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<br />~- <br />/ <br /> <br />" <br />... <br /> <br />Colorado Water Conservation Board <br />Department of Natural Resources <br /> <br />721 State Centennial Building <br />1313 Shennan Street <br />Denver. Colorado 80203 <br />Phone (303) 866-3441 <br />FAJ( (303)866-4474 <br /> <br />STATE OF COLORADO <br /> <br />. <br /> <br />Roy Romer <br />Governor <br /> <br />James S. Lochhead <br />Executive Director, DNR <br /> <br />MEMORANDUM <br /> <br />Daries C. lile. P.E. <br />Director, ewes <br /> <br />TO: File <br /> <br />FROM: Jan IIlian <br /> <br />DATE: July 6, 1995 <br />SUBJECT: SECURITY FOR $5.5M FORT MORGAN LOAN <br /> <br />INTRODUCTION <br /> <br />A meeting was held on June 27th between Lynn Obernyer of the Attorney General's Office <br />(AGQ), Loring Harkness, Fort Morgan's bond counsel, and Jan IlIian of CWCB. We were able <br />to agree on all conditions of the loan contract except the issue of using the City's CBT <br />shares as collateral. It is the opinion of Loring Harkness that the water Enterprise is not <br />authorized to mortgage City-owned assets of the water system, since this would create a <br />City debt requiring an election. Fort Morgan would not be able to sign the loan contract <br />if we require the CBT shares as security for the loan. <br /> <br />I <br />An additional problem is that the pledge of revenues would be in second position to a <br />previous pledge of revenues made to secure the Water Enterprise's 1994 water Revenue <br />Refunding & Improvement Bond. This loan contract in the amount of $2,500,000 is with <br />the Colorado Water Resources and power Development Authority and will be paid off in <br />20 years. If Fort Morgan would default (e.g., goes into bankruptcy>, CWCB would have to <br />buyout this 1st pOSition loan to protect our chance of getting our loan fully repaid. <br /> <br />Another situation arising from being in second position could be the 1st position lender <br />could refuse to allow the water rates to be raised to a level adequate to repay both 1st & <br />2nd position loans with the argument that doing so would cause fewer people to buy the <br />water and thereby causing a possible deJault on the 1st position loan. <br /> <br />BACKGROUND <br /> <br />CWCB's normal. contracting practice is to require two forms of security for its loans: <br />I <br />1. Collateral in the form of real or personal property, and <br /> <br />2. Assurances in the form of pledge of revenues. <br />The staff recommendation for security for the Fort Morgan loan included <br />