The City of Ramsey - HRA has received a written request (attached)  from Ryan Cronk of Flaherty and Collins (F&C) in regard to a proposal of restructuring the initial loan agreement per the Development Agreement that was entered into by F&C Ramsey, LLC ("Developer"), F&C Ramsey Member, LLC ("Borrower"), The Housing and Redevelopment Authority in and for the City of Ramsey, Minnesota (the "HRA") and the city of Ramsey, Minnesota (the "City").

The requests proposes a restructuring of Note #2 ($6,916,000 debt issuance) in regard to the prepayment plan stated in Section 8.5 of Article VIII of the Development Agreement. Per Section 8.5 Prepayments:  Borrower may prepay Loan #2,  in whole or in part, at any time and, if in part, from time to time, during the term of Loan #2.  All payments shall be applied first to the payment of accrued, unpaid late charges, then to accrued, unpaid interest, if any, with the balance, if any, applied to the reduction of principal.  If Borrower prepays $2,000,000 or more on or before before the date 12 months after the date of the first disbursement of proceeds of Loan #2, the HRA shall forgive $250,000 of the principal amount of Loan #1 (TIF #1 loan of $1,420,000), such forgiveness to be effective as of the date Borrower has prepaid at least $2,000,000. 

To date, F&C has prepaid $500,000 (November 2012).  To take advantage of the $250,000 "Forgiveness" towards Loan #1 F&C needs to pay $1,500,000 by July 16, 2013 (12 months after date of first disbursement of proceeds of Loan #2).

F&C proposal is requesting that the Loan agreement be amended to allow a reduction in the prepayment amount that F&C is required to meet in order to receive the $250,000 "Forgiveness" on the principal amount of Loan #1.  F&C's proposal is to reduce the required prepayment amount from $2,000,000 to $1,000,000 and thus reduce the received "Forgiveness" from $250,000 to $125,000.

 

Written Proposal Request from Ryan Cronk of Flaherty & Collins, received June 11, 2013 and Summary of status of the two Loans with F&C.

HRA Options:

Accept F&C Proposal -  Development Agreement and Loan Agreement will need to be amended.  All legal and adminstrative costs should be paid by F&C.  Makes a contribution towards reducing the outstanding principal on Loan #2.  If $1M total proposal is accepted, the principal balance of debt will be reduced by $588,670 ($411,330 of accrued interest).

 
Don't Accept F&C Proposal - The incentive was set at $2,000,000 as F&C only had $1M in their own equity in the project.  The $2m prepayment incentive was created to reduce the city's liability and risk.  Concern over setting precedence.  E.g., Will other contracts ask to be re-opened/amended?  By not meeting the incentive date, F&C would have to pay back the total amount to TIF #1.  The $250,000 missed incentive could be applied towards city improvements (road reconstruction) or to the debt related to Loan #2 if the city is not taken out per schedule.  In short, if the city does not accept the proposal and the $2M prepayment incentive is not met by July 16, 2013 the city will have received $750,000 ($500,000 prepayment from November 2012 and payback to TIF #1 for $250,000).  If the 1M is accepted, net result would be F&C paying to the City a total of $875,000 (1M - $125,000 incentive).  Overall net result:  $125,000 to city ($875,000-$750,000).
   

Loan #1 in the amount of $1,420,000 was funded from the city's existing tax increment funds in Tax Increment Financing (TIF) District #1.

Loan #2 was a TIF bond issued in the amount of $6,916,000