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Tom Hill - McElroy Dam November 6, 2006 Page 3 of 4 Agenda Item 10d ~ . Financial Analysis Table 1 shows a summary of the financial aspects of the Project for the loan request. A CWCB Loan of $854,000 will have an annual debt service obligation of $44,880 ($40,800 for annual loan payment and $4,080 for the 10% reserve funding) for the loan terms of 2.5% for 30-years. The interest rate is based on the standard agricultural interest rate. The total debt service obligation for this Project represents an annual cost of $168/ac-ft of stored water delivered to Ranch lands. Table 1. Financial Summary of Project Total Project Cost $854,000 CWCB Loan (100% of Total Project Cost) $854,000 CWCB Annual Loan Payment $40,800 CWCB Loan Obligation (including 10% debt reserve funding) $44,880 Annual Project Cost per Acre-Foot (based on 240 acre-feet) $187/acre-feet . Creditworthiness: The Hills have one outstanding loan with the Grand National Bank. This loan is an interest only loan with a maturity date of December 15, 2007. At that time the loan term can be extended. The first annual payment on the $1,978,000 loan is $73,000 due on December, 2006. The second interest only annual payment of $173,000 is due on December 2007. The Bank loan combined a $400,000 debt on the Gore Pass Ranch as well as the recently purchased ranch in Olathe for $1.5 million. The first CWCB annual payment will likely be due around December 2008 at which time an interest only payment for the Ranch loan will be due if the Ranch has not sold. The Gore Pass Ranch is currently for sale for $6.5 million. If the Ranch does not sell, the repayment of the loan will be accomplished utilizing the sale of hay, livestock, annual payments from previous land sales and current land sales. The Hill's have two sources of income, a cow-calf production and hay production. Approximately, 1/3 of the Ranch hay is used in the cow-calf operation leaving 2/3 of the hay for sale. The Ranch produces approximately 1-1/2 ton per acre. The annual production of hay is 1,200 tons with 800 tons available for sale. The Hills income from hay in 2006 was $90,000. The annual income from the Hills cow-calf operation in 2005 was $120,000. Based on the cattle and hay sales the agricultural income is estimated at $210,000. This analysis does not include Olathe Ranch income since no history of income exists. Projected annual expenses in 2008 include $102,000 in Ranch expenses and $218,000 in debt service (Bank loan = $173,000 and CWCB loan = $45,000) this total annual expense is approximately $320,000. During the review of this loan CWCB staff identified the Hills inability to cover the needed expenses in 2008. Due to the following issues the staff decided to present this loan to the Board for consideration: 1. The emergency nature of the dam repair 2. The interest in avoiding the loss of compact entitled waters 3. The ability to utilize hard collateral to secure the loan Table 2 shows the Financial Ratios for the Hill's Gore Pass Ranch. .