Steamboat officials question bank notice

Base area adviser says US Bank playing rough; city exploring other lenders, options

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— As the city opens talks with other lenders for its $17.5 million base area redevelopment loan, a leading adviser of the project called U.S. Bank’s default notice a heavy-handed, ethically questionable ploy that should not stall this summer’s work.

City officials and base area advisers still were digesting Wednesday the impacts of the April 19 default notice, which caused Steamboat Springs City Council to postpone a financing decision on the loan and delay the signing of a $4.5 million construction contract — and jobs for as many as 200 workers — until at least May 18. The time will allow city staff to seek competitive loan scenarios and explore its options while also continuing to negotiate with U.S. Bank.

City Finance Director Deb Hinsvark confirmed that the city is speaking with other lenders.

“We are communicating again with Wells Fargo,” she said Wednesday. “Additionally, we are exploring some fixed-rate transactions that would replace this (variable rate bond) financing.”

The U.S. Bank notice said the Steamboat Springs Redevelopment Authority was in default on its $17.5 million loan for redevelopment work at the base of Steamboat Ski Area because of property tax rates that decreased without city documentation, and were not changed in the loan conditions, before the loan was approved Dec. 22.

The bank is requiring the city to provide $3.75 million within 30 days from the notice as additional security for the loan.

David Baldinger Jr., co-chairman of the Urban Renewal Area Advisory Committee spoke strongly against the notice Wednesday.

“All (U.S. Bank is) doing is taking a conservative position and trying to get a loan that is triple-insured,” Baldinger said. “I believe all the models that have been run clearly show that these bonds can be easily serviced in almost any scenario that you can come up with.”

Baldinger brushed aside concerns that the notice should change how the city approaches the loan’s financing or the redevelopment project’s scope. He said Steamboat Springs City Council, which acts as the Redevelopment Authority, should confidently use $3.75 million of the city’s general fund reserves to back the project. Three City Council members have questioned such backing.

“I don’t think we should use 40 percent of the unallocated general fund to support the (base area) project,” Councilman Walter Magill said Tuesday, referring to the $9.5 million the city has in two reserve funds.

Council members Cari Her­macinski and Jon Quinn also expressed concerns with such a use of city reserves. Baldinger said Wednesday that although the entire country is experiencing a tight lending environment, U.S. Bank’s request is over the top.

“To ask for this additional pledge of reserves is just extremely conservative on the bank’s part, and I frankly think other banks would do (the loan) without that. … They’re almost trying to not make this loan,” he said. “I think it’s unreasonable. … Morally and business-wise, I think it’s dead wrong. And it may be wrong legally. But the last thing you want to do is get into a lawsuit with your bond issuer.”

The default notice from U.S. Bank is signed by Neil L. Arney, of Kutak Rock LLP in Denver. Arney did not return a phone message left Wednesday. The city’s bond underwriter, Alan Matlosz, of the Denver investment banking firm George K. Baum & Co., also did not return phone messages, though Matlosz’s voicemail said he was out of the office.

Hinsvark said Wednesday that transferring the loan to another lender or using other options could be feasible, provided there were additional benefits from making any kind of switch.

“The documents are written very nicely for us to replace the bank,” she said. “If we flipped it over to Wells Fargo, then we’d be in the same transaction, we’d just be with Wells Fargo — there would not be duplicative costs there.”

Known for months

URAAC advises city officials and the Redevelopment Authority about base area redevelopment decisions. Baldinger’s role on the committee certainly influences his take on how to proceed with base area work, which this summer could include partial construction of a public promenade and daylighting a section of Burgess Creek.

But his URAAC role also, he said, has given him an intimate familiarity with the financial situation surrounding what is arguably the city’s most important capital project.

Baldinger said Hinsvark began providing URAAC with figures related to the loan issues about two months ago, spurring a steep learning curve.

“It took me three weeks to understand how to form an opinion on it,” Baldinger said. “It took (URAAC) a while to figure out what the implication would be, if any.”

Hinsvark said that when she joined city staff Jan. 4, talks about potential problems with the $17.5 million base area loan already were under way.

Assistant Finance Director Bob Litzau, the department’s interim leader before Hinsvark came on board, agreed with that timetable.

“When I knew what the full impact was … would have been early January,” he said. “We knew that there were going to be fluctuations in revenue.”

What surprised everyone, it seems, was not the potential loan problem itself but rather U.S. Bank’s reaction — and the timing of that reaction.

“They’ve known all these variables for many months … it’s not a surprise to anyone,” Baldinger said. “Why didn’t U.S. Bank send this letter three months ago when they knew about this?”

Hinsvark said after weeks of discussion with the city’s financial counsel and conversations with U.S. Bank that began in March, the default notice was “somewhat” of a surprise.

Baldinger implied U.S. Bank could be using the timing of the default notice — when the city is on the verge of summer construction — to add leverage to its request for more security.

“It’s just really rough business dealings,” he said. “But that’s part of business.”

Comments

Scott Wedel 4 years, 7 months ago

Thank you uncredited reporter for getting this story.

We are only going to get the City's side of the story because US Bank is not going to say anything. They just want to fix the loan to fit the risk profile that the City promised. So the City will be able to say all sorts of bad things about US Bank even if the City's version makes no sense.

So what was that Cari said about timely public disclosure of important issues? When was the recalculated revenues for the URAAC publicly released? URAAC was informed of lower revenues "several months ago" but I can find no mention of that issue until May 3rd. The City and US Bank were having discussions regarding the loan prior to Jan 4th. Was that ever mentioned during any of the bid process and such for this summer's work? Not until May 6rd. Apparently, timely disclosure is a clock that only ticks after May 3rd, 2010.

Anyone want to dig up the comments Cari and other current board members said about openness and financial responsibility when they were criticizing the Iron Horse purchase?

Apparently the City does not understand that conforming to loan covenants is a fundamental part of having a commercial loan. US Bank is simply doing their job to be sure the loan covenants still apply. The loan covenants are an essential part of building a risk profile for a loan and the loan covenants have to remain accurate for a loan. To have any sort of integrity in their loan portfolio the lender has to be verifying loan covenants. Thus, US Bank is going to be rather disturbed that SB SIGNED the loan knowing that the covenants were not true. A simple Google search shows case after case of a commercial lender saying a loan is in default due to covenant violations. Cari is sadly apparently completely ignorant of this reality when she said it was "unprecedented".

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Scott Wedel 4 years, 7 months ago

The default notice was entirely predictable. SB was about to commit a big chunk of it's reserve towards this year's construction. Well, that obviously removed the ability to pay down a big chunk of the existing $17.5M loan. Note that it was earlier reported that US Bank wanted $5M which makes sense because if actual revenues are a third lower ($1.3M vs $1.9M) then maintaining the loan's risk profile would suggest reducing the amount of the loan by about a third which is $5M. It was previously reported that City and US bank had negotiated $3.75M as a workable number. So now it was time for US Bank to drop the hammer before SB could spend the money on this summer's project. Looks like US Bank got the result they wanted, they've gotten the attention of the City and they are more likely to get their money than the City using the reserve funds to pay for the redevelopment projects.

If I was a shareholder of US Bank then I would be entirely pleased to read this story. It looks like the bank is not going to let a borrower get away with a deceptive loan application that resulted a loan with covenants that the City was violating when they signed the loan. I would not be surprised in the least if US Bank would be quite happy if SB were to go elsewhere. A borrower that has covenant violations when signing the loan is a nightmare for a lender, not a valued customer.

And yeah so maybe US Bank cannot freeze the funds as Cari mentioned in an earlier article. US Bank does not appear to be making that threat. It appears their threat is real simple - agree to new covenants or go elsewhere to get the money to pay us off.

But go on city officials, keep blaming the bank. Say whatever you think you can get away with. Most people won't care. A few people might even believe you.

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kathy foos 4 years, 7 months ago

What I dont understand is how the devaluation of property values is a finite thing.The standard that U.S. Bank is using is so totally variable,property values.Mine went higher than ever,though there are not many home sales,its enough to raise my value on the notice this year.I dont think that the method they use to calculate the deal is accurate.Couldnt they be off in the value estimates?Is the bank actually trying to make sure that the property values are less in Steamboat at this point?Can they or do they have to prove it, property value decrease,since they pushed it to this point,It seems that they ,the bank,are taking advantage of a repressed ,scared economy,and imposing lower property values, themselves,in a way,by their action.You can shop around for financing,but dont hold your breath,they arent loaning to any of us,,big or small.Arent you glad we saved all of those financial institutions ?This is what they can do for you,beyond nothing.

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Bill Dalzell 4 years, 7 months ago

Sun, are you talking about your value going higher because of your assessed value? If it was, it was based on a June 2008 value. I don't think any property in the county is worth more than it was in 2007. Some properties have evidenced declines of 40% or more. I would find it hard to believe that property values won't be off by 30% or so as a whole, come June 2010.

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Scott Wedel 4 years, 7 months ago

Jon Quinn: “To ask for this additional pledge of reserves is just extremely conservative on the bank’s part, and I frankly think other banks would do (the loan) without that. … They’re almost trying to not make this loan,” he said. “I think it’s unreasonable. … Morally and business-wise, I think it’s dead wrong. And it may be wrong legally. But the last thing you want to do is get into a lawsuit with your bond issuer.”

How ignorant is Jon Quinn? Let us count the ways: 1) The URAAC qualified for the loans based upon revenues of $1.9M. The mills to reach that income was a loan covenant. Actual mills when city signed the contract was lower and URAAC had expected revenues of $1.3M. Thus, US Bank is doing the OBVIOUS thing of basically reducing the loan balance down to what the URAAC would qualify for based upon their revenues. 2) If Jon Quinn thinks other banks would lend on more favorable terms then why did they go with US Bank in the first place? Or not switch when the negotiations did not reach a successful conclusion after months of discussion? The City waits until notice of default before taking US Bank's issues seriously? 3) Morally and ethically it is URAAC and SB that are dead wrong. They signed a loan knowing that the mills levy covenant specified inaccurate values. US Bank and SB have been discussing loan issues since then. 4) wrong legally? Covenant violations resulting in notice of default happens all the time. Considering the facts when SB signed the loan, I think US Bank is confident of their chances in court. Not only is the URAAC in violation of covenants, US Bank could probably move to have the loan agreement voided because it was obtained under fraudulent circumstances (mill levies that were much higher than actual values) and seek their money plus damages.

Well, at least he is right that you don't want legal fights with your bond issuer. Simplest reason is that is a very hard case to win.

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Mike Lawrence 4 years, 7 months ago

Scott,

That quote is from David Baldinger Jr., not Jon Quinn. From the story: Baldinger said Wednesday that although the entire country is experiencing a tight lending environment, U.S. Bank’s request is over the top. “To ask for this additional pledge of reserves...."

Mike Lawrence Reporter Steamboat Pilot & Today (970) 871-4233 mlawrence@steamboatpilot.com

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Clay Ogden 4 years, 7 months ago

"How ignorant is Jon Quinn? Let us count the ways:"

Mr. Wedel ... I imagine you also don't see this as a personal attack either ... despite the fact you were quoting the wrong person.

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cindy constantine 4 years, 7 months ago

Scott,

I used to look forward to your comments but in the past two months they have become preachy, tedious and down-right repetitive. Don't think you are getting enough fresh air. I say "step away from the computer . . . ."

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Scott Wedel 4 years, 7 months ago

Oops, sorry misread that section.

Joe Quinn I apologize. You did not make any stupid or ignorant comments quoted in the paper on this issue.

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justice4all 4 years, 7 months ago

As long as the city is a reak estate broker ( Iron Horse ) and thinks walking trails and re developement is more important than emergency services and education, we will continue to have problems. If only " THEY " would spend " OUR " money like they spend "THEIRS " the waste could be cut out. Might be that we could improve our educational environment for our future generations by among other things, teaching to not spend for than they could afford. And then, we could have " justice 4all ".

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pitpoodle 4 years, 7 months ago

Cindy, Don't be too hard on Scott W. He is generally a very good thinker and fact finder. You can almost feel his frustration with how council approaches decision-making. People need to question authority and question their so called-facts and he does. His comments cause us to think too. Thank you Scott.

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kathy foos 4 years, 7 months ago

Just one more question I keep forgetting to ask,What about the interest?If the "Boat" makes payments they get the interest,if the bank raises the bond to get cash to hold on the loan,wouldnt they get the interest then,and could that be the real motivation? Would they be allow to collect interest on money like that?

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Steve Lewis 4 years, 7 months ago

I did not see the comment by Scott that was pulled. But his recent criticism was harsher than I would have written. Clay and Cindy have taken issue with that level of criticism, and Scott seems to be hearing that. Many in this blog respond to similar criticism by simply turning up their volume and language.

Its worth noting that Mike Lawrence, Pilot reporter, is posting here in Cari's defense. What's up with that?

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Steve Lewis 4 years, 7 months ago

I am tired of this paper's allegiances.

I've been called a liar in this blog and complained about it twice. The Pilot editor wouldn't even respond.

Last fall posters here called for a boycott of Cindy Constantine's family business when she led the SB700 petition signing. Where was the Pilot censorship then?

Steve Aigner first announced the SB700 petition and was lambasted 3 days later by Mike Lawrence, beginning a series of painfully humiliating articles. Was Scott any harder on Cari than Mike Lawrence was on Steve Aigner? Let's see.... do a Friday cover story and 2 subsequent articles by the Pilot feel the same as a series blog comments from one guy? Not even close. The Pilot has shown it will yank what offends its pals and print what offends its opponents.

Steve Aigner is still getting over the personal bruising dished out by this paper. At the same time, his SB700 petition effort was instumental in reversing an annexation agreement the community did not support.

Given that ballot, it’s my opinion that Steve, Cindy Constantine, and Lets Vote have proven themselves to be valuable community representatives. Maybe someday this newspaper will treat them as well as it treats Cari Hermacinski.

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pitpoodle 4 years, 7 months ago

Jeez Lewi, are sure Lawrence is posting on the blogs? What is his blog name?

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Steve Lewis 4 years, 7 months ago

But I was wrong to say he was defending Cari. Mike was defending Jon Quinn.

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cindy constantine 4 years, 7 months ago

The bottom line is, the City Council has long outlived its usefulness in a community with the complicated issues we are facing. I have thought that for a long time. I will not bad mouth the decisions that Council makes (with the one exception of the annexation agreement) even when I moan and groan in the privacy of my own home. These people have basically "volunteered" their time when they are business owners, employees, members of a family with small children, coaches and just generally good people. We need a full time PAID employee to run the business of the city. A MAYOR--who gives 40 to 50 hours a week to do a job well in deciphering the needs and desires of his bosses . . . us. Having to put forth the effort of a petition drive and subsequent campaign is a very inefficient and expensive way to meet the will of the citizens and can't be relied upon long term as our modus operandi. I cannot, however, come up with kind words for the paper which I feel is no longer trustworthy nor objective enough to report the community news in a forthright and honest manner.

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cindy constantine 4 years, 7 months ago

See, Scott, I can be "preachy and tedious" with the best of 'em.

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pitpoodle 4 years, 7 months ago

Cindy, The value of having part-time representation on city councils and state and federal seats is so that the people who represent us know what it is like to be ordinary citizens, family members, or business people for at least part of their lives and not just government workers or political hacks. The thought is to have citizen reps who talk to their neighbors and presumably closely understand the community. People on our city council all fought to be elected and they vowed to represent the community. If they do not, it is everyone's responsibility to let them know we expect them to do the job they were elected to do. If citizens do not speak up, there are few checks and balances and we end up with situations like SB 700 approval. Newspapers usually help with the checks and balances but that is not our case here. City council is paid a part-time salary plus health benefits and travel expenses. I do not believe the city's issues are that complex but it takes a council willing to make sure their facts are correct, and timely, before they make decisions as appeared to be unfortunate case with the US Bank and base area situation. Thank you for putting in so much effort in opposing SB 700 and for being part of our check and balance system in SB.

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cindy constantine 4 years, 7 months ago

Pit,

Thanks for your thoughts but I still feel we would be much better off with a Mayor than with a City Council which is a cumbersome form of city management. And I do not think the pittance they receive as a "salary" is worth the brain damage.

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Steve Lewis 4 years, 7 months ago

Would a mayor be more attentive to the community and its plans, or would the mayor become more aligned with special interests, such as development? It seems either way we would be stuck with a bad choice for too many years. Because I don’t think we would choose to create a position for a mayor with more control and then be changing that position every 2 years. That would hurt all involved. With a council at least the changes are more incremental.

And with a mayor, it seems like we'd see a convergence of the special interests to one race, and there I have concern with the record of the Pilot creating problems for someone they don’t like during elections. At least with a council of 7 the Pilot’s ability to prejudice is diluted by the number of races.

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cindy constantine 4 years, 7 months ago

Good Points, Lewi. However, I still feel like a Mayor is the more efficient and effective choice. Candidates would run with their vision for the city and a strategy to meet that vision. I would vote for the candidate that closest meets my vision for the city and would expect him to act on his promises. I know this is always the expectation, and not always the end result. Bottom line, he is paid to do the job of the City because he does not have another job or own a business to split his time and allegiances. I do not believe a mayor is beholden to any special interests if you elect the right person. Maybe pie in the sky, but I just don't see our current governing style as being very effective or timely. Plus I have to believe it would be a cost saver to the City as you would not be paying for 7 council members and their benefits plus the cost of a City Manager.

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Steve Lewis 4 years, 7 months ago

With an article a day on the base area TIF, this thread seems the most long lived. So copying my other post on the TIF use:

These articles on TIF debt focus on a small part of this issue. Yes, using city reserves to construct this base area amenity would be a terrible idea and a red flag.

But even if we get the money "free", via the (TIF) skimming of future property taxes, that money is being poorly applied by the city. That's not fair to the citizens outside this district who will pay the other bills stemming from the base area's new steroids.

Cari almost hit the mark when she said,"...the promenade is a want to have and a sewer plant is a have to have." A taxpayer who read the article below would be saying, "Isn't sufficient sewer pipe a have to have too?"

http://www.steamboatpilot.com/news/20...

The base area expansions and its recent huge density up-zonings means millions in infrastructure impacts we have yet to address. The base area TIF should be covering the base area impacts to our infrastructure, NOT Steamboat's residents via their water bills.

Instead of paying Duckels to build new sidewalks at the base area, the TIF should be paying him to upgrade those maxed out sewer pipes that serve the base area.

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Steve Lewis 4 years, 7 months ago

Cindy, seems like there are positives. Do other resort towns have mayors to see an example?

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cindy constantine 4 years, 7 months ago

Hey Scott W--

Where are you when we need our questions answered? You have gotten enough fresh air by now so we want you back... LOL

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JLM 4 years, 7 months ago

The City of SBS already has a full time "strong" City Manager and City Council form of government.

In most "strong" Mayor government schemes --- particularly for a city as small as SBS --- you are simply duplicating the functions of the City Manager.

City Councils, in municipal governance schemes, are intended to set policy and to supervise the City Manager. They also manage the agenda of what is considered at the policy level --- no small power in and of itself.

It is sheer nonsense to suggest that "interests" are "special interests" just because you oppose them. There is not a city in the US which is not grappling with the basic elements of municipal governance --- public safety, provision of adequate utilities, regulating development are why municipalities exist in the first place.

There is not a city in America which thinks it has enough resources or money just now --- most never think so. There is supposedly a recession going on somewhere nearby but maybe it hasn't gotten to SBS yet? LOL

When everybody is engaged and the results are being hotly debated and nobody is getting everything they want when they want it --- government is probably delivering at its optimum capability.

Beware the fully satiated man because he has probably been eating out of your chili bowl.

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Steve Lewis 4 years, 7 months ago

Do you think our local government is delivering at optimum capability? I don’t. Sure, "hot debate" and nobody getting everything they want could lead to a healthy course. But that is not what Steamboat is getting.

What we got in the annexation agreement and its subsequent denial was more like a personality disorder. A majority on council, and this newspaper’s publisher, took us too far into a terrain of their own convictions, and when the people spoke at the ballot, that terrain wasn't something they could agree with. That's no example of effective governing because a lot of effort was wasted to no end. But it may be a fair example of an echo chamber being crushed.

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Steve Lewis 4 years, 7 months ago

On the other hand. I don't think the echo has diminished, given the latest council appointee to city planning commission is a paid SB700 advocate.

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