HomeMy WebLinkAboutS3- Economic Development ECONOMIC DEVELOPMENT AGENCY
OF THE CITY OF SAN BERNARDINO
REQUEST FOR COUNCIL ACTION
FROM: BARBARA J.LINDSETH SUBJECT: HARRIS'COMPANY
Acting Director FLOAT LOAN
DATE: January 19, 1995
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S3nopsis of Previous Commission/Council/Committee Action(s):
On December 5, 1994, the Mayor and Common Council approved the U.S. Department of
Housing and Urban Development(HUD) Section 108 Loan Application and a CDBG Business
Retention Loan for the Harris'Department Store Building Acquisition project; and authorized the
Mayor and Acting Director to execute all necessary documents. Further, that staff be authorized
to submit said application to HUD.
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Recommended Motion(s):
(Mayor and Common Council)
MOTION: RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF
SAN BERNARDINO, CALIFORNIA, AUTHORIZING: (i)EXECUTION OF A
CERTAIN FLOAT LOAN AGREEMENT BY AND BETWEEN THE CITY OF
SAN BERNARDINO AND HARRIS; AND (ii) SUBMITTAL OF NECESSARY
REQUESTS TO THE UNITED STATES DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT TO FUND THE HARRIS'FLOAT LOAN
.-T- I I I r--� /I - -
Administrator BARBARA J.LINDSETH
Acting Director
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Contact Person(s): Barbara J.Lindseth/Laura J.Muna-Landa Phone: 5081
Project Area(s): Central City(CC) Ward(s): One 1)
Supporting Data Attached: Staff Report;Resolution;Form of Float Loan on File
FUNDING REQUIREMENTS: Amount: $3,150,000 Source: CDBG L.O.C.
Budget Authority: Requested
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Council Notes:
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BJL:LML:lag:01-23-06.cdc COMMISSION MEETING AGENDA
MEETING DATE: 01/23/1995
Agenda Item Number: .`
ECONOMIC DEVELOPMENT AGENCY
STAFF REPORT
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Harris' Company Float Loan
Background
The City has requested a HUD Section 108 Guaranteed Loan in the amount of$7,350,000 over a
term of twenty(20)years at HUD prevailing interest rates. The loan amount is based upon a
purchase price and an appraised value of$10,500,000 (70% loan to value ration). These funds
will be used to assist The Harris' Company, a major tenant, with the acquisition of the building
they currently occupy and lease, thus maintaining the economic viability of the mall. The use of a
CDBG Float Loan in the amount of approximately$3,150,000 or in conjunction with the Section
108 loan is necessary to make this project viable. The combination of two (2) loans will result in
significant savings to The Harris Company and a corresponding decrease in annual debt service as
compared with lease payments.
Analysis
Although the U.S. Department of Housing and Urban Development (HUD) has not completed its
analysis and made its decision relative to the approval of the Section 108 loan application request,
staff has continued to proceed with the negotiation of the deal points for both the Section 108
loan and the float loan. It is appropriate at this time to proceed with the execution of the float
loan agreement between the City and Harris' and to submit the request to HUD. The attached
letter to Mr. Jorge Pont dated January 19, 1995, summarizes the main deal points of the
$3,150,000 float loan.
Recommendation
Based upon the foregoing, it is appropriate to proceed with the execution of float loan agreement
between the City and Harris'.
Staff recommends adoption of the attached resolution.
Cc cct /C\ i
BARBARA J. LINDSETH, Acting Director
Economic Development Agency
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BJL:LML:1ag:01-23-06.cdc COMMISSION MEETING AGENDA
MEETING DATE: 01/23/1995
Agenda Item Number: ) 9
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s= City of San Bernardino
- a ECONOMIC DEVELOPMENT AGENCY Agency Administrator
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•Development Department
Redevelopment
Community Development
Housing
January 19, 1995 •San Bernardino Downtown
Main Street, Inc.
•Convention and Visitors
Bureau
•Office of Business
Mr. Jorge Pont Development
President and Chief Executive Officer
The Harris Company
300 North "E" Street
San Bernardino, California 92416
RE: HARRIS COMPANY FLOAT LOAN
Dear Mr. Pont:
The following conditions and details are provided as suggestions to our negotiations relative to a
proposed float loan in the amount of$3,150,000 for the Harris Company building acquisition. All
such points as we may negotiate are subject to final approval by the Community Development
Commission of the City of San Bernardino or the Mayor and Common Council.
Float Loan
1. Interest rate of 8-1/2% per annum payable monthly on $3,150,000 principal balance;
payments of$22,312.50 per month, interest payable in arrears on the first day of each
month for a full month or any portion of a month based on the actual number of days
assuming 30-day months and a 360-day year consisting of 12 thirty-day months with
interest payments commencing on the first day of the calendar month next succeeding the
funding of the float loan; interest payments will be retained by the City in a separate
interest bearing sinking fund account to be credited against the final principal payment due
on the float loan.
2. Term of float loan will be one (1)year or 365 days, renewable by the City at its option for
a total period of five (5)years.
3. Letter of credit to be issued by Bank of America or other acceptable bank legally
undertaking business in California that is rated AA or better for short term debt by
Moody's or Standard&Poor's.
201 North E Street, Third Floor • San Bernardino, California 92401-1507 • (909)384-5081 • (800)232-1267 • FAX(909)384-5135
Mr. Jorge Pont
January 19, 1995
Page Number Two
4. Letter of credit to be in such form and substance as to allow draws(i) on any date to fulfill
City's obligation to fund CDBG projects, (ii) at the end of each letter of credit renewal
term if the letter of credit is not renewed.
5. The operating covenant will have an initial term of three(3)years and will be executed by
Harris' for the benefit of the City and will contain as a minimum the following provisions:
(a) if Harris' (i) ceases substantial store operations(subject to 5(c)below), or(ii)
changes the character of the merchandizing from that of the present quality, or(iii)
relocates the corporate and administrative offices to another site without the
approval of the City, the float loan would be due and payable and a draw will be
made by the City on the letter of credit.
(b) if the events set forth in 5(a) above do not occur, then those interest payments as
made by Harris', plus interest earnings thereon, held in the sinking fund shall be
remitted to Harris' as of the date of the float loan repayment in the form of a credit
against principal due under the float loan.
(c) Harris' must unconditionally agree to maintain its operations in San Bernardino for
the full term of the three-year covenant subject only to casualty losses that result in
the inability to continue the operations at the store. Harris' must agree to maintain
its operations in San Bernardino for an additional period of two (2)years subject
to (i) casualty losses that result in the inability to continue the operations at the
store and (ii)the continued operations of all of the other majors. If the agreement
is breached, any amounts on deposit in the sinking fund account shall not be used
to reduce the amount to be drawn upon the letter of credit to repay the float loan
but will be retained by the City.
6. No extensions to the float loan shall be permitted beyond February 1, 2000. As of said
date the City will apply amounts then on deposit in the sinking fund account
(approximately $1,338,750 plus interest-earnings)to reduce the amount to be drawn upon
the letter of credit to repay the float loan.
7. The float loan will be due and payable and the letter of credit drawn upon if there is any
breach of any operating covenant then in effect.
Mr. Jorge Pont
January 19, 1995
Page Number Three
8. Harris' Company and not a subsidiary corporation or a limited or general partnership shall
retain ownership of the Store during the term that the float loan is outstanding.
Additional Requirements if a HUD Section 108 Loan is Funded
9. HUD Section 108 Loan will be due and payable at option of the City(i)upon a breach of
any operating covenant that is then in effect; or(ii)upon a breach of any financial
covenants then in effect which were granted by Harris' Company pursuant to the HUD
Section 108 loan documents that are substantially similar to those as contained in existing
bank documents previously executed by Harris'. The financial covenants that will be in
effect for the life of the HUD Section 108 Loan are listed below:
Minimum Net Worth: $73,000,000
Ratio of Quick Assets to Current Liabilities: 1.0 to 1.0
Ratio of Current Assets to Current Liabilities: 2.0 to 1.0
Ratio of Total Liabilities to Tangible Net Worth: Not Exceeding 1.0 to 1.0
10. The limitation on ownership pursuant to 8. above will remain in effect for the term of the
HUD Section 108 Loan.
11. A loan agreement will provide remedies in the case of a default which will include the
ability to foreclose by legal action or under a trustee foreclosure as well as to file suit on
the note without a foreclosure. In the event of technical defaults, Harris'will be provided
sixty(60) days to remedy the situation.
12. Harris'will agree to a ten(10)year operating covenant with the following parameters:
Year 1 to 3: Absolute agreement to operate subject to the casualty loss
exception as set forth in 5(c).
Years 4 to 10: Casualty loss exception applies plus, all other majors must continue
to operate during this period. In addition Harris' must meet the
minimum sales levels for years six(6)through ten(10):
FYE 1/31/01 $27,500,000
FYE 1/31/02 $29,000,000
FYE 1/31/03 $30,500,000
FYE 1/31/04 $32,000,000
FYE 1/31/05 $33,500,000
Mr. Jorge Pont
January 19, 1995
Page Number Four
13. Harris'will provide the Agency with annual audited,financials.
Please review the above conditions and provide us with your comments at your earliest
convenience.
Sincerely
TIMOTHY C. STEINHAUS,Administrator
Economic Development Agency
TCS:EM W Jag.01-19-011tr
cQ Tom McPeters
Scott Rodde
The above terms and cond' ' ncurre in
by the undersigned on be if of Harris' as of t 's dat .
By:
Title: 5 it,jT 0� (,.t •0