Laserfiche WebLink
p <br /> City of Blaine <br /> September 19,2005 <br /> _Page 3 <br /> What level of participation is appropriate? <br /> The City can initially join at the $50,000 level, and originate a maximum loan,of$500,000, or if a larger loan <br /> principal amount is necessary, the city could increase their level of participation to as high as $200,000. The <br /> participation level should be set based upon the City's best estimate as to the most likely maximum loan request. <br /> What are the risks? <br /> A requirement for participation in a loan is the funding of a credit reserve. This requirement is placed upon the <br /> program by CRF(the current secondary lender), as a method to share the risk. This reserve ranges from 5%of <br /> the principal amount for existing businesses,and up to 20%of the principal amount for start-up businesses. The <br /> actual amount is determined by CRF.The reserve needs to be funded by the city(member)or the borrower or a <br /> combination of these two. The reserve can be funded by the city via their capital contribution contained in <br /> escrow. If the reserve is financed in this way, the maximum loan size is reduced by this amount encumbered <br /> from the capital account (10 times only applies to unencumbered funds). Furthermore, if the City were to <br /> withdraw their membership from TCCCF,the amount returned to them would be less any amount classified as a <br /> reserve (until the reserve is released). The reserve is released to whoever provided the funds, after twelve <br /> consecutive on-time monthly payments. This reserve amount, to the extent covered by the city, is the total <br /> amount of funds at risk. If a default were to occur prior to the release of the reserve,the reserve would be tapped <br /> to cure the default. <br /> Further, if the city were to approve a loan at an interest rate below market,the total amount of the loan would be <br /> discounted by the amount of the interest rate differential, and the city would be responsible for separately <br /> funding the discounted amount prior to the closing. These funds would be not be recovered through this <br /> program. <br /> An additional risk applies to the City's capital contribution held in escrow against which they lend. Wells Fargo <br /> Bank is the current escrow agent and has an agreement to manage the account and to invest the funds in <br /> allowable securities.Any earnings from this account will be channeled to TCCCF for operations, but as with any <br /> investments, the principal is subject to the risks associated with those underlying investments, which might, <br /> under extreme circumstances, include a loss or diminution in principal. This agreement with Wells Fargo is for <br /> three years from the initial capital investments. <br /> What are the benefits? <br /> The city would benefit from more flexible gap financing for local development projects, the ability to offer larger <br /> loans than would be possible with limited existing local resources, reduce at least 80% of repayment risk and <br /> gain professional staff support at no additional cost to the City. <br /> Except as discussed above regarding the credit reserve and below market rate discounts, the City would not <br /> incur any expenses, costs,or obligations with respect to loans they originate through TCCCF. All fees and out- <br /> of-pocket expenses in connection with the origination of a TCCCF loan shall be the responsibility of the <br /> borrower. <br /> Public Sector Advisors <br />