HomeMy WebLinkAbout7F, Request from Presbyterian Homes for Conduit Fina�:
EN HILLS
Request for Council Action
Prepared By: Sue Iverson � Council Meeting Date: July 28, 2008
Request firom Presbyterian Homes fior Conduit Financing
Budgeted Amoun#: Ac#ual Amount: Funding Saurce:
NIA NIA
Recammendation:
A mofion to approv� a fee of and reimbursement of
any costs incurred by the City of Arden Hills in connection with a request �rom
Presbyterian Homes for the City of Arden Hills to act as an Issuer of a note for conduit
#inancing in 2008.
Supporiing Doc�aments: TTmT� �
1. Mernorandum from Sue lverson ta City Council, July 24, 2008
�
��N HYLLS
MEMORANDUM
DATE; July 24, 2008
TO: Honorable Mayor and City Council
Ron Moorse, City Adrr�inistraior
FROM: Sue Iverson, Finance Directar�'"`�
SUBJECT: Request from Presbyterian Homes for Conduit Financing
Background:
MHC has been engaged by PHM&S Offce Building LLC (single m�mber LLC of Fresbyterian Hoznes
Management az�d Service, Inc.) to arrange a tax-exempE financing of its scheduIed office expansion main
office building and a refinancing af its outstanding mortgage.
At the �uly 14, 2008 work session, Steve Fenlon, MHC, presented the proposal to the Ci#y Council, The
Council directed staff to negotiate the terms for the fee paid to the City of Arden Hills for the use of its
bank qualification.
Discussioa:
Staff inet with Steve Fenlon of MHC to negotiate this fee. At this tirne, Presbyterian Ho�nes agrees to pay
the City of Arden Hills an issuer's fee equal '/� of 1.00% of the par amount of t1�e Series 2008 note
provid�d, the City Council of Arden Hills agrees to act as Issuer in additional tax-exernpt bond offering{s}
for a project(s) r�hich are at leasi in part, located in Arden Hills during the r�ext 3 years for an Issuer's fee
computed at a rate of %2 of 1.00% of the par amaunt af the bonds, but not greater than $75,000 on any
one tax-exempt bond issue.
Staff Recommendation;
Staff recommends Council to accept %z of 1.00% of the par amount of the Series 2008 note, but does not
recommend the provision to a�ee to act as an Issuer in additional tax-exennpt bond of%ring(s) for a fee of
%z of 1.00% with a$75,000 limit on any one tax-exempt bond issue for the next ihree years.
Staff feels that a policy needs to be developed and research done on what other communities are charging.
In light of the TCAAP development ar other needs, the City may not be able to act as an issuer for
conduit financit�g if the need would arise to issue bonds ourselves. I� additional conduit itnancing is
needed by Presbyterian Homes, staff feels that these terrns could be d�alt with as the need arises withaut
tying the hands of future Councils.
MHC
Nonprofit Tax-Exempt Finance Specialists
740 Mississippi Blvd. S., Suite MA
St. Paul, Minnesota 551 i6
O:(651)455-8300 C:(65l)308-0949
Email: mhealthcan(cc�,aol.com
PHM&S Office Building, LLC
www.preshomes.org
Executive Summary
Dated: May 21, 200$
MHC has been engaged by PHM&� Office Building, LLC ("Obligor") to arrange a tax-
exeznpt financing of its scheduled office expansion z�ain office building and a refinancing
of its ouistanding mortgage. Please keep this request %r financing confidential.
Overview: The Obligar is seeking a bank-qualified tax-exempt martgage note
in the amount of $4.4 million ta finar�ce a$4.9 rnillion off ce
building addition less a Presbyterian Homes $1.0 million equity
contributian, and to redeem the $860,000 current office building
acquisition �nortgage.
Parties to the Transaction:
Obli�or: PHM&S O�fice Building, LLC {single rnember LLC of
Presbyteriaza. Homes Management and Services, Inc.) is organized
as a Minn.esota nonprofit 501{c}(3} corporation. The office
building is located at 2845 Hamline Avenue North, Roseville, MN
SS113.
Issuer: The City of Roseville, MN will act as Host City since it does not
have the capacity to issue this noie as bank-qualified in 2008.
Consequently, MHC will approach other nearby suburban cities
with a request that it serve as Issuer in this combined refinaxzcing
and financing. The Issuer/host cities will be asked to consider an
iniiial resolution calling for a public hearing. Following the public
hearing, the Issuer will be asked to apprave a final resolution
granting its approval to serve as Issuer in this banlc-c�ualif ed, t�
' exempt finanancin�; the Issuer vcrill issue this note on a nan-recaurse
basis, the lender's sole soujrce of repayment will be froxn ihe
capitalization and future succeasful operation of the Qbligor.
Transaction
Manager: Steve Fenlon
Mxc
St. Paul, Minnesota
mhealthca�a,aol.com
C: {651)308-0949
Bond Counsel: Jenny Boulton
Briggs & Margan
W 220a lst National Bank Building
332 Mi�unesota St. �
St. Paul, MN 55101-1396
(b51)808-6484
jboulton(c�bri ��s.com
Host Approval: The City of Rosevi�le
Chris Miller
(651)742-7031
Chris.miller[�u,ci soseville. mn.�s
Issuer: TBD by MHC
Obligox: Mark Meyer, CPA
CFO
Presbyterian Homes & Services
2845 Hamline Ave North
Rosevil�e, MN 55113
(651}631-6120
mmeyer(c��reshoxr�es. org
Borrower's CounseL• Jarma Severance
651 631-6125
,j severance(a��preshc�rries. or�
Lender: Jirn Canrad and Bryan Toft
University Bank
20a University Avenue
St. Paul, MN 55143
(b51)265-5640
j im(a�universitybar�k. corn
Lender's Cour�sel: Pat McGuigan
McG�igan Law Office
176 Snelling Avenue North
Suite 200
St. Pau1, MN 55104
{651)645-6325
p at@,mc �g anho l l�r. com
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The Project: The Presbyterian Hornes organization's co�parate headquarter
o�fice building was acquired in April 1, 2001, it currenily
con�pri�es 24,004 square %et. Due to continued growth within the
Presbyterian Homes arganization �there has been a significant
increase in corporate support services personnel (hurnan resources,
accounting, finance, real estate development, etc.). Accordingly, a
27,000 squa�re foot addition has been designed and the Obligor is in
the process of obtaining City approval of its design.
Transaction Details:
� addition, proceeds of this note will be used to redeem the
current outstanding office building rnortgage note which is held by
Key Bank, Dallas, TX.
SOURCES & USES of FUNDS STATEMENT
SOURCES:
Tax-Exempt Note:
PH Downpayment:
PH Excess �ssuance Costs:
Total Sources:
USES:
Construction Costs:
F,F&E Costs:
Development Expense:
Architectural:
Siie Costs:
Redeem Outstanding Mortgage:
Financing (Issuance) Costs:
Total Uses:
Tax-exem�t Note:
Amount:
Terrn:
$4,865,800
$4,865,800
1,400,000
A�3,865
$Sti909�665
$3,784,000
650,000
207,300
151,200
� 20,040
$6a,00a
141,IG5
$5.944.665
The Ioan term will be twenty years.
Loan Repavment: The first 12 monthly payments will be interest-only calculated
upon the actual amounts advanced during construction. Thereafter,
the next 48 monthly payments wi11 be based upon the initial
interest rate and the remaining 19-year loan term calculated to
achieve a level monthly payment to fully amortize this note over
the ] 9-yeax azxaortizatian period re�aining after the completion of
construction. Subsequent manthly payments will be calculated
based upon the periodic inierest rate adjustments and the remaining
loan te�n as discussed further below.
�nterest Rate: The initial interest rate is 3.75% based upon a 365/365-day accrual
methad. Please bear in mind the Issu�r rwill represent that tk�is
iransaction is bank-qualified, which allows the lender to deduct
80% of its carrying costs. Thus, the ta�able equivalent is S.bO%
assuming you avoid Federal taxes at a rate of 34%. This taxable
equivalent rate is ap�roximately 300 basis points over �he yield of
Treasury securities on April 15, 2008 �rith remaini�g mafuriiies of
five years.
Interest Rate
Adjustment: On the 64th, 120�' and 180th month anniversaries of the loar�
closing, the interest rate will be adjusted based on changes in the
fi�e-year U.S. Treasury Consiant Maturity index. Throughout the
loan ter�n the �naximum increase to the initial tax-exempt rate will
be 250 basis points. If Treasury yields at the iime of the rate
adjustment warrant it, the maximum increase would result in a tax-
e�empt rate af 6.25%, with a ta�cable equivalent rate of 9.33°/a.
The interesi rate will be adjusted on each fifth anniversary by
taking the then current 5-year US Treasury Constant Matur�ty and
adding 3.00%, this sum will then be lessened by rnultiplying it by
67% to arrive at the adjusted inierest rate subject to the lifetinr�e
interest rate cap of 6.25%.
Security: This rzote will be secured by the Obligor's unconditional promise
to repay the note. The Lender will be further secured by a first
mortgage on the Proj ect.
Prepavment: The Obligor shall have �he right ta prepay ihe note in fuil or in part
on any rnonthly payment date, subject to t�urty days' notice,
withoui penalty or service charge. If the Qbligor desires, and upon
rernittanca of a material {5%) partial prepayxnent, the Lender shall
agree to re-arnortize the �ote, ihereby reducing its required annual
d�bt service.
Obli�or 4rganizational Profile:
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Hi_ _stary:
The Obligar was formed in April, 2001 for the purpose, arnong a�Iiers, of owning and
managing ihe central oifice coxza.plex for the 1'resbyterian Homes' organizations. The
single member of the Oblzgox is Presbyter�ar� Homes Managernent and Services, Inc.
which cont�ols the Obligor and elects its Board of Directors.
Senior Mana�ement:
A brief statements follow conceming PHM&S senior management:
The C�ief E�ecutive Officer of PHM&S is Daniel A. Lindh. He has been assaciated with
PHM&S since 197b. Dan graduated from Bethel College with a B.A. degree in
Psychology in 1975 and the University of St. Thomas with a M.B.A. degree in 1980.
Dan also holds a long-term care administrator's license issued by the �taie of Minnesota.
Th� Chief Financial Officer of PHM&5 is Mark Meyer. Mark has been associated with
PHM&S since 1987. He graduated from The University of St. Thornas vcrith a B.A.
degree zn 1984 and is a Certified Public Accour�tant.
PHS and its Af�liates:
PHM&S, a Minnesota nonprofit carporation is a tax-exempt organizaiion formed in 1982
which through its Board rne�bers control the Obligar. The Baard of Directars of
PHM&S are appointed by the Board of Directors of Presbyteriaxz Homes and Services
("PHS"). PHS is a Minnesota nonprofit tax-exempt corporation that was formed in 1953.
PHS and its affiliates are engaged in the business of {i) owning and operating health care
facili�ies that provide skilled nursing, canvalescent and rehabilitative care to elderly
persons, (ii) owning and operating assisted living facilities and independent senior
housing facilities, {iii) pro�iding max�agement services, prima.rily with respect to abovE-
described facilities, and (iv} pro�iding home health care and other charitable seniar and
residential care services.
Obli�or Board of Directors:
Name:
Mike Bingharn
Chairp�rson & Director
Daniel A. Lindh CEO
Vice Chair
Mark Meyer CFO
Secretary/Treasurer
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