The board of the Liberty County Development Authority met Friday to discuss terms for refinancing three short-term bank notes it has with SunTrust Bank that total $25,177,965.38.
The LCDA already had been granted three restructuring extensions this fiscal year and the fourth deadline is June 30, according to LCDA Director of Administration and Finance Carmen Cole, who said the group has been working on the plan for a year.
Due to a change in staff at SunTrust, she explained, coming to an agreement with the bank took a little longer than they expected.
The total debt includes a $14,517,431.85 note for Tradeport East, a $1,695,800 note for Tradeport West and an $8,964,733.53 note for the water reclamation facility.
Under the proposal, which LCDA financial advisor Jim Hargrove reviewed via conference call with board members Friday, the bank would allow the authority to write off $977,965.07 of the water reclamation facility debt and split the three short-term notes into four long-term ones. This would settle the outstanding balance for $24,200,000 with a weighted average interest rate of 3.1 percent, which is reduced from the current rate.
Additional financing costs would include $200,000 in bank closing costs and an estimated $1,000,000 in swap unwind costs. Cole said swaps are used to hedge certain risks — in this case, the loan interest rate. The swap allows the LCDA to have a fixed interest rate with a floating-rate note.
"If the interest rate goes above our fixed rate, the bank pays it. If the rate stays below, we pay the difference," Cole said. Since interest rates currently are below the LCDA’s fixed rate, the entity has been paying upward to cover the difference.
The board took no action on the proposed restructuring plan, but it may recommend approving it Monday morning at the LCDA’s regular monthly meeting. Hargrove, who works for Prism Municipal Advisors LLC, told board members that the proposal seems sound.
"At the end of the day, we got attractive interest rates and flexible repayment terms," he said. "We are paying debt down in a much more rapid fashion."
Board Secretary Brian Smith agreed. "We really got some strong interest-rate concessions out of the bank," he said. "And they did allow us to put their fees into the deal, which saves us some cash."
Smith said SunTrust representatives have been willing to work with the LCDA.
"We all want to try to pay this back as quickly as possible," said the board secretary, who added that the bank officers appear to understand that.
"We’re in sort of a management position to manage this debt along with their help," he said of the entity’s mutual cooperation with SunTrust. "This is reasonable and we can live with that."
Cole, who had prepared a cash-flow analysis covering the next 16 fiscal years, pointed out that even while the debt is being repaid, the authority’s bottom line still could improve if the market improves and assessed tax values rise.
"There are monies sitting outside not included in this analysis," she said. "We have monies we anticipate that are not built into this, so the cash balance could be adjusted upward if that money comes in at some point."
LCDA CEO Ron Tolley reminded the group that an early payoff also is not impossible.
"Should we get some added money, there are no early repayment penalties so we can try to get it paid down faster," he said.
Board member Paul Krebs questioned what would happen if the LCDA fails to make good on its end of the deal.
"Let me play devils’ advocate," he said. "What is the worst-case scenario that could happen? I know default, but what constitutes default?"
Smith replied, "Worst-case, if we were to default on any one of these credits — you’re exactly right, then all the credits are considered in default. And then all bets are off. They can accelerate the notes."
He said SunTrust might try to foreclose their interest in the assignment of the revenue, and the bank could end up owning all the land the LCDA currently holds.
However, the entity cannot file for protection under bankruptcy because the codes don’t allow it, the board secretary said. The authority simply would be dissolved, along with the millage rate that funds it, which would make it difficult for the county to establish a new development authority.
"If this entity goes away, that revenue goes away. SunTrust doesn’t have anything to go after," Smith said. "But, obviously, that’s not what we intend. When we made this debt, we entered it in good faith. They entered it with us in good faith under contract to loan us the money. It’s our full intention to do everything we can to pay them back."
The Monday meeting, where the board expects to take action on the proposed financing restructure, is at 8:30 a.m.