Item 6: Loan Guarantee for LCOG - Laserfiche WebLink

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In a normal market, banks might be willing to lend LCOG additional funds based on LCOG’s cash flow; but in this restricted credit environment, banks do not want to lend beyond 80% of the real estate value. For the purchase of the Schaefers Building in 1993, where LCOG found itself in a similar situation, Lane County issued revenue bonds as a source of financing. The approach worked well and was an efficient method for LCOG to secure the loan. The proposed City guarantee of the Park Place Building improvement loan is a similar arrangement, although the City is providing a guarantee rather than borrowing the money itself. Under this agreement, LCOG will borrow $550,000 over a 10-year period through a private placement bank loan. LCOG will fund a reserve in the amount equal to one-year of principal and interest payments at the time of closing on the loan, which is equal to about $70,000. If LCOG makes all of its debt payments on time, the City will not have to do anything. If LCOG fails to make payments on the loan, and, as a result, the debt service reserve account is emptied, the City will be required to re-fill the reserve account. The timing on the notification is such that the City will be able to consider which funds to use to make the payment during its annual budget process. The initial place to look for funding for fulfilling the loan guarantee would be the Urban Renewal Agency’s Downtown Revitalization Loan Program. If there are not sufficient funds in that program, the City will need to identify other funds. Any funds advanced by the City will become a secured loan to LCOG, which will need to be repaid with interest. The collateral for the loan guarantee are positions on LCOG’s real estate. The Park Place Building is assessed at $7.2 million with available equity of $1.7 million. LCOG also has approximately $1.1 million in available equity in the Schaefers Building. Both properties will be pledged as security for the loan guarantee, along with a UCC filing on LCOG’s equipment and an assignment of rents in the same properties. LCOG has agreed to pay the City’s out-of-pocket costs for entering into the loan agreement and has agreed to partially compensate for the staff time spent on this transaction by providing the City with 10 hours of LCOG staff assistance on grant-writing projects. RELATED CITY POLICIES The City’s debt policies do not contemplate this type of situation. COUNCIL OPTIONS The council may choose to approve the loan guarantee or not approve the loan guarantee. If the council chooses to not approve the loan guarantee, LCOG will not be able to close on a loan to fund the Park Place Building improvements prior to the end of the fiscal year. This may result in an audit finding for LCOG on its annual financial report. CITY MANAGER’S RECOMMENDATION The City Manager recommends approval of the resolution. Z:\CMO\2009 Council Agendas\M090511\S0905116.doc