Meeting Date: May 18, 2009

Agenda Item No:

Kitsap County Board of Commissioners
Department: Commissioners Office
Staff Contact: Nancy Buonanno Grennan, 337-7146
Title: An Agreement (KC 194-09) by and among Bank of America, N.A., the
Kitsap County Consolidated Housing Authority, and Kitsap County Providing for a Credit
Facility in an Amount not to Exceed $40,500,000 for the Purpose of Refinancing Existing
Kitsap County Consolidated Housing Authority Loans Related to the Harborside
Condominiums Project and the Poplars Apartments.

Recommended Action: Move the Board execute the Agreement (KC-194-09) by and
among Bank of America, N.A., the Kitsap County Consolidated Housing Authority, and
Kitsap County Providing for a Credit Facility in an Amount not to Exceed $40,500,000 for the
Purpose of Refinancing Existing Kitsap County Consolidated Housing Authority Loans
Related to the Harborside Condominiums Project and the Poplars Apartments.

Summary: In 2005 the County approved a contingent loan agreement that required the County to
loan the Kitsap County Consolidated Housing Authority (the Authority) money for the
Harborside Condominium project, in the event that the Authority would be unable to
pay the financing on its own. Just a year prior, the County had also entered into a
similar arrangement for the Poplars Apartments. These loans have or will shortly
come due. Because of a variety of factors, including the housing downturn and the
implosion of the credit markets, the Authority is unable to restructure or repay those
loans. The County has been asked to fulfill its legal obligations to loan the Authority to
pay its debt. Under the terms of the Resolution providing for issuance of a limited
general obligation bond anticipation note, the County-Authority Loan Agreement (KC
195-09) and the Tri-party Credit Agreement (KC 194-09), the County will assume
direct responsibility for over $40 million of Authority debt.

The term of the new loan runs through April 30, 2013; it has a variable interest rate,
starting under 2.5% and is sized to pay off the Harborside debt ($31.1 million), Poplars
($5.09 million) and the County will have the remainder ($4.32 million) upon which to
draw for carrying costs, including the interest-only payments due during the loan’s
term.

The County will be solely responsible for the Poplars debt. The remaining debt will be
paid through proceeds from the sales of Harborside condominiums, the adjacent
vacant lot (the Sinclair Lot), proceeds from the sales of pledged assets, which include
office buildings, market rate apartments (non-low income or affordable housing units),
and vacant lots, as well as the Authority’s excess revenues, as such become
available.

If proceeds from the asset sales are not sufficient to repay the loan, the County will
need to issue long-term bonds to cover the gap in 2013. However, the County will
establish a contingency fund, to set aside its own one-time only revenues.

The County and the Authority retained a financial consultant, Western Financial
Group, to review market conditions and evaluate the fairness of the terms and
conditions of the proposed $40.5 million loan to the County by Bank of America.
Western Financial Group has deemed the terms and conditions taken as a whole, fair
and reasonable in the context of the current market conditions. That opinion is
attached to this agenda summary.
Attachments: 1.Tri-Party Credit Agreement
2. Summary of Key Terms
3. Western Financial Group’s Fairness Opinion

Fiscal Impact
Expenditure required for this specific action: $40.5 million loan
Total cost including all related costs: $40.5 million
Related Revenue: Proceeds from sale, repayment from
KCCHA
Cost Savings:
Total Fiscal Impact: $40.5 million
Source of Funds: New debt instrument

Fiscal Impact (DAS) Review None

Departmental Coordination
Department/Office Representative Recommendation/Comments

C:\DOCUME~1\CSIEMS~1.KIT\LOCALS~1\Temp\XPGrpWise\AgendaSummaryTriPartyCred
itAgreement_1.doc
 Tri­Party
Credit
Agreement
–
Summary
of
Terms



Kitsap
County
(“County”)

Kitsap
County
Consolidated
Housing
Authority
(“KCCHA”)


Bank
of
America,
NA
(“BofA”)





1. NEW
BofA
LOAN
TO
KITSAP
COUNTY



• Amount:
$40.5
mm

• Limited
Tax
General
Obligation
Bond
Anticipation
Note
Non­Revolving

Credit
Facility



Use
of
Loan
Proceeds:



Pay
off
(at
closing
of
the
New
Loan):

• Harborside
construction
loan

 
 
 $

4.99
mm

• Harborside
construction
line
of
credit


 $

3.90
mm

• Poplars
loan
 
 
 
 
 $

5.09
mm



Pay
off
(at
either
July
1
or
August
1):

• Harborside
Bonds
 
 
 
 $22.20
mm



Draw
(over
the
loan
term):

• Carrying
costs,
Interest,
transaction
costs
 $

4.32
mm



Interest
Period
Options:
 



• ~4
years
–
maturing
4/30/2013

• Interest
reset
options:
Daily,
1‐,
3‐,
6‐,
9‐month
periods



Interest
rates:



• Loan
interest
rates
are
calculated
from
“LIBOR”
–
the
“London
Interbank
Offered

Rate”
–
which
is
commonly
used
as
an
index
for
interest
rates
on
this
type
of
loan.


For
the
new
loan,
LIBOR
is
assumed
to
be
no
lower
than
0.75%



• Taxable
(~$35
mm
of
the
total
loan)

o LIBOR
+
1.65%

o May
14,
2009
Rate
for
1‐month
period:
 
 2.40%



• Tax‐Exempt
Bank‐Qualified
(~$5.0
mm
of
the
total
loan)

o 65%
of
LIBOR
+
1.28%

o May
14,
2009
Rate
for
1‐month
period:
 
 1.77%



• Default
Rate

o Normal
rate
+
3.00%




Page 1 of 3

 Tri­Party
Credit
Agreement
–
Summary
of
Terms



Kitsap
County
(“County”)

Kitsap
County
Consolidated
Housing
Authority
(“KCCHA”)


Bank
of
America,
NA
(“BofA”)







Loan
Fee
to
Bank:

• 0.20%
of
total
loan
or
$81,000



Amortization:

• Interest
only
–
all
principal
due
at
maturity



Interest
payments:

• Quarterly



Bank
Security
/
collateral:

• County
Full
Faith
&
Credit

• Covenant
to
issue
LTGO
bonds
or
refunding
BANS

• 1st
lien
Deed
of
Trust
–
Harborside

• 1st
lien
Deed
of
Trust
–
Sinclair

• 2nd
lien
Deed
of
Trust
–
Tree
Tops
I
&
II
(up
to
$2.3mm)



Prepayment
&
Partial
release:

• No
prepayment
penalty
if
payment
made
at
interest
reset
date

• Partial
release
of
liens
on
property
as
collateral
sold



County
Security
/
Collateral
(from
KCCHA)

• 3rd
lien
on
Tree
Tops
I
&
II

• 1st
lien
on
Manzanita

• 1st
lien
on
Poplars

• 1st
lien
on
Nordic

• 1st
lien
on
Parkview

• 1st
lien
on
Soundview



Commitment
fee:

• If
Bonds
not
redeemed
by
7/1/09
(but
instead
paid
at
maturity
on
8/1/09)

• 0.50%
per
annum
/
actual
days
/
360
day
year




Page 2 of 3

 Tri­Party
Credit
Agreement
–
Summary
of
Terms



Kitsap
County
(“County”)

Kitsap
County
Consolidated
Housing
Authority
(“KCCHA”)


Bank
of
America,
NA
(“BofA”)







2. BofA
LOANS
TO
KCCHA



• Letter
of
Credit
Extension

o 4/1/09
maturity
extended
to
4/30/11

o Increase
total
to
$2.6
mm


 $2.32
mm
outstanding

 +$281,000
–
advances
for
interest
(monthly)

o 2nd
lien
Deed
of
Trust
on
Tree
Tops
I
and
II

o Interest
Rates:

 LIBOR
floor
of
0.75%

 Tax‐Exempt‐Bank‐Qualified

• 65%
of
LIBOR
+
1.44%

 Taxable

• LIBOR
+
2.00%

 Default
rate

• Regular
rate
+
6.00%

o Other
terms:

 Covenant
–
sell
Tree
Tops
&
pay

 Confirmation
of
other
existing
terms

 KCCHA
general
revenue
pledge



• Maintenance
Building
loan

o ~$438,000

o 1st
lien
Deed
of
Trust

o Cross
defaults

o Confirmation
of
other
existing
terms






Page 3 of 3

 Tri­Party
Credit
Agreement
–
Summary
of
Terms



Kitsap
County
(“County”)

Kitsap
County
Consolidated
Housing
Authority
(“KCCHA”)


Bank
of
America,
NA
(“BofA”)





1. NEW
BofA
LOAN
TO
KITSAP
COUNTY



• Amount:
$40.5
mm

• Limited
Tax
General
Obligation
Bond
Anticipation
Note
Non­Revolving

Credit
Facility



Use
of
Loan
Proceeds:



Pay
off
(at
closing
of
the
New
Loan):

• Harborside
construction
loan

 
 
 $

4.99
mm

• Harborside
construction
line
of
credit


 $

3.90
mm

• Poplars
loan
 
 
 
 
 $

5.09
mm



Pay
off
(at
either
July
1
or
August
1):

• Harborside
Bonds
 
 
 
 $22.20
mm



Draw
(over
the
loan
term):

• Carrying
costs,
Interest,
transaction
costs
 $

4.32
mm



Interest
Period
Options:
 



• ~4
years
–
maturing
4/30/2013

• Interest
reset
options:
Daily,
1‐,
3‐,
6‐,
9‐month
periods



Interest
rates:



• Loan
interest
rates
are
calculated
from
“LIBOR”
–
the
“London
Interbank
Offered

Rate”
–
which
is
commonly
used
as
an
index
for
interest
rates
on
this
type
of
loan.


For
the
new
loan,
LIBOR
is
assumed
to
be
no
lower
than
0.75%



• Taxable
(~$35
mm
of
the
total
loan)

o LIBOR
+
1.65%

o May
14,
2009
Rate
for
1‐month
period:
 
 2.40%



• Tax‐Exempt
Bank‐Qualified
(~$5.0
mm
of
the
total
loan)

o 65%
of
LIBOR
+
1.28%

o May
14,
2009
Rate
for
1‐month
period:
 
 1.77%



• Default
Rate

o Normal
rate
+
3.00%




Page 1 of 3

 Tri­Party
Credit
Agreement
–
Summary
of
Terms



Kitsap
County
(“County”)

Kitsap
County
Consolidated
Housing
Authority
(“KCCHA”)


Bank
of
America,
NA
(“BofA”)







Loan
Fee
to
Bank:

• 0.20%
of
total
loan
or
$81,000



Amortization:

• Interest
only
–
all
principal
due
at
maturity



Interest
payments:

• Quarterly



Bank
Security
/
collateral:

• County
Full
Faith
&
Credit

• Covenant
to
issue
LTGO
bonds
or
refunding
BANS

• 1st
lien
Deed
of
Trust
–
Harborside

• 1st
lien
Deed
of
Trust
–
Sinclair

• 2nd
lien
Deed
of
Trust
–
Tree
Tops
I
&
II
(up
to
$2.3mm)



Prepayment
&
Partial
release:

• No
prepayment
penalty
if
payment
made
at
interest
reset
date

• Partial
release
of
liens
on
property
as
collateral
sold



County
Security
/
Collateral
(from
KCCHA)

• 3rd
lien
on
Tree
Tops
I
&
II

• 1st
lien
on
Manzanita

• 1st
lien
on
Poplars

• 1st
lien
on
Nordic

• 1st
lien
on
Parkview

• 1st
lien
on
Soundview



Commitment
fee:

• If
Bonds
not
redeemed
by
7/1/09
(but
instead
paid
at
maturity
on
8/1/09)

• 0.50%
per
annum
/
actual
days
/
360
day
year




Page 2 of 3

 Tri­Party
Credit
Agreement
–
Summary
of
Terms



Kitsap
County
(“County”)

Kitsap
County
Consolidated
Housing
Authority
(“KCCHA”)


Bank
of
America,
NA
(“BofA”)







2. BofA
LOANS
TO
KCCHA



• Letter
of
Credit
Extension

o 4/1/09
maturity
extended
to
4/30/11

o Increase
total
to
$2.6
mm


 $2.32
mm
outstanding

 +$281,000
–
advances
for
interest
(monthly)

o 2nd
lien
Deed
of
Trust
on
Tree
Tops
I
and
II

o Interest
Rates:

 LIBOR
floor
of
0.75%

 Tax‐Exempt‐Bank‐Qualified

• 65%
of
LIBOR
+
1.44%

 Taxable

• LIBOR
+
2.00%

 Default
rate

• Regular
rate
+
6.00%

o Other
terms:

 Covenant
–
sell
Tree
Tops
&
pay

 Confirmation
of
other
existing
terms

 KCCHA
general
revenue
pledge



• Maintenance
Building
loan

o ~$438,000

o 1st
lien
Deed
of
Trust

o Cross
defaults

o Confirmation
of
other
existing
terms






Page 3 of 3








Memorandum



May
14,
2009



TO:
 
 Kitsap
County
Board
of
Commissioners


 
 KCCHA
Board



FROM:
 Western
Financial
Group



RE:
 
 Market
Conditions
&
Proposed
Bank
of
America
Loan



Kitsap
County
(the
“County”)
and
the
Kitsap
County
Consolidated
Housing
Authority

(“KCCHA”)
have
asked
Western
Financial
Group
(“WFG”)
to
review
market

conditions
and
evaluate
the
“fairness”
of
the
terms
and
conditions
of
the
proposed

$40.5
million
loan
to
the
County
by
Bank
of
America,
NA
(“BofA”).



BACKGROUND



WFG
has
served
as
financial
advisor
to
governments,
non‐profits
and
companies

since
it
was
founded
1995.


Prior
to
that,
the
WFG
team
was
engaged
in
the
public

finance
industry
in
the
Pacific
Northwest
(and
nationally)
for
two
other
firms.

In
the

course
of
24+
years
in
the
business,
WFG’s
professionals
have
managed
hundreds
of

transactions
involving
billions
of
dollars
of
public
and
private
debt.

WFG’s
four

senior
professionals
serve
some
of
the
largest,
most
complex
entities
in
the

Northwest
and
have
broad
and
up‐to‐date
exposure
to
conditions
in
both
the

taxable
and
tax‐exempt
credit
markets.



METHODOLOGY
&
SUMMARY
CONCLUSIONS



In
order
to
evaluate
the
terms
and
conditions
of
the
BofA
Loan,
WFG
gathered

information
on
potential
comparable
transactions
through
two
methods.

First,
the

terms
and
conditions
of
the
BofA
Loan
were
compared
to
two
recent
completed

transactions
for
which
WFG
had
detailed
information.

Second,
WFG’s
team
sought

“notional
terms
and
conditions”
for
a
comparable
loan
from
four
lenders
active
in

the
taxable
and
tax‐exempt
municipal
variable
rate
demand
bond/note
markets
in

the
Northwest.



It
is
important
to
note
that,
even
in
more
“normal”
times
in
the
credit
markets,

taxable
municipal
market
information
is
limited.

In
the
current
financial
crisis,
most

markets
are
less
liquid
(and
transparent)
than
normal.

This
is
certainly
the
case
for

the
current
taxable
municipal
markets.

Therefore,
“comparables”
can
only
be

evaluated
in
terms
of
ranges
of
terms
and
conditions.




Page 1 of 3




With
these
analytical
limitations
in
mind,
WFG
has
evaluated
the
fairness
of
the

BofA
Loan.

“Fairness”
in
this
case
means:
“Are
the
terms
and
conditions
of
the
BofA

Loan,
taken
as
a
whole,
fair
and
reasonable
in
the
context
of
current
market

conditions?”



If
the
answer
to
that
question
was
“no”,
the
County’s
and
KCCHA’s
interests
–

narrowly
defined
as
the
terms
and
conditions
on
this
loan
–
would
be
best
served
by

rejecting
the
BofA
loan
proposal
and
seeking
multiple
proposals
from
other
lenders.


Of
course,
even
in
that
circumstance,
the
County
and
KCCHA
would
be
faced
with
the

“workout”
challenges
presented
by
the
outstanding
borrowings
from
BofA
–
and

therefore
might
still
proceed
to
close
the
new
BofA
Loan.



WFG’s
analysis,
however,
indicates
that
the
BofA
Loan,
as
negotiated
by
the

County/KCCHA
team,
is
“fair”
by
the
definition
above.

The
BofA
Loan
terms
and

conditions
(with
one
notable
but
not
determinative
exception)
are
within
the
ranges

WFG
considers
to
be
reflective
of
the
current
market
conditions
and
potential
loans

available
to
the
County
and
KCCHA.




LOAN
STRUCTURE



Because
the
parties
intend
that
certain
properties
be
sold
as
soon
as
possible,
and

debt
retired
as
sale
proceeds
are
received,
the
BofA
Loan
is
structured
as
“variable

rate
demand
notes”,
or
as
more
technically
described
in
the
loan
documents:
“LTGO

Bond
Anticipation
Note
Non‐Revolving
Credit
Facility”.

This
structure
allows
the

County
to
choose
from
a
series
of
“interest
reset”
periods
ranging
from
one
day
to

nine
months,
and
to
“ladder”
the
structure
with
portions
of
the
total
outstanding

allocated
to
different
reset
periods.



As
noted
above,
repayment
of
the
loan
is
expected
to
be
primarily
from
proceeds
of

property
sales.
Ultimate
security
for
the
loan
is
the
full
faith
and
credit
commitment

of
the
County
to
issue
limited
tax
general
obligation
bonds
to
fund
out
any

remaining
balance
at
the
end
of
the
four‐year
term.

Additionally,
and
this
is
the
one

area
where
the
BofA
Loan
differs
from
“normal”,
the
BofA
Loan
includes
security

interests
in
certain
KCCHA
properties.

WFG’s
market
information
indicates
that
this

feature
does
not
generate
improved
pricing
for
the
Loan
among
other
vendors.




ANALYSIS
OF
MAJOR
TERMS
AND
CONDITIONS




WFG
analyzed
key
terms
and
conditions
to
determine
how
the
proposed
BofA
Loan

compared
with
potential
loans
from
other
lenders.



Structural
Terms
and
Conditions





Key
non‐financial
(i.e.
structural,
reporting,
etc.)
terms
and
conditions
included:



• Security


Page 2 of 3

 


• Prepayment

• Covenants
(reporting,
financial
controls,
etc.)

• Default
provisions

• Other
factors

o Depository
relationships

o Line
of
credit
for
expenses



With
the
exception
noted
above
related
to
the
real
estate
security,
WFG’s
analysis

indicates
that
the
terms
and
conditions
of
the
BofA
Loan
are
“customary”
for
a

financing
of
this
type
in
current
markets.

The
reason
WFG
does
not
find
the
real

estate
security
provisions
determinative
is
two‐fold:

1)
the
real
estate
security

provisions
do
not
hinder
the
County’s
ability
to
liquidate
properties
or
otherwise

limit
financial
flexibility;
and
2)
the
variable
rate
loan
structure,
along
with

appropriate
prepayment
terms,
provide
the
County
with
the
capability
to
re‐finance

with
another
lender
and
without
the
real
estate
terms
should
there
be
some

unanticipated
problem
related
to
those
terms.




One
area
in
which
the
BofA
Loan
is
more
favorable
(for
the
borrower)
than
almost

all
other
market
participants
is
that
BofA
does
NOT
require
that
all
depository

relationships
of
the
borrower
be
with
the
lender
bank.



Financial
Terms



The
table
below
summarizes
the
results
of
WFG’s
analysis
of
comparables
for
key

financial
terms:



Term
or
Condition
 BofA
Loan
 Market
Comp
–
“Best”
 Market
Comp
–
“Worst”

Term
 4
years
 3‐6
years
 1
year

Interest
reset
periods
 Daily,
1,
3,
6,
9
months
 Daily,
1,
3,
6,
9
months
 Daily,
1,
3,
6,
9
months

LIBOR
“floor”
 0.75%
 0.00%
 1.50%

Interest
rates
–
taxable
 LIBOR
+
1.65%
 LIBOR
+
1.27%
 LIBOR
+
4.25%

Interest
rates
–
tax‐ 65%
of
LIBOR
+
2.10%

n.a.
 62.5%
of
LIBOR
+
4.60%

exempt
 

Interest
rates
–tax‐
65%
of
LIBOR
+
1.28%
 63.5%
of
LIBOR
+
0.85%
 n.a.

exempt,
bank‐qualified

Loan
initiation
fee
 0.20%
 0.10%
 0.50%

Estimated
expenses
 $30,000
 $10,000
 n.a.

5/14/09
Interest
Rate
–

2.40%
 2.00%
 5.75%

taxable
(1
month)

5/14/09
Interest
Rate
–

tax‐exempt
/
BQ
(1
 1.77%
 1.07%
 3.81%

month)


 
 
 






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