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<br />".. Oi: <br /> <br />John Van Sciver <br />Page 3 <br /> <br />CONFIDENTIAL <br /> <br />borrower encounters problems with repaying its loan. Of course, <br />ideally, the CWCB and the borrower will be able to work together to <br />overcome the borrower's problems and will amend the cont:ract <br />accordingly. However, since conditions are not always ideal, the <br />CWCB must have the leverage of sufficient collateral to motivate <br />the borrower to do all it can to meet its contractual obligations. <br /> <br />I recognize that the issue of collateral is something that we <br />have been struggling with for a long time, and that so far, there <br />has been no ideal solution. Unfortunately, Mr. Peltz's proposal <br />does not meet the statutory requirements imposed upon the CWCB's <br />loan program. The CWCB is not authorized by ~ 37-60-120(1) to take <br />a pledge of revenues as full collateral for a Construction Fund <br />loan. Consequently, I recommend that the CWCB not present the net <br />revenue pledge/rate-raise covenant as an option for securing the <br />loan to loan applicants. (However, the CWCB should continue to <br />require it as a repayment mechanism, as in the CWCB's current loan <br />contracts) . <br /> <br />From my discussions with Tom Peltz, I believe that the Town of <br />Johnstown may be willing to put the amount of one annual loan <br />payment into a CD as security for its loan. Hopefully, Lyons will <br />agree to the same collateral. Richard advised me that, when <br />obtaining a security interest in a CD, the CWCB should require the <br />borrower to deposit the whole annual repayment amount into t:he CD <br />upon execution of the contract, rather than letting the borrower <br />slowly build the account as it would for its debt reserve fund. <br /> <br />Please let me know if you have comments or questions concern- <br />ing this memo. <br /> <br />cc: Chuck Lile <br />Bill Stanton <br />Jan Illian <br />Jennifer Gimbel <br />Lee Miller <br />