| McWhinney's Centerra Seeking More Public Debt Centerra asking council to extend public debt to 2040 to assist in refinancing |
Loveland - July 5, 2010
On July 2, just as people were preparing for a long holiday weekend, the City of Loveland posted on the next council meeting
agenda a request by McWhinney's Centerra Metro Districts to extend their public bond debt financing until 2040. The request
was placed on the city council's July 6, agenda for a final decision.
A power point presentation provided by Centerra for presentation at the July 6, council meeting contradicts a June 28, 2010
letter by McWhinney attorney Alan Pogue -- also provided to Loveland's council. According to the Centerra power point
presentation the only purpose for a refinance of the existing public bond debt will be to reduce current monthly obligations by
extending the maturity date from 2029 to 2040. Listed as the 'goal' is the following bullet,
"Reduce annual debt service payment on current Metro District bonds"
While consistent with a concern raised by LovelandPolitics last November (see text box right), that the escalating payments on
the bond debt will likely exceed tax revenue available to repay the bonds, what the council is being asked to approve may not be
exactly what is being represented. Like an alcoholic seeking just one more drink, Centerra's assertion that a delayed maturity
date refinance scheme is required simply to lower monthly payments fails to disclose McWhinney's possible other motive to rely
even more heavily on public cash given their recent foreclosure and certain difficulty in borrowing private funds. In other words,
find a bottle that isn't empty.
Pogue's letter indicates Centerra is not only looking to lower its monthly bond debt obligations but also wants to incur additional
debt during the refinancing scheme (take cash-out) if approved by council to extend the date of bond maturity. Pogue's letter
asserts the extension in the maturity date will,
"allow the District to incur additional debt, the proceeds of which will be used to fund infrastructure projects in
Centerra...."
Pogue's letter cites the two I-25 interchange improvements as evidence where the previous $112 million was already spent. This
is misleading as Centerra's contribution to the two projects together accounts for only a fraction of the money. Not mentioned in
Pogue's letter are the scarcely accounted for Centerra 'public funds' spent paying McWhinney employees, office space,
Promenade and the Motorplex "monument" signs and other expenditures from Centerra District's "public" money referred to by
one former McWhinney employee as "the slush fund." According to the 2008 Centerra audit, the Centerra Board of Directors
are people essentially controlled by McWhinney thus one can assume they are acting as an instrument for the interests of
McWhinney.
While most people can understand an attempt to lower Centerra's monthly loan payment obligations in light of declining Centerra
revenue, few people are likely to agree that using a longer repayment period simply to milk more money out today while
postponing the date of repayment while more interest accumulates is ill advised.
Another potentially misleading slide in Centerra's power point presentation includes the following statement,
"Details not yet known regarding terms of potential financing. We request City Council’s approval to explore this as
a viable option."
The proposed resolution council will be voting on Tuesday night is not an approval for Centerra to "explore" anything. Centerra
doesn't require council approval to explore various refinancing options of its public debt. Instead, the resolution is a pre-approval
for Centerra to extend the repayment period for new public bonds regardless of the terms of the refinancing deal or amount being
financed. This is critical as the 2008 refinancing of Centerra's first $57 million public bond debt into $112 million cost Loveland
taxpayers over $6 million in fees alone. If a new refinancing scheme does go forward it could mean pre-payment penalties over
$12 million for Loveland taxpayers that will not be fully paid back until 2040.
Centerra's current debt, like the 2004 $57 million issue, uses a synthetic interest rate to "fix" the interest the quasi-public entity is
required to pay back on the public bonds. This means a third-party (not borrower or lender) agrees to pay if interest rates go up
and receive additional money if they go down. This type of financial arrangement is also called a "rate-swap" and has been cause
of controversy in various cities due to the high fees required to cancel the agreement to refinance the debt. Another term for this
type of financing is "derivative" because the company guarantying the rate lock is neither the borrower or the lender.
Also, read a Bloomberg report on the use of "swap-agreements" for municipal finance by Bloomberg Financial News.
Please feel free to comment on the BLOG.
On July 2, just as people were preparing for a long holiday weekend, the City of Loveland posted on the next council meeting
agenda a request by McWhinney's Centerra Metro Districts to extend their public bond debt financing until 2040. The request
was placed on the city council's July 6, agenda for a final decision.
A power point presentation provided by Centerra for presentation at the July 6, council meeting contradicts a June 28, 2010
letter by McWhinney attorney Alan Pogue -- also provided to Loveland's council. According to the Centerra power point
presentation the only purpose for a refinance of the existing public bond debt will be to reduce current monthly obligations by
extending the maturity date from 2029 to 2040. Listed as the 'goal' is the following bullet,
"Reduce annual debt service payment on current Metro District bonds"
While consistent with a concern raised by LovelandPolitics last November (see text box right), that the escalating payments on
the bond debt will likely exceed tax revenue available to repay the bonds, what the council is being asked to approve may not be
exactly what is being represented. Like an alcoholic seeking just one more drink, Centerra's assertion that a delayed maturity
date refinance scheme is required simply to lower monthly payments fails to disclose McWhinney's possible other motive to rely
even more heavily on public cash given their recent foreclosure and certain difficulty in borrowing private funds. In other words,
find a bottle that isn't empty.
Pogue's letter indicates Centerra is not only looking to lower its monthly bond debt obligations but also wants to incur additional
debt during the refinancing scheme (take cash-out) if approved by council to extend the date of bond maturity. Pogue's letter
asserts the extension in the maturity date will,
"allow the District to incur additional debt, the proceeds of which will be used to fund infrastructure projects in
Centerra...."
Pogue's letter cites the two I-25 interchange improvements as evidence where the previous $112 million was already spent. This
is misleading as Centerra's contribution to the two projects together accounts for only a fraction of the money. Not mentioned in
Pogue's letter are the scarcely accounted for Centerra 'public funds' spent paying McWhinney employees, office space,
Promenade and the Motorplex "monument" signs and other expenditures from Centerra District's "public" money referred to by
one former McWhinney employee as "the slush fund." According to the 2008 Centerra audit, the Centerra Board of Directors
are people essentially controlled by McWhinney thus one can assume they are acting as an instrument for the interests of
McWhinney.
While most people can understand an attempt to lower Centerra's monthly loan payment obligations in light of declining Centerra
revenue, few people are likely to agree that using a longer repayment period simply to milk more money out today while
postponing the date of repayment while more interest accumulates is ill advised.
Another potentially misleading slide in Centerra's power point presentation includes the following statement,
"Details not yet known regarding terms of potential financing. We request City Council’s approval to explore this as
a viable option."
The proposed resolution council will be voting on Tuesday night is not an approval for Centerra to "explore" anything. Centerra
doesn't require council approval to explore various refinancing options of its public debt. Instead, the resolution is a pre-approval
for Centerra to extend the repayment period for new public bonds regardless of the terms of the refinancing deal or amount being
financed. This is critical as the 2008 refinancing of Centerra's first $57 million public bond debt into $112 million cost Loveland
taxpayers over $6 million in fees alone. If a new refinancing scheme does go forward it could mean pre-payment penalties over
$12 million for Loveland taxpayers that will not be fully paid back until 2040.
Centerra's current debt, like the 2004 $57 million issue, uses a synthetic interest rate to "fix" the interest the quasi-public entity is
required to pay back on the public bonds. This means a third-party (not borrower or lender) agrees to pay if interest rates go up
and receive additional money if they go down. This type of financial arrangement is also called a "rate-swap" and has been cause
of controversy in various cities due to the high fees required to cancel the agreement to refinance the debt. Another term for this
type of financing is "derivative" because the company guarantying the rate lock is neither the borrower or the lender.
Also, read a Bloomberg report on the use of "swap-agreements" for municipal finance by Bloomberg Financial News.
Please feel free to comment on the BLOG.
| Reported by LovelandPolitics story titled 'Centerra Gamble' 11-2009 Is Centerra Metro District In Financial Trouble Like Promenade Shops? Centerra’s $112 million public bond debt must be paid to the bond holders with adjustable interest rates by 2029. The planned payments are not constant but begin low at only $6 million in 2008 and grow to $14 million by the last year of the agreement in 2029. Here is the problem. McWhinney’s Centerra Metro District only reported total revenues in 2008 of barely over $8 million. The revenue comes from various sources but mostly diverted property taxes that are rebated by Larimer County to the Centerra Metro District’s urban renewal authority ($5 million) and the improvement district “fees” that are collected like sales taxes from shoppers in Centerra ($2 million). |
| Ballot Measures Influence on Centerra Debt One argument Centerra has made to encourage a favorable vote from Loveland's council to extend the period of indebtedness for future Centerra bonds is that Colorado Proposition 101 and proposed Colorado Constitutional Amendments 60 & 61 will detrimentally impact Centerra's ability to incur new debt and may threaten existing revenue. Here is a summary of the three ballot measures prepared by Larimer County opposing them while forecasting significant problems for local and state governments if passed by Colorado voters. Also, here are the websites of groups supporting each of the same three ballot measures. Amendment 60 Amendment 61 Proposition 101 |