In 2016, Minneapolis established an agreement with stakeholders for the refurbishment of the Target Center. The City’s participation in the project had been established at $74 million, which was intended to be debt financed and repaid from various funding/revenue sources. In order to provide flexibility and reduce the amount of any capitalized interest, it was determined that interim construction financing would be secured prior to permanently financing the City’s portion of the $129 million project.
City officials engaged Ehlers for debt issuance services. Ehlers assisted the City in evaluating interim financing options, including a fixed-rate term loan, variable rate financing subject to periodic advances, and publicly-offered alternatives. Our role also included running sensitivity analyses to determine break-even scenarios which would identify how much both short-term (LIBOR) and long-term rates would need to increase in order to make either alternative a better approach. This included running cash flow analyses based on anticipated construction draws on the credit facility (inclusive of fees and expenses) and potential increases to the Fed Funds rate during the construction period (approximately 18 months).
The City became comfortable with the risks involved with a variable rate structure and successfully negotiated a favorable credit facility with attractive spreads to LIBOR and a draw-as-needed feature, which significantly reduced the amount of interest accrued during construction.