Council agrees to issue up to $50 million in conduit debt for Country Manor, updates debt-fee policy

The Brainerd City Council on Jan. 21 authorized the city to issue conduit debt of up to $50,000,000 for the Country Manor housing project and amended Section 5 of the city—s debt management policy to set the administrative fee and payment responsibilities for issuance costs.

Finance Director Connie Hillman told council the city has not issued conduit debt in several years and outlined a recommended arrangement: the borrower would pay all expenditures the city incurs for issuing conduit debt, and the city would charge an administrative fee of 0.25 percent of the bond offering (capped at $50,000) with borrower responsibility for issuance expenses. Counsel advised the city must take care not to set the fee so high as to make the bonds taxable; bond counsel recommended a fee in a range roughly from 0.125% to 1% and staff recommended 0.25% with a $50,000 cap.

Hillman explained how the mechanics would work: because the city may have to issue non-bank-qualified debt in 2025 to remain whole, a true-up would occur at year end based on actual debt issued and then parties would reconcile any difference. Hillman said the city would be made whole at closing and any end-of-year adjustments would be handled as a true-up.

Council voted to amend the debt policy language and to proceed with issuing conduit debt for Country Manor under the proposed terms. Council members asked about risks and staff advised the principal risk is the true-up if estimated issuance amounts or interest differentials change; staff said bond counsel and the issuance agreement would address those provisions.

The motions to amend the debt management policy and to authorize issuance of conduit debt passed on the council floor. Country Manor staff was given direction to proceed with the understanding that the borrower must commit to the fee and pay issuance expenditures or seek financing elsewhere.