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<br />, <br /> <br />.~ <br /> <br />Staffhas reviewed financial information recently provided by the Town for the years 1999 and <br />2000 and, in conjunction with the Town staff, determined that the Erie Water Department would <br />still be unable to meet the Board's adopted parity policy. <br /> <br />. <br /> <br />Discussion <br /> <br />The Town is therefore proposing to defease the 1994 loan by establishing a 30-year annuity <br />comprised of U.S. government securities. Principal and interest from the annuity would be used <br />to make annual payments equal to the existing loan payments of $56,442 for 29 years with a final <br />payment equal to the balance of the loan at 30 years. The loan contract would be amended to <br />reflect the new payment arrangements and to substitute the annuity as collateral for the loan. <br /> <br />The investment banking firm ofHanifen, Imhoff would structure the annuity, and an irrevocable <br />trust in favor of the Colorado Water Conservation Board would be established with the Bank of <br />Cherry Creek. The cost of the annuity to the Town will be established at the time the securities <br />are purchased and is likely to be about $900,000. <br /> <br />The net effect of defeasance for the CWCB would be fully guaranteed loan repayment with the <br />payoff five or six years ahead of the schedule in the loan contract. (The next annual payment is <br />due on June 1 st ofthis year and the Town may choose to establish the annuity after June 1 st in <br />which case repayment would be five years ahead of schedule.) Defeasance would allow the Town <br />to utilize the $1.55 million in the escrow account and to issue bonds secured by water department <br />revenues in the future without a parity request to the Board. <br /> <br />Recommendation <br /> <br />Staff recommends that the Town of Erie and the Erie Water Department be allowed to defease the <br />Town's Construction Fund loan under Contract No. C153668 dated March 3, 1994 by <br />establishing an annuity comprised of U.S. government securities as described in this <br />memorandum. The Town will substitute the annuity as collateral for the loan and the Board will <br />release its security interest in the pledged revenues and the allotment contract for capacity in the <br />Southern Water Supply Project. <br /> <br />. <br /> <br />As a condition of approval, the Town of Erie will provide CWCB staffwith all requested <br />documentation regarding the proposed annuity including a certificate from a certified public <br />accountant verifying that adequate funds will be available from the annuity for loan repayment in <br />each year of debt retirement. <br /> <br />Attachment <br /> <br />Cc: Mike Smith, Town of Erie <br />Linda Bassi, AGO <br /> <br />. <br /> <br />2 <br />