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33 - Approving a loan from the City of Paris to the Paris Economic Development Corpation in the amount of $2.5 millionItem No. 33 Memorandum TO: Mayor & City Council FROM: Grayson Path, City Manager Stephanie Harris, City Attorney Gene Anderson, Finance Director SUBJECT: PEDC Loan DATE: December 13, 2021 4welliNk" Earlier in 2021, then Mayor Dr. Steve Clifford proposed to the City Council and the PEDC the concept of the City loaning to the PEDC available funding for the purposes of 1) paying off a PEDC note, 2) giving the PEDC a lower interest rate to help save tax dollars, and 3) giving the City a higher interest rate to help produce revenue greater than traditional investment mechanisms. In general, the City had available funding that, by loaning it to the PEDC, the City could receive an interest rate greater than the investment market while achieving a more favorable interest rate for the PEDC than what they could receive through traditional lending. The note would have to give the City the ability to call its funding if a financial emergency were to occur. The City is not a lending entity by nature, but as the PEDC is a function of the City, this was a valid route for the City Council to take. The City had to also restrict its lending capacity to money from the reserve. This was to protect its ability to cash flow its budget on an annual basis. STATUS OF ISSUE: After many months of negotiation and work, the attached note has been completed. It is for $2.5 million. The first three years will be at an interest rate of 2.14% (which is greater than what the City could achieve on its own and less than what the PEDC was paying). It is a ten (10) year note with a fifteen (15) year amortization, which means they will make monthly payments for ten years and then at the conclusion of ten years, there will be a balloon payment for the balance. This allows the PEDC to have more operational cash now as a 15 year amortization has lower monthly payments than a 10 year amortization. Every three years, the rate will be adjusted by taking the Wall Street Journal "Prime Rate", subtract the Wall Street Journal 10 -Year Constant Maturities Treasury Rate, take 25% of the difference, and then adding this back to the 10 -Year Constant Maturities Treasury Rate. Please see the "Determination of Interest Rate" paragraph for a more detailed description of the formula. There will be a 2% interest rate floor so as to protect the taxpayer's return on their funding. The purpose for using the Wall Street Journal is to give both parties known and verifiable values. With $2.5 million, the PEDC will be able to pay off their current loan as well as have some operational cash. The Finance Director and City Manager are both comfortable that the City can loan out $2.5 million and still cash flow operations and maintain absolute minimum reserve amounts. This however will significantly deplete our ability to fund many other large expenses from the reserve. We have some capability, but now very restricted. This will remain true for some years until our reserve builds back up. BUDGET: Please see the "Status of Issue" section above. OPTIONS: 1. Approve the Promissory Note with the PEDC and authorize the Mayor to sign. 2. Request additional information. 3. Reject this Promissory Note and/or edit it. RECOMMENDATION: 1. Approve the Promissory Note with the PEDC and authorize the Mayor to sign. RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PARIS, TEXAS, APPROVING A LOAN IN THE AMOUNT OF TWO MILLION FIVE HUNDRED THOUSAND DOLLARS AND NO/100 ($2,500,000.00) TO THE PARIS ECONOMIC DEVELOPMENT CORPORATION; APPROVING A PROMISSORY NOTE REGARDING SAID LOAN; AUTHORIZING THE MAYOR TO SIGN PROMISSORY NOTE; MAKING OTHER FINDINGS AND PROVISIONS RELATED TO THE SUBJECT; AND DECLARING AN EFFECTIVE DATE. WHEREAS, the Paris Economic Development Corporation (PEDC) is a non-profit economic development corporation formed by the City of Paris in 1993 pursuant to Chapters 501 and 504 of the Texas Local Government Code and after said formation was approved by the registered voters of the City of Paris 1993; and WHEREAS, the PEDC and the City cooperate to encourage and foster economic development within the City; and WHEREAS, the PEDC currently has outstanding indebtedness and needs additional cash flow for future projects and potential land acquisitions; and WHERAS, the City currently has funds in cash reserves available to lend to the PEDC which will reduce the PEDC's interest rate for the repayment of its indebtedness and give it additional funds for future projects and potential land acquisitions; and WHEREAS, furthermore, by loaning funds to the PEDC, the City can realize a greater rate of return on its funds than it could by leaving said funds in the accounts in which they are currently placed; and WHEREAS, the Council of the City of Paris, Texas finds that it will be in the best interest of both the City and the PEDC to loan the PEDC the sum of TWO MILLION FIVE HUNDRED THOUSAND DOLLARS AND NO/100 ($2,500,000.00) for a ten year term at the initial interest rate of 2.14%; NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PARIS, TEXAS: Section 1. That the findings set out in the preamble of this resolution are hereby in all things approved. Section 2. That the City Council hereby approves a loan to the PEDC in the amount of TWO MILLION FIVE HUNDRED THOUSAND DOLLARS AND NO/100 ($2,500,000.00) for a ten year term at the initial interest rate of 2.14% in accordance with the terms of the Promissory Note attached hereto as Exhibit A and incorporated herein by reference, which Promissory Note the City Council also hereby approves. Section 3. That the Mayor of the City of Paris, be, and is hereby authorized and directed to execute on behalf of the City of Paris the Promissory Note in the form of Exhibit A attached hereto. Section 4. That this resolution shall be effective from and after the date of passage. PASSED AND ADOPTED this 13th day of December, 2021. Paula Portugal, Mayor ATTEST: Janice Ellis, City Clerk APPROVED AS TO FORM: Stephanie H. Harris, City Attorney PROMISSORY NOTE Borrower: PARIS ECONOMIC DEVELOPMENT CORPORATION A Texas Non -Stock, Non -Profit Industrial Development Corporation 1125 Bonham Street, Paris, Texas 75460 Lender: THE CITY OF PARIS A Municipal Corporation 150 SE Pt Street, Paris, TX 75460 Principal Amount: $2500-000.00 Initial Rate: 2.14% Date of Note: NEED TO FILL IN PROMISE TO PAY. PARIS ECONOMIC DEVELOPMENT CORPORATION, A Texas Non - Stock, Non -Profit Industrial Development Corporation (Borrower), by and through its duly authorized Chairman of the Board of Directors, JOSH BRAY, promises to pay to the order of THE CITY OF PARIS (Lender), in lawful money of the United States of America, the principal amount of TWO MILLION FIVE HUNDRED THOUSAND AND NO/100 ($2,500,000) Dollars. PAYMENT. Borrower shall repay this Promissory Note, both principal and interest, by or before the tenth (10th) anniversary of date of said note asset forth hereinabove. For the first three years of this Promissory Note, Borrower will make monthly payments in the amount of $16,249.39. During said three year period, interest will accrue at the rate of 2.14%. On the third anniversary of the Date of Note, and on the 61 and 91 anniversary dates thereof, interest will be recalculated using the formula set forth herein below. Amortization of this ten (10) year Note will be calculated on a fifteen (15) year basis with a balloon payment to be made at the end of year ten (10). Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. DETERMINATION OF INTEREST RATE. The initial interest rate of 2.14% on this note will adjust every thirty six (36) months, until maturity, using the multistep formula as follows: (1) determine the 10 year Constant Maturities Treasury Rate. (2) Subtract the rate determined above from the prime rate found in the Wall Street Journal. (3) Take 25% of the difference identified in #2 and add it to the rate of return determined in #1 above. (4) The result of the calculation in #3 will be the note interest rate. The rate of the note will never be less than two percent at any time during the term of the note. INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method. PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments of accrued unpaid interest. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked "paid in full", "without recourse", or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: City of Paris 150 SE 1St Street Paris, TX 75460 POST MATURITY RATE. The Post Maturity Rate on this Note is the lesser of the maximum rate allowed by applicable law or 18.000% per annum. Borrower will pay interest on all sums due after final maturity, whether by acceleration or otherwise, at that rate. DEFAULT. Each of the following shall constitute an event of default (Event of Default) under this Note: Payment Default. Borrower fails to make any payment when due under this Note. Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant, or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the related documents. False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter. Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute. Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor, endorser, surety, or accommodation party of any of the indebtedness or any guarantor, endorser, surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note. Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired. NOTICE OF DEFAULT. If Borrower fails to make any payment on the Note when due, Lender shall deliver to Borrower written notice of such default describing the amount past due, and if Borrower fails to bring the payment current within Sixty (60) days after delivery of such notice, this failure shall be an Event of Default as provided above. Further, if Borrower fails to comply with any of the other terms and conditions of this Note and the instruments securing same within Sixty (60) days from date of written notice from Lender, this, too, shall constitute an Event of Default under the terms of this Note. LENDER'S RIGHTS. Upon default, Lender may declare the entire indebtedness, including the unpaid principal balance on this Note, all accrued unpaid interest, and all other amounts, costs and expenses for which Borrower is responsible under this Note or any other agreement with Lender pertaining to this loan, immediately due, without notice, and then Borrower will pay that amount. In addition to accelerating the Note for events of default as set forth above, Lender may declare the entire indebtedness, including the unpaid principal balance on this Note, all accrued unpaid interest, and all other amounts, costs and expenses for which Borrower is responsible under this Note or any other agreement with Lender pertaining to this loan, immediately due, without notice, in the event that Lender has an emergency need for repayment of the borrowed funds, plus accrued unpaid interest, such emergencies including but not limited to natural or man-made disasters, financial calamity, changes in state or federal law leading to an emergency need for such funds, and a judgment of a state or federal court for which Lender has no insurance coverage and which Lender does not have sufficient funds to satisfy. In such event, Lender will notify Borrower in writing that Lender is calling the note, and Borrower shall have sixty (60) days to repay all principal and any accrued interest to Lender. ATTORNEYS' FEES • EXPENSES. Lender may hire an attorney to help collect this Note if Borrower does not pay, and Borrower will pay Lender's reasonable attorneys' fees. Borrower also will pay Lender all other amounts Lender actually incurs as court costs, lawful fees for filing, recording, or releasing to any public office any instrument securing this Note; and the reasonable cost actually expended for repossessing, storing, preparing for sale, and selling any security. GOVERNING LAW. This Note will be governed by, construed and enforced in accordance with Federal Law and the laws of the State of Texas. This Note has been accepted by Lender in the State of Texas. CHOICE OF VENUE. Should litigation become necessary between the parties, and if the transactions evidenced by this Note occurred in Lamar County, Borrower agrees upon Lender's request to submit to the jurisdiction of the Courts of Lamar County, State of Texas. SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower's successors and assigns, and shall inure to the benefit of Lender, its successors and assigns. NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING AGENCIES. Please notify us if we report any inaccurate information about your account(s) to a consumer reporting agency. Your written notice describing the specific inaccuracy(ies) should be sent to us at the following address: City of Paris 150 SE 1" Street Paris, TX 75460 GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Borrower does not agree or intend to pay, and Lender does not agree or intend to contract for, charge, collect, take, reserve or receive (collectively referred to herein as charge or collect), any amount in the nature of interest or in the nature of a fee for this loan, which would in any way or event (including demand, prepayment, or acceleration) cause Lender to charge or collect more for this loan than the maximum Lender would be permitted to charge or collect by Federal law or the law of the State of Texas (as applicable). Any such excess interest or unauthorized fee shall, instead of anything stated to the contrary, be applied first to reduce the principal balance of this loan, and when the principal has been paid in full, be refunded to Borrower. The right to accelerate maturity of sums due under this Note does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Lender does not intend to charge or collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of the loan evidenced by this Note until payment in full so that the rate or amount of interest on account of the loan evidenced hereby does not exceed the applicable usury ceiling. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, notice of dishonor, notice of intent to accelerate the maturity of this Note, and notice of acceleration of the maturity of this Note. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan only with the consent of and notice to Borrower. The obligations under this Note are joint and several. THIS WRITTEN PROMISSORY NOTE, TOGETHER WITH THE SECURITY INSTRUMENTS AND OTHER DOCUMENTS EXECUTED CONTEMPORANEOUSLY HEREWITH, REPRESENT THE FINAL AGREEMENT BETWEEN MAKER AND PAYEE, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. PRIOR TO SIGNING THIS NOTE, BORROWER HAS READ AND UNDERSTANDS ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE. PARIS ECONOMIC DEVELOPMENT CORPORATION, A Texas Non -Stock, Non -Profit Industrial Development Corporation M 314q JOSH BRAY Chairman, Board of Directors Duly Authorized City of Paris A Municipal Corporation BY: PAULA PORTUGAL Mayor