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(4) Lending is less secure when a o <br /> ( ) g portion of the revenue stream is to be provided by an <br /> anticipated increase in the customer or shareholder base.If a large part of the CWCB loan payment <br /> is to come from expected additional customers(i.e. growth),the loan would be in jeopardy in the event <br /> of an economic downturn. Thus, CWCB collateral requirements for loans, which rely on growth in <br /> the customer base, are more stringent than to Borrowers that currently have their full customer base. <br /> (Examples: Powderhorn Metro, Aristocrat Water.) An example of collateral for a loan where an <br /> increased customer base(Growth)is needed to help make the loan payment might be: <br /> a. Real estate or water rights(equal to the loan amount), (Moderate liquidity) <br /> (or other assets with at least moderate liquidity.) <br /> Conclusions <br /> State Statutes establish collateral requirements for CWCB loans. These requirements are <br /> general. <br /> The CWCB Guidelines establish written Board policy for collateral. This policy is general, and <br /> may be updated by the Board without the need to revise state statutes. <br /> CWCB Staff has established"typical collateral" requirements for loans to typical Borrowers, <br /> • based on the Statues and on the Guidelines. These collateral requirements also incorporate input from <br /> the Board, gathered over the past several years. These"typical collateral"requirements have not been <br /> formally adopted as Board policy. <br /> Staff Recommendation <br /> We recommend that the CWCB direct staff to prepare a suggested policy statement regarding <br /> "typical collateral"requirements for CWCB loans. This policy statement would be on the agenda for <br /> discussion at the March 1999 CWCB Board meeting. <br /> C:\wp51\proj-new\workshop-collatera1199 <br /> L:\BOARDMEM\JAN99\Workshop-Collateral.doc <br /> • 6 <br />