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Home My WebLink About7D, Presbyterian Homes Conduit Debt Waiver Letter� EN HILLS Request for Council Act�on Arepared By: Sue Iverson, Director of Finance Council Meeting Date: June 27, 2011 and Administrative Services Presbyterian Homes Conduit Debt Waiver Letter Budgeted A�nount: Actual Amount: Fundi�g Source: NA NA NA Recommendation: A rnotion to approve the attached waiver letter as presented and to direct the City Adzninistrator to send the letter to Presbyterian Hornes of Arden Hilis, Inc. SuAAorting Documents: 1. Memarandu� dated June 27, 2011 from Sue Iverson. 2. Memorandum dated J'une 22, 2011 from Steve Bubul, Kennedy & Graven. 3. Proposed Waiver Letter to Presbyterian Homes of Arden Hil�s, Inc. � EN HILLS MEMORANDUM DATE: June 27, 2011 TO: Honorabie Mayor and City Councilmembers Patrick Klaers, City Administrator FROM: Sue Iverson, Directar of Finance and Administrati�re Services SUBJECT: Waiver Letter for Housing Revenue Bonds for Presbyterian Hoznes of Arden Hills, Inc. Sack�round As part of the Development agreement with Presbyterian Homes, the Czty stipt�lated thai all canduit debt for ihe project needed to be done through the City of Arden Hills. As part of that agreerrr�ent, the fee schedule for the conduit debt payable to the City of Arden Hills was agreed upon, based on. the for�nula u�ed by the City o� Blaine. At the iime the developmeni agreement was made, Cities had the ability to issue $30,0OO,OQO in bank qualified bonds per year. The Federal Government has since char3ged the limit to $10,000,000. Presbyterian Hornes is asking the City Council to waive the reading of Sectian 7.1(d} — that the City of Arden Hills issue 100% of �he bands — with the conditian thai Presbyterian Homes will pay ihe fu11 fee as �� the City of Axden Hills issued all the bonds. This waiver will allow Presbyierian Ho�nes ta issue bank qualified debt for the entire bond issue by using multiple jurisdictions. The City's Bond Counsel, Steve Bubul, has drawn up the required waiver let�er and provided infoz�mation in ihe attached Ietter. Financial or Other Considerations By approving this waiver, ihe City will still receive the entire amount of the fee fox conduit debt �hat it would have received if the City had issued all the bonds. The waiver is only for this one section of the development agreemen�, everything else remains the same. If the City were ta need to issue debt, the contract aiready pratects the City as Presbyterian Homes would have to pay the difference beiween tha interest rate of the bank qualified bonds and the bonds that are not bank qualified. City Council Meeting 11Metro-inetlardenhi11s1AdminlCouncillAgendas & Packet Information12 6 1 116-27-1 1 RegularlPacket InformationlWai�er Ietter far Presbyterian Homes Conduit Debt.doc Page 1 of 2 Caancil Action Reaues�ed A mation to approve the attached waiver letter as presen#ed and io direct the City Administrator to send the letter io Presbyterian Hoa�xies of Arden Hills, Inc. City Council Meeting 11Metro-inetlardenhilIslAdminlConncillAgendas & 1'acket Information126 1 116-27-1 1 RegularlPacket InformatianlWaiver letter for Presbyterian Homes Conduit Debt.doc Page 2 of 2 470 US Bank Plaza 200 South Sixth Street Minneapolis MN 55402 F� CHARTERED {612) 33']-9300 telephone {612} 337-9310 fax http:/lwww, kennedy-graven. com MEMORANDUM TO: Patrick Klaers Jill Huimacher Sue Tverson FROM: Stephen Bubul DATE: Jizne 22, 2011 RE: Housing Revenue Bonds for Presbyterian Homes of Arden Hills, Inc. As you know, the City entered into a Cantrac� for Private Deve�opment with Presbyterian Homes of Arden Hills, inc. (the "Developer") dated Decer�ber 20, 2010 (the "Contract"), undex which tiae City ag�reed to provide certa�in tax incrennent finax�.cing assistance in connection with redevelopment of Developer's senior housing campus in the City. The Developer intends to finance that r�development, in pa�t, through housing revenue bonds, which are also sometir�es referred to as "conduit bonds." These bonds are issued by �lie City, and the proceeds are loaned to the private entxty, which has sole responsibilrty to repay the loan (and the bonds). When the City issues such bonds, it typically collects an administrativ� fee, as described in the City's Private Acti�ity Bond Policies. I�n ihe Contraci, tkie City and Developer agreed on a fee schedule for all the conduit bonds issued for redevelopment of Developer's facility in the City (referred to as the "Housing Revenue Bonc�s"}. This fee schedule (which varies somewhat from Private Activity Sond Policies) is as follows: 1% af the f�rst $5,000,000 in principal amount o�Housing Revenue Bonds; .5% o�the �e� $15,000,000 in original principal azxxouxit; and .25% of the principal amount in excess of $20,000,000. For purposes of �1ie fee calcuiation, �lie principal amount of all Housing Revenue Bonds are aggregated, as if alI were issued or� the same date, bui the admi.nistrative �ees is payable upon closing of each separate series. Section 7.1(d) of the Cantract alsa provided that the Developer may not seek issuance of an.y series o�' Housi�g Revenue Bonds by any unit of government other than the City. The purpose of this provision was to ensure tka.at the Developer not avoid paying the City's administrative fee by having ano�her goverr�ment be the conduit issuer of revenue bonds for the Arden Hills facility. Developer has now determiz�ed �o issue its f rst series af Hausing Revenue Bonc�s through placement with a bank, which requires ihe bonds to be "qualified tax-exempt obligations" wiihin the meaning of Section 265{b}(3) of the Internal Revenue Code of 198b, as amended (such bonds are also known as "banic qualified bonds"). �n arder for an issuer fio designate bonds as bank-qualif ed bands, ihe issuer �nust reasonably expect at the time of issuance thai it wiil not issue more tkian $I0,000,000 in ta� e�empt governmental and 501(c}(3) bonds in thai calendar year. Developer seeks approximately $34,OOO,aoa million in pri�czpal amount of Housing Revenue bonds in 2011, which means ihat the only way all such bonds arzxay be issued as bazlk qualifed bonds is £ar the bonds to be issued by more than one jurisdiction (each one issuing no more than $1U,000,000 znillion �n prir�cipal amount, and �ach also expecting to issue no more than that amount for all tax exerz�pt governmentai and 501(c){3} bonds combined in 2011). T�erefore, Developer has requested that the City issue $10,000,000 in Housing Revenue Bonds, and has also requested that it be permitted to seek issuance of the balance of 2011 Housing Revenue Bonds by other jurisdictions. However, Developer has praposed to pay the City's administrative fee (as described above) as i� tk�e City issued the entire princi�al amount of bonds. To that end, Developer has asked the City io waive the literal reading of Section 7.1(d} af the Cantract, on the condition that Developer pay the full fee as if ihe City issued all the bonds. A form of the waive letter is attached. When other issuers move farward with approval of bonds, the Ci#y will be asked to conser�t to that issuarxce, az�d the conditions described in the wa'rver letters would be incorporated in such consent resolutions. If the City of Arden Hills c�ver� to issue any of its own governmental bonds in 2011, tl�e Cantract already provides that Developer wo�.ld be required to reimburse the City for any higher cosi created by the fact that the City's bonds would not be bank qualified. (Bank qualified bonds typically carry a slightly lower interest raie}. That proviszoz� is not being waived. If you ar councilmember have any questions, please contact me. 38&i88vI S3B AR200-IO 2 � DEN HILLS June 28, 2011 Mark Meyer, Chief Financial Officer Presbyterian Homes of Arden Hi11�, Inc. c/o presbyterian Homes and Se�vices 2845 Hamlin� Ave. North Rosevill�, MN: RE: Contract for Private Development betwe�n City of Arden Hilis and Presbyterian Homes of Arden Hilis, Inc. dated December 20, 2010 {the "Contract") Dear Mr. Meyer: As you know, the City o� Arden Hilis ("City} and Pres6yteriat� Hor�es of Arden Hi�ls, Inc. ("Deveioper"} entered iz�to the above-referenced Contract, und�r which among ather i�iings the City agreed to issue certain Housi�zg Revenue Bonds (as defined in the Contract) according to certain tenns and condiiions. Section 7.1 {d} of tt�e Contract provided that "Developer may not seek, and City will not consent to, issuance of any series Housing Rev�nu� Bonds by any unit of governrr�ent other than the City." De�eloper has novv requested that some por�ion of the Housing Revenue Bonds be issued by other jurisdictians, in order to permit aIl such bonds to be issued as "qualified tax exempt obligatior�s" urider Section 265(b){3} of the Internat Revenue Code of 1986, as amended (a�so known as "bank qualified"). The City hereby agrees to vcraive �he prvvisions of Sectian 7.1(d) of the Contrac�, on the conditior� that Developer_ 1. Complies witll the City's Private Activity Bond Policies (as defined it� the Co�tract) with respect to any Hausing Revenue Bands actuaily issued by the City; and 2. Pays to the City the ad�min�istrative fee described in Section 7.1(d) of the Contract with respect to all Housing Revenue Bonds, whether issu�d by the City or any ather jurisc�ictian (i.e., treating all such bonds as if issued by the City). If Housixig Revenue Bands are issued by anat�er ju.risdictian, the fee (calcuIated as described in Section 7.1{d) of the Contract) wilt be due ar�d payable to the C�ty on the day of closing on s�ch bonds. Such fee is in addition to any fee that another jurisdiction rnay i�mpose with respect to bands issued by that jurisdiction; and 3gR�q�v� S[R AR �(j_6o Arden Hills � 1245'4Vest High�vay 96 • Arden Hills, MN * 55112-5743 Phone 651.792.7800 � Fax 651.634.�137 � www_ci.arden-hills.mn.us 3. Agrees that nothiung iri this letter waives any other provi.siozls of the Contract, including without limitation Section 7.1(c} of the Contract (r�gardir�g reimbursement io the City for ar�y loss af bax�k-Qualified s�tus for City bonds)_ At the ti.�xie of issuance of �ach series of Housing Revenue Bor�ds issued by another j�sdiction, the City's corisent to such issuance will iric�ude �he conditions described ir� this letter. If these terms are acceptable, please sign in the appropriate space below and retz.irtt to me_ Sincerely, Patrick Klaers, City Adminisirator Accepted , 241 I by: PRESBYTERIAN HOMES OF ARDEN HILLS, INC. � Its 388[42v1 SJB A,�i.200-10