In 2005, the Public Utilities Commission in Princeton, Minn., issued a revenue bond at 4.875% to build a 2-mgd iron removal pressure filter water treatment plant with fully automated chemical feed and control. As often happens once construction begins, it was determined that $2 million more was necessary to meet the needs of the commission's growing service area.
Refinancing the existing bonds through a new issue would've delayed project completion and forced the commission to pay borrowing costs again.
A significant amount — but not all — of the specified equipment was Siemens'. The company worked with the commission and the City of Princeton to structure a private placement general obligation bond through Siemens, which is permitted by state law, to meet the commission's criteria: $4.9 million to be repaid over 20 years at an effective interest rate of 3.57% with principal and interest payments due semiannually.
That was a competitive rate at the time of closing in 2006, according to Commission General Manager Dave Thompson. He likens the process to going to a bank for a business or equipment loan, and would “strongly consider” the arrangement again if offered comparably favorable terms.
In addition to being less hassle than a bond, he appreciated avoiding the costs associated with traditional borrowing — $100,000 to $150,000, possibly more, for a bond of this size — by dealing directly with Siemens. The company also didn't require him to hold the equivalent of a year's worth of payments — an estimated $300,000 to $400,000 — in a nonproductive reserve fund for the two-decade repayment period.
WHO: Public Utilities Commission; Princeton, Minn.
SIZE: 1,657 connections
PROJECT: Design and build a 2-mgd water treatment plant