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SUBJECT: <br />DATE: <br />DELO TIF BOND INTEREST <br />SEPTEMBER 8, 2014 <br />PAGE 2 OF 2 <br />Previous financial proformas have incorporated compounding the interest and did not <br />reflect the simple interest provision outlined in the Term Sheet. Attached is the <br />proforma from June 2014 and a revised proforma from August 2014 reflecting a simple <br />interest scenario. <br />Staff has concerns changing the treatment of unpaid interest to compound over time. <br />The concerns are; <br />1. The Term Sheet states simple interest. Staff is executing the agreed upon terms <br />by the LRC and confirmed by the City Council. <br />2. Compounding would create a greater negative balance in the early years. Tax <br />Increment Revenues are delayed by almost two years from the time the taxable <br />new construction is complete to when the increased property tax revenues are <br />collected. Adding an additional two years for unpaid interest to compound <br />creates a greater interest obligation 'hole' to overcome. <br />3. The LRC does not control the timing of taxable new construction. TIF revenues <br />are reliant on taxable new construction which is controlled by the private entities <br />looking to build projects. Should the Developer and others delay vertical <br />construction after the bonds are sold, greater exposure to interest accruing <br />occurs and adds to the interest obligation `hole'. Adding compound interest to <br />this scenario makes the 'hole' deeper. <br />4. Compounding interest creates disincentive to complete vertical infrastructure as <br />soon as possible if taxable new construction values increase above the projected <br />value. An additional year of 7% compounded interest would benefit the <br />investors. <br />The treatment of unpaid interest is a business decision. Compounded interest can be <br />facilitated within the life of the Urban Renewal District. <br />RECOMMENDATION: <br />Staff requests an LRC decision on how to treat unpaid interest. The bond documents <br />will be prepared with either simple interest or compounding interest provisions and <br />clarified at the document approvals at both LRC and City Council. <br />ATTACHMENT(S): <br />1. Current Term Sheet <br />2. Developer Letter <br />3. Financial Advisor Letter <br />4. Bond Counsel Letter <br />5. June 2014 Bond Proforma (compounding interest) <br />6. August 2014 Bond Proforma (simple interest) <br />7. September 2014 Bond Analysis <br />LOUISVILLE REVITALIZATION COMMISSION <br />