CC Min 1998-01-26 - Laserfiche WebLink

Browse Search

they had some bonds that defaulted. Maybe I don't want to buy those bonds.' While we can't say for sure that sort of thing would happen, I don't think you are going to be enjoined from getting into the market or suffer, because the municipal market is so deep with bonds of the kind that you would sell based on your credit. In other words, there are so many buyers out there willing to buy your kind of bonds. Many of them who set the price, such as Franklin Funds, are sophisticated enough that they aren't going to be fooled by the difference between revenue bonds secured by project funds and the City's general fund." In response to a question from Council Member Hartnett, Mr. Euphrat said, "The seller of the facility has obtained several studies to give us some comfort. They have an appraisal report valuing the nature of the business. The business concerns the rents for the apartments as well as the value of service contracts with the provisions of meals and certain kinds of care. The value of those contracts does not exceed the amount of the offer of the purchase price. The offer reflects that which is required for reserves. There is a feasibility report that has been prepared that has a variety of assumptions concerning rents, . . .and based on those assumptions there are sufficient revenues to pay the bonds. In addition, there are several claims on the revenue stream. These bonds will have the first claim, there are several subordinated loans that the seller is making to the buyer and they have subsequent claims. The bonds that are being offered here have first claim and the coverage revenue is 120 times debt service. There is a cushion of 20% so if there is a problem there is sufficient coverage. I think coverage of 1.2 times is satisfactory. I think you have what you need in the way of assurance that the project will be able to pay debt service. You don't have a guarantee, but the project has been in service for 10 years, and I think it can handle the debt service that has been offered." In response to questions from Council Member Claire, Mr. Euphrat confirmed that the type of investor would be a sophisticated portfolio manager who knows the difference between these bonds. Mr. Euphrat also said, "The bond rating agencies would not give a defaulted revenue bond project like this any weight in evaluating the City's credit. n In response to a question from Council Member Ira, Joe Litten, Litten Financial Consulting, 99 Overhill Road, Orinda, of Woodside Senior Care, said, "The Woodside Senior Care is affiliated with a larger group called The Age Institute which is headquartered in Pennsylvania and operates a number of such facilities. Part of their purpose in acquiring this facility is to run programs similar to those at other facilities in training individuals to assist elderly persons and other health care related types of jobs. They have several thousand units under their ownership and have experience in providing this type of training. With respect to the question about the sellers kicking in, they are doing that in two fashions: One is they are taking back a substantial amount of debt. . . and the sellers are keeping themselves at risk in the project in order to make the other debt marketable. Second, the substantial amount of fees, which the City is realizing, . . .and the deal the City is getting is better than any deal he has seen by a multiple of three. That $3.3 million is revenues that would, otherwise, had been realized in the purchase price or management fees to the seller." REGULAR COUNCIL MEETING MINUTE BOOK NO. 56 JANUARY 26,1998 MINUTES Page No. 188 PAGE 16