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CR 93-202 Refunding Revenue Bond "{ y 0 \ . V ,to- :Ca: . o P K I ~ approval of this action, to.be undertaken. . " . -. ~ st. Therese is now proposing to have the City, on behalf of st. Therese, sell a new bond to refund the existing bond. Bondholders as a result of this sale will be paid a portion of their original . investment based on a Bankruptcy Court plan of reorganization The amount .of the proposed bonds would.notexceed $10,500,000. Primary Issues to Consider What is" the purpose.of this type . What are the implications to the action? ...... .. . Does the project meet the requirements of the city's policy relates to taxable/tax exempt financing? ~-i --M CR 93-202 Page 2 . Background In 1986 the City of Hopkins issued $15,000,000 to facilitate the construction of the st. Therese Care Center located in southwest Hopkins. This building contains 227 units of senior rental housing. Due to low occupancy rates in the first three years of operation, st. Therese was unable to generate sufficient revenues to make payments on its loan. As a result of a Bankruptcy Court plan of reorganization the corporation which owns the st. Therese project is now proposing to have the City sell a new tax exempt bond issue. Proceeds from this issue will then be used to pay existing bond holders a portion of the funds they originally invested based upon the reorganization plan. primary Issues to Consider 0 What is the purpose of this type of. financing? Local units of government are authorized to issue tax exempt revenue bonds in order to facilitate projects w~ich it is felt would be beneficial to the community. In order to utilize this type of financing tool the applicant needs to meet very . specific Federal requirements. This bond financing is for the most part only available for certain types of industrial or housing projects. Because the bonds as proposed for use in the subject transaction are tax exempt the interest rate on the funds secured as a result of the sale are lower than what would be available through conventional financing. This helps to make the project more "financially feasible." 0 Does the project meet the requirements of the City policy as relates to taxable/tax exempt financing? The city of Hopkins adopted a policy as relates revenue bond financing in 1991. The approval criteria within this policy for the most part relates to new construction projects. At the time that the original bond was sold for the st. Therese project was considered the City did not have an application process or policy as relates to revenue, bond financing. It is assumed that the staff and City Council as part of the hearing process at that time felt SUfficiently comfortable that the project which was proposed to be undertaken was beneficial to the community and therefore approved the bond sale. The action . on this matter presently under consideration has no impact on this project which was constructed as a result of the 1986 action by the City Council. . v.M CR 93-202 Page 3 0 What are the implications to the city as relates to this . action? The action presently being requested is preliminary approval of the bond sale. Approval of such action does not obligate the City to provide final approval which at this time is anticipated to be requested at the December 21 Council meeting. As a result of this bond sale and subsequent refunding of the 1986 bond the applicant will accomplish the following: - Reduce their interest rate on the debt - Provide a payment to the existing landholders per a reorganization plan as detailed in a bankruptcy court settlement. These bonds and all such revenue bonds are secured by a pledge of repayment strictly from the company for the City is selling the bonds. The City is not liable to make any payments should there be a default. In essence the City only is acting as a facilitation insider to secure the tax exemption on the bond. Even though the City is not liable for any payment it is important that staff determine there are sufficient revenues available from the company to make the required payments. In order to address this concern the applicant has identified the following: . A portion of the bonds will be rated by a national rating - agency. This means they have reviewed the financial documents of the project and feel confident there will be sufficient revenues to pay debt service. - An alternative to the above would be to secure an insurance policy for the entire bond which would guarantee repayment. - st. Therese is now fully occupied and therefore they are generating maximum revenue. - st. Therese now has a professional property management firm, Great Lakes Management Company. Staff would not recommend final approval of the sale to the Council until the form of security as detailed above has been resolved in a form to insure that any future default is minimized. Alternatives city Council has the following alternatives regarding this issue: . Approve the action as recommended by staff. This will 0 allow for the sale of the bonds as proposed. ~-.:; , -Ii' .. CR 93-:202 Page 4 . 0 Deny approval for the.sale of the bonds. Under this action the Council rieeds to detail the reason for denial. From a legal standpoint this matter should be discussed with the city Attorney prior to undertaking such action. 0 Continue for additional information. It should be noted that based on the Bankruptcy Court plan of reorganization the bond sale will need to be completed in the near future. Any continuance should be discussed with the applicant to insure that it is workable within their timetable. . . . ~. CITY OF HOPKINS, MINNESOTA . RESOLUTION NO. 93-134 RESOLUTION GIVING PRELIMINARY .APPROV AL TO THE ISSUANCE OF REFUNDING BONDS IN CONNECTION WITH THE ST. THERESE HOUSING PROJECT UNDER MINNESOTA STATUTES, CHAPTER 462C AND AUTHORIZING PREPARATION OF NECESSARY DOCUMENTS - WHEREAS, the City of Hopkins (the "City") is authorized by the provisions of Minnesota Statutes, Chapter 462C to issue its revenue bonds for the purpose of financing the acquisition and construction of multifamily rental housing for elderly persons; and - - WHEREAS, the City has previously issued its $15,000,000 Elderly Housing Revenue Bonds (St. Therese Care Center, Hopkins, Minnesota, Project) Series 1986 (the "Refunded Bonds"), the proceeds of which Refunded Bonds were loaned to St. Therese Southwest, Inc. (formerly, St. Therese Care Center, Inc., Hopkins, Minnesota) (the "Borrower") to finance a 227-unit senior rental housing project located at 1011 Feltl Court in jurisdiction of the City (the "Project"); and 0 WHEREAS, the Refunded Bonds are in default and the Borrower is operating under a 'reorganization plan (the "Reorganization Plan") confirmed by the United States Bankruptcy Court; and . WHEREAS, pursuant to the Reorganization Plan, the Borrower is required to . refund the Refunded Bonds by December 31, 1993 at substantially less than their par value; and WHEREAS, the Borrower has requested the City to issue its Multifamily Housing Refunding Revenue Bonds (St. Therese Southwest, Inc. Project) , Series ~ii 1993A (the "Series 1993A Bonds") and its Subordinated Multifamily Housing Capital Appreciation Refunding Revenue Bonds (St. Therese Southwest, Inc. Project), Series 1993B (the "Series 1993B Bonds") in an aggregate principal amount not to exceed $10,500,000 (collectively, the "Bonds"), in order to finance a loan to be made - to the Borrower for the purpose of refunding the Refunded Bonds; - WHEREAS, the City has been advised by the Borrower that on the basis of information submitted to them and their discussions with representatives of area financial institutions and potential buyers of tax-exempt bonds, revenue bonds of the City could be issued and sold upon favorable rates and terms to finance the refunding of the Refunded Bonds; and <.. WHEREAS, on the basis of information given the City to date, it appears that it would be in the best interest of the City to issue its revenue bonds under the provisions of Chapter 462C, in an amount presently estimated not to exceed $10,500,000 to finance the refunding of the Refunded Bonds; NOW, THEREFORE, BE IT RESOLVED THAT: 1. The issuance of the Bonds is hereby given preliminary approval by the . City in an amount not to exceed $10,500,000, subject to the mutual agreement of this body, the Borrower and the initial purchaser of the Bonds as to the details of the SNG62183 HPllO-47 1 "''''