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erg. OF SAN BERNARDQo - REQUQT FOR COUNCIL Ai
From: Kenneth J 0 Henderson, Directfl:!'C'D. - ^D1<IlNS~: Restructuring of Belco Development
Company Loan Agreement
Dept: COImnunity Development
1117 FEB _c, "" 3: ':Ie
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Date:
February 5, 1987
Synopsis of Previous Council action:
In September and October of 1983, the Mayor and Common Council approved three (3)
Disposition and Development Agreements (DDA's) for $63,000, $77,000 and $25,000,
respectively.
In October 1985, the Mayor and Common Council approved the restructuring of the
three (3) DDA's into one (1) loan agreement totalling $187,458,34 (principal plus
aecrued interest).
In January 1986, a Declaration of Default Status for the Belco loan agreement was
brought before the Mayor and Common Counci10 The item was tabled inasmuch as
Be1co made payment of the total amount in arrears immediately prior to January 21,
1986 Council meetingo
(SYNOPSIS CONTINUED TO NEXT PAGEo..)
Recommended motion:
Move to consider restructuring of Be1co Development Company CDBG Loan
Agreement.
~G,~
Ignature \
Contect perlOn:
Supporting de.. Itteched: Staff Report
Ken Henderson
Phone:
5065
Werd:
1
FUNDING REQUIREMENTS:
Amount:
N/A
Source: (ACCT. NO.)
(ACCT. DESCRIPTION)
Flnence:
Council Notsl:
71.ft'.'
I
Aaenda Item Nn~/'
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SYNOPSIS CONTINUED...
On November 17, 1986, a second Declaration of Default Status
item was brought before the Mayor and Common Council. The
matter was continued to December 8, 1986.
On December 8, 1986, staff informed the Mayor and Common
Council Belco had brought its account current and had sub-
mitted a request to restructure its loan agreement. The
matter was continued to December 22, 1986 and a again to
January 5, 1987.
On January 19, 1987, the Mayor and Common Council continued
to February 2, 1987 Belco's request for loan restructuring,
pending submittal and analysis of support documentation.
On February 2, 1987, the Mayor and Common Council considered
this matter and continued it to February 16, 1987.
file: 0022
o
2/5/87
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CI.., OF SAN BERNARDI(;:P - REQUEOT FOR COUNCIL AC'O>N
STAFF REPORT
Belco Development Company has submitted a ptO forma and cash-
flow analysis which substantiates an annual negative cash-
flow of $46,658.28 or $3,888 per month.
After reviewing the materials provided, staff met with Belco
on Januaty 21, 1987 to discuss various methods of loan
restructuring. The following three (3) alternatives were
discussed:
1.
Defer lo~n paym~ntR fQr twel~l2l to twenty-four (24)
months, adding this toEar-amount to the remaining out-
standing principal balance.
Q.~feLone~thi r9....H/3) to on~..1!P] f (lL2) of the loan
payment amount for twe~ve-ncr) to twenty-four (24)
months, adding the total amount deferred to the remaining
outstanding principal balance.
2.
~educing th~ ln~n ;nt~r~~~ r~t~ (currently at 7%) for two
(2) to five (5) years. Principal and interest payments
would then resume at the current seven percent (7%) rate.
Due to the nature of these alternatives, Belco requested time
to analyze the impact of each, using certain data staff had
supplied to assist with this analysis. As was previously
indicated to the Mayor and Common Council, Belco is attempt-
ing to sell the ptoject and each potential alternative must
be viewed in terms of the impact on the possible sale. The
matter was continued to February 16, 1987 to allow time for
further study.
3.
Belco has submitted a restructuring of the loan agreement as
follows:
1. Lowering of interest rate from seven percent (7%) to
three percent (3%) for 12-24 months, increasing to five
percent (5%) the next three (3) years and "gradually"
increasing to seven (7%) thereafter.
Staff recommends against the loan agreement restructuring as
described above for the following reasons:
1. Requested lowering of interest rate to three percent (3%)
is significantly below interest rates of other agreements
with for Drofit entities. Normally, a three percent (3%)
interest rate would only be considered for an owner-
occupied single family rehabilitation loan or, in some
exceptional uses, a loan to a nonprofit agency.
2. As noted above Belco's monthly shortfall is $3,888.00.
Reducing the interest rate to three percent (3%) would
reduce the monthly payment by $400.00, still leaving a
$3,400.00 shortfall.
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3. Even if staff was in agreement with the request to lower
the interest rate, it would only be for a period of two
(2) years. The interest rate would then return to the
original level of seven percent (7%).
Based upon the restructuring scenarios originally discussed
and the reasons provided immediately above, staff recommends
the Mayor and COmmon Council either direct that the agreement
remain as is or move to approve deferring of principal and
interest payments for up to two (2) years. Said deferred
principal and interest to be added to the outstanding princi-
p[~n~~
Kenneth J. Henders~
Director of Community Development
KJH/LRD/lab/0021
2/5/87