The city of Clear Lake, Iowa, is hoping a full-service investment-banking firm will help it secure the highest credit rating..
On Tuesday, the Clear Lake City Council unanimously approved a proposal from Northland Securities to provide municipal bond underwriting services for bond issuances related to future development in the Courtway Park Development Subdivision east of Interstate 35.
"We know what an important project the city has planned that's underway just east of the interstate, and we take very seriously our role of trying to ... achieve the highest rating possible for the city and also achieve the most cost-effective financing for the city and its taxpayers," said Chip Schultz, Northland Securities public finance managing director.
According to the proposal, Northland Securities will work with city staff and outside bond counsel to provide recommendations and perform activities related to the issuance and sale of debt, as well as assist the city in securing a credit rating from a rating agency, like Moody's Investors Service.
The team serving the city will be based in Northland Securities' West Des Moines office, but it will be supported by the company's headquarters in Minneapolis.
The company's underwriting services will cost no more than 1.25 percent, or $12.50 per $1,000, of Clear Lake's bond issuance.
The council's decision came nearly two weeks after it gave Scott Flory, Clear Lake city administrator, the nod to request its first municipal bond rating since 1993.
"We just don't issue enough debt to have underwriters up here very often," he said.
Historically, the city's debt has been purchased by local banks, but its upcoming bond issuance is likely too large for them to cover, so a competitive bond sale will broaden the investor pool.
Flory said Clear Lake is hoping to secure the Aaa rating, which would likely mean lower interest rates on future general obligation bond issuances.
The rating process is based on the city's economy/tax base, finances, management and debt/pensions, Schultz said.
"We're probably on the early side of getting started here on things, but the rating process takes some time and the issuance process takes some time, so it may not be as early to get started now as you might think," Flory said.
In August, the City Council approved a letter of intent with WillowStream LLC, a developer interested in building a hotel, conference center and restaurant on 5.8 acres in the Courtway Park Development Subdivision.
The letter of intent, which Flory outlined at the council's July 15 meeting, enables Clear Lake and the developer to take the necessary steps to formally consider a development agreement.
The letter stated a future development agreement would minimally include the constructing, furnishing and equipping of a 70-room mid-scale brand hotel, a 9,000-square-foot conference/meeting/event center that would accommodate about 600 people, and a 5,000- to 6,000-square-foot restaurant on 5.8 acres in the Courtway Park Development Subdivision in Clear Lake. It'd employ no less than 25 full-time equivalent jobs.
Under the future development agreement, Clear Lake would offer the developer a not-to-exceed $4 million economic development loan that would be forgivable after 10 years once the project is completed.
The city would pay for the loan with revenue from new property and sales tax generated by the development as well as other future developments in the subdivision, current and future tax increment financing and its consolidated urban renewal area.
WillowStream LLC had to inform the city about its plans for the project by Aug. 30, according to the letter of intent. The item was not on the Sept. 3 council agenda.
"Things are going positively," Flory said. "If they weren't, I wouldn't be bringing this process forward."
The development would be positioned in the southwest corner of the Courtway Park Development, comprising 11 lots — six highway commercial and five light industrial — and two roadways and curb and gutter on nearly 64 acres east of Interstate 35 and north of Highway 122.
