� , _ Dan Smith /266-6581 ✓IUST BE ON COUNCII. AGENDA BY (DATE) February 13, 2002 TOTAL N OF SIGNAI'URE PAGES °A�r,� INr`�``'�D GREEN SHEET 01f31/02 �,s•rnunnze � DEPAR'IMENT . � ASSIGN CTTYATTOItNE T. —13-a�- t'�+ ��yggg FINANCiAL SERV D FOR �YOR(ORASSt.)� ROUTING ORDER ALL LOCATIONS FOR No.:202176 oi „��, 1 rr.r�nru:v.� CITY COUNCII. CITY CLERK _ FINANCIAL SERV/ACC"CG _ CIVII. SERVICE CAMtvIISSION ACTION REQUESTED: Resolution granting consent for the issuance of 2002 taYCxempt bonds by the Saint Paul PoR Auffiority for District Cooling's Phase 6 Facpavsion and approving subordwation of ihe CiTy's interest in a Ioan to Distria Cooling. REGOMMENDAITONS: Approve (A) or Reject (R) PLANNII3G COMNIISSION CIB COM�IIT1'EE CIVIL SEAVICE COIV3MISSION PERSONAL SERVICE CONTRAGIS MLIST ANSWER'CF� FOLLOWING QUESTIONS: - 1. Has this personlfum ever worked under a contract foc this depaztment? Yes No 2. Has this pe=sonlfirm ever been a city employee? Yes No 3 Does this person/fum possess a skill not nornally possessed by ariy current city employee? Yes No Explain alt yes answers on separate sheet and attach to green sheet INTTIATING PROBLEM, ISSUE, OPPORI'IINI'I'Y (Who, Whay When, Where, WLy): District Cooling proposes to have the Port Authority issue State tax-exempt bonds to pay far their Phase 6 Eapansion. City approval igrequired for the issuance. In addition, the City must subordinate its ]nterest in District Cooling's capital assets to the credit provider for the new bonds. ADVANT'AGES IR APPROVED' District Cooling will be able to complete their Phase 6 Expansion. DISADVANTAGESIFAPPROVED: None DLSADVANTAGES IF NOT APPROVED. District Cooling will not be able to complete their Phase 6 Expansion TOTAL AMOi1NT OF 1'RANS9CTION: l 3� dOO�00D F[JNDING SOURCE: BUDGETED: AC'I'NtLY NUMBER: �OT { FINANCIAL IlVFORD7AITON: (F.XPLAIN) o�.- ��tZ MEMORANDUM DATE: January 28, 2002 TO: Credit Committee FROM: Dan Smith, Project Manager SUBJECT: Credit Report - Subordination of FIRA Loan for District Cooling St. Paul, Inc. Phase 6 Expansion Series Bonds I. Eaecutive Summary District Cooling 5t. Paul, Ina (hereafter "District Cooling")is a Minnesota private non- profit company that provides chilled water cooling services to downtown Saint Paul. District Cooling provides cooling to approximately 55 percent of downtown's aggregate building space. District Cooling's Phase 6 expansion includes expansion of Che distribution pipeline system as well as construction of a new chiller plant and thermal storage tank 3n the North Quadrant azea of downtown. District Cooling proposes to have the Saint Paul Port Authority issue $13,000,000 in tax-exempt revevue bonds to cover project costs, financing costs and refund $1,000,000 in 2002 taxable bonds. In 199L the Saint Paul HRA made a$3 million loan to District Cooling as part of its original start-up financing. In 1998, the fIRA assigned its interest in this loan to the City of Saint Paul. This loan is secured by a mortgage on District Cooling's distribution system. District Cooling is seeking to pledge this same collateral as part of the proposed bond issuance. In arder for tkus to occur, both the City and the HRA must agree to subordinate this mortgage to the Phase 6 bond trustee and credit provider. II Background The proposed bond issuance would allow District Cooling to complete its Phase 6 expansion. The expansion includes construction of a new chiller plant and thermal storage tank in the North Quadrant. Tlus allows District Cooling to produce more chilled water during off-peak hours and store it so that it can be used during peak demand hours. The chiller plant and tank combined will add about 4,000 tons of cooling capacity to the system. For comparison's sake, the Lawson Commons building uses about 400 tons of cooling capacity. District Cooling believes that the additionai capacity will allow it to meet future demand from existing as the North Quadrant is developed The chiller plant and thermal storage tank will also improve the overall reliability of the District Cooling system. The second chiller plant and tank wili offset any problems that may occur with the current chillers and tank located at the Nyman Energy Center. Furthermore, the geographic location on the opposite end of downtown from the e�sting plant will help Disri Cooling respond to instances where pipes are disabled by road construction or other events. o s._ �y^t ITI The bond issuance would also cover the cost of expanding District Cooling's pipeline distribution system by 5,000 feet. The total system is currently 22,000 feet New pipes wili be built to the location of the new chiller piant and tank. These pipes run past one new customer and other potential customers. In addition, District Cooling issued tasable bonds to cover the cost of a pipeline distribution expansion they completed in 2001. This bond issuance would refund those tasable bonds with tax-exempt bonds. District Cooling states that its Phase 6 expansion will allow it to add 4,000 tons of customer demand immediately. It currently has a signed customer base totaling 20,404 tons of cooling load. District Cooling expects to have 24,000 tons of total demand by the time the project is completed. Proposed Bond Issuance There would be three separate series of revenue bonds issued for the project. Each would have a 20 year term with a final maturity date of March 2022. The bonds will be backed by a letter of credit from Dexia Local Credit of Paris, France. Dexia's credit rating is AAIA-1+ (Standard and Poor's). The interest rate on these series would be a floating rate. The expected average rate is 4.0% on the tax-exempt bonds and 5.7% on the taxable bonds. The rates as of January 11, 2002 were 1.2% for tax-exempt and 1.9% for taxable. A debt service schedule on the three series of bonds is attached as Attachment "A." The sources and uses of the bonds aze as follows: Sources: Tax-Exempt Series Q (SOlc3) TaY-Exempt Series R (A.M.T.) Taatable Series S TOTALSOURCES Uses: Chiller Plant Thermal Storage Tank Distribution System (pipeline) Refunding T�able Bonds (pipeline) Debt Service Reserve Account Capitalized Interest and Financing Costs TOTAL USES $1,750,000 7,595,000 3,655,000 13,000,000 $3,325,000 2,200,000 4,900,000 1,000,000 850,000 725,000 13,000,000 IV City / HRA Loan The HRA made a$3 million subordinated loan in 1991 as part of District Cooling's original financing. The annual rate interest rate is five percent. The current outstanding principal on the loan as of February i, 2002 is $3,357,002. 0�-- W'1 Montl�ly payments began on September i, 1997 and are scheduled to increase over the amortization period with a fmal payment due March 1, 2012. The monthly payment amounts aze as follows: Average Payment $31,851 Average Outstanding Payment $34,6ll Current Payment (2J1J02) $2.i,295 Last Payment (3/1/12) $45,927 The HRA has subordinated this loan to additional bond series five times since 1991. In 1998, the HRA assigned its interest in this loan to the City. The loan is currently rated SPECIAL MENTION based primazily on collateral. The collateral, which consists of District Cooling's plant and distribution system, would be lagisticaily difficult to convert. Payments on the loan are current with no history of problems. V. Profile District Cooling has requested that the HRA and City agree to subordinate the loan by the additional amount needed to collateralize the bonds. REPAYMENT CAPACITY The proposed bond issuance would increase District Cooling's annuai debt service payments by $582,136 for 2003. Annual debt service on these bonds would increase to $1,276,620 by 2022. District Cooling's curxent annual debt service totals $2,349,452 for the year ended September 30, 2001. After this bond issuance, its annual debt service obligation would increase to $2,932,088. District Cooling's total operating income before depreciation was $3,636,908 in 2001. After completion of the project, District Cooling estimates that its annual operating income wi11 increase by approximately 20 percent to $4,364,289. Under District Cooling's financing agreements with its creditors, it is required -- to the extent allowed under its franchise agreement with the City - to set its customex rates high enough in order to cover debt service payments. This helps ensure that all of District Cooling's debt will be repaid. COLLATERAL The CityJHRA loan is secured by a mortgage on District Cooling's capital assets. As of June 1, 2002, this collateral will be subordinate to a total of $35,403,597 in District Cooling remaining principal debt. If the loan is further subordinated, it would be subordinate to a total of $48,403,597 in debt. As of September 30, 2001 District Cooling reported $46,105,085 in assets before depreciation. Capital assets before depreciation were $36,621,886. After the project, total assets before depreciation would be $57,380,085 with capital assets at $47,046,886. <• b�.� I�t'l VI. Risk Rating and Credit Evaluafion District Cooling's income pro}ections after project completion aze more than sufficient to cover a11 of its debt service obligations, including the �IRA loan. Furthermore, these income projecfions aze well within District Cooling's historic growth rate and overail performance. Finally, District Cooling is required by all of its financing agreements to set rates high enough to cover debt service payments. Subordinating the City1HRA mortgage to Dexia Credit Local does not appear to have a significant effect on the loan's collateral. The proposed project to be paid for from bond proceeds will add value to District Cooling's capital assets in which the Ciry1HRA has a mortgage. For these reasons, staff recommends that the Credit Committee recorcunend the proposed loan subordination with no change in the loan's risk rating. �-�oR���NA�. Council File # aS r w}� Resolution # Presented By Green Sheet # � � � RESOLUTION OF SAINT PAUL, MINNESOTA � S Referred To Committee: Date ����y��� 4 The Port Authority of the City of Saint Paul (the "Port Autharity") has given its approval to the issuance 5 of up to $13,000,000 of its revenue bonds to be issued in one or more series (collectively, the "Bonds"), to finance 6 the costs to be incurred by District Cooling St. Paul, Ina (the "Borrower") in connection with the construction 7 of a new chiller £acility located in the northeast quadrant area of the City of Saint Paul, Minnesota (the "City"), 8 the construction of related distribution lines, and the refunding of bonds previously issued by the Housing and 9 Redevelopment Authority of the City of Saint Paul, Minnesota (collectively the "ProjecY'); and 10 11 2. The Bonds are to be issued by the Port Authority pursuant to the terms of a Joint Powers Agreement 12 to be entered into between the Port Authority and the Housing and Redevelopment Authority of the City of Saint 13 Paul, Minnesota (the "HRA"), and on a parity with District Cooling Bonds previously issued by the ARA under 14 an Indenture of Trust dated October 1,1991(the "Original Indenture") between the HRA and First Trust Nafional 15 Association (now known as U.S. Bank Trust National Association) (the "Trustee"); and l6 ' 7 3. Bonower has secured its obligation to repay the loans of the proceeds of the Bonds, together with 8 all bonds previously issued under the Original Indenture, by granting a first lien leasehold mortgage and security 9 interest in certain real property and assets ofthe Bonower (collectively the "Mortgaged Property") to the Trustee 0 and executing and delivering a Leasehold Mortgage, Fixture Financing Statement and 5ecurity Agreement dated 1 as of October 1,1991 and subsequent amendments thereto in connection with the issuance of each series of Bonds ? (collectively the "Bond Mortgage"); and 4 4. In connection with the issuance of other series of revenue bonds pursuant to the Original Indenture, the City has previously authorized and executed a Subordination and Nondisturbance Agreement dated as of October 1, 1991 (the "City Subordination"), pursuant to which the City has subordinated the liens and security interests granted in the City Mortgage, Fixtwe Financing Statement and Security Agreement dated as of December 1, 1982 (the "Ciry Mortgage") executed by District Heating to secure amounts payable under the City Loan Agreement dated as of December 1, 1982 (the "City Loan Agreement"} to the rights of the Trustee under the Bond Mortgage; and zissi9�i �aRt��Na� 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 SQ 51 52 53 54 55 S6 57 58 59 o�.- ►4'7 5. The I3RA made a loan in the amounf of $3,000,000 to the Borrower concurrently with the 1991 issuance of Bonds pursuant to the Original Indenture (the "I�2A Loan"), and the Borrower has secured its obligations to repay the HI2A Loan by granting a leasehold mortgage Lien and security interest in the Mortgaged Property and other District Cooling system equipment, by executing and delivering a Mortgage, Fixture Financing Statement and Security Agreement dated as of October l, 1991 between the Bonower, as Mortgagor, and the IIRA as Mortgagee (the "FIRA Mortgage"); and 6. The �IRA has subordinated the lien and encumbrance of the I�2A Mortgage to the rights of the Trustee under the Bond Mortgage pursuant to the I�RA Mortgage itself, and IiRA Subordination Agreements dated as of March 1, 1993, September l, 1995, June 1, 1998 and March 1, 2001 (collectively, together with the �TRA Subordina#ion Agreement executed in connection with the issuance of the Bonds, the "HRA Subordinarion"); and 7. The HRA has adopted its resolurion authorizing the execution ofan HRA Subordination Agreement in connection with the issuance of the Bonds; and 8. The HRA has assigned ali of its rights to the repayment of the HRA Loan to the City pursuant to the Special Fund Agreement dated as of 3anuary 1,1998 and entered into by and between the City and the HRA; and 9. It is necessary and desirable for the City to recognize that the subordination provided by the City Subordination Agreement applies to the Bonds issued by the Port Authority, as well as any other bonds issued pursuant to the Original Indenture, whether by the Port Authority or the HRA; and 10. It is further nacessary and desirable fox the City to recognize that the subordination of the HRA Loan provided by the HRA Mortgage and subsequent HRA Subordination Agreements is approved by the City as the assignee of the HRA's rights under the I Loan; and 60 11. Minnesota Statutes, Chapter 469.084(11), provides that any issue of revenue bonds authorized by 61 the Port Authority shall be issued only with the consent of the City Council of the Ciry of Saint Paul, by 52 resolution adopted in accordance wifli law; and i3 i4 12. To tneet the requirements o£state law, the Port Authotity has xequested that the City Council gives �5 its requisite approval to the issuance of the proposed Bonds by the Port Authority, subject to final approval of 6 the details of said Bonds by the Port Authority. 7 $ 13. A public hearing on the Project was held by the Port Authority after notice was published and 4 materials made available far public inspection at the offices of the Port Authoriry, as xequixed by Section 147 ( fl 3 of the Internal Revenue Code of 1986, as amended (the "Code"), at which pubiic hearing all those appearing who desired to speak were heard. NOW, THEREFORE, BE IT RESOLVED by the Council of the City of Saint Paul as foilows: 2155199v1 77o418a.01 ..� OR(G4NAL o �. -�y'1 75 1. In accordance wiih Minnesota Statutes 469.084(11) and Section 147 ( fl ofthe Code the City hereby 76 approves the issuance of the Bonds by the Port Authority for the purposes described in the Port Authoriry 77 resolution adopted August 28, 2041, and with the maturities, interest rates, discount, and redemption provisions 78 approved by the Port Authority. 79 80 81 82 83 84 85 86 2. The City hereby finds thai the subordination effected by the Ciry 5ubordination Agreement is effective to subordinate the liens and security interests of the City under the City Mortaage to the Iiens and security interests securing all bonds issued under the Originai Indenture, whether such bonds are issued by the Port Authority or the HRA, including specificaliy the Bonds. 3. The City hereby ratifies and approves the HRA 5ubordination effected in connection with the issuance of the Bonds and prior revenue bonds issued pursuant to the Original Indenture. by Department o£_ ❑in & I DBVe].O RIeRt �� ed by Ci Att ney �.vG�,G✓!�/A.v+w�. ' •- Z � _ e' 3 2155199v1 17oa7aa.o1 Y� AEPATt: I4�NTlOFFICE/CQL7NCQ.: PE� , _ Dan Smith /266-6581 ✓IUST BE ON COUNCII. AGENDA BY (DATE) February 13, 2002 TOTAL N OF SIGNAI'URE PAGES °A�r,� INr`�``'�D GREEN SHEET 01f31/02 �,s•rnunnze � DEPAR'IMENT . � ASSIGN CTTYATTOItNE T. —13-a�- t'�+ ��yggg FINANCiAL SERV D FOR �YOR(ORASSt.)� ROUTING ORDER ALL LOCATIONS FOR No.:202176 oi „��, 1 rr.r�nru:v.� CITY COUNCII. CITY CLERK _ FINANCIAL SERV/ACC"CG _ CIVII. SERVICE CAMtvIISSION ACTION REQUESTED: Resolution granting consent for the issuance of 2002 taYCxempt bonds by the Saint Paul PoR Auffiority for District Cooling's Phase 6 Facpavsion and approving subordwation of ihe CiTy's interest in a Ioan to Distria Cooling. REGOMMENDAITONS: Approve (A) or Reject (R) PLANNII3G COMNIISSION CIB COM�IIT1'EE CIVIL SEAVICE COIV3MISSION PERSONAL SERVICE CONTRAGIS MLIST ANSWER'CF� FOLLOWING QUESTIONS: - 1. Has this personlfum ever worked under a contract foc this depaztment? Yes No 2. Has this pe=sonlfirm ever been a city employee? Yes No 3 Does this person/fum possess a skill not nornally possessed by ariy current city employee? Yes No Explain alt yes answers on separate sheet and attach to green sheet INTTIATING PROBLEM, ISSUE, OPPORI'IINI'I'Y (Who, Whay When, Where, WLy): District Cooling proposes to have the Port Authority issue State tax-exempt bonds to pay far their Phase 6 Eapansion. City approval igrequired for the issuance. In addition, the City must subordinate its ]nterest in District Cooling's capital assets to the credit provider for the new bonds. ADVANT'AGES IR APPROVED' District Cooling will be able to complete their Phase 6 Expansion. DISADVANTAGESIFAPPROVED: None DLSADVANTAGES IF NOT APPROVED. District Cooling will not be able to complete their Phase 6 Expansion TOTAL AMOi1NT OF 1'RANS9CTION: l 3� dOO�00D F[JNDING SOURCE: BUDGETED: AC'I'NtLY NUMBER: �OT { FINANCIAL IlVFORD7AITON: (F.XPLAIN) o�.- ��tZ MEMORANDUM DATE: January 28, 2002 TO: Credit Committee FROM: Dan Smith, Project Manager SUBJECT: Credit Report - Subordination of FIRA Loan for District Cooling St. Paul, Inc. Phase 6 Expansion Series Bonds I. Eaecutive Summary District Cooling 5t. Paul, Ina (hereafter "District Cooling")is a Minnesota private non- profit company that provides chilled water cooling services to downtown Saint Paul. District Cooling provides cooling to approximately 55 percent of downtown's aggregate building space. District Cooling's Phase 6 expansion includes expansion of Che distribution pipeline system as well as construction of a new chiller plant and thermal storage tank 3n the North Quadrant azea of downtown. District Cooling proposes to have the Saint Paul Port Authority issue $13,000,000 in tax-exempt revevue bonds to cover project costs, financing costs and refund $1,000,000 in 2002 taxable bonds. In 199L the Saint Paul HRA made a$3 million loan to District Cooling as part of its original start-up financing. In 1998, the fIRA assigned its interest in this loan to the City of Saint Paul. This loan is secured by a mortgage on District Cooling's distribution system. District Cooling is seeking to pledge this same collateral as part of the proposed bond issuance. In arder for tkus to occur, both the City and the HRA must agree to subordinate this mortgage to the Phase 6 bond trustee and credit provider. II Background The proposed bond issuance would allow District Cooling to complete its Phase 6 expansion. The expansion includes construction of a new chiller plant and thermal storage tank in the North Quadrant. Tlus allows District Cooling to produce more chilled water during off-peak hours and store it so that it can be used during peak demand hours. The chiller plant and tank combined will add about 4,000 tons of cooling capacity to the system. For comparison's sake, the Lawson Commons building uses about 400 tons of cooling capacity. District Cooling believes that the additionai capacity will allow it to meet future demand from existing as the North Quadrant is developed The chiller plant and thermal storage tank will also improve the overall reliability of the District Cooling system. The second chiller plant and tank wili offset any problems that may occur with the current chillers and tank located at the Nyman Energy Center. Furthermore, the geographic location on the opposite end of downtown from the e�sting plant will help Disri Cooling respond to instances where pipes are disabled by road construction or other events. o s._ �y^t ITI The bond issuance would also cover the cost of expanding District Cooling's pipeline distribution system by 5,000 feet. The total system is currently 22,000 feet New pipes wili be built to the location of the new chiller piant and tank. These pipes run past one new customer and other potential customers. In addition, District Cooling issued tasable bonds to cover the cost of a pipeline distribution expansion they completed in 2001. This bond issuance would refund those tasable bonds with tax-exempt bonds. District Cooling states that its Phase 6 expansion will allow it to add 4,000 tons of customer demand immediately. It currently has a signed customer base totaling 20,404 tons of cooling load. District Cooling expects to have 24,000 tons of total demand by the time the project is completed. Proposed Bond Issuance There would be three separate series of revenue bonds issued for the project. Each would have a 20 year term with a final maturity date of March 2022. The bonds will be backed by a letter of credit from Dexia Local Credit of Paris, France. Dexia's credit rating is AAIA-1+ (Standard and Poor's). The interest rate on these series would be a floating rate. The expected average rate is 4.0% on the tax-exempt bonds and 5.7% on the taxable bonds. The rates as of January 11, 2002 were 1.2% for tax-exempt and 1.9% for taxable. A debt service schedule on the three series of bonds is attached as Attachment "A." The sources and uses of the bonds aze as follows: Sources: Tax-Exempt Series Q (SOlc3) TaY-Exempt Series R (A.M.T.) Taatable Series S TOTALSOURCES Uses: Chiller Plant Thermal Storage Tank Distribution System (pipeline) Refunding T�able Bonds (pipeline) Debt Service Reserve Account Capitalized Interest and Financing Costs TOTAL USES $1,750,000 7,595,000 3,655,000 13,000,000 $3,325,000 2,200,000 4,900,000 1,000,000 850,000 725,000 13,000,000 IV City / HRA Loan The HRA made a$3 million subordinated loan in 1991 as part of District Cooling's original financing. The annual rate interest rate is five percent. The current outstanding principal on the loan as of February i, 2002 is $3,357,002. 0�-- W'1 Montl�ly payments began on September i, 1997 and are scheduled to increase over the amortization period with a fmal payment due March 1, 2012. The monthly payment amounts aze as follows: Average Payment $31,851 Average Outstanding Payment $34,6ll Current Payment (2J1J02) $2.i,295 Last Payment (3/1/12) $45,927 The HRA has subordinated this loan to additional bond series five times since 1991. In 1998, the HRA assigned its interest in this loan to the City. The loan is currently rated SPECIAL MENTION based primazily on collateral. The collateral, which consists of District Cooling's plant and distribution system, would be lagisticaily difficult to convert. Payments on the loan are current with no history of problems. V. Profile District Cooling has requested that the HRA and City agree to subordinate the loan by the additional amount needed to collateralize the bonds. REPAYMENT CAPACITY The proposed bond issuance would increase District Cooling's annuai debt service payments by $582,136 for 2003. Annual debt service on these bonds would increase to $1,276,620 by 2022. District Cooling's curxent annual debt service totals $2,349,452 for the year ended September 30, 2001. After this bond issuance, its annual debt service obligation would increase to $2,932,088. District Cooling's total operating income before depreciation was $3,636,908 in 2001. After completion of the project, District Cooling estimates that its annual operating income wi11 increase by approximately 20 percent to $4,364,289. Under District Cooling's financing agreements with its creditors, it is required -- to the extent allowed under its franchise agreement with the City - to set its customex rates high enough in order to cover debt service payments. This helps ensure that all of District Cooling's debt will be repaid. COLLATERAL The CityJHRA loan is secured by a mortgage on District Cooling's capital assets. As of June 1, 2002, this collateral will be subordinate to a total of $35,403,597 in District Cooling remaining principal debt. If the loan is further subordinated, it would be subordinate to a total of $48,403,597 in debt. As of September 30, 2001 District Cooling reported $46,105,085 in assets before depreciation. Capital assets before depreciation were $36,621,886. After the project, total assets before depreciation would be $57,380,085 with capital assets at $47,046,886. <• b�.� I�t'l VI. Risk Rating and Credit Evaluafion District Cooling's income pro}ections after project completion aze more than sufficient to cover a11 of its debt service obligations, including the �IRA loan. Furthermore, these income projecfions aze well within District Cooling's historic growth rate and overail performance. Finally, District Cooling is required by all of its financing agreements to set rates high enough to cover debt service payments. Subordinating the City1HRA mortgage to Dexia Credit Local does not appear to have a significant effect on the loan's collateral. The proposed project to be paid for from bond proceeds will add value to District Cooling's capital assets in which the Ciry1HRA has a mortgage. For these reasons, staff recommends that the Credit Committee recorcunend the proposed loan subordination with no change in the loan's risk rating.