Loading...
HomeMy WebLinkAboutResolution - 4411 - Expression Of Intenet - City Bank - Participate In Credit Facility - 02_24_1994Resolution No. 4411 February 24, 1994 Item #42 RESOLUTION BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK: THAT the Mayor of the City of Lubbock BE and is hereby authorized and directed to execute for and on behalf of the City of Lubbock an Expression of Intent to Participate in Credit Facility, by and between the City of Lubbock and City Bank, attached herewith, which shall be spread upon the minutes of the Council and as spread upon the minutes of this Council shall constitute and be a part of this Resolution as if fully copied herein in detail. Passed by the City Council this ATTEST: 11 C�L etty . Johnsofi, City Secretary APPRO TO CONTENT: 7N Rod"Ellis, Director of Business Relations/ Economic Development APPROVED AS TO FORM: (�L L (? ---4, -- C. Ross, Jr., City Attorney JCRda/ccdoWA-CrMKms Febmary 1, 1994 4412 74ih SC, Salle MOO - Lubbock TX 70424 , ( ) 791-2994 . Fim ( O) 791-3636 0 TEXCOT BLEACHERY INC. Organizational Chart COMPTROLLER CITY OF LUBBOCK MEMORANDUM ATTORNEY - CLIENT COMMUNICATION - PRIVILEGED AND CONFIDENTIAL DO NOT DISCLOSE CONTENTS WITHOUT ADVICE OF COUNSEL AND PROPER AUTHORIZATION TO: Bob Cass, City Manager FROM: John C. Ross, Jr., City Attorney SUBJECT: Economic Development Loan to Texcott Bleachers, Inc. DATE: February 1, 1994 You have asked me to review an agreement entitled Expression of Intent to Participate in a Credit Facility on behalf of Texcott Bleachers, Inc. I set forth the following as my advice and opinion to you concerning this particular agreement: 1. The City of Lubbock has authority to make loans and grants to promote state and local economic development and to stimulate business and commercial activity within the City. See Art. 3, Sec. 52-A, V.A.T.C. and Sec. 380.001, Local Government Code. 2. The Expression of Intent is an agreement between the City of Lubbock and the City Bank of Lubbock, Texas, wherein City Bank will attempt to syndicate a loan to Texcott Bleachers, Inc. in the total amount of $8,500,000. The banks involved will put together $4,750,000 of this loan and the City's participation will be $3,750,000 of economic development money. 3. The City Bank as I understand it would act as the primary lender in this particular situation. All loan documents would be drawn in favor City Bank and City Bank would then in turn enter into participation agreements with all of the other banks and the City of Lubbock outlining the other banks and the City's rights to participate in this loan. 4. ALL OF THE BANKS WOULD HAVE A FIRST OUT PARTICIPATION IN THE LOAN WITH PRIORITY OVER THE CITY IN THE EVENT OF DEFAULT. HENCE, IF THE CITY ENTERS INTO THIS PARTICIPATION AGREEMENT AS CURRENTLY STRUCTURED, THEY WOULD BE IN A LAST OUT POSITION IN THE EVENT THAT THE LOAN IS FORECLOSED UPON. WHAT THIS MEANS IS BASICALLY THAT THE BANKS WOULD BE PAID FIRST IN THE EVENT THAT THE SECURITY FOR THE LOAN IS LIQUIDATED AND THE CITY COULD END UP WITH NO COLLATERAL TO SECURE ITS LOAN UNDER SUCH CIRCUMSTANCES. HENCE, IF THE CITY /I Bob Cass, City Manager February 1, 1994 p— COUNCIL PARTICIPATES IN THIS LOAN DOCUMENT, THEY MUST DO SO WITH THE KNOWLEDGE THAT THEY ARE IN AN INFERIOR POSITION AS FAR AS SECURITY IS CONCERNED AND WHILE THERE MAY BE SUFFICIENT COLLATERAL TO LIQUIDATE ALL POSITIONS OF ALL PARTIES TO THIS AGREEMENT, THAT MAY NOT BE THE CASE AND THE CITY IS TAKING A RISK IN THIS REGARD THAT IS GREATER THAN THE BANKING INSTITUTIONS. 5. The current document is merely an expression of intent between City Bank and the City of Lubbock and is not binding upon the Bank or City (See Sec. 3.2 of this agreement). In addition, Section 3.5 of the agreement indicates that neither City Bank nor the City shall have any liability whatsoever for failure to hereinafter arrange or participate in said credit facility. Hence, this agreement as I understand it is merely an expression of intent of behalf of the City and City Bank to attempt to syndicate this line of credit on behalf of Texcott Bleachers, Inc. 6. Due to the fact that the City will not have a first out position as will all the other banks that participate in this particular line of credit, I did obtain the provision set forth in Sec. 3.3(a) (1) and (2) wherein City Bank agrees to use prudent banking standards to preserve, protect and defend the collateral with a view towards maximizing its value in the event of foreclosure. In addition, they will exercise the same degree and discretion in administering and servicing this account as they would loans in their own name. 7. I also must tell you that before this loan is made, that in accordance with Sec. 380 001 of the Local Government Code, the City must adopt a program for making loans and grants of public money as indicated by Sec. 380.001. I will mention to you that the City Council has adopted an economic development plan, but since this is the first cash loan that the City has been asked to make, we are now at a juncture in our economic development planning where we need to develop a program setting forth the standards for review of this loan as well as future loan applications made under this similar statute. I want to emphasize that this program must be adopted before the loan is made. It does not have to be adopted at the time that this document is signed. 8. Part of the economic development program that the City of Lubbock adopts should be requirements to submit the loan application to an independent feasibility study and to have independent financial sources look at the applicant's background and the type of loan that is being requested to determine its financial status. As I mentioned above, this does not have to be done now but it must be done before any loan is made pursuant to this agreement. j12- Bob Cass, City Manager February 1, 1994 RW 3' 9. As I have mentioned above, the City is not in as secure a position as the Banks are in making this syndicated loan to Texcott Bleachers, Inc. This fact must be considered by City Council in determining whether or not they wish to proceed with participation in this loan syndication. However, I would point out to the City Council that the people of this state by adopting Art. 3, Sec. 52a of the Texas Constitution in November of 1987 expressed the will of the people of this state to allow cities to participate in economic development programs. The legislature has codified that authority in Sec. 380.001 of the Local Government Code and has authorized cities pursuant to programs that they adopt to not only make loans but to also make out rigk g,mts. While I do not wish to de-emphasize the difference in the security that the Banks have as opposed to the City, I would emphasize the City's economic development interest may be a factor which the Council wishes to weigh and consider in accepting this additional risk. JCR&rJcrInEXCOTT.mem John C. Ross, Jr. l� STATE OF TEXAS § COUNTY OF LUBBOCK § EXPRESSION OF INTENT TO PARTICIPATE IN CREDIT FACILITY Each of the parties set forth in paragraph 1 below agree as follows: 1. Parties: 1.1 CITY BANK, Lubbock, Texas, a state banking corporation, herein referred to as "Bank". 1.2 CITY OF LUBBOCK, a home rule municipal corporation, herein referred to as "City". 2. Recitals: 2.1 Texcott Bleachers, Inc. (herein referred to as "Borrower") is considering starting a new business located in Lubbock, Texas, if it can receive financing to purchase certain equipment which cleans and bleaches cotton. 2.2 The new business will provide approximately 89 new full time jobs. 2.3 The equipment will cost approximately $9,800,000, and Borrower will make a cash down payment of approximately $1,300,000 and will need to borrow approximately $8,500,000 to purchase said equipment to start the business. 2.4 Bank is considering acting as lead bank for the $8,500,000 if it can syndicate a credit facility with banking institution participants (the "Other Lenders") and with City as follows: City Bank Lead $1,000,000 Plains National Bank Participant $1,250,000 First National Bank Participant $1,250,000 of West Texas American State Bank, Participant $1,250,000 Lubbock, Texas TOTAL OF BANKS $4,750,000 Other Participation $1,300,000 City of Lubbock $2,450,000 TOTAL AMOUNT OF LOAN $8,500,000 provided the loan documents contain terms and conditions usual and customary in loans of this nature and all of the loan documents and terms of the loan are acceptable to all Other Lenders and to City. 2.5 The terms and conditions of the loan to Borrower will be the subject of further negotiation, and if the loan is made, it will be evidenced by written loan agreement which at a minimum will provide: (a) A first and prior purchase money security interest in all machinery and equipment of Borrower; (b) Continuing guaranty agreements from the equipment vendors of at least $2,000,000 supported by irrevocable letters of credit; (c) Continuing guaranties from the five principals of Borrower of at least $1,300,000 in the aggregate; (d) Interest to accrue on the loan at a floating per annum interest rate equal to Wall Street Journal prime rate plus two percent (2%), with the principal and interest of the loan to be amortized and paid in monthly installments over ten years. Agreement: 3.1 Bank agrees to use its best efforts to syndicate the credit facility in an amount up to $8,500,000, and in consideration of same, City, under its authority to encourage economic development projects as set forth in Article 3, Section 52(a) of the Texas Constitution and § 380.001 of the Local Government Code, agrees to participate in the credit facility in an amount of $2,450,000. EXPRESSION OF INTENT TO PARTICIPATE IN CREDIT FACILITY — CITY BANK PAGE 2 3.2 This agreement is an expression of intent only and is not binding upon Bank, City, Borrower or Other Lenders, and no person or entity shall have any claim or cause of action against Bank, City, Other Lenders or any person or entity for the failure to syndicate this credit facility or failure to participate in the credit facility. Among other things, the participation in the loan by Bank and the Other Lenders is specifically conditioned upon: (a) Loan participation agreements containing terms and conditions which are acceptable to each bank. (b) Loan documentation with the Borrower upon terms and conditions and supported by such collateral as may be acceptable to each bank. (c) The loan participation of each bank being collateralized by first and prior liens on the collateral of equal dignity with each other. The right of each bank to payment of its pro rata portion of the loan shall be equal, and no bank shall have priority over another bank. The banks collectively shall have a "first out" participation in the loan with priority over the City in the event of default. (d) The rights of each bank, in the event of default, to payment of its pro rata portion of the loan and to realize upon collateral shall be on a "first out" basis so that after default, the banks are collectively on a "first out" basis to be paid in full before any further payments upon City's participation. 3.3 The City's participation is conditioned upon: (a) A loan participation agreement with City as a participant, containing terms and conditions which are acceptable to City, which participation agreement will include: (1) that the Bank will exercise the same care and discretion in administering, serving and enforcing the loan that it exercises with respect to similar loans solely for its own account; and EXPRESSION OF INTENT TO PARTICIPATE IN CREDIT FACILITY - CITY BANK PAGE 3 (2) that the Bank will act in accordance with prudent banking standards to preserve, protect and defend the collateral with a view toward maximizing its value; (3) that the right of City to payment of its pro rata portion of the loan, prior to default, shall be equal to that of each bank, and no bank shall have priority over City to such payment; (4) that the loan participation of City is collateralized by a first and prior lien on the collateral subject only to the "first out" participation of the banks. (b) Loan documentation with the Borrower upon terms and conditions and supported by such collateral as may be acceptable to City. (c) The adoption of a program by City for making loans and grants of public money as authorized by § 380.001 of the Local Government Code. 3.4 If City approves this expression of intent: (a) Bank will attempt to enter into a loan commitment with Borrower upon terms and conditions acceptable not only to Bank but which is specifically conditioned upon participation by the Other Lenders and by the City upon terms and conditions acceptable to each entity. (b) Bank will attempt to syndicate the credit facility by securing a binding commitment from each participant which is specifically conditioned upon the Other Lenders and City also entering into a binding commitment to participate in the loan. 3.5 Neither Bank, City nor any participant shall have any liability whatsoever for failure to hereafter arrange or participate in said credit facility. EXPRESSION OF INTENT TO PARTICIPATE IN CREDIT FACILITY - CITY BANK PAGE 4 EXECUTED THIS 24th day of February , 1994. CITY BANK BY: '-M c C- � Name: MIKE LINER Title: PRESIDENT 5 CEO ATTEST: &-'C' a cv, Betty A. Johnson, ity Secretary APPR AS LATENT: Rod Eklis, D ctor of Business Relations/ Economic Development APPROVED --AS TO FORM: c jar•-, 4 1 - ohn C. Ross, Jr., City AtMrney JCR:deA-D 10/A-CrMK. doc rev. February 25, 1994 EXPRESSION OF INTENT TO PARTICIPATE IN CREDIT FACILITY — CITY BANK PAGE 5