HomeMy WebLinkAbout35181 / 89-437 December 21, 1988 #q37 RESOLUTION
(CARRIED LOST LAID OVER WITHDRAWN )
PURPOSE: APPROVE AGREEMENT WITH EAA AVIATION FOUNDATION, INC.
INITIATED BY: CITY ADMINISTRATION
BE IT RESOLVED by the Common Council of the City of Oshkosh that the
attached agreement with EAA Aviation Foundation, Inc. is hereby approved and
the proper City officials are hereby authorized and directed to execute same.
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Res. #437
EAA
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December 20, 1988
bir. William Frueh, City Manager
City of Oshkosh
215 Church Avenue
Oshkosh, WI 54902
Dear Mr. Ftveh:
RE: EAA Aviation Foundation, Inc. Bonds .
Over the past several days we have discussed how the City of Oshkosh
(the "City") might accelerate some of its 1989 debt financing into the
end of 1988, so as to make it possible to designate up to $3,000,000
industrial development bonds ("IIonds") issued by the City on behalf of
EAA Aviation Foundation, Inc. (the "Foundation") as "bank qualified"
bonds under Section 265(b) of the Internal Revenue Code of 1986.
The Foundation recognizes that the City may incur additional
expenses and forego opportunities for arbitrage by issuing some of its
planned 1989 debt during the end of 1988. The Foundation is prepared to
compensate the City for such expenses and lost opportunity costs as set
forth in this letter.
1. Because the City's late-1988 notes will not be "bank qualified,"
the City may experience slightly higher interest rates than were
such debt to be "bank qualified." To compensate the City for
this interest rate deferential, the Foundation will pay an
amount equal to 0. 2$ of $3,000,000, that is, $6,000, payable to
the City upon the closing of the Bonds.
2. To compensate the City for its expenses in issuing debt in late
1988, the Foundation will pay io the City the City's actual
out-of-pocket bond counsel wsts in issuing the notes, payable
upon the closing of the Bonds.
3. The final component of the compensation to be paid by the
Foundation to the City cannot be deteimined at this time but can
be expressed by a fotmula. The forgone net arbitrage earnings
shall be detezmined by reference to ffie actual perfozmance of
the City's operating notes issued in mid-1989. The City's
' actual perfoimance will be expressed as the difference between
the City's borrowing costs and its investment return. This
amount will then be reduced to a net return per $1,000 and then
multiply it by the actual amount of bonds issued on behalf of
the Foundation.
WITTMAN AIPFIELO,OSMKOSH, WISCONSIN 549033065— PHONE d1d1420�d800
. ' Res. #437
Mr. William £rueh
December 20, 1988 �
Page 2
For example, assume the City borrows $2,500,000 in June for 7
months at a rate of 6. 75% and invests at an average return of
8. 75>. Assume also that the borrowed funds are expended in
equal amounts in September, October, and November. Funds are
available for repayment on llecember 1 and are invested for 30
days.
City Sorrowing Cost $ 98,437. 50
City Investment Return 108,936.66
Net Arbitrage lieturn 10,499.16 '
Net Arbitrage Return pre $1,000 4.20
Forgone Net Arbitrage Return
Assuming $3,000,000
Foundation IIonds 12,600.00
This amount can be determined in January, 1990, and the
obligation of the Fowdation to pay this amount can be included
in the loan agreement for the Bonds issued on behalf of the
Foundation.
� If this represents the agreement between the City and the
Foundation, kindly sign a copy oE this letter in the space provided below
and return it to me. Thank you for your help with our expansion project.
Sincerely,
� EAA AVIA1'ION FOUNDATION, INC
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Accepted Dy:
William Ftveh, City Manager
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