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I, JODY TOW, Finance Director of the Petersburg Borough, 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 $670,000 Service Area I General Obligation Refunding Bond, 2016 Series A
(the "2016 Series A Bond") and the $520,000 Service Area I General Obligation
Refunding Bond, 2016 Series B (the "2016 Series B Bond," and together with the 2016
Series A 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 Bonds 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 #2016-21 and Resolution #2016-22 of the Issuer
adopted September 6, 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
pursuant to the laws of the State of Alaska. The 2016 Series A Bond is issued pursuant
to a Loan Agreement dated as of January 1, 2007, as amended by an Amendatory Loan
Agreement dated as of October 18, 2016 between the Issuer and the Alaska Municipal
Bond Bank (the "Bond Bank"), and the 2016B Bond is issued pursuant to a Loan
Agreement dated as of October 1, 2000, as amended by an Amendatory Loan
Agreement dated as of January 1, 2007, and 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 as of November 3, 2016 (the "Escrow Agreement") to currently refund
$1,270,000 principal amount of the Alaska Municipal Bond Bank (the "Bond Bank")
General Obligation Bonds, 2007 Series One maturing in the years 2017 through 2026
(the "Refunded Bonds"), corresponding to the principal of the Issuer's General
Obligation School Bond, 2007 Series A (the "2007 Series A Bond") and the principal of
the Issuer's General Obligation Refunding Bond, 2007 Series B (the "2007 Series B
Bond," and together with the 2007 Series A Bond, the "2007 Bonds") maturing in such
years, and to discharge the Refunded Bonds on December 5, 2016;
(b) to pay issuance costs that are allocated to the Bonds;
3. Capital Projects. The proceeds of the 2007 Series A Bond were used to
provide funds to pay the cost of school and related capital improvements in the former
City of Petersburg (the "Series A Project"). The proceeds of the 2007 Series B Bond
were used to advance refund part of the former City of Petersburg's General Obligation
Bond, 2000 (the "2000 Bond"), which was issued to provide funds to pay the cost of
capital improvements to the Petersburg Small Boat Harbor and a community swimming
facility (the "Series B Project," and, together with the Series A Project, the "Projects").
The Projects are capital projects.
4. No Overissuance. As shown in Sections III and IV.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 Bond; 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 Bond with
proceeds of the Bond Bank Bonds.
2. Sale Proceeds. The total amount of sale proceeds of the Bonds is
$1,317,009.85, consisting of the $1,190,000.00 face amount of the Bonds, plus
$127,009.85 of original issue premium.
3. Allocation of Sale Proceeds. The sale proceeds of the Bond will be
allocated as follows:
(a) $1,297,890.54 will be deposited with the Escrow Agent under the
Escrow Agreement, and allocated to an investment in $1,297,888.00 principal amount of
direct, non-callable obligations of the United States of America, plus a $2.54 cash
deposit;
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(b) $14,956.00, including allocation to Bond Bank Bonds issuance
costs of $7,456.00, will be allocated to expenditures for issuance costs of the Bonds;
and
(c) $4,163.31 will be allocated to pay part of the first interest payment
on the Bonds.
IV. Replacement Proceeds.
Bonds not Outstanding Longer than Necessary.
(a) Series A Bond. The Series A Project was placed in service on or
after January 1, 2007. The average reasonably expected economic life of the Series A
Project as of the date the Series A Project was placed in service was at least 45 years,
based on the guideline lives for structures and land improvements specified by Revenue
Procedure 62-21. The average remaining reasonably expected economic life of the
Series A Project as of the Issue Date is at least 35.083 years. The weighted average
maturity of the Series A Bond is 6.007 years, which does not exceed 120% of the
average remaining reasonably expected economic life of the Series A Project.
(b) Series B Bond. The Series B Project was placed in service on or
after October 1, 2000. The average reasonably expected economic life of the Series B
Project as of the date the Series B Project was placed in service was at least 20 years,
based on the guideline lives for structures and land improvements specified by Revenue
Procedure 62-21. The average remaining reasonably expected economic life of the
Series B Project as of the Issue Date is at least 3.083 years. The weighted average
maturity of the Series B Bond is 2.668 years, which does not exceed 120% of the
average remaining reasonably expected economic life of the Series B Project.
2. Bona Fide Debt Service Fund. The Issuer annually will appropriate
amounts to pay debt service on the Bonds from the general fund of the Issuer. The
Issuer may deposit the amounts so appropriated in an account used primarily to achieve
a proper matching of revenues of the Issuer and debt service on the Bonds. At least
once each bond year (on or before each December 1), the Issuer will expend all
amounts that the Issuer has deposited in such an 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
Bonds for the immediately preceding bond year.
3. No Other Replacement Proceeds. Other than amounts specifically
identified as replacement proceeds of the Bonds 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 Bonds or to the governmental purposes of the Bonds to conclude that the amounts
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would have been used for those governmental purposes if the proceeds of the Bonds
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 Bonds, or to be available to pay debt service on the Bonds if the
Issuer were to encounter financial difficulties.
V. Transferred Proceeds.
All proceeds allocable to the Refunded Bonds have been expended. There are
no amounts which will be transferred proceeds of the Bonds.
VI. Yield Limitations on Investments of Gross Proceeds of the Bonds.
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
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 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.
(b) Amounts allocated to the deposit under the Escrow Agreement for
the purpose of currently refunding the Refunded Bonds may be invested without yield
limitation for a period not to exceed 90 days from the date hereof.
(c) In addition to gross proceeds of the Bonds described in Section
VI.2(a) and (b), an amount of gross proceeds of the Bonds not exceeding $59,500 may
be invested without yield limitation as a minor portion of the proceeds of the Bonds.
3. Investments Subiect to Yield Limitation. 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 VII.2, which does not exceed the yield on
the Bonds by more than 0.125%.
VII. Computation of Yield.
1. Computation of Yield on Bond. 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
an amount equal to the present value, using the same discount rate, of the aggregate
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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 Bond 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.
IX. Hedge Bond Representations.
More than 85% of the spendable proceeds of the 2007 Bonds have been used to
carry out the governmental purposes of the 2007 Bonds within the three-year period
beginning on the issue date for each 2007 Bond. None of the proceeds of the 2007
Bonds have been 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 Series A Bond and the Series B Bond are sold at
substantially the same time, are sold pursuant to the same plan of financing, and are
reasonably expected to be paid out of the substantially the same source of funds.
Therefore, the Series A Bond and the Series B 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
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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 Resolutions 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.
XII. No Impermissible Private Business Use of the Proiects.
1. Use in Trade or Business of Nongovernmental Persons.
(a) The Projects 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 Projects 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 Projects.
(a) Private business use is unrelated unless (i) the use must be located
within, or adjacent to, the Projects; (ii) the use is for the same purpose as use of the
Projects by the Issuer, and the Issuer's use is not insignificant; or (iii) the Projects are
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.
(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.
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4. Sale of Projects. The Issuer will not sell, encumber or otherwise dispose
of any part of the Projects, 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.
PETERSBURG BOROUGH, ALASKA
T-7j3
JO1j( TOW, Finance Director
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