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<br />DATE:
<br />SUBJECT:
<br />
<br />Mike, Rod, Dan, Eric
<br />Bruce Johnson
<br />Water Supply Planning and Finance Section
<br />April 29, 2004
<br />Trollco, Inc. - Dual Water System Loan Status
<br />
<br />TO:
<br />FROM:
<br />
<br />Revised Loan Terms - Trollco, Inc. is agreeable to a 10-year loan term. This would result in a loan of5.0% at
<br />our commercial/industrial interest rate, and an annual payment of $416,493. They have estimated that 60% of the
<br />volume of the two storage lakes is attributable to the dual water system, with 40% tied to recreation. Accordingly,
<br />the total cost of the dual water system is reduced to $4,288,064 (from $5,548,609) and a 75% CWCB loan would
<br />be for $3,216,048 (reduced from $4, 161,457.) The loan would be for construction ofa dual water system in
<br />Water Valley South and the adjacent Hilltop Subdivision. The dual water distribution system in Water Valley
<br />Phase 1 is completed and had been turned over to Poudre Tech Metro District. The new system will serve 1600
<br />homes, 50 acres of commercial area and 100 acres of open space. No development has occurred to date in Water
<br />Valley South, which is expected to be building permit ready in August 2004. A few homes are built in Hilltop
<br />Subdivision (estimate of between 20-40 homes.) Trollco, Inc. will retain water rights and ownership ofthe lakes,
<br />and Poudre Tech Metro District will own and operate the distribution system (pumps, piping, etc.)
<br />
<br />STAFF CONCERNS
<br />
<br />1. Source of Funds for Loan Repavment are directly tied to Development - The Poudre Tech Metro District
<br />does not have sufficient revenues to take out this loan, so our loan would be to Trollco, Inc., the
<br />developer of Water Valley. The sources of revenue identified for CWCB loan repayment are all
<br />development contingent:
<br />-development revenues
<br />-revenues received from monthly water sales to Poudre Tech
<br />-future payments from Poudre Tech when infrastructure bonds are issued to repay developer front
<br />end costs.
<br />
<br />In the past, even with municipal borrowers, CWCB has generally avoided reliance on water tap fees for
<br />loan repayment, because of the uncertain nature ofland development. Generally, when allowed we have
<br />used a guideline of no more than 10% tap fees. While this is not a policy it is consistent with oW' Policy
<br /># 6, pertaining to situations where a new lender requests parity with our loan. A loan to Trollco, where
<br />loan repayment is tied 100% to future development would tend to undermine this past practice.
<br />
<br />2. Construction Timing - The project is proceeding now without reliance on CWCB funding. Reservoir
<br />construction is 98% complete to date. Portions of the distribution system are completed with full.
<br />completion scheduled by Oct. 1, 2004. Therefore, CWCB monitoring of construction will be largely
<br />after the fact. Even if approved at the May Board meeting, CWCB funding would not be available until
<br />about Aug. 1.
<br />
<br />3. System Ownership - Based on the 1996 lease agreement, Trollco, Inc. will retain ownership ofa11 water
<br />rights and the two lakes, while Poudre Tech will own, operate, and maintain the distribution system. A
<br />previous CWCB concern has been expressed that our loan would not be taken out by end user of the
<br />water. This is not typical of most of our loans. In this case, CWCB has no say over the ownership of
<br />facilities because of a long standing development agreement. In this regard, it would probably make
<br />more sense for there to be two loan, one to Trollco, Inc. for the lakes ($1,649,050) and one to Poudre
<br />Tech Metro District for the distribution system ($1,566,998.) This can't happen as Poudre Tech is not
<br />able to borrow at this time.
<br />
<br />.11
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<br />4. Collateral- Proposed collateral are shares ofRH. Eaton Ditch. The actual number of shares is yet to be
<br />determined, but will need to cover at least 130% of the loan. We also need to bring at least 60% of the
<br />ownership of the storage lakes, to assure that Poudre Tech would have a viable system in the event of a
<br />TrolleD, Inc. default.
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