Tab_164II [Wi I =VAIMI.Y1 1 :111 1Xe] III V!IiL.] 'aI J I
I, KELLY MAYES, Finance Director of the City of Kodiak, Alaska (the "Issuer"),
HEREBY CERTIFY that, as of the date hereof (the "Issue Date"), the Issuer reasonably
expects the following regarding the amount and use of the gross proceeds of the
Issuer's $3,485,000 Boat Lift Special Facility Revenue Refunding Bond, Series 2016A
(the "2016A Bond"), and $875,000 Boat Lift Special Facility Revenue Refunding Bond,
Series 2016B (the "2016B Bond," and together with the 2016A Bond, the "Bonds").
Preliminary Matters.
1. Officer of Issuer. I am the duly appointed, qualified and acting Finance
Director of the Issuer, and an officer of the Issuer responsible for issuing the Bonds.
2. Purpose of Certificate. This certificate states the Issuer's expectations as
of the Issue Date regarding the Bond for the purposes of the applicable provisions of
§103 and §141 through 150 of the Internal Revenue Code of 1986 and the Income Tax
Regulations thereunder (the "Code") concerning the exclusion of interest on the Bonds
from gross income for federal income tax purposes, and the facts and estimates that
form the basis for the Issuer's expectations. It includes the certification required in
§1 .148-2(b)(2)(i) of the Income Tax Regulations concerning the Issuer's expectations
regarding the amount and use of the gross proceeds of the Bonds.
3. Reasonable Expectations. To the best of my knowledge, information and
belief, the facts, estimates and circumstances stated herein are accurate as of the Issue
Date, and the expectations stated herein are the bona fide reasonable expectations of
the Issuer.
4. Definitions. All capitalized terms not otherwise defined herein shall have
the meanings provided in Resolution Number 07-32 of the Issuer, adopted October 25,
2007, and Resolution Numbers 2016-30(SUB) and 2016-31(SUB) of the Issuer, adopted
September 22, 2016 (together, the "Resolutions"). Any other terms shall have the
meanings ascribed to them in the Code.
II. Authorization and Governmental Purpose of the Issue.
1. Authorization. The Bonds have been authorized by the Resolutions and
pursuant to the laws of the State of Alaska. The 2016A Bond is issued pursuant to a
Loan Agreement dated as of December 1, 2007, as amended by an Amendatory Loan
Agreement dated October 18, 2016, between the Issuer and the Alaska Municipal Bond
Bank (the "Bond Bank"), and the 20168 Bond is issued pursuant to a Loan Agreement
dated as of January 1, 2009, as amended by an Amendatory Loan Agreement dated
October 18, 2016 between the Issuer and the Bond Bank (together, the "Loan
Agreements"), in connection with the issuance by the Bond Bank of its General
Obligation Refunding Bonds, 2016 Series Three (the "Bond Bank Bonds").
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2. Governmental Purposes. The Bonds are being issued for the following
purposes:
(a) To provide funds for transfer to The Bank of New York Mellon Trust
Company, N.A., as Escrow Agent (the "Escrow Agent"), pursuant to an Escrow
Agreement dated November 3, 2016 (the "Escrow Agreement") to advance refund
$3,490,000 principal amount of the Bond Bank General Obligation Bonds, 2007 Series
Five maturing on September 1 in the years 2017 through 2037 (the "2007 Refunded
Bonds"), corresponding to the principal of the Issuer's Boat Lift Special Facility Revenue
Bond, 2007A (the "2007A Bond") maturing in such years, and to discharge the 2007
Refunded Bonds on September 1, 2017;
(b) To provide funds for transfer to the Escrow Agent pursuant to the
Escrow Agreement to advance refund $850,000 principal amount of the Bond Bank
General Obligation Bonds, 2009 Series One maturing on September 1 in the years
2017 through 2037 (the "2009 Refunded Bonds"), corresponding to the principal of the
Issuer's Boat Lift Special Facility Revenue Bond, 2009A (the "2009A Bond") maturing in
such years, and to discharge the 2009 Refunded Bonds on September 1, 2017;
(c) to make a deposit to the 2016A Reserve Account;
(d) to make a deposit to the 2016B Reserve Account; and
(e) to pay issuance costs that are allocated to the Bonds.
3. Capital Proiects. The proceeds of the 2007A Bond and the 2009A Bond
were used to provide funds to pay the cost of harbor and related capital improvements
for the City of Kodiak Boat Lift Special Facility (the "Project"). The Project is a capital
project.
4. No Overissuance. As shown in Sections III and lV.1, the total amount of
the proceeds of the Bonds, less issuance costs, will not exceed the amount necessary
for the governmental purposes of the Bonds.
Ill. Sale of the Bonds; Sources and Uses of Sale Proceeds.
1. Sale. The Issuer will sell the Bonds to the Bond Bank pursuant to the
Resolutions and the Loan Agreements. The Bond Bank is purchasing the Bonds with
proceeds of the Bond Bank Bonds.
2. Sale Proceeds. The total amount of sale proceeds of the Bonds is
$4,574,092.90, consisting of the $4,360,000.00 face amount of the Bonds, plus
$214,092.90 of original issue premium.
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3. Allocation of Sale Proceeds. The sale proceeds of the Bond will be
allocated as follows:
(a) $4,189,678.80 will be deposited with the Escrow Agent under the
Escrow Agreement, and, together with $305,064.64 transferred from the reserve
account for the 2007A Bond (the "2007A Reserve Account") and $73,173.40 transferred
from the reserve account for the 2009A Bond (the "2009A Reserve Account"), allocated
to an investment in $4,567,914.00 principal amount of direct, non-callable obligations of
the United States of America, plus a $2.84 cash deposit;
(b) $278,493.76 will be allocated to a deposit to the 2016A Reserve
Account;
(c) $63,531.26 will be allocated to a deposit to the 2016B Reserve
Account;
(d) $42,027.15, including allocation to Bond Bank Bonds issuance
costs of $33,003.97, will be allocated to expenditures for issuance costs of the Bonds;
and
(e) $361.93 will be allocated to pay part of the first interest payment on
the Bonds.
IV. Replacement Proceeds.
1. Bonds not Outstanding Longer than Necessary. The Project was placed
in service on or after January 1, 2009. The average reasonably expected economic life
of the Project as of the date the Project was placed in service was at least 20 years,
based on the guideline lives for harbor improvements specified by Revenue Procedure
62-21. The average remaining reasonably expected economic life of the Project as of
the Issue Date is at least 12.1667 years. The weighted average maturity of the Bonds
is 12.7867 years, which does not exceed 120% of the average remaining reasonably
expected economic life of the Project.
2. Bona Fide Debt Service Funds. The 2016A Debt Service Account will be
used primarily to achieve a proper matching within each Bond year of Net Revenues
with principal and interest payments on the 2016A Bond. The 2016B Debt Service
Account will be used primarily to achieve a proper matching within each Bond year of
Net Revenues with principal and interest payments on the 2016B Bond. At least once
each Bond year (on or before each December 1), the Issuer will expend all amounts
that the Issuer has deposited in the 2016A Debt Service Account and the 2016B Debt
Service Account, except for an amount not exceeding the greater of (a) the earnings on
such amounts for the immediately preceding bond year, or (b) one-twelfth of the
principal and interest payments on the 2016A Bond and the 2016B Bond, respectively,
for the immediately preceding Bond year.
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3. 2016A Reserve Account. The 2016A Reserve Account is created under
the Resolution for the purpose of securing the payment of the principal of and interest
on the 2016A Bond. On the date hereof, the Issuer will deposit in the 2016A Reserve
Account from sale proceeds of the 2016A Bond the amount of $278,493.76, which is an
amount that does not exceed the least of (i) 10% of the principal amount of the 2016A
Bond, (ii) maximum annual debt service on the 2016A Bond, and (iii) 125% of average
annual debt service on the 2016B Bond.
4. 2016B Reserve Account. The 2016B Reserve Account is created under
the Resolution for the purpose of securing the payment of the principal of and interest
on the Bond. On the date hereof, the Issuer will deposit in the 2016B Reserve Account
from sale proceeds of the Bond the amount of $63,531.26, which is an amount that
does not exceed the least of (i) 10% of the principal amount of the 2016B Bond, (ii)
maximum annual debt service on the 2016B Bond, and (iii) 125% of average annual
debt service on the 2016B Bond.
5. No Other Replacement Proceeds. Other than amounts specifically
identified as replacement proceeds of the Bond in this certificate, there are no amounts
(including without limitation sinking funds, pledged funds, and other replacement
proceeds) that:
(a) Are held by or derived from the Issuer or any person that is a
related party to the Issuer or the State of Alaska, and have a sufficiently direct nexus to
the Bond or to the governmental purposes of the Bond to conclude that the amounts
would have been used for those governmental purposes if the proceeds of the Bond
were not used or to be used for those governmental purposes; or
(b) Are reasonably expected to be used directly or indirectly to pay
debt service on the Bond, or to be available to pay debt service on the Bond if the
Issuer were to encounter financial difficulties.
V. Transferred Proceeds.
Immediately prior to the Issue Date, $305,064.64 of proceeds allocable to the
2007A Bond remained unexpended in the 2007A Reserve Account, and $73,173.40 of
proceeds allocable to the 2009A Bond remained unexpended in the 2009A Reserve
Account. On the Issue Date, which is the date that the 2007A Bond and the 2009A
Bond are discharged, all of such proceeds will become transferred proceeds of the
Bonds. As stated in Section 111.3(a), all of such transferred proceeds will be deposited
with the Escrow Agent under the Escrow Agreement and applied to the discharge of the
Refunded Bonds.
VI. Yield Limitations on Investments of Gross Proceeds of the Bond.
1. Investment of Bond Proceeds. It is expected that the Issuer will invest
gross proceeds of the Bonds only in investments purchased at fair market value in bona
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fide arm's-length transactions. Where there is an established securities market for an
investment, the Issuer will purchase the investment on that market.
2. Investments without Yield Limitation. The following gross proceeds of the
Bonds may be invested without yield limitation:
(a) Amounts allocated to expenditures for issuance costs may be
invested without yield limitation for a period not to exceed 30 days from the date hereof.
(b) Amounts allocated to the deposit under the Escrow Agreement for
the purpose of advance refunding the 2007 Refunded Bonds and the 2009 Refunded
Bonds may be invested without yield limitation for a period not to exceed 30 days from
the date hereof.
(c) Amounts allocated to any fund described in Section IV.2 may be
invested without yield limitation for a period not to exceed 13 months from the date of
their deposit therein.
(d) In addition to gross proceeds of the Bonds described in Section
Vl.2(a) through (c), an amount of gross proceeds of the Bonds not exceeding $100,000
may be invested without yield limitation as a minor portion of the proceeds of the Bonds.
3. Investments Subiect to Yield Limitation.
(a) Except as provided in Section Vl.3(b) and(c), gross proceeds of
the Bonds that cannot be invested without yield limitation under this section will be
invested at a yield, computed in the manner described in Section VIl.2, which does not
exceed the yield on the Bonds by more than 0.125%.
(b) Gross proceeds of the Bonds (including transferred proceeds of the
Bonds) that are allocated to the deposit under the Escrow Agreement, and that cannot
be invested without yield limitation under this section, will be invested at a yield,
computed in the manner described in Section VlI.2, which does not exceed the yield on
the Bonds by more than 0.001 %.
(c) Gross proceeds of the Bonds that are allocated to the deposit to the
2016A Reserve Account or to the deposit to the 2016B Reserve Account will be invested
at a yield, computed in the manner described in Section Vll.2, which does not exceed
the yield on the Bonds by more than 0.001%.
VII. Computation of Yield.
1. Computation of Yield on Bonds. Pursuant to §1.148-4(a) of the Income
Tax Regulations, the yield on the Bonds is deemed to be equal to the yield on the Bond
Bank Bonds. The yield on the Bond Bank Bonds is the discount rate that, when used in
computing the present value as of the Issue Date of all unconditionally payable
payments of principal and interest on the Bond Bank Bonds and amounts reasonably
expected to be paid as fees for qualified guarantees on the Bond Bank Bonds, produces
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an amount equal to the present value, using the same discount rate, of the aggregate
issue price of the Bond Bank Bonds as of the Issue Date. The issue price of the Bond
Bank Bonds is the initial offering price of the Bond Bank Bonds to the public (excluding
Bond houses, brokers and other intermediaries) at which price at least 10% of each
maturity of the Bond Bank Bonds was sold.
The yield on the Bond Bank Bonds has been determined to be 2.598457%.
Such determination as to yield has been made by RBC Capital Markets, LLC, based on
the representations made to the Bond Bank by RBC Capital Markets, LLC, that the
issue price of the Bond Bank Bonds is not greater than $89,615,555.75.
2. Computation of Yield on Investments. The yield on an investment
allocated to the Bonds is the discount rate that, when used in computing the present
value as of the date the investment is first allocated to the Bonds of all unconditionally
payable receipts from the investment, produces an amount equal to the present value of
all unconditionally payable payments for the investment. The frequency of compounding
interest that is used to calculate yields on investments allocated to the Bonds is the
same as that used to calculate the yield on the Bond Bank Bonds.
VIII. Arbitrage Rebate.
The Issuer will, in the manner and to the extent required by §148(f) of the Code,
calculate and rebate to the United States any investment earnings on gross proceeds of
the Bonds which are in excess of the amounts that would have been earned if those
gross proceeds had been invested at the yield on the Bonds, plus any income
attributable to such excess earnings. Investment earnings in the account described in
Section IV.2 will not be taken into account for this purpose because the weighted
average maturity of the Bonds is at least five years and the rates of interest on the
Bonds will not vary during the term of the Bonds.
IX. Hedge Bond Representations.
More than 85% of the spendable proceeds of the 2007A Bond and the 2009A
Bond have been used to carry out the governmental purposes of the 2007A Bond and
the 2009A Bond within the three-year period beginning on the respective issue dates for
the 2007A Bond and the 2009A Bond. None of the proceeds of the 2007A Bond or the
2009A Bond will be invested in investments having a substantially guaranteed yield for
four years or more.
X. Reimbursement Representations.
None of the proceeds of the Bonds will be allocated to reimburse the Issuer for
expenditures paid before the Issue Date.
XI. General Representations.
1. Other Obligations. The 2016A Bond and the 2016B Bond are sold at
substantially the same time, are sold pursuant to the same plan of financing, and are
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reasonably expected to be paid out of the substantially the same source of funds.
Therefore, the 2016A Bond and the 2016B Bond are treated as one issue for purposes
of §148 of the Code and the regulations thereunder. There are no other obligations of
the Issuer which are sold at substantially the same time as the Bonds, are sold pursuant
to the same plan of financing together with the Bonds, and are reasonably expected to
be paid out of substantially the same source of funds as the Bonds.
2. Abusive Transactions The Bonds are not and will not be part of a
transaction or series of transactions that attempt to circumvent the provisions of §148 of
the Code and the regulations thereunder by (a) enabling the Issuer to exploit the
difference between tax exempt and taxable interest rates to gain a material financial
advantage, or (b) overburdening the tax exempt bond market. The Issuer has
covenanted in the Resolution that it will make no use or investment of the proceeds of
the Bonds which will cause the Bonds to be "arbitrage bonds" subject to federal income
taxation under the Code.
XI 1. No Impermissible Private Business Use of the Proiect.
1. Use in Trade or Business of Nongovernmental Persons.
(a) The Project will be owned and used by the Issuer in furtherance of
its governmental purposes. The Issuer reasonably expects that no more than 10% of
the Project will be used in the trade or business of a nongovernmental person,
excluding use as a member of the general public.
(b) A nongovernmental person is any person or entity other than a
state or local governmental unit, including the federal government and an organization
described in Section 501 (c)(3) of the Code. A nongovernmental person uses the Project
as a member of the general public only if the Project is intended to be available and in
fact is reasonably available for use on the same basis by natural persons not engaged
in a trade or business. Use by a nongovernmental person other than as a member of
the general public includes ownership, or use under an arrangement that conveys
priority rights or other preferential benefits, including actual or beneficial use under a
lease, management contract, service or incentive payment contract, output contract or
other special arrangement.
2. Private Loan Financing. No proceeds of the Bonds will be used (directly
or indirectly) to make or finance loans to any nongovernmental person.
3. Unrelated or Disproportionate Private Business Use. There will be no
unrelated or disproportionate private business use of the Project.
(a) Private business use is unrelated unless (i) the use must be located
within, or adjacent to, the Project; (ii) the use is for the same purpose as use of the
Project by the Issuer, and the Issuer's use is not insignificant; or (iii) the Project is used
in the same manner as a private business use of a nongovernmental person that is
related to a governmental use, and the related use is not insignificant.
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(b) Private business use is disproportionate to a related government
use only to the extent that the amount of proceeds used in private business use
exceeds the amount of proceeds used for the related governmental use.
4. Sale of Proiect. The Issuer will not sell, encumber or otherwise dispose of
any part of the Project, except such parts that may be disposed of because of normal
wear, obsolescence or depreciation, prior to the final maturity of the Bonds.
DATED this 3rd day of November, 2016.
ii
KELLY MAYES, Fance Director
City of Kodiak
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