C150233 Approval Letter 5/18/12

• Contract/PO #: C150233
• Contractor Name: Tom Hill
• Contract Type: Loan
• County: Grand
• Loan Projects - Doc Type: Approval Letter

Tom Hill — Change to Existing Loan
May 4, 2012 (Updated May 18, 2012)
Page 2 of 3
Agenda Item 26a
In June, 2006, the Dam outlet works failed and the embankment material of the dam began
migrating into the outlet pipe causing it to become unusable. With no way to release stored water„
the Hills received a breach order from the Dam Safety Branch of the State Engineer's Office (SEO).
The Hills hired URS Consultants to file a breach application with the SEO and hired Pryor
Excavating to repair the dam. Rehabilitation of the dam began in the spring of 2007 and was
completed in 2008.
A CWCB loan was approved in November 2006. Staff identified in the original board memo that
the Hills were operating the Ranch at a loss, the Ranch was for sale, and that the Hills needed 100%
funding for the project due to their hardship status. A recent review of the Hills tax returns indicate
that the Gore Pass Ranch broke even in 2010 and had a positive revenue of approximately $70,000
from hay and cattle production in 2011.
In May of 2008, the Hills notified the CWCB of their intention to sell a conservation easement on
the Ranch to the Department of Wildlife (DOW), which would preserve all of the land and water
rights associated with the Ranch for agricultural use. DOW informed the CWCB that the Ranch
was chosen for a conservation easement because it is a valuable wildlife habitat and is a source of
water for a downstream fishery. The easement sale was contingent upon the CWCB subordinating
its interest in the Ranch to the DOW's easement. The value of the easement was $3,750,000;
leaving the Ranch with an appraised value after the easement of $2,625,000 without improvements.
The Board approved an amendment to the loan contract which included the subordination to the
DOW conservation easement on Gore Pass Ranch and received a first position lien on all of the
Gore Pass Ranch and added an undivided 100% interest in the Hills 40 acre Olathe property. In
addition, the contract was changed from a 30 -year loan to a 10 -year loan with the first annual
payment of $96,023.58 due on May 1, 2010. The Hills had accumulated a significant amount of" '
debt including a loan with Grand Mountain Bank (Bank) for approximately $2,170,000. The sale of
the conservation easement allowed the Hills to pay off all of their debt and free their property of
liens.
The intent of this action by the staff/Board in 2008 was to increase the total value of hard collateral
as security for the loan in a deliberate attempt to increase the pressure on the Hills to sell the Gore
Pass Ranch and pay off the CWCB loan. Unfortunately, the real estate market remains difficult for
the sale of this property.
In May 2010, the Board approved a one year principal payment deferment and the interest only
payment was received in June 2010. In May 2011, the Hills made a full annual payment of
$96,023.58.
Discussion
This loan was problematic in the beginning since the Hills were in a land rich/cash poor situation
when the SEO Breach Order was issued. The CWCB was in a position to help by financing the
repairs with an understanding that the ranching revenue was marginal; however the loan could be
secured by a significant amount of hard collateral and the Hills intent to sell the Ranch. Staff feels
the strength of this collateral is still strong and will protect the Loan Program funds due to the value
of the collateral in the event of a default.
Staff s recommendation is a change to the loan terms to better fit the Hills financial capacity to
make the annual payment and remains within the CWCB Financial Policies. The loan term will
return to its original 30 -year term payoff date of May 1, 2039 (27 years out) and change the interest
rate to the Agricultural interest rate for a 30 -year loan in 2006 of 2.50 %. The new annual loan
payment shall be approximately $36,800.