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Aaron Dejong <br />Director of Economic Development <br />749 Main Street <br />City of Louisville, Colorado <br />Re: Clarification Regarding Treatment of Unpaid Interest <br />At the last LRC meeting inn August, we were extremely surprised that the City <br />Attorney's new interpretation of the Term Sheet was calling for unpaid interest to <br />not earn any interest. It has always been our understanding that the words "simple <br />interest" in the Term Sheet meant that in each individual year the interest would be <br />calculated as simple interest on a 30/360 basis. This was never meant to mean that <br />simple interest would be applied to the entire 18-year term as a whole as this would <br />significantly alter the real interest rate. Over the last year we have submitted to the <br />LRC multiple iterations of the bond repayment schedules, and all of them have <br />shown that interest due, but unpaid, will earn interest until repaid. The City's staff <br />and consultants have never given any indication that repayment should be treated <br />in a different way. <br />All of our discussions with the LRC concerning the URA bonds have been in terms of <br />these being real bonds that would attract investors, and this is how the 7% interest <br />rate was determined. As there is currently no TIF revenue available to make the full <br />interest payments in the first 4 years of the redevelopment, the unpaid interest <br />must be treated in a way that results in a true 7% return. If unpaid interest does not <br />earn interest until repaid, the real rate of return falls to approximately 6 %. To <br />reduce the real rate of return at this point would undermine all the work we have <br />done toward putting in place the financing required to move this project forward. It <br />would be extremely unusual for a true bond to be structured this way, and this <br />presents a significant obstacle for such a `bond' to be marketable. <br />If the LRC wishes to eliminate unpaid interest in the early years of the project, a <br />good alternative would be to have part of the bond proceeds placed in a capitalized <br />interest fund that would be used to make up for the anticipated unpaid interest. <br />This is a common way to make initial interest payments in redevelopment situations <br />like the Core Area where it is known that there will be insufficient TIF revenue in <br />the early years of the development. The amount in the capitalized interest fund <br />would be approximately equal to the sum of the first four years of unpaid interest, <br />Res a fully, <br />J tin cClure <br />DeLo, LLC <br />UELO,LLC <br />Z1 South Sunset Street <br />Longmont, CO <br />