Loading...
HomeMy WebLinkAboutItem 6: Loan Guarantee for LCOG ECC UGENE ITY OUNCIL AIS GENDA TEM UMMARY Action: Resolution 4976 Authorizing a Contingent Loan Agreement to Secure a Borrowing by Lane Council of Governments Meeting Date: May 11, 2009 Agenda Item Number: 6 Department: Central Services Staff Contact: Sue Cutsogeorge www.eugene-or.gov Contact Telephone Number: 682-5589 ISSUE STATEMENT The council is asked to approve a resolution that would provide a guarantee for a loan that Lane Council of Governments (LCOG) is entering into to fund a portion of the costs of improving the Park Place Building. The guarantee is requested because LCOG has been unable to secure sufficient loans to fund the full cost of the improvements without additional credit support. BACKGROUND In January 2008, LCOG purchased the Park Place Building in downtown Eugene with the intent to make the building the permanent offices of LCOG’s administration and government services. LCOG made the decision to purchase the Park Place Building rather than renew its 10-year lease in the Wells Fargo Building based on long-term financial savings and improved flexibility for office space. The purchase assumed LCOG would move into the Park Place Building sometime between June 2008, and June 2009. Construction of the new offices began in July 2008, and LCOG moved in November. The timing of the move was determined based on the City of Eugene’s need to move into the old LCOG office space in the Wells Fargo Building. The assumption at the time that LCOG purchased the building was that Umpqua Bank or Wells Fargo would provide the financing needed for the improvements, as had been the case with other LCOG improvements. Two events caused dramatic changes in the project during the year between the purchase and the construction of the improvements. First, the cost of the project increased significantly. The original estimate for improvement expense was $1.1 million. The final actual total expense will be about $1.9 million, which includes additional costs of design and moving. Second, a credit freeze developed nation-wide, making it extremely difficult for any organization to secure financing for projects. Umpqua Bank, which holds the mortgage on the Park Place Building, has lent LCOG an additional $800,000 to cover part of the cost of the improvements. LCOG spent $600,000 of its General Fund Reserves on the improvements. This leaves a funding gap of $500,000 which needs to be filled through another source. Z:\CMO\2009 Council Agendas\M090511\S0905116.doc 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 SUGGESTED MOTION Move to approve Resolution 4976 authorizing a Contingent Loan Agreement to secure a borrowing by Lane Council of Governments. ATTACHMENTS A. Resolution FOR MORE INFORMATION City Staff Contact: Sue Cutsogeorge Telephone: 682-5589 E-Mail: Sue.L.Cutsogeorge@ci.eugene.or.us LCOG Staff Contact: Bob Swank Telephone: 682-4435 Email: BSWANK@lcog.org Z:\CMO\2009 Council Agendas\M090511\S0905116.doc ATTACHMENT A RESOLUTION NO. ______ A RESOLUTION AUTHORIZING A CONTINGENT LOAN AGREEMENT TO SECURE A BORROWING BY LCOG. The City Council of the City of Eugene, Oregon, finds as follows: A. The Lane Council of Governments (“LCOG”) provides significant benefits to the residents of the City of Eugene (the “City”) and Lane County, Oregon. B. LCOG desires to borrow $550,000, and has requested that the City assist LCOG in securing a loan by entering into a contingent loan agreement that commits the City to pay the amounts due under LCOG’s borrowing if LCOG does not pay those amounts. C. The contingent loan agreement is to be secured by the City’s full faith and credit. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Eugene, a municipal corporation of the State of Oregon, as follows: Section 1.Agreement authorized. The City hereby authorizes the execution of a contingent loan agreement that obligates the City to provide funds to replenish a reserve account that LCOG will establish to secure its loan. The City shall not be obligated to provide an amount that exceeds $550,000 (the total principal amount of LCOG’s borrowing), plus interest that will be due from LCOG under that borrowing. Section 2.Delegation . The City Manager or the person designated by the City Manager to act on behalf of the City pursuant to this Resolution (the “City Official”) may, on behalf of the City and without further action by the Council: (1)Negotiate the terms of and execute the contingent loan agreement. (2)Pledge the City’s full faith and credit to secure the City’s obligations under the contingent loan agreement. (3)Take any other action in connection with contingent loan agreement which the City Official finds is desirable to assist LCOG in securing a loan. Section 3.Effective Date. This resolution shall take effect immediately upon adoption. The foregoing Resolution adopted by the City Council on the 11th day of May, 2009. ______________________________________ City Recorder Z:\CMO\2009 Council Agendas\M090511\S0905116-attA.doc Resolution - Page 1