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L <br />City at <br />- <br />Louisville <br />COLORADO • SINCE 1878 <br />LOUISVILLE REVITALIZATION <br />COMMISSION <br />SUBJECT: <br />DATE: <br />DELO TIF BOND INTEREST <br />SEPTEMBER 8, 2014 <br />PRESENTED BY: AARON M. DEJONG <br />SUM MARY: <br />The Developer is requesting a final determination from the LRC regarding compounding <br />unpaid interest during the duration of the TIF bond instead of accruing at simple interest <br />in accordance with the Term Sheet. <br />BACKGROUND: <br />A Term Sheet regarding the main financial terms of a TIF revenue bond was first <br />executed on May 13, 2013. The original Term Sheet, and all changes to it, has <br />specified the interest terms as "7% simple interest calculated on a 30/360 basis ". <br />The Random House Dictionary defines simple interest as "interest payable only on the <br />principal; interest that is not compounded." Staff has interpreted the Term Sheet <br />provision to not mean compounded interest. <br />The issue of simple interest was discussed during the August LRC meeting during the <br />TIF bond documentation update. Rick Brew stated the unpaid interest should earn <br />interest. That goes against the interest rate definition in the Term Sheet. <br />Commissioners gave no objections to keeping the interest component as simple <br />interest. <br />DISCUSSION: <br />The Developer requests any unpaid interest be allowed to compound until it is paid. <br />They have been assuming the unpaid interest will compound when talking to interested <br />investors. Attached is the Developer's letter stating their request and reasoning for the <br />change. <br />The financial advisor, George K. Baum, provided a letter stating it would be unusual for <br />normal bond issuances to have unpaid interest not accrue interest. This bond is not a <br />normal bond as it has components that look like a normal bond and components that <br />look like a reimbursement agreement. <br />Bond Counsel provided the attached email outlining that other bonds structured like this <br />(failure to pay interest is not an event of default and no regularly scheduled principal <br />payments) have had compound interest or simple interest provisions; it is a business <br />decision. That business decision has been in the Term Sheet since its first approval. <br />The feasibility study (proforma) will need to prove changing to compound interest still <br />allows for full repayment by the end of the term to keep tax - exempt bond status. <br />LOUISVILLE REVITALIZATION COMMISSION <br />