Steamboat Springs 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.”