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. <br /> � , . <br /> _ , y, . <br /> . � <br /> � �,R ' <br /> LEGAL DEPARTMENT MEMORANDUM <br /> No. 98-06 <br /> March 26, 1998 <br /> TO: Honorable Mayor and City Council Members <br /> FROM: James L. Williams, Jr., City Manager <br /> Beth B. Couter, Finance Director <br /> John W. Couter, Corporation Counsel <br /> RE: Cardwell Section 108 Loan <br /> Last year the City agreed to loan money to John Cardwell under the provisions of <br /> Section 108 of the Federal Housing and Community Development Act for use in the <br /> improvement of the building known as One Main Place. The funds used would be from <br /> notes sold by HUD, and the repayment of these notes would be secured by a second <br /> mortgage on the building; any shortfall would be covered by deductions from future <br /> CDBG money otherwise to come to the City. No City General Fund money would be <br /> used, nor would the City have any liability for repayment of the notes. The loan was to <br /> be for approximately $1.4 million. <br /> Within the last several weeks HUD delivered the necessary paperwork to <br /> complete the loan, and it was then discovered by both Cardwell and the City that, due <br /> to the specific provisions of the notes underlying the loan, it would not be feasible for <br /> Cardwell to refinance during the first ten (10) years of the loan. This feature was a <br /> surprise to Cardwell, and made the loan much less useful and appealing. On the other <br /> hand, Cardwell had operated since last fall on the assumption that this financing would <br /> be used, and incurred some costs on account thereof that he might not have otherwise <br /> incurred. Therefore, Cardwell would still like to use the Section 108 money, but with <br /> some modifications to the original deal. <br /> Basically, for Cardwell to refinance, either Cardwell or the City would have to <br /> purchase government securities or other financial instruments paying sufficient interest <br /> so as to guarantee payment of the principle and interest on the notes. Under the <br /> original deal, since the City was to have no liability or exposure, the purchase of these <br /> securities or other instruments would have been Cardwell's. Cardwell proposes that the <br /> City and he share the exposure on the purchase of these securities, and in turn he <br /> would limit the circumstances under which he would seek to refinance. <br />