04-25-2018 Council Packet - Laserfiche WebLink

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PROS AND CONS The Pros and Cons of accepting a Third Party Pledge of member units as security for the $600,000 of it being advanced by the Economic Development Authority of the City of Little Canada. PROS: 1. According to Dignicare this is the only way the transaction can be completed. 2. The personal guarantee(s) provides additional assets that the Economic Development Authority (EDA) could look to for repayment of the debt. These additional assets would be the personal assets of Joel Larson, the guarantor a Personal Finance Statement would need to be reviewed. 3. The EDA would be a senior creditor while in the case of a mortgage the EDA would be junior to the first mortgage. Being a senior creditor in the LLC membership interest(s) may or may not be advantageous, depending on the value of the LLC. CONS: 1. We would need to see a detailed financial statement of Joel Larson to determine what value if any of his personal guarantee has. Keep in mind that Mr. Larson could always dispose of those assets after he executes the personal guarantee. 2. The legal action to enforce the personal guarantee and/or the pledge could take a year or more to complete. 3. If Joel Larson files bankruptcy the personal guarantee ceases to be affective. 4. The result of any collection action, after the redemption period expires, would be ownership of the Limited Liability Company. This means the EDA would inherit all of the assets, debts and/or legal actions involving the Limited Liability Company. This makes it impossible to value the Limited Liability Company at this time. 5. We need to verify that all of the member units have been pledged as security for the debt. In addition all parties who own said member units must execute the pledge. 6. There is no insurance available to the EDA to cover potential claims against the assets. In the case of a mortgage the EDA could obtain a mortgagees title insurance policy. 58