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06TAX EXEMPTION AND NONARBITRAGE CERTIFICATE CONCERNING $22660000 GENERAL OBLIGATION SCHOOL BOND 2014 SERIES OF KODIAK ISLAND BOROUGH ALASKA Karleton Short on behalf of the Kodiak Island Borough Alaska the Borough certify as follows General 1.1 Responsible Officer am the Finance Director of the Borough and as such am an officer of the Borough responsible for issuing the Boroughs $22660000 General Obligation School Bond 2014 Series the Bond dated delivered and paid for on the same date as the date of this certificate the issue date 1.2 Purpose of Certificate This certificate is executed to establish the facts estimates and circumstances in existence on the issue date and the bona fide reasonable expectations of the Borough on the issue date as to future events in connection with the Bond for the purposes of the applicableprovisions of the Internal Revenue Code of 1986 as amended the Code and applicable Treasury Regulations under Sections 103 141 and 148-150 of the Code 1.3 Reasonable Basis for Expectations To thebest of my knowledge information and belief this certificate accurately summarizes the facts estimates and circumstances in existence on the issue date and the expectations of the Borough on the issue date about future events in connection with the Bond are reasonable 1.4 Defined Terms Capitalized words used butnototherwise defined inthis certificate have the meanings set forth in Resolution No FY2014-24 of the Borough the Bond Resolution Purpose of Issuing the Bond 2.1 Governmental Purpose The Borough is local government unit of the State of Alaska TheBond is being issued by the Borough to the Alaska Municipal BondBank the Bond Bank to evidence the obligation of the Borough to repay loan made by the BondBank to the Borough from the portion of the proceeds of the BondBanks General Obligation Bonds 2014A Series One Tax-Exempt allocable to the Borough the Bond Bank Bonds The Bond Bank is loaning the proceeds of the BondBankBonds to the Borough pursuant to loan agreement the Loan Agreement for the purpose of providing thefunds necessary to finance part of thecosts of planningdesigning and constructing school and related capital improvements in the Borough including without limitation the reconstruction and renovation of the Kodiak HighSchool referred to the regular Borough election held on October 2009 as Proposition No the Improvements and to pay costs of issuance as providedby the Bond Resolution Pursuant to TreasuryRegulations Section1.150-1 d2iiB the Borough is treated as the obligor on the BondBankBonds 51352358.1 2.2 No Impermissible Private Business Use No more than 10%$2508743.25 of the proceeds of the Bond or of corresponding portion of the Improvements being financed with proceeds of the Bond will beused for any private business use Private Use as further defined below No more than 5%$1254371.62 of the proceeds of the Bond or of corresponding portion of the Improvements being financed with proceeds of the Bond will be used either for any Private Use that is unrelated to the governmentalpurpose of the Bond or for any Private Use that is related to governmental purpose of the Bond but exceeds the amount of proceeds of the Bond that are expected to beused for that governmental purpose No more than 5%of the proceeds of the Bond will beused directly or indirectly to make or financeloans to any person other than governmental unit except loan if any which enablesthe borrower to finance governmental tax or assessment of general application for specific essential governmental functionor that constitutes nonpurpose investment within the meaning of Section 148 of the Code The termPrivate Use includes use directly or indirectly by any person or entity not including use by state or local government unit of state or use by natural person not engaged in tradeor business activity but including use by the United States and any federal agency or instrumentality Sourceand Disbursement of Proceeds 3.1 Purchaser andPurchase Price of the Bond The Borough has entered into the Loan Agreement with the BondBank to secure payment of the sum of $22660000 the Loan Amount Pursuant to the Loan Agreement the BondBank will issue the BondBank Bonds at price equal to the LoanAmount plus original issue premium on the BondBank Bonds of $2427432.45 less an underwriters discount on the BondBankBonds of $66969.25 3.2 Funds Into Which Proceeds From the Issuance and Sale of the Bond and the Bond Bank Bonds Will Be Deposited The proceeds received by the Borough from theissuance and sale of the Bond will beusedand applied as follows $20000 will beused to pay costs of issuance of the Bond $463.20 representing the contingency amount an amount less than 1% of the sale proceeds of the Bond will be deposited in an account used primarily to achieve proper matching of revenues of the Borough with principal and interest payments on the Bond the Bond Fund andused to pay interest on the Bond on September 2014 and $25000000 will be deposited in fund established by the Borough to pay costs of the Improvements theProject Fund andused to carry out the Improvements 3.3 Cost of the Improvements The cost of the Improvements is estimated to be $76310000 which cost will be paid from the proceeds of theissuance and sale of the Bond reasonably expected investment earnings therefrom in the amount of $25000 and other money of the Borough legally available to beused therefor The net amount received by the Borough as result of the sale of the Bond and the BondBank Bonds after payment of all expenses of issuing selling and delivering the Bond and the BondBank Bonds is not expected to exceed the amount necessary to pay thecost of the Improvements Construction Schedule for the Improvements 4.1 Commencement and Prosecution of Construction of the Improvements Construction of the Improvements has already commenced and the Borough has entered into -2- 51352358.1 contract or otherwise incurredsubstantial binding obligation toward commencement of the Improvements involving anamount equal toat least 5%of the sale proceeds of the Bond or will have entered into such contract or othersubstantial binding obligation within six months after the issue date of the BondWork on the Improvements and expenditure of the sale proceeds of the Bond are expected to proceed with due diligence to completion 4.2 Completion of the Improvements It is expected thatat least 85%of the sale proceeds of the Bond will be spent for the Improvements byFebruary 20 2017 thedate that is three years after the issue date of the Bond The expected schedule for expenditure of Bond proceeds is attached as Exhibit 4.3 No Sale of Improvements Expected The Improvements are not expected to be sold or otherwise disposed of in whole or in part prior to maturity of the Bond other than to dispose of any portion of the Improvements that becomes inadequate obsolete worn out unfit or no longer necessary oruseful to the operation of the Improvements Payment of Bond 5.1 Debt Service Structure The Bond is general obligation bond of the Borough TheBond matures on March2034 Principal of the Bond is payable annually in installments on March of each year from 2015 to 2034 inclusive Interest on the Bond is payable semiannually oneach March and September commencing on September 2014 The principal installmentsof the Bond due on or before March 2024 arenot subject to prepayment The principal installments on the Bond due on or after March 2025 are subject to prepayment in whole or in part at the option of the Borough on any date on or after March 2024 at price of 100%of the amount thereof to be prepaid plus accrued interest to thedate of prepayment 5.2 Source of Payment The Bond is payable from the proceeds of taxes levied against all of thetaxable property located within the Borough and other funds availabletherefor Those funds that are expected to beused to pay principal of or interest on the Bond will be deposited in the BondFund andused within 13 months of their deposit in that fund for payment of principal of or interest on the Bond The BondFund will beused primarily to achieve proper matching of tax revenues of the Borough and debtservice on the Bond within each bond year It is expected that the BondFund will be depleted at least once year on each March except for reasonable carryover amount not expected to exceed the greater of one years earnings on that fund or 1/12 of theannualdebtservice on the Bond 5.3 Absence of Other Sinking Funds Except for the Bond Fund the Borough has not created or established and does not expect to create or establish any reserve fund sinking fund or other similar fund that is reasonably expected to beused directly or indirectly to pay debtservice on the Bond or any pledged fund with respect to which there is reasonable assurance that money will be available in that fund to pay debtservice on the Bond even if the Borough were to encounter financial difficulties -3- 51352358.1 Restrictions on Investing Proceeds of the Bond in Higher Yielding Investments 6.1 Calculation of Yield on Bond For purposes of this Certificate the yield on the Bond is deemed to be equal to the yield on the BondBankBondsThe yield on the BondBank Bonds has been calculated as the yield that when used in computing the present worth of all payments of principal of and interest on the BondBank Bonds produces an amount equal to the issue price of the BondBankBonds The issue price of the BondBankBonds is the initial offeringprice of the BondBank Bonds including original issue discount or premium if any at which substantial amount at least 10%of each maturity of the BondBankBonds has been sold to the public not including bond houses brokers orother intermediaries The yield on the BondBankBonds has been calculated to be 3.223217%Such determination as to yield has been made by Western Financial Group LLC attachedhereto as Exhibit based on representations made by RBC Capital Markets LLC underwriter of the BondBank Bonds attachedhereto as ExhibitIn determining this yield no adjustments were made for underwriters discount or other costs of issuance of the Bond However pursuant to the special yield calculation rule providedby TreasuryRegulations Section .148-4b3iiB for the purposes of determining the yield on the Bond those installment payments due in 2026 through 2034 inclusive were treated as prepaid at par on March 2024 becausesuch prepayments would produce thelowest yield on the Bond 6.2 Restrictions on Investment of Proceeds in Higher Yielding Investments Construction FundThe proceeds of the BondBankBonds loaned to the Borough pursuant to the Loan Agreement and the Bond andused to carry outthe Improvements will be deposited in the Project Fund and may be invested in higher yielding investments for temporary period not exceeding three years from the issue date of the Bond Proceeds Used for Costs of Issuance Proceeds of the Bond to beused to pay costs of issuance of the Bond and the BondBankBonds are expected to be spent for that purpose on the issue date and notinvested BondFund Proceeds of the Bond representing the contingency amount deposited in the BondFund and other amounts treated as replacementproceeds of the Bond because they areheld in the BondFund may be invested in higher yielding investments for temporary period not exceeding 13 months from thedate of their deposit in the Bond Fund Investment Earnings Investment proceeds of the Bond for which no other temporary period is available may be invested in higher yielding investments for temporary period of one year from thedate of receipt of thoseinvestment earnings RestrictedYield Investments Proceeds and amounts treated as replacementproceeds of the Bond that may not be invested in higher yielding investments will be invested only in obligations purchased at fair market value in bona fide arms length transactions in an established market for those obligations and having yields not materially higher thanthe yield on the Bond when calculated using the same frequency interval of compounding interest as used for the Bond ii obligations the interest on which is excluded from gross income under Section 103 of the Code that arenot private activity bonds under -4- 13 523 58 Section 141 of the Code or obligations treated as tax-exempt obligations under Section 103 of the Code e.g obligations issued by certain qualified regulated investment companies that invest to the extent practicable all of their assets in tax-exemptgovernmental bondsandmeet certainother conditions and Demand Deposit Securities issued by the United States Treasury pursuant to theState and Local Government Series program or iii other United States Treasury ObligationsState and Local Government Series having yields not materially higher thanthe yield on the Bond ComplianceWith Arbitrage Rebate Requirement The Bond BankBonds are subject to therebate requirement imposedby Section 148f of the Code Because proceeds of the BondBank Bonds used pursuant to the Loan Agreement to acquire the Bond from the Borough arenot treated as spent until those proceeds are used to carry outthe Improvements those proceeds continue to be treated as proceeds of the BondBank Bonds until spent for that purpose and the Borough on behalf of the Bond Bank in the manner and to theextent required by that Section will calculate and rebate to the United States any investment earnings on gross proceeds of the BondBankBonds and the Bond plus any income attributable to such excess earnings Investment earnings onamounts held in the BondFund will not be taken into account forthis purpose at any time even if the amount earned is $100000 or more in bond year because the Bond bears interest at fixed rates i.e ratesthat do not vary during the term of the Bond and has an average maturity of at leastfive years If the Borough for any reason fails to comply with therebate requirement to theextent applicable to the Bond Bank Bondsand the Bond the Borough to theextent permitted and required by Section 148f7 of the Code will payany penalty that may be necessary to preserve the tax exemption for interest on the Bond Bond Meets Other Arbitrage Requirements 8.1 No OtherGovernmental Obligations Part of This Issue There are no other obligations of the Borough that are being sold at substantially the same time less than 15 days apart as the Bond pursuant to the same plan of financing and that are reasonably expected to be paid from substantially the same source of funds 8.2 No Replacement of Funds Invested in Higher Yielding Investments No portion of the proceeds of the Bond will beused directly or indirectly to replace funds of the Borough invested in higher yielding investments 8.3 No Abusive Arbitrage Device The primary bona fide governmental purposes of issuing the Bond are to financethecosts of the Improvements No action is being taken or will be taken in connection with theissuance of the Bond that has the effect of enabling the Borough to exploit the difference between tax-exempt and taxable interest ratesto obtain material financial advantage by investing any portion of the gross proceeds of the Bond over any period of time and ii overburdening the tax-exempt bond market as result of issuing the Bond in higher amount issuing the Bond earlier or allowing the Bond to remain outstanding longer than is otherwise reasonably necessary to financethe Improvements -5- 51352358.1 8.4 No Intent To Earn ImpermissibleArbitrage Profit The Borough will nottake any intentional action to earn any impermissiblearbitrage profit from theinvestment of gross proceeds of the Bond Bond Meets Other Requirements for Tax Exemption 9.1 Bond In Registered Form TheBond is issued only in registered form 9.2 No Federal GuarantyExcept as otherwise permitted by the Code payment of the principal of or interest on the Bond is not guaranteed in whole or in part by the United States or anyagency or instrumentality thereof 9.3 Information Return ToBe Filed The Borough will cause Form 8038-G Information Return respecting the Bond to be timely filed with the Internal Revenue Service 9.4 Bond Not Hedge Bond The Borough reasonably expects thatat least 85%of the spendable proceeds of the Bond will beused to carry outthe governmental purposes of the Bond within the three-year period beginning on the issue date and ii not more than 50%of the proceeds of the Bond will be invested in nonpurpose investments having substantially guaranteed yield for years or more 9.5 Post-Issuance ComplianceProcedures The Finance Director on behalf of the Borough adopts and will implement in respect of the Bond the Post-Issuance Compliance Procedures for Tax-Exempt Bonds in substantially the form as that attachedhereto as Exhibit to facilitate complianceby the Borough with the applicable requirements of the Code that must be satisfiedafter the issue date to maintainthe tax exemption for interest on the Bond after the issue date of Page Intentionally Left Blank -6- 51352358.1 10BondTax Exempt andNot an Arbitrage Bond The Borough expects that bond counsel to the Borough will rely upon the foregoing facts estimates and circumstances in existence on the issue date and thereasonable expectations of the Borough as to future events respecting the Bond to enable them to conclude that it is not expected that proceeds of the Bond will beused in any manner that would cause the Bond to be an arbitrage bondand to provide their opinion that the Bond is governmental obligation the interest on which is excluded from gross income for federal income tax purposes under Section 103 of the Code DATED February 20 2014 KODIAK ISLAND BOROUGH ALASKA By iJ Karleton Short Finance Director Exhibit Draw Down Schedule Exhibit Certificate of Western Financial Group LLC Exhibit Certificate of RBC Capital Markets LLC Exhibit Post-Issuance Compliance Procedures for Tax-Exempt Bonds -7- 51352358.1 Actual Cost Remaining Early Cost Remaining Late Cost TASK Resource Profile FilterPay-T.Resource for Pay CERTIFICATE OF THE FINANCIAL ADVISOR LAWRENCE PIERCE as financial advisor for the Alaska Municipal Bond Bank the Bank hereby certify with respect to the Banks General Obligation Bonds 2014 Series One the Bonds consisting of $47205000 principal amount of General Obligation Bonds 2014A Series One Tax-Exempt the 2014A Bonds and $14000000 principal amount of General Obligation Bonds 2014B Series One Taxable the 2014B Bonds as follows have no reason to believe that the financial information found in Appendix of the Preliminary Official Statement dated January 28 2014 and the final Official Statement dated February 2014 relating to the Bonds contains an untrue statement of materialfactor omits tostatematerialfact necessary to make the statements therein in light of the circumstance underwhich they were made not misleading in any material respects Payment of the Bonds is secured by reserve fund based on my calculations and affirmed by the Trustee have determined the reserve fund requirement to be $45721332.33 as of the date hereof The amount of thereserve fund requirement is reasonable amount to facilitate marketing of the Bonds at the most favorable interest rates available have computed the yield on the 2014A Bonds to be not less than 3.2232%based on the representations made to the Bank by RBC Capital Markets LLC as the underwriter of the 2014A Bonds as to the offering prices at which atleast 10%of each maturity of the 2014A Bonds were sold or reasonably expected to be soldFor purposes of this certificate theterm yield means that yield which is computed as described in Section1.148-4 of the TreasuryRegulations have computed the weighted average maturity of the 2014A Bonds to be .4 -I-i...........LL...J .........L....r LL..t%.i ....J.LL....C L..IUI ye1Ib Il WIIILU veiiye IIIdLUIILY UI LII IIt DUIIUb lb LII bUlII UI tue products of theissue price and the par amount of each group of identical bonds and the number of years to maturity determined separately for each group of identical bonds and taking into account mandatory redemption if any divided by the aggregate sale proceeds of the bonds DATED this 20th day of February 2014 WESTERN FINANCIAL GROUP LLC LAWRNCE .PIERCE UNDERWRITER REPRESENTATIONS Alaska Municipal BondBank General Obligation Bonds 2014A Series One Tax-Exempt This certificate is being delivered by RBC Capital Markets LLC the Underwriter in connection with the issuance by the Alaska Municipal BondBank the Bond Bank of the Bond Banks General Obligation Bonds 2014 Series One the Bonds consisting of $47205000 principal amount of General Obligation Bonds 2014A Series Two Tax-Exempt the 2014A Bonds and $14000000 principal amount of General Obligation Bonds 2014B Series Two Taxable the 2014B Bonds The Underwriter pursuant to theterms of Bond Purchase Contract dated February 2014 agreed to purchase fromthe BondBank for offering to the public the 2014ABondsThe2014A Bonds were sold to theUnderwriter on February 2014 Each capitalized term used herein butnotdefined herein shall have the meaning specified for such term in theFederal Tax Certificate dated the date hereof and relating to the 2014ABonds The undersigned is authorized to execute this certificate on behalf of the Underwriter which certifications are not necessarily based on personal knowledge but may instead be based on either due inquiry deemed adequate by the undersigned or institutional knowledge or both regarding thematters set forth herein The Underwriter has made bona fide publicoffering of the Bonds at the prices or the prices corresponding to the yields set forth on the inside cover of the Official Statement On thesale date of the 2014A Bonds February 2014 atleast 10%of each maturity of the 2014A Bonds except as set forth in the following paragraph were soldto the public at initial offering prices not greater than the respective prices corresponding to the yields shown on the inside cover of the Official Statement I.L.t4 .....J..........RA..........L .1 LL .....L_ iii tue te UI LIIC IPI DUIIU IIIdLUIIII9 OIl lVIdIII tueUIIUCIVVIILCI hereby represents that the actual sales price of such 2014A Bonds is consistent with the Underwriters reasonable expectations thatatleast 10%of the 2014A Bonds ofthat maturity would be soldat the respective initial offeringprice as shown on the inside cover of the Official Statement The term public as used herein does not include bond houses brokers dealers and similar persons or organizations acting in the capacity of underwriters or wholesalers The amount of the Reserve Fund Requirement as defined in the 2005 General Bond Resolution as amended on August 19 2009 is reasonable amount to facilitate marketing of the 2014A Bonds at the most favorable interest rates available The statementscontained in the Official Statement under the heading Underwriting are true and correct in all material respects These representations are provided to WohlforthBrecht Cartledge Brooking Wohlforth and the Alaska Municipal BondBank to provide them with information concerning the 2014A Bonds ii Wohlforth to provide it with information concerning the tax-exempt municipal revenue bond of Kenai Peninsula Borough iii Foster Pepper PLLC to provide it with information concerning the municipal bond of Kodiak Island Borough and iv KL Gates LLP to provide it withinformation concerning the municipal bond of the City and Borough of Juneau for purposes of formulating their opinions with respect to such municipal bonds and arenot to be used or relied upon by any other person provided however theUnderwriter expresses no view regarding the legalsufficiency or thecorrectness of any legal interpretation made by bond counsel nothing herein represents our interpretation of any laws and in particular regulations under the Code and theUnderwriter expresses no view regarding the legal sufficiency of any representations made herein DATED this 20th day of February 2014 RBC CAPITAL MARKETS LLC By AzedSig Underwriter Representations 2014A Series One Tax-Exempt Page I\Docs\37421 736\Underwriter Representations.Docx POST-ISSUANCE COMPLIANCE PROCEDURES FOR TAX-EXEMPT BONDS Kodiak Island Borough Alaska the Borough issues governmentaltax-exempt bonds subject to ongoingcompliance obligations that must bemet to preserve the tax-exempt status of the bonds Inaddition toloss of tax-exemption adverse consequences can result from failure to comply with Internal Revenue Service IRS restrictions relating to arbitragetiming and use of bond proceeds and other aspects of bond issue However issuers that discover noncompliance as result of the adoption andadherence to written post-issuance compliance policy are eligible for significantly more favorabletreatment when remediating the noncompliancethrough the IRSs Voluntary Closing Agreement Program Accordingly the Borough has adopted these procedures to assist in identifying and correcting noncompliance in timely manner Responsibility for Maintaining Compliance The Assembly of Borough has the overall final responsibility for monitoring whether the Borough is in compliance with post-issuance federal tax requirements for its tax-exempt bonds However the Assembly has delegated to the Finance Director the primary operating responsibility for implementing and monitoring compliance with this policy documentThe Finance Director shouldconsult with bond counsel when there are questions or concerns about the application of applicable federal law to tax-exempt bond financingor post-issuance tax compliance issue Expenditures of Tax-Exempt Bond Proceeds For each project financed in whole or part with tax-exempt bond proceeds the Finance Director will monitor the expenditure of both tax-exempt bond proceeds and funds that arenot proceeds of tax-exempt bondsand will trackallocations of tax-exempt bond proceeds and funds that are not proceeds of tax-exempt bonds to project expenditures For expenditures of tax-exempt bond proceeds the Finance Director will recordthe date purpose property financed and vendor associated with each expenditure of bond proceeds and identify which expenditures are for the purpose of reimbursing the Borough for prior expenditures Use of Property Financed with Tax-Exempt Bond Proceeds For each issue of tax-exempt bonds the Finance Director will monitor the use of property financed with tax-exempt bond proceeds for the term of the bond issue and for the term of any bonds issued to refundthe original issue or issued to refund an issue that refunded the original issue The Finance Director will monitor such use no less frequently than once year Arbitrage Yield Restriction and Rebate For each issue of tax-exempt bonds the Finance Director will monitor the interest earned on investment of tax-exempt bond proceeds onan annual basis and will cause arbitrage rebate calculations to be made as required by applicable federal law If necessary the Finance Director also will cause the appropriate federal arbitrage taxreturns to be prepared and timely filed with the IRS together with any rebate amount owed 51352843.1 Identification ofPotentialViolations If at any time during the term of an issue of tax-exempt bonds the Borough discovers that violation of federaltax requirements applicable tothat issue may have occurred the Finance Director will consult with bond counsel to determine whether any such violation actually has occurred and if so take prompt action to accomplish an available remedial action under applicable IRS regulations orenter into closing agreement with the IRS under the Voluntary Closing Agreement Program described underNotice2008-31 or otherfuture published guidance Record Retention Records relating to tax-exempt bonds must be maintained as required by theState Auditors Office However notwithstanding therecord retention requirements set forth by theState Auditors Office records relating to tax-exempt bonds must be maintained for the term of the bond issue plus three years or in the case of an issue refunded by one or more subsequent bond issues for the combined term of theissues plus three years Training It is the policy of Borough that the Finance Director and his or her staff as well as the principal operating officials of those departments of the Borough for which property is financed with tax-exempt bonds should be provided with education and training on federaltax requirements applicable to tax-exempt bonds The Borough therefore will enable and encourage those personnel to attend and participate in educational and training programs offered by among others bond counsel the Washington Municipal TreasurersAssociation and the Washington Finance Officers Association with regard to the federaltax requirements applicable to tax-exempt bonds 51352843.1