Village (At Avon) Litigation Settlement Financial Questions and Answers

Village(atAvon)LitigationSettlement FinancialQuestionsandAnswers
Prepared by the Town of Avon The Town of Avon is currently a party to two lawsuits concerning the Village (at Avon), including a lawsuit filed by the Town of Avon against Traer Creek Metropolitan District in October, 2008 and a lawsuit filed by Traer Creek LLC against the Town of Avon in April, 2010. The parties to the lawsuits negotiated and executed a Settlement Term Sheet in October, 2011. The Settlement Term Sheet requires the parties to negotiate to amend the original 1998 Annexation and Development Agreement, as amended (existing Annexation Agreement) and negotiate to amend the 1998 Planned Unit Development documents in order to implement the settlement. Significant financial terms include issuance of $9 million of bonds to construct a Water Storage Tank (which is required as a condition to serving any additional development in the Village (at Avon)), reissuance and restructuring of $52 million of bonds issued by Traer Creek Metropolitan District in 2002 and 2004, imposition of an additional fee on retail sales in the Village (at Avon) in the amount of .75% to generate an additional dedicated source of revenue for the Town of Avon, and the release of the obligation of Traer Creek Metropolitan District to make certain payments to the Town of Avon under the existing Annexation Agreement. The existing Annexation Agreement is to be amended by the Consolidated, Amended and Restated Annexation and Development Agreement (CARADA). The existing Annexation Agreement and the proposed CARADA are both complex legal documents which set forth complicated financial obligations and rights of the parties. For the purposes of this document, Traer Creek LLC and all affiliated entities associated with Traer Creek LLC are referred to as the Developer. There are several dozen complex legal claims asserted in the two lawsuits. Any statements, answers and expectations provided by the Town of Avon in this document are not intended to be a complete statement of the Town of Avons legal position on any particular legal claim in the pending litigation, and nothing in this document is intended to alter or modify the existing legal position that Town has taken in its pleadings. The following questions were sent to Town Council on Tuesday, August 7, 2012 by Laurie Adler and Joe Walker on behalf of interested citizens. 1. What is a District Impact Fee? Metropolitan districts have general legal authority to impose fees for public services and funding of public infrastructure and facilities. The Traer Creek Metropolitan District and Village Metropolitan District currently do not impose any impact fees with the Village (at Avon) Project area. What is a PIF and an Add-On PIF? PIF is an acronym for Public Improvement Fee. The Village (at Avon) is currently subject to declarations and covenants which establish both a Commercial PIC (Public Improvement Company) and a MixedUse PIC. Under the existing Annexation Agreement, the PICs impose a 4% Retail Sales Fee and the Town provides a Tax Credit in the amount of the Retail Sales Fee actually collected by the PIC. The Settlement Term Sheet requires the Developer Page 1 of 18
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Town of Avon answers to Financial Questions related to the Village (at Avon) Settlement Term Sheet and Consolidated, Amended and Restated Annexation and Development Agreement (CARADA) 8/22/2012
and the PICs to adopt, impose, collect and remit to the Town an additional .75% Retail Sales Fee which is referred to as the Add-On PIF in the Settlement Term Sheet and is referred to as the Add-On RSF (Retail Sales Fee) in the CARADA. 3. What is Credit PIF Revenue? Credit PIF Revenue refers to all revenue generated by the various PIC fees for which the Town is obligated to provide a commensurate Tax Credit. Credit PIF Revenues specifically include the revenues generated from a 4% Retail Sales Fee, a 4% Accommodations Fee and a 2% Real Estate Transfer Fee. If the Town were to ever adopt a use tax on building materials, then the Credit PIF Revenue would also include a Use Fee and the Town would provide a Tax Credit for the Use Fee imposed and actually collected by the PICs. What is the Escrow Agreement and its effective date? Where is a copy available? The Closing Escrow Agreement is a separate agreement that establishes an escrow account to hold executed documents until all required documents are finalized, approved by all parties and executed. When all identified documents are finalized and executed, then all documents will be released from escrow and will become effective and binding on all parties. The date of release is the Effective Date. If ALL documents are NOT finalized and executed, then ALL documents become automatically null and void (not effective and not legally binding on any party). The use of a Closing Escrow Agreement is practical to the extent that the alternative is to require over a dozen separate agreements to each cross-reference all other required agreements, which would then create an even more laborious and extensive drafting process to update all agreements as revisions occur. A copy of the Closing Escrow Agreement is expected to be available for public review for the August 28, 2012 Town Council meeting. Where can we find Town of Avon and Traer Creek Metro District financials? Town of Avon financials and financial modeling regarding the proposed agreement are available on the Towns website at www.avon.org/pendingapplications; the Towns budget information is available on the website at www.avon.org/budget. Traer Creek Metropolitan District and Village Metropolitan District may be obtained by contacting them directly. Is any Town of Avon money owed to Buffalo Ridge? No, the Town of Avon does not owe any money to Buffalo Ridge. Is a Town of Avon referendum needed for the Town to be able to raise taxes on citizens? Yes. Section 20, Article X of the Colorado Constitution (commonly known as the Taxpayers Bill of Rights or TABOR), state and local governments in Colorado cannot raise tax rates without voter approval. What is the Asphalt Overlay Account? The Settlement Term Sheet required the parties to establish an Asphalt Overlay Account whereby the Town, Traer Creek Metropolitan District and the Developer each contribute amounts to a fund to be Page 2 of 18
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used exclusively for asphalt overlays of existing roads in the Village (at Avon). This provision was negotiated to establish a dedicated financial fund to perform asphalt overlays before existing roads in the Village (at Avon) deteriorated to an excessive degree. 9. What is the Term of this Agreement? The CARADA expressly defines the Term separately from the Vesting Term as agreed in the Settlement Term Sheet. The Term does not have a specific date specified, rather, the Term is for so long as the Towns Tax Credit obligation must remain in place to fully satisfy all District Debts. District Debts include the existing outstanding bonds (originally $52 million, currently approximately $46 million in principal is outstanding), additional bonds to fund the water storage tank (est. $9 million), repayment of Past Developer Advances (est. $12 million), and payment of Supplemental Bonds to be issued in the future (est. $23 million). The total principal obligation of the District Debts for which the Town is obligated to maintain the Tax Credit is limited to $96 million. Why is BNP Paribas part of the lawsuit? The Town asserted several claims challenging the constitutionality of various financial and tax commitments of the Town under the existing Annexation Agreement as interpreted by the other parties. BNP Paribas intervened in the lawsuit to represent its legal interests. Who is party to BNP Paribas Letter of Credit? How much is it for? U.S. Bank National Association as Trustee is the holder of the letter of credit against BNP Paribas in the original amount of $52.1 million. What exactly are the financial ramifications if a settlement cannot be reached? The financial ramifications of a failure to finalize the settlement were presented to the Town Council on August 14, 2012. The 8-14-12 District Debt Presentation can be found of the Towns website under CARADA Public Review Materials at www.avon.org/pendingapplications. See also the answer to Question 49 below. What happens if the developer goes bankrupt? The Town has no knowledge of the financial status of the Developer. As effects the Town, the only payment obligation under the CARADA directly by the Developer is the contribution of $80,000 per year for five years (total $400,000). If the Developer is not able to comply with this payment obligation, then the Developer would be in default of the CARADA. Otherwise, the CARADA does not create any obligation of the Developer to make additional payments or contribute capital to the Village (at Avon) Project. What is the CARADA? The CARADA is an acronym for the Consolidated, Amended and Restated Annexation and Development Agreement, which is an amendment to the existing Annexation Agreement. The existing Annexation Agreement was originally approved in October 1998, and amended twice thereafter.
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With all of the changes in the new CARADA, why isn't the new CARADA considered a new application subject to current Town regulations, codes and Comprehensive Plan? The existing Annexation Agreement and PUD Guide sets forth a number of specific terms related to the applicability of Towns regulations and codes. Specifically, the existing Annexation Agreement refers to the 1996 Comprehensive Plan as existed in 1996. The existing Annexation Agreement also establishes vested property rights in accordance with the Towns regulations in place in 1998 and in accordance with authority established by state statute. The prior approval and definition of vested property rights in the existing Annexation Agreements restricts the Towns legal ability to require changes to the existing Planned Unit Development zoning for the Project unless agreed by the Developer. The PUD Amendment application is subject to the Towns regulations with regard to the review criteria for amendments to Planned Unit Developments and Subdivisions. The Settlement Term Sheet sets forth terms which must be included in the amendment to the existing Annexation Agreement and existing Planned Unit Development approval for the Village (at Avon) in order to implement a finalized settlement of the pending litigation. The Towns legal obligation with regard to the processing of various development approvals required to implement the Settlement Term Sheet is to provide the minimum required notice of a public hearing prior to taking any final action. The Town has sought to establish a development application process that responds to the demands of the Court, the preference of the other parties, the input from the public, and the needs of Town staff, the Planning and Zoning Commission and the Town Council to review all documents. The formal submittal of the CARADA and PUD Amendment application to Town staff was at the end of the March. The official application was referred to various agencies and made available for public review in early May. The parties recently agreed to conclude the process with an official final decision by the Avon Town Council to approve, approve with conditions or deny the application by the end of September. In the CARADA on page 11, 2.5(a), shouldn't there be a sunset or time limit on the Developer's right to not develop the property? The existing Annexation Agreement expressly states that the Developer has no legal obligation to develop any portion of the project. The CARADA essentially carries forward the language in the existing Annexation Agreement. The parties did not agree to include a commitment by the Developer to develop any portion of the project in the Settlement Term Sheet although this matter was discussed in settlement negotiations. Why isn't the entire new CARADA written with certain development time lines? See the answer to Question 16 above. What happens with the Tax Credit revenue after capital projects are fully funded? When the District Debts are fully repaid and satisfied, the Town is entitled to discontinue the Tax Credit and impose the Towns sales tax, accommodations tax and real estate transfer tax in the Village (at Avon) in the same manner as Town imposes and Page 4 of 18
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collects taxes throughout the Town of Avon. The sales tax and accommodations tax would go to the Towns general fund and the real estate transfer tax would go to the Towns capital fund in accordance with the currently adopted policy, which policy may be amended from time to time by the Town Council subject to TABOR and other constitutional and statutory limitations. 19. 20. What is the Town of Avons commitment to tax credits for Traer Creek and the Village at Avon? See the answers to Questions 9, 20, 21. What is the scope and duration of the Towns Tax Credit obligations along with worst case scenarios of what could occur? The CARADA allows Supplemental Bonds to be issued as late as 2040. Typically, bond issues are for periods of 20 to 30 years, and by law cannot exceed the life of the public infrastructure it is financing (40 years). Therefore, assuming that bonds are repaid according the repayment issue as proposed and as may be issued in the future, the total maximum duration of the Towns Credit may be 2070 to 2080. If any bonds were to default as a result of insufficient revenues to repay such bonds in accordance with the repayment schedule and if the interest rate increased such that the available revenues were not adequate to make principal payments, then the District Debts and Towns Tax Credit obligation could possibly continue indefinitely until such District Debts were fully repaid. In Eric Heil's letter to Munsey Ayers and Kim Martin dated April 27, 2012, he talks about Remedies related to Tax Credit and Add-On PIF. He states The Development Agreement is constructed such that the PIC, TCMD and Master Developer's obligation to implement the Add-On PIF references Town's obligation to maintain the Tax Credit [5.1(c), 5.2(b), 5.3(c)]; however, Towns obligation to maintain the Tax Credit does not reference the implementation of the Add-On PIF [4.2(a)]. The relative obligations and available remedies are not reciprocal. What does this mean? The proposed CARADA states that if the Town does not maintain the Tax Credit, then the other parties may discontinue the Add-On RSF which is the dedicated source of revenue to the Town. Mr. Heils comment states that the reciprocal remedy should be available to Town such that if the Add-On RSF is not imposed, collected and remitted to the Town, then the Town may discontinue the Tax Credit commensurately. What is the Towns Tax Credit obligation? See answers to Questions 20, 21. Does the Development Agreement pledge Tax Credits for an unlimited duration with no review authority over Supplemental Bonds and Developer Advances, and the interest rates and other costs associated with such additional funds? Yes. Town has the right to receive a notice of proposed financing by the District. Towns legal right under the CARADA is only with regard to the market interest rate, total amount of principal debt to be issued, and that the Districts may only construct public improvements which are lawful under the respective special district Service Plan.
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What is the potential for additional debt issuance without adequate revenue sources to support repayment? Are there safeguards in place with the Towns right of review? During the term of the existing bonds for which BNP is providing a Letter of Credit, there must be an annual debt service coverage ratio of 150% before the issue of Supplemental Bonds can be contemplated. The ability to issue conventional tax exempt bonds would be subject to general review of the adequacy of revenues to repay the bonds. Such review under current financial market conditions is expected to be rigorous; however, review in the future may become relaxed and liberal as existed prior to the 2008 financial crisis. The Towns safeguards include the right to receive 45 days advance written notice of proposed financing, the definition of market interest rates, and the requirement that a representative of BNP Paribas must hold a seat on the board of directors for Traer Creek Metropolitan District. How are the Traer Creek Metro District bonds structured? The current TCMD bonds are considered variable rate revenue bonds backed by a direct-pay letter of credit issued by BNP Paribas. The bonds are remarketed weekly and are payable from deposits in the Revenue Bond Fund which could be from PIC fees received and from property taxes, specific ownership taxes, tap fees and surcharges and any other revenues paid to the Traer Creek Metro District. What is the priority for past due payments? The Town is currently working with the Developer and Traer Creek Metropolitan District to complete an accurate exhibit which designates the priority of past due payments. Generally, the priority of repayment is to repay the earliest of amounts due first, then pay the next amount due in chronological order. The oldest past due amounts are to the Developer and Buffalo Ridge. Past due amounts to the Town of Avon began to occur on a monthly basis in 2008 as a result of failure of Traer Creek Metropolitan District to pay municipal service invoices, sales tax indemnification payments, and the Chapel Place exaction. From 2008 forward the priority of payments to the Town is chronologically mixed with the past due payments to the Developer, which schedule will be set forth in detail as an exhibit to the CARADA. Please explain BNPs restructuring of 2002 and 2004 TCMD bonds per the Settlement Term Sheet. The restructuring allows for the payment of debt service on the water tank bonds to take priority over the BNP bonds. This was a condition required by the Upper Eagle River Water Authority as a condition to its commitment to finance and construct the water storage tank. In addition, the restructuring changes the redemption schedule on the BNP bonds to extend the final maturity date from 2024 to as late as 2030, and it allows for a one-time draw down of the bond reserve to pay for District expenses. Finally, the new bond indenture will provide for an annual sweep of excess funds over the required reserve of $3 million to be applied against the restructured bonds. Please explain BNPs release of approximately $1.4M in collateral for payment of District expenses for litigation and bond restructure per the Settlement Term Sheet. BNP has agreed as part of the settlement to allow $1.4 million of its collateral to be Page 6 of 18
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disbursed from the account to pay for expenses associated with the Settlement and Bond Re-Issue. All of the Credit PIF and other revenues the District receives are deposited into bank accounts of a trustee bank (US Bank). All of the money in those accounts constitutes pledged collateral to BNP Paribas. Only the Trustee can authorize disbursements of money from the collateral accounts. Without the approval of BNP, the disbursement of that money would otherwise create a default by the District because it will require the Debt Service Reserve Account to be reduced from the required level of $1.8 million. 29. Please explain TCMDs agreement to a cash sweep of reserves in excess of $3M to reduce principal on bonds per the Settlement Term Sheet. The new proposed redemption schedule reduces the annual principal amount to be repaid and causes a balloon payment in the final year of maturity. The cash sweep would be used to reduce this final balloon payment and/or redeem the restructured bonds early. How are market interest rates or other costs for additional debt issuance determined? There is an interest rate cap that uses the Municipal Market Data rate as a benchmark. There is a cap of 8% on developer advances. The definition and treatment of costs for additional debt issuance is currently under review and subject to further negotiation by the Town. Are the various interest rates capped somewhere? If not, why, especially with respect to the rate paid to the Developer for Developer Advances? See Answer to Question 30 above. Especially with respect to Section 6(b)(iv), is it correct to read this that TCMD/Developer can arbitrage by paying a low interest rate on re-issued bonds while also receiving a higher interest rate (8%) in payments? No. Public entities cannot issue tax exempt debt and use the proceeds to invest them at a higher yield. Since the mid-eighties the IRS has had in place various arbitrage rules to prevent this practice. It would be possible for the developer to borrow monies at a lower rate than 8% in order to make arbitrage on advances to the District. However, due to the unsecured nature of these advances and the uncertainty of when the advances may be repaid this seems unlikely due to the negative cash flow that the developer would assume. How do we know this Finance Plan for the benefit of TCMDs future bond issuance ability and credit rating will not negatively impact the Towns future bond issuance and credit rating? The TCMDs bonds, both existing and future, are not direct legal obligations the Town. Indirectly, the settlement should result in an improved cash flow for the Town, which would in turn improve the Towns financial situation. However, it is important for the public to understand that the Towns ability to issue future bonds and its credit rating is influenced by various factors, including the subjective judgment of credit rating agencies over which the Town has no control.
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Suppose there is no increase, or very little increase, in taxable sales within the Lindholm [Village (at Avon)] property for the duration of the agreement. (This contemplates the possibility, however unlikely, that we could have nearly enough retail space in Eagle County to meet the needs of merchants and customers.) How would the bonds get retired? Would there be any cost to the Town and its taxpayers? Financial models have been presented to the Town Council under this scenario that show that the District bonds can be repaid even without growth in revenues if interest rates do not increase. Copies of the presentations are available on the Towns website at www.avon.org/pendingapplication under CARADA Public Review Materials. Will the Town of Avon retain all revenue and taxes from any current businesses in the Town of Avon that relocate to the Traer Creek Metro District? If no, why? Is the Town concerned about this? No. The existing Annexation Agreement provided for a sales tax indemnification payment for relocation of WalMart and City Market. The Town is still negotiating whether a sales tax indemnification provision would be retained for any future relocation of City Market. The general rationale under the existing Annexation Agreement for addressing only Walmart and City Market is that they are both significant sales tax producers for the Town of Avon and that replacement of such stores with a comparable sales tax producer is more difficult than replacing smaller retail businesses. What are the current Town of Avon and planned Traer Creek Metro District and Village at Avon retail sales taxes, real-estate transfer taxes and accommodations/lodging taxes? Who gets this money? The current Town of Avon retail sales tax rate is 4%, the real estate transfer tax rate is 2% and the accommodations tax rate is 4%. The Village (at Avon) has established Public Improvement Companies (PICs) which currently impose corresponding fees in the same amount as the Towns tax rates. Traer Creek Metropolitan District does not impose a retail sales fee, accommodations fee or real estate transfer fee; however, the PICs which impose these fees have an agreement whereby the PICs are obligated to remit the revenues from these fees to Traer Creek Metropolitan District. The Settlement Term Sheet provides that the PICs shall increase the retail sales fee by .75% (Add-On RSF) which would then be remitted to the Town after making Towns asphalt overlay payment contribution. What is the Wal-Mart sales tax indemnification? The existing Annexation Agreement required payments to the Town for the lost sales tax resulting from the relocation of WalMart to the Village (at Avon) project area according to an established formula. Is the Town of Avon considering a City Market Sales Tax Indemnification? Town is still negotiating this matter. A question was raised at the July 24 Council meeting over how to address the threat of the Town losing City Market taxes not just in the event of City Market moving to Lindholms property, but through having some other grocer move in to provide new competition. It was asked, "why can't we agree with Lindholm that there will be no new grocer in Lot 1? Eric Heil answered, saying such a proscription would be impossible as Page 8 of 18
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this had not been a part of the settlement agreement. Traer Creek has added many things to the agreement that are not part of the settlement term sheet. Isn't it true that we can consider things that would be beneficial to the Town that are not in the settlement agreement? Wouldn't it make sense for Lindholm to recruit Safeway or WholeFoods if City Markets taxes would go to Avon, not to his surrogate entity? Why not protect those taxes by negotiating this? The issue of sales tax indemnification for City Market is still under negotiation. The Developer has proposed terms which are not part of the Settlement Term Sheet. At this time, the Town Council has not approved any term proposed by the Developer which is not part of the Settlement Term Sheet. The parties are negotiating these matters as well as debating the interpretation, application and implementation of terms set forth in the Settlement Term Sheet. 40. How is the Town of Avon paying for all of the legal costs related to the Village at Avon? The Town is paying for legal costs related to the Village (at Avon) from the Towns general fund. Does the Town of Avon have insurance or reserves for these legal costs? The Town has an insurance policy with Colorado Intergovernmental Risk Sharing Agency (CIRSA). Many local governments in Colorado have insurance policies with CIRSA. The insurance policy provides legal representation for certain claims, including statutory and constitutional tort claims based on allegations that the Town has acted in an arbitrary and capricious manner or has otherwise engaged in conduct that is tortious or sounds in tort. The Town does not have to pay for the legal representation provided by CIRSA for these matters. The insurance policy does not cover claims which arise from contracts. A majority of the legal claims are in the nature of contract claims or other claims which are not covered by the Towns insurance policy with CIRSA. Town has not used any reserves for legal costs to date. How did the Town of Avon pay for the maintenance of property in the Traer Creek Metro District when they werent receiving any taxes or payments from Traer Creek? What was the dollar amount? Town pays for municipal services throughout the Town with available general fund revenues. Net amounts for municipal services (less property taxes generated within the Village (at Avon) Project area) have generally ranged from $450,000 - $550,000 per year. What financial and non-financial subsidies has the Town of Avon agreed to give Traer Creek Metro District and other related entities for the development of the Village at Avon? How much do these subsidies and tax credits total each year? The Town cannot accurately respond to the term subsidy in the context of the existing Village (at Avon) Annexation Agreement. The existing Annexation Agreement set forth numerous terms, rights and obligations which were a condition to the annexation of Village (at Avon) property into the Town of Avon. Under the existing Annexation Agreement, the Town was to receive approximately $3.5 million in combined municipal service invoices, sales tax indemnification and Chapel Place exaction
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payments as of October, 2011, which amounts have not been paid to Town and which payment dispute is a central matter in pending litigation. 44. How much in taxes does the Town of Avon believe Traer Creek Metro District and related entities owe the Town of Avon? Technically, Traer Creek Metropolitan District does not owe taxes or pay taxes. The existing Annexation Agreement included terms which required Traer Creek Metropolitan District to make payments to the Town for municipal service invoices, sales tax indemnification, and the Chapel Place Exaction. As of the date of the Settlement Term Sheet, the parties agreed that the amounts owed to Town were $3,522,309.08. If the citizens of the Town of Avon will be paying for the maintenance of the Traer Creek Metro District and Village at Avon, why aren't we collecting any taxes from them to do so? We dont want our taxes paying for their maintenance. The existing Annexation Agreement required the Town to waive a majority of potential tax revenues in the form of sales tax, accommodations tax and real estate transfer tax, but then required Traer Creek Metropolitan District to make various payments to the Town. Town did not waive the collection several tax revenues generated by the Village at Avon including property taxes, the County sales tax share and the imposition of the Towns sales tax on the PIC retail fee. Town continues to receive these tax revenues which currently amount to approximately $450,000 per year. In 2001, the first amendment to the Annexation Agreement included a provision that stated Traer Creek Metropolitan Districts obligations were subject to annual appropriation. This provision is a central matter in the payment disputes and pending litigation. The Town has asserted numerous additional claims in response to the position and interpretation taken by Traer Creek Metropolitan District that Traer Creek Metropolitan Districts payment obligations are subject to annual appropriation. The Settlement Term Sheet resolves these disputes by replacing the past formulas and payment obligations with a .75% Add-On RSF on retail sales within the Village (at Avon) that is payable directly to the Town to cover the costs of services. Why is BNPs consolidated settlement timeline in the best interests of the Town of Avon and its citizens? All settlement timelines and schedules have been the subject of mutual discussion and agreement by the parties, not any single party or entity. The need for sufficient review time has been and continues to be extremely important to the Avon Town Council. That interest is balanced with on-going costs to the Town in deferring implementation of settlement as well as the risk that interest rates may increase and render the current settlement terms no longer possible. Will the citizens of Avon be subjected to additional taxes to pay for the Village at Avon Development? The CARADA does not propose or require any additional taxes on the citizens of Avon. Some may view the .75% Add-On RSF on retail sales within the Village as having the same effect as a sales tax increase, but legally under prevailing law in Colorado, the Add-On RSF is a fee and not a tax. Further, the Add-On RSF is only imposed on purchases within the Village, and is not imposed on sales by any other Avon retailers. Page 10 of 18
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Please explain TCMDs reduction and transfer of maintenance obligations to lower annual O&M Expenses per the Settlement Term Sheet. These terms were negotiated in the Settlement Term Sheet to reduce Traer Creek Metropolitan Districts cost sufficiently so that $500,000 per year could be pledged towards the financing of the water storage tank and with the belief that the Town could more efficiently manage public right-of-way improvements. What is the impact on the Town of Avons finances in a worst case scenario for the Village at Avon and Traer Creek Metro District? The worst case scenario would generally involve a failure to implement the Settlement Term Sheet, proceeding to trial and then through the appellate process (which is projected to require 5-7 years total). If at the end of that process, the Town did not prevail, the Town could be potentially obligated on a multi-million dollar damage claim asserted by Traer Creek against the Town. The ability to enforce and collect a money judgment against a municipality in Colorado is the subject of on-going legal debate amongst municipal attorneys. In addition, the Traer Creek Metropolitan Districts bonds would almost certainly go into default under a scenario involving a failure to settle the lawsuit and proceeding to trial. The bond default interest rate is significantly higher. Any increase in the market interest rate would further increase the bond default interest rate and result in the inability of available revenues to cover even the interest payments. Based on the trial courts recent ruling that the Towns Tax Credit obligation must remain in place until the Traer Creek Metropolitan District bonds are repaid, this situation would result in the Towns Tax Credit obligation continuing for an indefinite period. Finally, without outside private investment, Traer Creek Metropolitan District would not be able to finance the water storage tank and therefore, no further development would be expected in the Village (at Avon) with the consequential result that no additional revenues from the Village (at Avon) would be possible. Throughout this entire period the Town would be providing municipal services without receipt of payments under the existing Annexation Agreement. Collectively, this describes the absolute worst case scenario. In Scott Wrights STS TOA Cash Flow Model 1, what is included, specifically, in Expenditures; for example, is the Town paying monthly utilities for streetlights, clearing sidewalks in addition to streets, etc.? Municipal Services primarily includes the costs of roads road maintenance and provision of police services. The Assumption of Additional Maintenance is defined in the CARADA and describes the additional public improvement for which the Town would assume maintenance responsibility with certain exceptions. This additional maintenance would include the landscaping and irrigation of public road right-of-ways, sidewalk snow removal, maintenance of Nottingham Dam and maintenance of the Nottingham-Puder Ditch. Why is the town considering taking on the financial burden of taking care of Traer Creek property? The Town is not taking on the obligation to manage any Traer Creek private property. The terms in the Settlement Term Sheet and CARADA require Page 11 of 18
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public roads and other public infrastructure to be conveyed to the Town so that the Town can own and manage public roads and public infrastructure in a manner similar to the rest of Town. The Town believes that it can more efficiently and cost effectively maintain and manage public roads and public infrastructure. The conveyance of public roads and public infrastructure to the Town along with consolidation of maintenance responsibilities is also intended to avoid existing and potential future disputes over whether the Town or Traer Creek Metropolitan District is responsible for lighting, sidewalks, railings, weeds, landscaping, irrigation and cracks in the road. 52. BNP speaks ominously of pulling out should the Town fail to follow their instructions. They cannot renege on their bond guarantee. Why would we care if they pull out? What would it do to Avon? A decision by BNPs to not renew the Letter of Credit would result in a bond default. See the answer to Question 49 above under worse-case scenario. What is the Cap Amount? The Credit PIF Cap (called the Cap Amount in Version 9 of the CARADA) is the maximum amount of principal which can be issued to be repaid by the Town Tax Credit/Credit PIF Revenues. The Credit PIF Cap is $96,000,000 in principal and includes the existing $52 million in TCMD bonds (approximately $43 million in principal outstanding), $9 million for the water storage tank, $12 million in Past Developer Advances, and $23 million in additional Supplemental Bonds. The Credit PIF Cap may be reduced by up to $10 million through the use of the Avon Urban Renewal Authority as set forth in the Settlement Term Sheet and the CARADA. What are Past Developer Advances and do they count towards the Cap Amount? Past developer advances constitute cash to TCMD. Past Developer Advances count towards the Credit PIF Cap and amount to approximately $12 million. How does TCMDs debt cap in its Service Plan ($158 million) relate to the Cap Amount? Is the $96 million in place of the $158 million, a part of it? There is no relation between the $96 million cap in the CARADA and the $158 million on the TCMD Service Plan. The $158 million is the cap on the combined debt of the Village Metropolitan District and TCMD which, as stated in the Service Plans, consists of: all general obligation bonds, limited obligation bonds, revenue bonds, subordinated bonds, notes, contracts or other obligations evidencing a borrowing. The $96 million cap is the the maximum principal amount of District Obligations that can be serviced utilizing Credit PIF Revenues under the CARADA. Is the $96 million Cap Amount on principal issued or outstanding at one time? It is possible that the entire amount of the $96 million Credit PIF Cap could be issued or outstanding at the same time. The Credit PIF Cap is comprised of past debts ($52 million TCMD bond issues and $12 million in Past Developer Advances), debts contemplated to be issued when the CARADA is effective ($9 million for water storage tank), and additional debts in the amount of $23 million. The actual timing Page 12 of 18
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of any Supplemental Bonds is expected to depend upon the need for additional public improvements to service additional development, the availability of public or private financing, and the adequacy of available revenues. 57. Please explain the disputed Credit PIF Duration per the Settlement Term Sheet. The Towns legal position is that the Towns Tax Credit obligation expires with the term of the existing Annexation Agreement (2033). The legal position of the other parties is that the Towns Tax Credit obligation continues until District Obligations are fully satisfied. The District Court recently ruled in favor of the other parties and against the Town on this matter. The Town may appeal the decision of the District Court if settlement fails and the pending litigation proceeds to trial. The Settlement Term Sheet and the CARADA set forth numerous terms which define the amount and use of the Town Tax Credit/Credit PIF Revenue obligations in much greater detail than the existing Annexation Agreement and resolve the matter of duration of the Towns Tax Credit obligation as desired and interpreted by the other parties. The Settlement Term Sheet makes clear that the terms of the Settlement Term Sheet are not an admission of fault or liability of any party; therefore, the Settlement Term Sheet should not be construed as any admission or belief by the Town which is inconsistent with Towns legal position on the duration of the existing Annexation Agreement and Towns Tax Credit obligation. What is the Add-On PIF Collection Services Agreement? Is a collection fee in it and would 100% of the revenues go to the Town of Avon? If there is a collection fee, how much is it? The Add-On RSF Collection Services Agreement is an agreement which requires the Public Improvement Companies to impose, collect and remit the .75% Add-On RSF to the Town. The terms of the Add-On RSF Collection Agreement, including the collection fee, if any, are currently under review and are subject to further negotiation by the Town. What are the PIF Covenants and should they be amended now? The PIF Covenants are declarations and covenants which apply to the Village (at Avon) which are the underlying documents that establish the authority to collect the retail sales fee, the accommodation fee, the real estate transfer fee and other fees within the village (at Avon). The parties anticipate that the Declarations and Covenants would be amended concurrently with approval of the CARADA to implement the .75% AddOn RSF. Why is Section 6.5(a) about the Town being paid its .75% add-on RSF so weakly written? The language in the CARADA is under review and further negotiation. Eric Heil in his letter of April 27, 2012 to Munsey Ayers and Kim Martin stated Traer Creek Metro District cannot fund the maintenance obligations it is retaining and it cannot fund future maintenance obligations from Credit PIF Revenues, Supplemental Bonds or Additional Developer Advances to the extent such funds are to be repaid with Credit PIF Revenues. What does this mean? The Settlement Term Sheet defined the Credit PIF Revenues as for repayment of District Debts. The Towns Tax Credit obligation is Page 13 of 18
58.
59.
60. 61.
tied to satisfaction of the District Debts; therefore, to the extent that Credit PIF Revenues may be used for other purposes in addition to repayment of the District Debts, then the Towns Tax Credit obligation would become additionally encumbered. The other parties do not agree with Towns interpretation of the Settlement Term Sheet on this matter. 62. How are Traer Creek and related entities planning to pay for the development of the Village at Avon? The Town is not aware of any specific plan by Traer Creek or related entities as to any financing plan for the development of the Village (at Avon) beyond the provisions of the CARADA. Where is the clear, definitive list of District Obligations and why is it not capped? The language concerning District Debts as defined in the Settlement Term Sheet is under review and further negotiation. The Settlement Term Sheet states that District Debts would be capped at $96 million of principal. What are the Allowed O&M Expenses and, by their very nature, dont they continue forever? The definition of Allowed O&M Expenses in the CARADA is currently under review and subject to further negotiation. The Allowed O&M Expenses is intended to restrict the discretionary budget of Traer Creek Metropolitan District to allow for a pledge of revenues for the Water Storage Tank Bonds. The Settlement Term Sheet included terms whereby Traer Creek Metropolitan District had to agree to reduce its current discretionary budget of $900,000 under the existing bond documents to a net amount of $500,000 per year through 2016, then to $525,000 per year until asphalt overlay payments terminate, then $450,000 per year thereafter. The definition in the CARADA relates primarily to the use and encumbrance of Credit PIF Revenues in relationship to Towns Tax Credit obligation. Traer Creek Metropolitan District would incur operation, maintenance and administrative costs to some degree for as long as it exists. Upon expiration of the Term and discontinuation of the Town Tax Credit obligation, the CARADA would no longer apply and there would no longer be any definition or restriction on Allowed O&M Expenses. Where is the waterfall description of what District Obligations are senior and junior to the others? The CARADA sets forth terms describing the use and priority of Credit PIF Revenues in Article 6. Are there any other examples of revenue sharing in Colorado where a Town gives tax credits and the District levies fees instead of the Town collecting taxes and reimbursing a Metro District? Are there other examples of Towns that provide services to Metro Districts but dont receive taxes great enough to cover those services? Although the use of tax credits, tax waivers and public improvement company fees has been used in many public private partnership agreement with municipalities throughout Colorado, the Town is not aware of any similar agreements which have used tax credit/waivers in conjunction with payments for municipal services to the extent set forth in the existing Annexation Agreement or which have resulted in a municipality Page 14 of 18
63.
64.
65.
66.
not receiving payments for municipal services as defined in such tax credit/waiver agreement. 67. What is the Town of Avon doing to provide separate, dependable revenue sources for Avon with growth potential? The Town levies various taxes, including sales tax, accommodations tax, real estate transfer tax and property tax. The Towns taxes generally generate more revenue as growth and development occur and economic activity increase. The 2008 recession resulted in a reduction of tax revenues in all categories. The Town continues to promote new development and redevelopment through various ways, including supporting special events, utilizing the powers of its Urban Renewal Authority and tax increment financing, developing a Community Revitalization Incentive Policy and adopting updates to the Towns Development Code. Please explain the financial issues in the Settlement Term Sheet including Add-on PIF, property tax revenue, District maintenance obligations and Asphalt Overlay contributions. Please see the Answers to the various financial questions above. Please explain BNPs $9M in senior debt for the Water Tank project as stated in the Settlement Term Sheet. Under the existing Traer Creek Metropolitan District bonds, the first $900,000 in revenues is allocated to Traer Creek Metropolitan District and then the remaining revenues are pledged to repayment of the bonds. Under the current bond documents, in the event of default, BNP has the right to require that all District revenues, including PIC fees and Village Metropolitan District property taxes must be allocated to repayment of the existing bonds. Under the Settlement Term Sheet, BNP has agreed that BNP will subordinate its priority interest in the available revenues to allow the first $500,000 per year for 30 years to be pledged to repay the bonds to construct the Water Storage Tank. Please explain BNPs partial deferral of Letter of Credit fees from 2.1% to 1.5% as stated in the Settlement Term Sheet. BNP has agreed to defer payment on the difference between the current LOC fee rate and a rate of 1.5%. Any amount that is deferred will accrue interest and will be repaid according to the priority of District obligations. This provision allows the minimum annual bond payment to be reduced slightly during the initial years in order to establish a financially viable payment schedule. How is TCMD planning to prioritize capital projects with Avon per the Settlement Term Sheet? Town expects that TCMDs capital projects will respond to proposed development projects. The Town is not aware of any specific development plans and the Town is not aware of any specific prioritized capital projects which TCMD may be planning. The CARADA includes a Prioritized Capital Projects list; however, as presently drafted (consistent with the Settlement Term Sheet) it is not legally binding on TCMD.
68.
69.
70.
71.
Page 15 of 18
72. 73.
What are the PICs costs and expenses incurred and why are they not capped? This matter is under review and subject to further negotiation. What is the significance of the 2040 date in Section 6.2(b)(iii)? Please explain this section. January 2, 2040 is the last day for the District to issue any Supplemental Bonds. What does Section 6.2(e) mean? The specific terms and sections of the CARADA are subject to revision and further negotiation. Section 6.2(e) of Version 9 of the CARADA stated that when the Towns Tax Credit obligation terminates, the obligation of the Public Improvement Company to remit the .75% Add-On RSF revenues to the Town also terminates. BNP has spent a lot of money to hire the top PR talent in Eagle County in a strenuous attempt to ridicule and trivialize this neighborhoods exercise of due process rights relating to the examination of this application. Does the Metro District pay for Pat Peebles from sales taxes? Is that a higher priority than Avons participation in the pre-PIF taxes? Town has no knowledge of the matters raised in this question and therefore cannot provide an answer. Questions regarding BNPs activities should be directed to BNP.
74.
75.
Additional Questions (submitted by Betty Todd August 9, 2012) 1. Since there are $12 million of current Developer Advances which are subordinate to the BNP Paribas $52 million in bonds, the $9 million Water Tank bonds, and supplemental bonds, and given BNP will do a cash sweep of the Districts cash each year which will be applied to the BNP bonds, will the $12 million in Developer Advances just be sitting there accruing 8% interest for the next 20 years or more? Or is the intent to pay the interest current? Town expects that $8.5 million of Past Developer Advances will continue to accrue interest at the rate of 8% and $3.5 million of Past Developer Advances will accrue interest at 1.5%. The Settlement Term Sheet provided that the Avon Receivable in the amount of $3.5 million would accrue interest at 1.5% and that an equal amount of Past Developer Advances would accrue interest at this same rate. Currently, there are not sufficient revenues to begin paying interest or principal on Past Developer Advances. Circumstance may change based on additional revenues from additional development, the use of the Avon Urban Renewal Authority or any debt authorization of the Town of Avon which the Avon voters may approve. 2. If interest in not paid current, what will be the approximate total of the $12 million current Developer Advances plus accrued interest (assuming the current 8% interest rate) at the time payoff begins in 20 years? 30 years? 50 years? What would be the approximate total payoff of principle and interest when the principle and interest is paid at 20, 30 and 50 years? According to the Towns financial models, if the BNP Bonds are paid off as scheduled in 2028, the amount of developer advances and accrued interest (assuming no additional advances) will total approximately $31.5 million Page 16 of 18
and will be accruing simple interest in the amount of approximately $729,000 per year. 3. Since the Settlement Term Sheet appears to give the developer the ability to provide up to $23 million in additional Developer Advances (which is the balance of the CAP) to construct additional capital projects which $23 million could also accrue interest of 8% or higher, what is the approximate projected total of $23 million plus interest at 8% in Developer Advances provided in 2017 if payoff begins in 20 years? 30 years? 50 years? What would the eventual total payoff look like at completion? $23 million at simple interest at 8% without payment would amount to $59.8 million in 20 years ($23 million plus $36.8 million in interest), $78.2 million in 30 years ($23 million plus $55.2 million in interest) and $115 million in 50 years ($23 million plus $92 million in interest). The Town has not prepared any financial models to project a payment schedule for $23 million in Additional Developer Advances which accrue interest at 8% and with payments not commencing until 20 to 50 years after the issuance of such Developer Advances. 4. If the Developer Advances are converted to Supplemental Bonds, does the Town pay the market interest rate on the supplemental bonds, or continue to pay the market rate of Developer Advances? The Town is reviewing and continuing to negotiate all terms related to permitted refinancing. 5. It appears the Settlement Term Sheet spells out the interest rate on Developer Advances to be at market rate. What criteria are being used to determine the Developer Advance market rate? Who will determine this into the future? The parties have generally agreed that the market rate for Additional Developer Advances is 8%. The Town inquired into typical rates for private financing with other attorneys and financial professionals involved with real estate financing who confirmed this rate is reasonable. Colorado law sets forth a statutory default rate of 8% for past due amounts if another interest is not specified in a contract. 6. Was the Town Council anticipating the 8% rate for Private funding at the time of negotiating the settlement? Or was it anticipated the rate would be similar to the rate of District Bonds? At the time of negotiating the settlement the Town understood that the market rate for private financing is higher than the rate for tax exempt bonds. The Town was aware that the rate for Past Developer Advances was 8% and was aware that under statutory law in Colorado the default interest rate for past due amounts is 8%. 7. Is the interest rate fixed over the time of the advance at the time the advance is made to the District or is it variable? This depends on the Reimbursement Agreement between the Developer and the District. Typically this rate would be fixed. 8. Is there any cap on the Developer Rate or is the rate unlimited into the future for the current advances or any future advances? The parties have agreed that the market interest rate for Additional Developer Advances is 8%. Page 17 of 18
9. Is there a mechanism in place for the Town (should they be financially able in the future) to pay off Developer Advances with Town funding in full or in part to reduce interest and end the Term earlier should the Town find it financially beneficial to do so? Currently there is not a mechanism in place other than making direct payments out of available Town funds. The Town Council is currently considering a debt authorization ballot question which would authorize the Town to issue debt, in whole or in part, to satisfy the Towns Tax Credit obligations or provide financing options which may reduce the overall costs of satisfying the Towns Tax Credit obligation. In addition to the debt authorization ballot question, the CARADA contemplates the use of the Avon Urban Renewal Authority as an option to provide alternative financing and reduce Towns Tax Credit obligation to repay District Debts by $10 million. 10. Has anyone tried to negotiate a more favorable Developer Advance interest rate and terms with the Developer? Yes. All terms in the Settlement Term Sheet were negotiated during the settlement process. The Town has been and continues to negotiate specific terms in the documents required to implement the Settlement Term Sheet. 11. Lastly, can we assume Colorado Law supports a municipality providing funds (which the Town is doing via the Tax Credit) for the payment of Developer or private funding of their own or any project at an interest rate greater than the current interest rate obtainable from bond funding? Since we learned at the meeting, the payoff of the Developer Advances to the District may be 50-80 years into the future these are important concepts to understand. The overall impact of these Developer Advances to the current and future tax payers of Avon was not very transparent at the Town Council meeting. There are numerous claims asserted by the Town of Avon in the pending litigation related to the financial structure, Town tax credit obligations under the existing Annexation and Development Agreement and the financial decisions of the Traer Creek Metropolitan District board of directors. The Settlement Term Sheet sets forth terms under which the parties would resolve all legal claims in the pending litigation. 12. In reviewing the Traer Creek Metro District Budget information available through DOLA, it appears the District revenues include investment income, The Village revenue, and retail fees. What exactly is happening with lease income from Wal-Mart, Home Depot, Traer Creek Plaza and/or land sales? The Town does not have knowledge of the use of lease revenues or land sales revenues and therefore cannot answer this question.
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Village (At Avon) Litigation Settlement Financial Questions and Answers

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