Laserfiche WebLink
<br />At the May 25, 2004 Board meeting, staff presented several revISIons to Policy #5 <br />regarding corporations without assessment revenues and new entities. After considerable debate, <br />the Board tabled the staffrecornmendation on the Policy revisions until the July Board meeting. <br /> <br />Discussion <br /> <br />Financial Policy #5 - Collateral for Construction Fund and Severance Tax Trust Fund <br />Perpetual Base Account Loans (attached with proposed revisions) identifies suggested collateral <br />requirements for both public and private entities interested in CWCB water project loans. <br />Section 37-60-120 C.R.S. states: "The State of Colorado.. . shall take a sufficient security interest <br />in property.. .or other securities evidencing an obligation, that will assure repayment of funds <br />made available by" the Construction Fund loan program. The terms "sufficient security" and <br />"will assure repayment of a loan" are difficult to define because each loan is different and each <br />borrower has different financial circumstances and assets to offer as collateral. <br /> <br />It should be noted that there have been only two loan defaults in the 33-year history of the <br />CWCB Construction Fund loan program. One of the defaults was from a loan authorized by the <br />legislature, leaving only one actual loan default from a project autl10rized by the Board. Since <br />the inception of the loan program, 340 loans valued at over $360,000,000 have been made by the <br />Board. The single defaulted loan was valued at $173,000. The conclusion is that water users <br />making loans from this program overwhelmingly tend to pay their debts. It is difficult to argue <br />one way or the other that a newly formed entity would be more or less likely to default on a loan. <br />It is staff's opinion that until significant debt repayment problems are encountered by newly <br />formed entities, the policy should not be changed. <br /> <br />After consideration of the program's extremely low default history and reviewing the <br />Board discussion at the May 25, 2004 Board meeting, staff is proposing only two revisions to the <br />existing collateral policy. <br /> <br />The first revision clarifies the value of the collateral required for the borrower category of <br />private unincorporated as being equal to or greater than the loan amount. If the Board feels the <br />need to increase the collateral coverage for this type of borrower, the information presented at the <br />May board meeting could give some guidance in that regard. However, the value must be <br />included in the policy to give the borrower certainty when applying for a loan and the staff <br />certainty when marketing the program and evaluating applications. <br /> <br />The second revision adds a "Closely Held Corporation" (CHC) to the list of Private <br />Unincorporated borrowers to address corporations without assessment revenues. The CHC (see <br />attached legal definition) that typically requests a loan from the Construction Fund is a family <br />owned and operated agricultural business. The Board's discussions indicated their concern that, <br />similar to individual borrowers, CHCs do not have assessment revenues but rather rely on the <br />personal income stream of the family business to pay back their loans. <br /> <br />Recommendation <br /> <br />Staff recommends that the Board adopt the attached revised version of Financial Policy <br /> <br />#5. <br />