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HomeMy WebLinkAbout97-193 Resolution No. 97-193 RESOLUTION OF INTENTION TO ISSUE INDUSTRIAL DEVELOPMENT REVENUE BONDS OF THE CITY OF ELGIN, ILLINOIS, TO FINANCE THE ACQUISITION, CONSTRUCTION AND EQUIPPING OF A MANUFACTURING FACILITY FOR STARRO PRECISION PRODUCTS, INC. , AN ILLINOIS CORPORATION; AUTHORIZING THE EXECUTION OF A MEMORANDUM OF AGREEMENT BY AND BETWEEN SAID CITY AND SAID COMPANY; AND RELATED MATTERS WHEREAS, Starro Precision Products, Inc . , an Illinois corporation ( the "Company" ) , has proposed either individually or through an affiliate to finance the acquisition, construction and equipping of a screw machine manufacturing facility and related improvements (the "Project" ) , and proposes that the City of Elgin, Illinois (the "Issuer" ) issue its industrial development revenue bonds for the benefit of the Company or an affiliate thereof in an aggregate principal amount not to exceed $2 , 800, 00 (the "Bonds" ) to provide financing for the Project; and WHEREAS, the Issuer has caused to be prepared a Memorandum of Agreement under the terms of which the Issuer agrees, subject to the provisions of such Memorandum of Agreement, to begin the proceedings necessary to issue its revenue bonds to provide financing of the Project. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF ELGIN, ILLINOIS, AS FOLLOWS: 1 . That the Mayor of the Issuer is hereby authorized to execute a Memorandum of Agreement with the Company in substantially the form presented to this meeting, or with such changes therein as shall be approved by the Mayor upon execution of the same. 2 . That the officials , officers and employees of the Issuer are hereby authorized to take such further action as is necessary to carry out the intent and purpose of this Resolution ( including, but not limited to, publishing notice of any public hearing necessary to permit the Issuer to issue the Bonds for the Project) and to cause not more than $2 , 800, 000 of the Bonds to be issued upon the terms and conditions stated in such Memorandum of Agreement, which Memorandum of Agreement is hereby made a part of this Resolution. 3 . That it is the intention of the Issuer that this Resolution constitute an "official intent" to issue the Bonds within the meaning of Section 1 . 150-2 of the Income Tax Regulations prescribed by the United States Treasury Department . •t 4 . That this Resolution shall be in full force and effect immediately upon its adoption and approval . s/ Kevin Kelly Kevin Kelly, Mayor Presented: July 23, 1997 Adopted: July 23 , 1997 Vote: Yeas 6 Nays 0 Attest: s/ Dolonna Mecum Dolonna Mecum, City Clerk MEMORANDUM OF AGREEMENT THIS MEMORANDUM OF AGREEMENT is between the City of Elgin, Illinois (the "Issuer") and Starro Precision Products, Inc., an Illinois corporation (the "Company"). 1. Preliminary Statement. Among the matters of mutual inducement which have resulted in this Agreement are the following: (a) The Issuer is a home rule unit under the Illinois Constitution of 1970, and as such is authorized and empowered to issue industrial development revenue bonds for the purpose of financing costs of the acquisition, purchase, construction, rehabilitation, redevelopment or extension of public, commercial and industrial projects in order to encourage and promote the retention and expansion of existing public, commercial and industrial businesses within the Issuer and the attraction of new facilities to the Issuer. (b) The Company wishes either individually or through an affiliate to acquire, construct and equip a screw machine manufacturing facility and related improvements (the "Project"), to be located on Bowes Road near Randall Road in the City of Elgin, Illinois, and has proposed that the Issuer issue its industrial development revenue bonds in an amount not to exceed $2,800,000 (the "Bonds") to finance all or a portion of the costs of the Project. (c) The Bonds shall be limited obligations of the Issuer payable solely out of the revenues and receipts derived from the trust estate established under the indenture of trust pursuant to which the Bonds are to be issued; the Project shall be financed by means of a loan of the proceeds of the Bonds to the Company or an affiliate thereof, and the Company or an affiliate thereof shall agree to make payments in an amount sufficient to pay the principal and purchase price of, and premium, if any, and interest on, the Bonds. No holder of any of the Bonds shall have the right to compel any exercise of the taxing power of the Issuer, and the Bonds shall not constitute an indebtedness or a loan of credit of the Issuer within the meaning of any constitutional or statutory provision. 2. Undertakings on the Part of the Issuer. Subject to the conditions above stated, the Issuer agrees as follows: (a) That it will begin the proceedings necessary to authorize the issuance and sale of the Bonds in an amount not to exceed $2,800,000. (b) That if satisfactory purchase arrangements for the Bonds can be made by the Company, the Issuer will adopt such proceedings authorizing the execution of such documents as may be necessary or advisable for the authorization, issuance and sale of the Bonds and the financing of the Projects, all as shall be authorized by law and on terms mutually satisfactory to the Issuer and the Company. (c) That, if the Issuer issues and sells the Bonds, the financing instruments will provide that the Issuer will use the proceeds of the Bonds to finance the Project and the aggregate payments, basic rents or sale price (i.e., the amounts to be paid by the Company and used by the Issuer to pay the principal of, interest and redemption premium, if any, on the Bonds) payable under the instruments whereby the Project shall be financed, shall be such sums as shall be sufficient to pay the principal of, interest and redemption premium, if any, on the Bonds as and when the same shall become due and payable. (d) That it will take or cause to be taken such other acts and adopt such further proceedings as may be required to implement the aforesaid undertakings or as it may deem appropriate in pursuance thereof. 3. Undertakings on the Part of the Company. Subject to the conditions above stated, the Company agrees as follows: (a) That it will use all reasonable efforts to find one or more purchasers for the Bonds prior to the issuance and sale thereof by the Issuer. (b) That contemporaneously with the delivery of the Bonds the Company or an affiliate thereof will enter into a loan agreement with the Issuer, under the terms of which the Company or an affiliate thereof will obligate itself to pay sums sufficient in the aggregate to pay the principal and purchase price of, and premium, if any, and interest on, the Bonds as and when the same shall become due and payable. The Company or an affiliate thereof will also agree in such agreement to pay all reasonable fees and expenses in connection with the Bonds. (c) That during the period beginning on the date of the sale and delivery of the Bonds by the Issuer to the purchasers thereof and ending three years thereafter, the Company (i) will furnish upon request of the Issuer, certain information relating to the Project, including but not limited to, the numbers and types of jobs and employment opportunities which have been created or maintained within the Issuer as a result of the Project, and (ii) will permit any duly authorized agent of the Issuer to enter upon and inspect the Project during regular business hours upon reasonable notice, and to examine and copy at the principal office of the Company during regular business hours all books, records and other documents of the Company relating to expenditures from the Bond proceeds for the Project and the numbers and types of jobs at the Project. (d) That it will take such further action and adopt such further proceedings as may be required to implement its aforesaid undertakings or as it may deem appropriate in pursuance thereof. 4. General Provisions. (a) All commitments under paragraphs 2 and 3 hereof are subject to the condition that on or before two years from the date hereof(or such other date as shall be mutually satisfactory to the Issuer and the Company), the Issuer and the Company or an affiliate thereof shall have agreed to mutually acceptable terms and conditions of the loan agreement referred to in paragraph 3, and of the Bonds and other instruments or proceedings relating to the Bonds. (b) If the events set forth in (a) of this paragraph do not take place within the time set forth therefor or any extension thereof, and the Bonds in an amount of approximately the amount stated above are not issued and sold within such time, the Company agrees that it will reimburse the Issuer for all reasonable out-of-pocket expenses which the Issuer may have incurred at the Company's request arising from the execution of this Agreement and the -2- performance by the Issuer of its obligations hereunder, and this Agreement shall thereupon terminate. IN WITNESS WHEREOF, the parties hereto have entered into this Agreement by their officers thereunto duly authorized as of the 3e ii`'rlay of Ju` , 1997. CITY OF ELGIN, ILLINOIS By: �--` Mayor ATTEST: 7)"`QoU/r,-, City Clerk STARRO PRECISION PRODUCTS, INC. By: President DOCUMENT#:CHG005A(00000-1133)305728.1;DATE:07/14/97/TIME:14:15 -3- • OF et_, I � City of Elgin Agenda Item No. (f) July 17 , 1997 TO: Mayor and Members of the City Council FROM: Robert O. Malm, Interim City Manager SUBJECT: Inducement Resolution/Starro Precision Products PURPOSE The purpose of this memorandum is to present to the Mayor and members of the City Council an inducement resolution on behalf of Starro Precision Products for the issuance of Industrial Development Revenue Bonds . BACKGROUND At the February 22 , 1996 Committee of the Whole, the Mayor and City Council authorized the adoption of an inducement resolu- tion for Industrial Development Revenue Bonds on behalf of Starro Precision Products, Inc . in the amount of $2 million. The bond proceeds will be used to finance the acquisition, construction and equipment of a manufacturing facility for Starro Precision Products . The request from Starro in 1996 was for $2 million. Starro has now identified a financing request of $2 . 8 million. Any amount in excess of what the City of Elgin may make available to Starro would have to be obtained from another government body. It is anticipated that the City will have $4 ,266 , 950 in IRB capacity for 1998 . Two million of the capacity has been committed to the Graziano Partners project at Fox Bluff Corporate Center. There remains $266 , 950 of IRB capacity that could be given to Starro which would then increase their IRB amount from $2 million to $2 . 26 million. If the City were to make the additional capacity available, Starro would be required to purchase less capacity from other sources . Additionally„ $266 , 950 is too small an amount to economically finance a single deal . COMMUNITY GROUPS/INTERESTED PERSONS CONTACTED None. Inducement Resolution July 17 , 1997 Page .pn 1 FINANCIAL IMPACT q"- All costs pertaining to the IRB issuance will be borne by Starro Precision Products, Inc . LEGAL IMPACT VI -4/ None. ALTERNATIVES None. RECOMMENDATION It is recommended that an inducement resolution be adopted for Starro Precision Products, Inc totaling $2 . 8 million in Industrial Revenue Bonds in 1998 . Respectfully submitted, :rill � 11 /�s R. Nowicki ctor of Finance tridg-*a-1 Raymond H. Moller Director of Business er •ices and Properties 1 Rodert . Maim In erim City Manager RHM/skg Attachments American National Bank and Trust Company of Chicago Elgin Division 24 East Chicago Street/Elgin,Ill nois 60120/(847)742-8200 July 16, 1997 Mr. Raymond H. Moller Director of Business Services and Properties • City of Elgin 150 Dexter Court Elgin, IL 60120-5555 Dear Mr. Moller: The purpose of this letter is to formally request a$266,950 increase to Starro Precision Products' original IRB volume cap request,raising the amount to$2,266,950 from $2,000,000. Additionally,this letter serves to address the proposed inducement resolution submitted to you for the July 23rd city council meeting by the bond counsel of Katten Muchin &Zavis. The proposed inducement resolution calls for approval of revenue bonds in an amount not to exceed $2,800,000. American National Bank and Bruce Stark understand the City of Elgin is presently unable to allocate more than $2,266,950 in 1998 revenue bond cap to Starro Precision. However,the request for an amount not to exceed$2,800,000 serves to allow for additional revenue bond cap which may be seeded over to Elgin from other sources at a future date. Assuming the full amount of$2,266,950 is allocated to Starro Precision Products,the proposed usage of these funds is estimated as follows: Construction of new building- $1,500,000, purchase of new machinery and equipment- $766,950. Please note this as an amendment to the Application for Industrial Development Bond Financing previously submitted by Starro Precision Products. Should you have any questions regarding this matter,please do not hesitate to call me. Sincerely, 4.....4tv. William A. Karsten Assistant Vice President (847)468-7117 cc: Bruce Stark,Jr. - Starro Precision Products Committee of the Whole Meeting May 22 , 1996 Page 2 Performance of Harry Belafonte at Hemmens A resolution will be presented at tonight' s Council meeting for adoption by the City Council . Performance of St. Petersburg State Ice Ballet at Hemmens A resolution will be presented at tonight' s Council meeting for adoption by the City Council . Performance of "Zorba" at Hemmens A resolution will be presented at tonight 's Council meeting for adoption by the City Council . Recommendation by Neighborhood Services Committee for No Parking on the West Side of Gifford Street between Summit and Chicago Streets Councilman Walters made a motion, seconded by Councilman Schock, to authorize No Parking on Gifford Street, west side between Summit Street and Chicago Street. Yeas : Councilmembers Gavin, Gilliam, McKevitt, Schock, Walters, Yearman and Mayor Kelly. Nays : None. Recommendation by Neighborhood Services Committee for Miscellaneous Vehicle Restrictions Councilman Gilliam made a motion, seconded by Councilman Walters, to authorize the proposed vehicle restrictions . Yeas : Councilmembers Gavin, Gilliam, McKevitt, Schock, Walters, Yearman and Mayor Kelly. Nays : None. Agreements in Lieu of Special Assessment for the Reconstruction of Buckeye Street between Crystal Street and the East Dead-end Councilwoman Yearman made a motion, seconded by Councilman Gavin, to approve the proposed agreements with Kinney Electric at 678 Buckeye Street and James Richardson at 665 Buckeye Street. Yeas : Councilmembers Gavin, Gilliam, McKevitt, Schock, Walters, Yearman and Mayor Kelly. Nays : None. Inducement Resolution with Starro Precision Products, Inc. for a Portion of the City's 1998 Annual Industrial Revenue Bond Authority Councilman Gavin made a motion, seconded by Councilman McKevitt, to proceed with an inducement resolution for Starro Precision Products, Inc . in the amount of $2 million in Industrial Revenue Bonds . Yeas : Councilmembers Gavin, Gilliam, McKevitt, Schock, Walters, Yearman and Mayor Kelly. Nays : None. II , Agenda Item No. , ,2 . . , vt May 15, 1996 TO: Mayor and Members of the City Council FROM: Richard B. Helwig, City Manager SUBJECT: Inducement Resolution with Starro Precision Products , Inc . for a portion of the City' s 1998 Annual Industrial Revenue Bond Authority PURPOSE The purpose of this memorandum is to present to the Mayor and members of the City Council a request from Starro Precision Products, Inc . for $2 million of 1998 Industrial Revenue Bond ( IRB) authority. BACKGROUND The City has received a request regarding the availability of IRBs for business expansion. Starro Precision Products, Inc . has presented a request for $2 million. The City now has an allocation of $4 . 055 million in IRB capacity through the Governor' s office. This allocation is based on a population of 81, 108 . This allocation was recently updated by the Gover- nor' s office . Starro Precision Products , Inc. will utilize the bond funds to construct a building at the Fox Bluff Corporate Center and purchase equipment. The product of the company is Swiss screw machine products used in various industries , including automotive. These are essentially small machined products manufactured on a per job basis . The market is international, including all of North America. Seventy-seven people work for the company, with 45 living in Elgin. New job generation will be 17 positions . The initial positions will be a mix of jobs, three superviso- ry, one clerical, 11 factory and two part-time. Average sala- ries are $22 ,800 with the new positions ranging from just under $20, 000 to some $50, 000. Benefit to the City's tax base will likely be some $500, 000 of equalized assessed valua- tion. At a tax rate of $1 . 92 and $8 .50 for the City and all governments, expected revenues will be $9,600 and $42, 500, respectively. Starro Precision Products , Inc. May 15 , 1996 Page 2 COMMUNITY GROUPS/INTERESTED PERSONS CONTACTED None. FINANCIAL IMPACT All costs pertaining to the IRB issuance will be borne by Starro Precision Products , Inc . LEGAL IMPACT None. ALTERNATIVES Require the company to seek conventional financing for the project . RECOMMENDATION Speer Financial , Inc . found this project to be a good credit and worthwhile project and recommends that the City proceed with an inducement resolution . It is recommended that an inducement resolution be adopted for Starro Precision Products , Inc . in the amount of $2 mil- lion in Industrial Revenue Bonds . Respectfully submitted, (1 /4(•_i-- C l Ot (k James R. Nowicki Finance Director Raymond H. Moller Director of Business Services and Properties C3 . ic4.0 9 Richard B. Helwig City Manager RHM/skg . • PUBLIC FINANCE CONSULTANTS SINCE 1954 SPEER FINANCIAL INC. ELWOOD BARCE RICHARD A PAVIA KEVIN V. McCANNA DAVID F PHILLIPS LARRY P BURGER DANIEL D FORBES CMAIRMA.EMFRPl S CMAIRMA'E),IERTTLS PRESIDE'.^. SR VICE PRESIDENT VICE PRESIDENT '•ICE PRESIDENT April 19, 1996 The Honorable Kevin B. Kelly and Members of the City Council City of Elgin 150 Dexter Court Elgin, IL 60120 Dear Mayor and Council: Pursuant to the request of the City, Speer Financial, Inc. has reviewed the industrial revenue bond application, and supporting documentation including unaudited financial reviews, of Starro Precision Products, Inc. The reviews are on a calendar year basis and are prepared by Ward, Lane & Associates, P.C. of Elgin. Starro Precision Products is applying for City approval of$2,000,000 industrial revenue bonds. The purchaser is expected to be American National Bank of Chicago. Bond counsel has not been identified yet. Proceeds will be used to purchase land in Fox Bluff Corporate Center for $300,000, construct a building for $1,600,000, purchase equipment for $300,000 and pay legal and financing costs. The existing buildings are expected to be rented to other, smaller manufacturing concerns. The company has been manufacturing its product in Elgin. The increase in business and need for operating efficiencies necessitate an expansion. Functions at six buildings will be consolidated into one, large facility. The product of the company is Swiss screw machine products used in various industries including automotive. These are essentially small machined products on a per job basis. The market is international including all of North America. Some 77 people work for the company, of whom 45 live in Elgin. New job generation will be 17 positions. The initial positions will be a mix of jobs, 3 supervisory, 1 clerical, 11 factory and 2 part-time. Average salaries are $22,800, with the new positions ranging from just under $20,000 to some $50,000. Benefit to the City's tax base will likely be some $500,000 of equalized assessed valuation. At a tax rate of $1.90 and $8.50 for the City and all governments, expected revenues will be $9,500 and $42,500 respectively. Financial Analysis As the accompanying table indicates, the company has been slowly growing over the past four years. The owner reports that the emphasis has been on quality improvement with 1995-1996 the beginning of a sales effort for major expansion. Sales revenues have been growing, with a 51% increase 1991 to 1995. Net income as a percentage of sales over the past five years has averaged 1.6%, ranging from (1%) to 5.5%. The expansion of sales has been reflected in the balance sheet. Accounts receivable increased from $531,370 in 1991 to $1,022,428 in 1994 with a small drop in 1995 to $958,784. Inventory has been fairly stable at approximately $675,000. Liabilities and equity have been stable, increasing somewhat. This stability in the various balance sheet items indicates a financially well managed company. SUI i t 3435.55 EAST MONROE STREET•CHICAGO.ILLINOIS 60603•(312)346-3700•FAX(312)346-8833 SUITE 500.531 COMMERCIAL STREET•WATERLOO.IOWA 50701•(319)291-2077•FAX(319)291-6787 SPEER FINANCIAL, INC. Dun and Bradstreet reports that the financial statement of the company is "good." The debt will be personally guaranteed by the company's sole shareholder. The $2,000,000 of bonds are to be amortized over 18-19 years with a 5 year balloon. The bonds will pay interest on a floating rate. Maximum annual debt service (at an estimated high rate of 9%) should be no more than $225,000 with a likely debt service closer to $205,000. Results of 1994 provide 122% coverage of the maximum amount and 134% coverage of the likely amount. This is reasonable coverage of the bonds. Results for partial 1995 are less favorable, reportedly due to one-time expenses related to quality control and increased marketing expenses. Assuming net income continues to grow and as ;iterest expense lessens each year due to principal retirement, coverage should improve. Conclusion In summary, we find the company, based on its unaudited financial information, to be financially viable. The IRB project will retain 77 jobs and bring new jobs to Elgin. We find this a good credit and worthwhile project and recommend that the City proceed with the inducement resolution. We would be pleased to discuss this with you. Sincerely, Kevin W. McCanna President KWM/sls Enclosure SPEER FINANCIAL, INC. Accountant's Compilation as of December 31 1991 1992 1993 1994 1995 (Sept. 30) ASSETS: Accounts Receivable $531,370 $727,127 $698,699 $1,022,428 $958,784 Inventory 681,299 636,850 562,537 674,272 757,579 Property and Equipment, Net 781,793 732,601 603,385 543,227 898,264 Other 165 126 165,676 76 301 255,037 269,179 TOTAL ASSETS $2,159,588 $2,262,254 $1,940,922 $2,494,964 S2,883,806 LIABILITIES: Current Debt $558,392 $611,230 $374,309 $498,154 $584,449 Accounts Payable 224,086 263,350 182,598 293,662 336,800 Long Term Debt 161,048 248,448 257,808 301,015 738,927 Other 68 575 36 981 0 0 0 TOTAL LIABILITIES $1,012,101 $1,160,009 $814,715 $1,092,831 $1,660,176 EQUITY: Common Stock S 18,000 $18,000 S18,000 $18,000 $18,000 Retained Earnings 1,279,487 1,234,245 1,258,207 1,534,134 1,355,630 Treasury Stock (At Cost) , (150.0001 (150,000) (150,000) (150,000) (150,000) TOTAL EQUITY $1,147,487 $1,102,245 $1,126,207 $1,402,134 $1,223,630 Annual Compilation 1991 1992 1993 1994 1995 (9 Mo.) • Net Sales $3,359,202 $4,361,987 $4,939,179 $4,958,833 S3,827,148 Cost of Sales $2,232,378 $3,004,614 $3,445,800 $3,276,702 $2,492,313 Selling Expenses $205,432 $219,202 $249,080 $280,179 $268,925 General Expenses $874,670 $1,175,017 51,187,813 $1,067,873 $900,341 Operating Income $46,722 (S36,846) S56,486 $334,077 $165,569 Other Income (ExpP-rtos) (S51,362) ($8,396) ($32,524) ($58,150) (S58,648) Net Gain (Loss) ($4,640) ($45,242) $23,962 $275,927 $106,921