Joint Meeting with the Fresno Joint Powers Financing Authority (JPFA)
May 25, 2017
FROM: MICHAEL LIMA, Finance Director/City Controller
Finance Department
BY: PHILLIP L. HARDCASTLE, Principal Accountant - Debt Administration
Finance Department
SUBJECT
Title
1. Actions Pertaining to Repayment of Loan from City of Fresno (City) to Fresno Joint Powers Financing Authority (Authority):
a. RESOLUTION of Authority authorizing the assignment of the Authority’s interest in two promissory notes from the City of Fresno Cultural Arts Properties, Inc. to the City as repayment for City’s loan in the amount of $12,690,500 and directing the execution of all documents and taking all actions necessary to accomplish assignment. (Authority action)
b. Acceptance of assignment of Authority’s interest in two promissory notes from the City of Fresno Cultural Arts Properties, Inc. in full repayment of loan to Authority and direct the City Manager or designee to execute all documents and take all actions necessary to accomplish assignment. (City action)
Body
RECOMMENDATION
Staff recommends: (1) Authority approval of the assignment of Authority’s interest in two promissory notes from the City of Fresno Cultural Arts Properties, Inc. to the City as repayment for City’s original loan to the Authority in the amount of $12,690,500 and the execution of all documents and taking all actions necessary to accomplish assignment; and (2) City acceptance of assignment and the execution of all documents and taking all actions necessary to accomplish assignment by the City Manager or designee.
EXECUTIVE SUMMARY
In March 2010, the City agreed to participate in a New Market Tax Credit (NMTC) transaction to be able to infuse additional funds into the repurposing of the Fresno Bee Building and reduce the City's financial obligation related to the project. To accomplish this task, the City lent the Authority $12,690,500. The Authority loaned the $12,690,500 to the Investment Fund to be used by the Investment Fund along with equity to purchase an interest in the CDE for the eventual loaning of the funds to COFCAP. COFCAP used the CDE loan to purchase the Fresno Bee property from the City for $16,600,000.
The City agreed to guaranty COFCAP's compliance with the NMTC rules and to purchase the investor's interest, if requested by the investor, following the expiration of the NMTC compliance period. The compliance period expired on March 30, 2017, and the parties to the transaction have elected to unwind the transaction.
BACKGROUND
In 2010, the City agreed to participate in a transaction utilizing New Market Tax Credits to facilitate the refinance of the Fresno Bee Building. Several entities were created to participate in the NMTC transaction:
(1) City of Fresno Cultural Arts Properties (COFCAP), a new 501(c)(3) non-profit corporation, was created to own the Fresno Bee Building.
(2) FBB Investment Fund, LLC., (the Investment Fund), was created to raise investment equity to invest in a community development entity that had access to NMTC.
(3) Clearinghouse NTMC (Sub-18) LLC, (CDE), a community development entity, was created to contribute the NMTC to the transaction.
To implement the NMTC transaction the City loaned $12,690,500 to the Authority. In turn the Investment Fund borrowed $12,690,500 from the Authority and raised $4,309,500 from a U.S. Bank, affiliated investment entity (that ultimately became the sole member of the Investment Fund). The Investment Fund used the loan and equity investment proceeds to purchase an equity interest in CDE. CDE used $16,660,000 of the equity investment to make a loan to COFCAP to purchase and manage the Fresno Bee Building property. COFCAP promised to use and manage the property in accordance with the NMTC rules for the seven year compliance period.
The NMTC compliance period expired on March 30, 2017, and the parties have decided to unwind the NMTC transaction. The U.S. Bank investment entity and the CDE decided to exit the transaction; the CDE opted to redeem the Investment Fund's interest in the CDE by assigning the COFCAP promissory notes and COFCAP deed of trust to the Investment Fund in exchange for the Investment Fund's interest in the CDE. Accordingly, on March 23, 2017, the City authorized the unwinding of the NMTC transaction by dissolving the Investment Fund and repaying the Authority’s loan to the Investment Fund.
The Authority now wishes to move forward with unwinding the transaction and repaying its loan to the City by assigning its interest in the in two promissory notes from the City of Fresno Cultural Arts Properties Corporation to the City, in full repayment of the City’s original $12,690,500 loan.
ENVIRONMENTAL FINDINGS
By the definition provided in the California Environmental Quality Act Guidelines Section 15378 this hearing does not qualify as a “project” and is therefore exempt from the California Environmental Quality Act requirements.
LOCAL PREFERENCE
Local preference was considered because this hearing does not include a bid or award of a construction or services contract.
FISCAL IMPACT
With the assignment of the COFCAP loan from the Authority to the City, the City will become the holder of two promissory notes worth $16,600,000. The transaction will not impact the City’s general fund.
Attachment: JPFA Resolution Re Assignment of Interest
JPFA Loan Repayment and Assignment Agreement