Minutes - Council - 11/27/2001 - Laserfiche WebLink

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west of Sunfish Lake Boulevard. The partners of Sunfish Commons requested the City consider an application for the Revolving Loan Fund. The Sunfish Commons Partnership met with the EDA during their regular meeting of October 8, 2001. The EDA provided direction to staff to further negotiate the specifics of the loan, such as interest rate, guarantees, terms, and payback position, prior to Council consideration of the matter. The EDA recommended the City Council approve the Revolving Loan Application to Sunfish Commons if the terms of the loan are agreed to by the Partners. Economic Development Consultant Mulrooney stated that he was asked, to complete a credit analysis of the borrowers to determine the possibility for repayment of the requested loan. When reviewing any loan request he recommends that the City pay attention to five critical factors. They include: Capacity, Capital, Collateral, Conditions, and Character. As it pertains to Capacity, the project anticipates an effective gross income of $293,498 per year. The projected debt service is $262,299 per year; this yields a debt service coverage ratio of 1.12. This ratio is within industry norms for projects of this type..The project appears-to have the capacity to cover the proposed debt. The capacity to repay a loan is what he considers to be the most critical of all the credit analysis factors. The company has a positive cash flow and exhibits a good probability of successful repayment of the proposed loan. As it pertains to Capital, capital invested by the owners is also an important consideration. With nothing invested, the borrower has nothing to lose. The borrower plans to inject a significant level of equity needed to complete the project financing and cover all project costs. The owners are proposing to invest at least $366,000 into the project or approximately 13 percent of the project costs. The project envisions a loan to value of approximately 87 percent. This level is somewhat high for a conventional loan; however, when revolving loan funds are used at the local level this amount of leverage is generally found to be acceptable. As it pertains to Collateral, adequate collateral for the loan is also important. The Ramsey Revolving Loan Fund, in combination with a senior lender, will normally finance 90 percent of the project cost or the appraised value whichever is less. The company is requesting financing for 87 percent of the cost of the project. As it pertains to Character, character is one of the final issues to consider. Mr. Mulrooney is familiar with many of the owners involved in this project as a result of his experience with other projects in this market area. The borrower's management team and ownership provides a positive impression and is respected by the lending community in general. Management has a good educational background to operate the retail center successfully. Mr. Mulrooney recommended approval of the loan subject to the following conditions: 1. Receipt of Personal Financial Statements. The borrower has not yet provided personal financial statements for the principles involved in the project. Based on their rePutation, he expected to receive strong balance sheets from the individual borrowers. However, until the information is received and reviewed, he could not recommend in good conscience to the Council that the loan be officially approved. 2. Receipt of a Bank Commitment Letter. It is important to understand the terms and conditions of the senior debt as a junior lender. The terms and conditions of the primary lender should be reviewed and found to be acceptable before a loan commitment is Provided by the City. City Council/November 27, 2001 Page 7 of 22