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HomeMy WebLinkAbout05(G) - Resolution Approving Note Allonge (Amendment) for LIBOR modification for Shepards Path Conduit Debt Report ITEM: 5G CITY COUNCIL AGENDA REPORT MEETING DATE: May 15, 2023 PREPARED BY: Nicole Klekner, Assistant Finance Director PRESENTED BY: Cathy Erickson, Finance Director AGENDA ITEM: Resolution Approving Note Allonge (Amendment) for LIBOR modification for Shepards Path Conduit Debt RECOMMENDED ACTION: Under the terms of the Note, the Bank has the discretion to select a comparable benchmark rate to replace LIBOR upon its unavailability. In order to document this change, the Bank has requested that the City and the Borrower enter into an amendment to the Note in the form of an Allonge to Note (the “Allonge”). The City is being asked to approve the execution of the Allonge evidencing the new rate for the Note. BACKGROUND: On July 28, 2016, the City issued its Senior Housing Revenue Refunding Note, Series 2016A (McKenna Crossing Senior Housing Project) (the “Note”), to Bremer Bank, National Association, a national banking association (the “Lender”). The City loaned the proceeds of the Note to the Borrower for the purpose of refinancing a project consisting of the acquisition, construction and equipping of an approximately 154-unit elderly housing development consisting of approximately 82 congregate care units, approximately 54 assisted living units and approximately 18 memory care units located adjacent to the Shepherd of the Lake Evangelical Lutheran Church, located at 13760 McKenna Road in the City. The Borrower agreed to repay and secure the Note to the Bank. The City did not pledge any payment or security in connection with the Note. Pursuant to the enclosed notice, the Bank has advised the City that the interest rates on the Note is currently a variable rate based on the London Interbank Offered Rate (“LIBOR”)—a key benchmark rate for setting the interest rates on adjustable rate loans around the world. On June 30, 2023, LIBOR is being phased out and will no longer be available. This necessitates a change to the benchmark rates used to set interest rates on the Note. FINANCIAL IMPACT: The Allonge does not affect the City’s obligations under the Note or create any new liabilities for the City. The City will not be responsible for paying any bank or legal fees in connection with the execution of the Allonge or for making any payments or pledging any security to the repayment of the Note. The Bank is coordinating the drafting and execution of the documents, and Bond Counsel will be issuing an opinion that the revisions do not adversely affect the tax-exempt status of the Note. City of Prior Lake | 4646 Dakota Street SE | Prior Lake MN 55372 Item 5G Page | 2 ALTERNATIVES: 1. Motion and a second to approve the resolution authorizing the Note Allonge (Amendment) for LIBOR incorporating the modifications recommended herein. 2. Motion and a second to table this item and provide staff with direction. ATTACHMENTS: 1. Resolution - Resolution Approving Note Allonge (Amendment) for LIBOR modification for Shepards Path Conduit Debt 2. Allonge to 2016A Note 3. Rate Notice from Bank 4646 Dakota Street SE Prior Lake, MN 55372 RESOLUTION 23 – AUTHORIZATION OF THE NOTE ALLONGE FOR LIBOR INCORPORATING THE MODIFICATIONS RECOMMENDED HEREIN Motion By: Second By: WHEREAS, pursuant to a resolution of the City Council of the City of Prior Lake, Minnesota (the “City”), duly adopted on May 23, 2016, the City previously issued its Senior Housing Revenue Refunding Note, Series 2016A (McKenna Crossing Senior Housing Project) (the “Note”), on July 28, 2016, to Bremer Bank, National Association, a national banking association (the “Lender”), pursuant to Minnesota Statutes, Chapter 462C, as amended (the “Act”), in the original aggregate principal amount of $5,155,000.00 for the purpose of providing funds pursuant to a Loan Agreement dated July 28, 2016 (the “Loan Agreement”), by and between the City and Shepherd’s Path Senior Housing, Inc., a Minnesota nonprofit corporation (the “Borrower”), to refinance a project consisting of the acquisition, construction and equipping of an approximately 154-unit elderly housing development consisting of approximately 82 congregate care units, approximately 54 assisted living units and approximately 18 memory care units located adjacent to the Shepherd of the Lake Evangelical Lutheran Church, located at 13760 McKenna Road in the City (the “Project”); and WHEREAS, the City pledged and assigned to the Lender all of the City’s rights, title, and interest in the Loan Agreement (except for certain reserved rights) pursuant to a Pledge Agreement dated as of July 28, 2016, between the City and the Lender; and under the terms of the Loan Agreement, the Borrower has agreed to repay the WHEREAS, Note in specified amounts and at specified times sufficient to pay in full when due the principal of, premium, if any, and interest on the Note; and the Note is currently owned by the Lender; and WHEREAS, the City has been advised by the Lender that (a) the interest rate on the Note WHEREAS, is currently a variable rate that is to be adjusted on the 15th day of each calendar month to a rate based upon the 30-Day LIBOR Rate (as defined in the Note), plus a spread, and (b) the 30-Day LIBOR Rate is being phased out effective June 30, 2023, and will no longer be available after that date; and the Borrower and the Lender have agreed to replace the 30-Day LIBOR Rate WHEREAS, in the Note with the Fallback Rate (SOFR) (the “Modification”), as further described in an Allonge to Note between the City, the Borrower, and the Lender (the “Allonge”), a substantially final form of which has been provided to the City; and WHEREAS, Error! Hyperlink reference not valid. the Lender has advised the City that the Fallback Rate (SOFR), as modified by the proposed spread for the Note, is a rate comparable to the 30-Day LIBOR Rate, as modified by the existing spread applicable to the Note; NOW THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE, MINNESOTA as follows: 1. The recitals set forth above are incorporated herein. 2. The City approves the Modification and authorizes the execution of the Allonge. 3. The Allonge is hereby in all respects approved, subject to modifications that do not alter the substance of the transactions and that are approved by Taft Stettinius & Hollister LLP as bond counsel to the City; provided that delivery of the Allonge shall be conclusive evidence of approval. 4. The Mayor and the City Manager are hereby authorized to execute and deliver the Allonge and any other related documents on behalf of the City. 5. This Resolution shall be in full force and effect from and after its passage. th Passed and adopted by the Prior Lake City Council this 15 day of May 2023. Briggs Braid Burkart Churchill Lake VOTE Aye ☐ ☐ ☐ ☐ ☐ Nay ☐ ☐ ☐ ☐ ☐ Abstain ☐ ☐ ☐ ☐ ☐ Absent ☐ ☐ ☐ ☐ ☐ ______________________________ Jason Wedel, City Manager C:\\Users\\hsimon\\AppData\\Local\\Temp\\Resolution - Resolution Approving Note Allonge (Amendment) for LIBOR modif_660357 (3)\\Resolution - Resolution Approving Note Allonge (Amendment) for.docx 2 90138261v2 ALLONGE TO NOTE This Allonge to Note is dated and effective as of ____________, 2023 (the “Effective Date”), and is attached to and made a part of that certain City of Prior Lake, Minnesota Senior Housing Revenue Refunding Note, Series 2016A (McKenna Crossing Senior Housing Project), dated July 28, 2016 (the “Note”), issued by the City of Prior Lake, Minnesota (the “City”), a municipal corporation and political subdivision of the State of Minnesota, in the principal amount of $5,155,000 in favor of Bremer Bank, National Association, a national banking association (the “Lender”). Due to the unavailability of the 30-Day LIBOR Rate (as defined in the Note) after June 30, 2023, and as contemplated by the terms of the Note in the event of such unavailability, the Note is amended as follows: 1. Section 1 of the Note is hereby deleted and replaced in its entirety with the following: “1. Commencing on September 15, 2016, and on the 15th day of each month thereafter (each such date, a “Payment Date”) to and including August 15, 2036 (the “Maturity Date”), monthly installments of principal in the amount shown in Exhibit A hereto and interest at the annual rate set forth below on the Principal Balance shall be payable in monthly installments. Interest payments shall be computed on the basis of a 360-day year, actual days elapsed. The entire outstanding Principal Balance and interest, if not sooner paid, shall be due and payable in full on the Maturity Date. Payments shall be applied first to interest due on the unpaid principal and thereafter to reduction of principal. A. The per annum rate of interest payable hereunder shall initially be equal to 2.00508 percent per annum. On the first Payment Date, and each Reset Date (hereinafter defined) thereafter through and including June 15, 2023, the interest rate on this Note will be adjusted to a rate per annum equal to (a) the sum of (i) 2.50% and (ii) the 30-Day LIBOR Rate in effect as of the Reset Date, (b) multiplied by 0.67. As used herein, “Reset Date” means August 1, 2016 and the 15th day of each calendar month commencing September 15, 2016. As used herein, the “30-Day LIBOR Rate” means a fluctuating rate of interest per annum equal to the ICE London Interbank Offered Rate (“ICE LIBOR”), as published by InterContinental Exchange (“ICE”) (or other commercially available source providing quotations of ICE LIBOR as selected by Lender from time to time) as determined for each London Banking Day at approximately 11:00 a.m., London time, two (2) London Banking Days (as hereinafter defined) prior to the Reset Date, for U.S. Dollar deposits with a one (1) month term, as adjusted from time to time in Lender’s sole discretion for 90138261v2 reserve requirements, deposit insurance assessment rates and other regulatory costs. If such rate is not available at such time for any reason, then the rate will be determined by such alternate method as reasonably selected by Lender. As used herein, a “London Banking Day” is the day on which banks in London, United Kingdom are open for business and dealing in offshore dollars. B. On July 15, 2023, and each Reset Date thereafter, the interest rate on this Note will be adjusted to a rate per annum equal to (“Stated Rate”): (a) the sum of (i) 2.50% and (ii) the Benchmark, (b) multiplied by 0.67. As used in this Note, the following terms have the following meanings: “Benchmark” means, initially, Fallback Rate (SOFR) provided that if a Benchmark Transition Event has occurred with respect to the then-current Benchmark, then, “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior Benchmark determined two (2) Business Days prior to the applicable Reset Date. “Benchmark Conforming Changes” shall mean, in connection with the replacement of any index or benchmark used for determining interest under this Agreement, any technical, administrative or operational changes (including, without limitation, (a) changes to the definition of “Business Day,” “U.S. Government Securities Business Day” or other definitions, (b) the addition or modification of concepts such as “interest period,” (c) changes to timing and/or frequency of determining rates, making interest payments, giving borrowing requests, prepayment, conversion or continuation notices, or length of lookback periods, (d) the applicability of breakage, indemnity or other compensation provisions, and (e) other technical, administrative or operational matters) that Lender decides may be appropriate to reflect the adoption and implementation of a replacement index or benchmark, and to permit the administration thereof by Lender in a manner substantially consistent with market practice (or, if Lender decides that adoption of any portion of such market practice is not administratively feasible or determines that no such market practice exists, in such other manner as Lender decides is reasonably necessary in connection with the administration of this Note and the other loan documents). “Benchmark Replacement” means a newly determined interest rate index plus a related spread or margin selected by Lender in the event Lender determines, in the sole discretion, that a Benchmark Transition Event has occurred. “Benchmark Transition Event” means with respect to any Benchmark, the occurrence of one or more of the following events with respect to such then- current Benchmark: 90138261v2 (a) a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof), permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); (b) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Federal Reserve, or any successor thereto (“Federal Reserve”), the CME Term SOFR Administrator, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component), in each case, which states that the administrator of such Benchmark (or such component) has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); (c) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that all Available Tenors of such Benchmark (or such component thereof) are no longer, or as of a specified future date will no longer be, representative; (d) the Benchmark is no longer an industry-accepted reference rate for new loan originations of a similar type to the Loan and/or has been superseded by an alternative reference rate, or (e) the Benchmark is no longer representative of the cost of funds for the Lender for this Note. “SOFR” means a rate per annum equal to the secured overnight financing rate published by the Federal Reserve Bank of New York (or successor administrator of the secured overnight financing rate) on the website of the Federal Reserve Bank of New York currently at http://www.newyorkfed.org (or any successor 90138261v2 source for the secured overnight financing rate identified as such by the administrator of the secured overnight financing rate from time to time). "U.S. Dollar LIBOR" means the U.S. Dollar wholesale funding rate known as U.S. Dollar LIBOR (London Interbank Offered Rate) provided by ICE Benchmark Administration Limited, as the administrator of the benchmark, (or a successor administrator). "Fallback Rate (SOFR)" means the term adjusted SOFR plus the spread relating to U.S. Dollar LIBOR, in each case, for a period of the Designated Maturity provided by Bloomberg Index Services Limited (or a successor provider as approved and/or appointed by ISDA from time to time), as the provider of term adjusted SOFR and the spread, on the Fallback Rate (SOFR) Screen (or by other means) or provided to, and published by, authorized distributors. "Fallback Rate (SOFR) Screen" means the Bloomberg Screen corresponding to the Bloomberg ticker for the fallback for U.S. Dollar LIBOR for a period of the Designated Maturity accessed via the Bloomberg Screen <FBAK> <GO> Page (or, if applicable, accessed via the Bloomberg Screen <HP> <GO>) or any other published source designated by Bloomberg Index Services Limited (or a successor provider as approved and/or appointed by ISDA from time to time). “Available Tenor” means, as of any date of determination with respect to the then-current Stated Rate index, as applicable, (x) if the then current Stated Rate index is a term rate, then any tenor for such Stated Rate index that is or may be used for determining the length of an interest period as is provided for in the Loan Documents, but being hereby limited to one (1) month/three (3) month interest periods, or (y) otherwise, any payment period for interest calculated with reference to such Stated Rate index, as applicable pursuant to the Note as of such date. “Designated Maturity” shall mean a one (1) month period. “Business Day” shall mean any day the Lender is open for business and the Benchmark can be determined. C. If any payment of principal of or interest on tis Note (including any payment due and payable on the Maturity Date) is not paid within ten (10) days of the due date thereof, the Borrower shall pay to Lender a late charge equal to five percent (5.00%) of the amount of such payment. D. In connection with the implementation and administration of the replacement of any index or benchmark used for determining interest under this instrument, Lender will have the right to make Benchmark Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other loan document, any amendments implementing such Benchmark 90138261v2 Conforming Changes will become effective without any further action or consent of any other party. Lender will promptly notify Borrower of the effectiveness of any Benchmark Conforming Changes, and any determination, decision or election that may be made by Lender under this Section will be conclusive and binding absent manifest error and may be made in its sole discretion and without consent from any other party. E. At all times after the occurrence of an Event of Default and during the continuance thereof, interest shall accrue hereunder at a rate of interest equal to five percent (5.00%) per annum in excess of the rate of interest otherwise payable hereunder (the “Default Note”).” (signature page to follow) 90138261v2 (signature page to Allonge) Agreed to and accepted as of the Effective Date. CITY: City of Prior Lake, Minnesota By___________________________ Its Mayor By___________________________ Its City Manager 90138261v2 (signature page to Allonge) Agreed to and accepted as of the Effective Date. LENDER: Bremer Bank, National Association By___________________________ Its_________________________ 90138261v2 (signature page to Allonge) Agreed to and accepted as of the Effective Date. BORROWER: Shepherd’s Path Senior Housing, Inc. By:__________________________________ Its:_______________________________ 90138262v2 NOTICE OF INTEREST RATE CHANGE May 5, 2023 Shepherd’s Path Senior Housing, Inc. City of Prior Lake, Minnesota 2845 Hamline Avenue N, Ste. 200 4646 Dakota Street SE Roseville, MN 55113 Prior Lake, MN 55372-1776 Attn: Chief Financial Officer Attn: City Manager Taft Stettinius & Hollister LLP 2200 IDS Center 80 South Eighth Street Minneapolis, MN 55402 Attn: Catherine J. Courtney Re: City of Prior Lake, Minnesota Senior Housing Revenue Refunding Note, Series 2016A (McKenna Crossing Senior Housing Project), issued to Bremer Bank, National Association (“Lender”), in the original principal amount of $5,155,000.00 (the “Note”) Ladies and Gentlemen: As you are aware, the interest rate for the Note is based on the 30-Day LIBOR Rate (as defined in the Note), plus 2.50%, multiplied by 0.67 (collectively, the “Existing Index Rate”). The 30-Day LIBOR Rate will no longer be available after June 30, 2023. The terms of the Note with respect to the monthly resetting of the interest rate provide, in part, as follows: “If such rate is not available at such time for any reason, then the rate will be determined by such alternate method as reasonably selected by Lender.” The Lender hereby notifies you that for each Reset Date (as defined in the Note) occurring on or after July 1, 2023, the Existing Index Rate shall be replaced with a rate per annum equal to (a) the sum of (i) 2.50% and (ii) the Benchmark, which is initially Fallback Rate (SOFR), as those terms are defined in the Allonge to Note included with this Notice, (b) multiplied by 0.67 (collectively, the “Replacement Index Rate”). The Replacement Index Rate is a rate that is comparable to the Existing Index Rate. 90138262v2 Page Two Enclosed herewith is an Allonge to Note which evidences the new Replacement Index Rate for the Note. Terms not defined herein are defined in the Allonge to Note. We request that the City of Prior Lake, Minnesota, as Issuer of the Note, and Shepherd’s Path Senior Housing, Inc., as the Borrower, upon approval respectively, execute the enclosed Allonge to Note and return it to the undersigned at the following address: Bremer Bank, National Association 225 South Sixth Street, Suite 300 Minneapolis, MN 55402 Attn: Jenny Blake We also request that bond counsel provide an update to its opinion confirming the execution and delivery of the Allonge to Note will not adversely affect the tax exempt status of the Note. Bremer Bank, National Association By:_____________________________ Its:__________________________ /enclosure