Agenda - Council - 06/28/2005 - Laserfiche WebLink

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Final Approval of Loan Agreement between the City of Ramsey and Kilkenny, LLC and authorization of the issuance and sale of $35,000 Industrial Development Revenue Note of 2005 and authorization of the issuance and sale of $3,810,000 Variable Rate Demand Industrial Development Revenue Bonds By Michael Mulrooney Background: The Mate Precision Tooling building will be purchased and occupied by Sign-zone, Inc., currently located in New Brighton. To facilitate the acquisition, the company is requesting that the City of Ramsey provide financing through the issuance of Industrial Revenue Bonds. At the Regular City Council meeting of May 24, 2005, council adopted Resolution #05-05- XXX known as the Inducement Resolution, which indicated council's agreement with the financing concept for the project. This form of financing has significant cost advantages for manufacturers like Sign-Zone. Tax-exempt Industrial Revenue Bonds are securities issued by a local government agency or city to finance qualified capital projects for use by private business and industry. The city acts as a conduit for the IRB financing. A loan is made to the city through the issuance of Industrial Revenue Bonds and the city in turn lends the bond proceeds to the business entity. The action of passing a loan through a government entity enables the bonds that are issued to be treated as tax-exempt for the investors who purchase the bonds. As a result of the tax-exempt status, rates on IRBs are substantially lower than conventional financing because the interest income earned on the IRB by the bondholder is exempt from Federal income taxes. In a nutshell, investors are willing to accept a lower face value "rate of return" when the return is exempt from federal income taxes. The resultant savings are passed on to the business entity in the form of a below market rate loan. It is important to note that the "full faith and credit" of the City of Ramsey is not being pledged through the issuance of these types of bonds. Bondholders look to the operating company for repayment, not the citY or issuing authority. The owner of Sign-Zone has created a passive real estate investment holding company for this transaction. The name of the company is Kilkenny Limited Liability Company. All documentation related to this transaction reflects the name of this company. Kilkenny LLC will lease the facility to the operating company named Sign-Zone, Inc. Sign-Zone, Inc. is the Twin Cities leading provider of custom business signage and graphics displays. Recent projects have included the Best Buy Corporate Headquarters, American Express and the Rainforest Caf6. Sign-Zone, Inc. has four divisions including: 1. Signation, which produces custom signage of all types for interior and exterior applications. ., 2. Showdown Displays is a leading producer of tradeshow displays and graphics. -173-