PROJC00005

• Contract/PO #: C153721
• Contractor Name: Lyons, Town of
• Contract Type: Loan
• Water District: 5
• County: Boulder
• Bill Number: SB 96-153
• Loan Projects - Doc Type: Contract Documents

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STATE O'COLORA.DO

8

Colorado Water Conservation Board
Department of Natural Resources
721 Centennial Building
131 3 Sherman Street
Denver, Colorado 80203
Phone: ()031 866.3441
FAX: [phone]

Roy Romer
COVl'fllOI

MEMORANDUM

J~me5 s. Lochhe~d
heculive Dirl'<.10f. ()NR

O~ries C. Lill'. I~E
Oirt'rtur. CWCH

TO:

Colorado Water Conservation Board Members

FROM:

Jan lilian, Contract Administrator ~
Construction Fund Section \.)

DATE:

November 14, 1996

SUBJECT: Agenda Item #13, November 25-26, 1996, Board Meeting --
Construction Loan Program -- Contract Provision for Parity Debt Status and
Parity Debt Provision for Town of Lyons

INTRODUCTION

It has been our practice to require a borrower with an eXisting loan to meet the parity
requirements of that lender to secure parity statuS for its CWCB loan whenever that status was
available, which has been achieved for several eWCB loans during the past year. While we
have been willing to accept the parity debt statLIS for our loans, we did not have a method to
reciprocate this for subsequent lenders. Since there have been several inquiries and requests
for CWCB to provide parity debt status so that borrowers can proceed with projects, I would
like to request the Board's consideration and recommendations for a policy regarding CWCB's
parity status.

CONCEPT OF PARITY

To get a sense of parity status, picture two loans against one house. One scenario is that the
first loan is senior and the second loan is junior. In the event of default, the senior lender
would take whatever assets were available that it was entitled to and pass the remainder of
the assets, if any, to the junior lender. Under the concept of parity status, both loans share
an equal claim to the borrower's assets, Then, in the event of default, the available assets
would be apportioned between the two lenders.

The parity status pertains to the liens against the revenues pledged to repay the loans; and it
would not jeopardize CWCB's claim against any other collateral the borrower has pledged.
Moreover, it is relevant only when the borrower defaults in the repayment of the loans.

BACKGROUND

In the past we have made loans to borrowers who had outstanding loans from other lenders,
such as the Colorado Water Resources and Power Development Authority (Authority). The