DEPARTMENT: Economic Development Department
DEPARTMENT HEAD: Rene Dominguez
COUNCIL DISTRICTS IMPACTED: City-wide
SUBJECT:
The adoption of a resolution by the City of San Antonio Industrial Development Authority (Development Authority) to authorize LGC Building, Ltd. to remarket previously issued bonds to Broadway National Bank at a fixed interest rate. There is no fiscal impact to the City or the Development Authority as a result of this action.
SUMMARY:
City Council will recess and convene as the City of San Antonio Industrial Development Authority to consider the adoption of a resolution (Resolution) that will permit the mandatory tender of the Development Authority's Adjustable Rate Demand Industrial Development Revenue Bonds issued in 1998 in the original principal amount of $5,500,000 (Bonds), and the remarketing and sale of the Bonds to Broadway National Bank. The Development Authority will then adjourn and reconvene as the City Council.
The Resolution will not obligate the City or the Development Authority to pay the debt or the Bonds. The borrower, LGC Building, Ltd. is solely responsible for paying all debt service and other costs associated with the remarketing of the Bonds.
BACKGROUND INFORMATION:
Pursuant to Texas law, the Development Authority is empowered to issue bonds to finance the cost of projects to promote the development and expansion of manufacturing and industrial facilities to promote and encourage employment and the public welfare by the issuance of obligations.
In 1998, LGC Building, L.L.C. (now reorganized as LGC Building, Ltd.) (Borrower) requested that the Development Authority issue the Bonds to loan the proceeds to the Borrower, in order to finance the costs of acquiring, constructing and equipping a 303,893 sq. ft. manufacturing facility located at 2 Winnco 2 in the City of San Antonio (Facility). The Development Authority adopted a bond resolution on May 7, 1998, authorizing the issuance of the Bonds.
The Facility was leased to KLN Steel Products Company LLC, which received tax abatement incentives from the City and subsequently filed for bankruptcy in 2011. The bankrupt KLN Steel Products Company LLC is not related to or associated with the Borrower or the principals of the Borrower.
The Facility is now being leased by new tenants from Borrower, from which the tenants operate a steel manufacturing company that employs approximately160 people.
ISSUE:
A Trust Indenture, dated as of May 1, 1998 (Trust Indenture), gives the Borrower the right to request the mandatory tender and remarketing of the Bonds. The Trust Indenture also obligates the Development Authority to honor the Borrower's request. All necessary parties have consented to the mandatory tender of the Bonds and, on or before May 1, 2014, the bonds will be sold at a fixed rate of interest to Broadway National Bank. If the Development Authority fails to pass the Resolution permitting the Borrower to remarket the Bonds, it will be in breach of its obligations under the Trust Indenture.
ALTERNATIVES:
The Borrower has the right to request the mandatory tender and remarketing of the Bonds. If the Development Authority fails to adopt the Resolution, the Development Authority will not be honoring its contractual obligations under the Trust Indenture.
FISCAL IMPACT:
Neither the City nor the Development Authority is obligated in any manner to pay the debt issued by the Development Authority or the Bonds. The Borrower is solely responsible and liable for paying all debt service and other costs associated with the remarketing of the Bonds. The City incurs no financial liability and no obligation for repayment and/or debt service on the Bonds. The Borrower will pay the Development Authority an administrative fee of $2,500 upon the purchase of the Bonds on or before May 1, 2014.
RECOMMENDATION:
Staff recommends the Development Authority adopt the Resolution.