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HomeMy WebLinkAbout98-44 • RESOLUTION NO. 98-44 A RESOLUTION AUTHORIZING THE ISSUANCE, SALE AND DELIVERY OF $3,300,000 AGGREGATE PRINCIPAL AMOUNT OF VARIABLE RATE DEMAND INDUSTRIAL DEVELOPMENT REVENUE BONDS (STARRO PRECISION PRODUCTS, INC. PROJECT)SERIES 1998; APPROVING THE EXECUTION AND DELIVERY OF CERTAIN DOCUMENTS IN RELATION THERETO; AND AUTHORIZING CERTAIN OTHER MATTERS IN RELATION THERETO WHEREAS, the City of Elgin, Illinois (the "Issuer"), a municipal corporation and home rule unit of local government organized and existing under laws of the State of Illinois, is authorized by the provisions of the Constitution and laws of the State of Illinois to issue revenue bonds; and WHEREAS, Starro Precision Products, Inc., an Illinois corporation and Stark, L.L.C., a Delaware limited liability company (collectively, the "Company"), has requested the Issuer to issue its industrial development revenue bonds to provide financing for the acquisition, construction and equipping of a precision metal products manufacturing facility and related improvements (the "Project") located in the City of Elgin, Illinois (the "Project Location"), and the Issuer is authorized to do so; and WHEREAS, the Issuer adopted a resolution on July 23, 1997 (the "Inducement Resolution"), preliminarily approving the Project and evidencing the Issuer's intent to issue its industrial development revenue bonds in order to provide financing for a portion of the Project; and WHEREAS, the Issuer has held a public hearing in compliance with the requirements of the Internal Revenue Code of 1986, as amended (the "Code"), and has determined to finance a portion of the Project through the issuance of its industrial development revenue bonds; and WHEREAS, in order to finance a portion of the Project, the Issuer now proposes to issue $3,300,000 aggregate principal amount of its Variable Rate Demand Industrial Development Revenue Bonds (Starro Precision Products, Inc., Project) Series 1998 (the "Bonds") as hereinafter provided; and WHEREAS, the Issuer and the Company will enter into a Loan Agreement, dated as of March 1, 1998 (the "Loan Agreement"); and WHEREAS, pursuant to a Trust Indenture, dated as of March 1, 1998 (the "Indenture"), between the Issuer and American National Bank and Trust Company of Chicago, Chicago, Illinois, as trustee (the "Trustee"), the Issuer will assign to the Trustee the Issuer's right, title and interest in, under and to the Loan Agreement (except for certain rights of the Issuer to be reimbursed and indemnified by the Company, and to receive notices) as security for the payment of the Bonds; and WHEREAS, pursuant to a Placement Agreement, dated the date of delivery of the Bonds (the "Placement Agreement"), among the Issuer, the Company and American National Bank and Trust Company of Chicago (the "Placement Agent"), the Placement Agent will undertake to effect a private placement of the Bonds and to remarket Bonds tendered for purchase under certain circumstances; and WHEREAS, pursuant to an Arbitrage Compliance Agreement (the "Arbitrage Compliance Agreement")and a Tax Compliance Agreement(the "Tax Compliance Agreement"), each dated as of March 1, 1998, and each among the Issuer, the Trustee and the Company, the Issuer, the Trustee and the Company will undertake to maintain the tax-exempt status of the Bonds for Federal income tax purposes to the extent, and under the circumstances, set forth therein; and NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF CHICAGO, AS FOLLOWS: Section 1. The financing of a portion of the Project through the issuance and sale of the Bonds, as hereinafter provided, is hereby authorized and approved. Section 2. In order to provide funds to finance a portion of the Project, there are hereby authorized to be issued industrial development revenue bonds of the Issuer in the aggregate principal amount of$3,300,000, which industrial development revenue bonds shall be designated "City of Elgin, Illinois Variable Rate Demand Industrial Development Revenue Bonds (Starro Precision Products, Inc. Project) Series 1998." The Bonds shall be issued in fully registered form and in such denominations, shall be dated as of such dates, shall bear interest from their dates on the unpaid principal amount thereof at such rates per annum, shall mature on such dates and in such principal amounts, and shall be subject to purchase on such terms as are set forth in the form of Indenture presented to this meeting. The Bonds shall be subject to redemption prior to maturity at the times, under the circumstances, in the manner, at the prices, in the amounts and with the effect set forth in the form of Indenture presented to this meeting. The Bonds shall be executed in the name of the Issuer by the manual or facsimile signature of the Mayor, shall be attested by the manual or facsimile signature of the City Clerk, shall have the corporate seal of the Issuer impressed or reproduced thereon, shall be authenticated by the endorsement thereon of the Trustee, and on original issuance shall be delivered by the Trustee to the Placement Agent as agent for the original purchasers thereof through the facilities of The Depository Trust Company, New York, New York. Temporary Bonds may be delivered pending preparation of definitive Bonds. -2- The Bonds shall be issued in compliance with and under authority of the provisions of this Resolution and the Indenture. Section 3. The Bonds and the interest thereon shall be limited obligations of the Issuer, payable solely and only from the revenues and receipts derived by the Issuer pursuant to the Loan Agreement, and shall be otherwise secured as provided in the Indenture and the Loan Agreement. The Bonds shall not in any respect be a general obligation of the Issuer, nor shall they be payable in any manner from funds of the Issuer raised by taxation. The Bonds shall state that they do not constitute an indebtedness of the Issuer or a loan of credit thereof within the meaning of any constitutional or statutory provision. The Bonds shall be payable at the principal corporate trust office of the Trustee in the City of Chicago, Illinois, and at such other offices as may be chosen pursuant to the Indenture. The Bonds shall be payable in any medium which is then legal tender for all debts public and private. Nothing in this Resolution, the Loan Agreement, the Indenture, the Placement Agreement, the Arbitrage Compliance Agreement, the Tax Compliance Agreement or the form of the Bonds (hereinafter referred to collectively as the "Financing Documents"), or in any document or agreement required hereby and thereby, shall be construed as an obligation or commitment by the Issuer to expend any of its funds other than (i) the proceeds derived from the sale of the Bonds, (ii) the revenues and receipts derived from the Loan Agreement and (iii) any moneys arising out of the investment or reinvestment of said proceeds, income, revenues, receipts or moneys. Section 4. The form, terms and provisions of the Financing Documents presented to this meeting are in all respects approved, and the Mayor and the City Clerk of the Issuer are hereby authorized and empowered to execute, acknowledge and deliver the Financing Documents, with or without an impression of the official seal of the Issuer as required thereby. The Financing Documents, as so executed and delivered, shall be in substantially the forms now before this meeting and hereby approved, with only such changes therein as shall be approved by the officers of the Issuer executing the same, their execution thereof to constitute conclusive evidence of their approval and the approval of this Board of any and all changes or revisions therein from the forms thereof now before this meeting, and from and after the execution and delivery of the Financing Documents, the Mayor and the City Clerk of the Issuer are hereby authorized and empowered to do all such acts and things, and to execute all documents (including any certifications, financing statements, assignments and other instruments), as may be necessary, in the opinion of counsel to the Issuer, to carry out and comply with the provisions of the Financing Documents as executed, and in any other documents and instruments required to effectuate any portion of the financing transaction. If any of the officers of the Issuer who shall have signed or sealed any of the Bonds shall cease to be such officers of the Issuer before the Bonds so signed and sealed shall have been authenticated by the Trustee, or delivered by or on behalf of the Issuer, such Bonds, nevertheless, may be authenticated and delivered with the same force and effect as though the person or persons who signed or sealed the same had not ceased to be such officer or officers -3- of the Issuer; and also any such Bonds may be signed and sealed on behalf of the Issuer by those persons who, at the actual date of the execution of such Bonds, shall be the proper officers to the Issuer, although at the nominal date of such Bonds any such person shall not have been such an officer of the Issuer. Section 5. The issuance of the Bonds is hereby approved for purposes of Section 147(f) of the Internal Revenue Code of 1986 (the "Code"). Section 6. The Issuer hereby makes the election described in Section 144(a)(4) of the Code (relating to the issuance of bonds in excess of $1,000,000). Section 7. The Issuer hereby allocates volume cap from calendar year 1998 in the amount of $3,300,000 for the Bonds. Section 8. The officials, officers and employees of the Issuer are hereby authorized to do all such acts and things, and to execute all such documents (including any certifications, financing statements, assignments and other instruments), as may be necessary, in the opinion of counsel to the Issuer, to carry out and comply with the purposes of this Resolution. Section 9. The provisions of this Resolution are hereby declared to be separable, and if any section, phrase or provision shall for any reason be declared by a court of competent jurisdiction to be invalid or unenforceable, such declaration shall not affect the validity of the remainder of the sections, phrases and provisions hereof. Section 10. All ordinances, resolutions and orders, and parts thereof, in conflict herewith are, to the extent of such conflict, hereby repealed. This Resolution shall take effect and be in full force immediately upon its adoption and approval. Adopted: February 2 5, 1998 Approved: February 2 5 1998 s/ Kevin Kelly Mayor (SEAL) Attest: s/ Dolonna Mecum City Clerk Es DOCUMENT#:CHGO05A(12100-00343-8)334501.2;DATE:02/13/98/TIME:11:40= -4- ``�`OF ftC'y Agenda Item No. r y City of Elgin g ti !'ijjFED January 7, 1998 TO: Mayor and Members of the City Council FROM: Joyce A. Parker, City Manager SUBJECT : Request from Starro Precision Products for Additional Industrial Revenue Bond Funds PURPOSE The purpose of this memorandum is to present a request from Starro Precision Products for an additional $1, 033, 050 in Industrial Revenue Bond (IRB) volume cap. BACKGROUND In March of 1996, Starro Precision Products purchased Lot 5 at the Fox Bluff Corporate Center. On July 23, 1997, the City Council adopted an Inducement Resolution for Industrial Revenue Bonds in the amount of $2 . 8 million. While the Inducement Resolution identified $2 . 8 million in IRB funding capacity, the Mayor and members of the City Council committed only $2 .26 million of the City of Elgin volume cap to the $0 . 54 million shortfall in IRB volume cap Starro project. The was to be secured from other municipal sources . The limit of the City' s commitment of $2 .26 million was due to the fact that the City had previously committed the remaining $2 . 0 million in 1998 volume cap to the Graziano Partners project at Lot 43 at Fox Bluff Corporate Center. On December 18, 1997, the Graziano Partners notified the City that, due to tax code restrictions relating to the issue of the bonds relative to a $10 million cap on project expendi- tures, Graziano no longer would require the 1998 and 1999 IRB funding that was being reserved for their use . Graziano Partners has secured a loan from the Small Business Adminis- tration at a more attractive interest rate to finance their project. Graziano Partners closed on Lot 43 on December 23 . As a result of the decision by the Graziano Partners not to avail themselves of $2 million in IRB capacity in 1998 and $4 million in IRB capacity in 1999, these industrial development funds will be available to fund other economic development projects in 1998 and 1999 . Starro is requesting $1, 033, 050 of the $2 . 0 million now available in 1998 . Starro will construct a 44, 000 square foot office warehouse facility. Starro will occupy 27, 000 square feet of the building and lease the remaining 17, 000 square feet . It is estimated that the construction cost will be $1 . 6 million and equipment purchases will be $1 . 6 million. Starro Precision Products January 7, 1998 Page 2 COMMUNITY GROUPS/INTERESTED PERSONS CONTACTED None . yk, FINANCIAL IMPACT In April of 1996, Spear Financial, Inc. , the City' s financial advisor, found the initial request by Starro for $2 . 0 million in IRB capacity to be a good credit risk, a workable project and recommended that the City proceed with an inducement resolution. Spear has again reviewed Starro' s financial status and has indicated that it would maintain its positive evaluation of the project and would recommend extending additional IRB funding. All costs pertaining to the IRB issuance will be borne by Starro Precision Products, Inc . LEGAL IMPACT W None . ALTERNATIVES 1 . Allocate the additional IRB funding capacity to Starro. 2 . Retain the remaining $2 . 0 million in 1998 for as yet unidentified projects . RECOMMENDATION It is recommended that the City Council adopt an inducement resolution for Starro Precision Products, Inc. for an addi- tional $1, 033, 050 in Industrial Revenue Bond capacity. Respectfully submitted, . mes R. Nowicki Director of Finance ivirtard i0)(t Raymond H. Moller Director of Business Services and Properties yce A. Parker City Manager amp Attachments e1„ { �T R-FRF1O PFR-ICI BI01-1 1=31=10 JCTS, I r1C . December 17, 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 $1,033,050 increase to Starro Precision Products' IRB volume cap request, raising the amount to $3,300,000 from $2,266,950. This change is primarily to include equipment purchases, which were not included in the original proposed IRB because of the limited volume cap available for this project. kssuming the full amount of$3,300,000 is allocated to Starro Precision Products, the proposed usage of these funds is estimated as follows: Construction of new building - $1,600,000, purchase of new machinery and equipment - $1,600,000 and land acquisition - $100,000. Please consider this an amendment to the Application for Industrial Development Bond Financing previously submitted by Starro Precision Products. If you have any questions regarding this matter, please call me. Since'ely, 4figel Bruce Stark, J O President Swiss Screw Machine Products•23 N. Union Street•Elgin, IL 60123•(847)741-3382 Law Offices of SCHULZE, BAKER &ASSOCIATES, LTD. Attorneys and Counselors Suite 450 DuPage County at Law 1111 Plaza Drive (630)985-5411 Schaumburg,Illinois 60173 Jeffrey E. Schulze Facsimile Drew E.Baker Telephone: (847)240-1300 (847)240-1342 December 18 , 1997 Mr. Raymond H. Moller Director of Business Services & Properties City of Elgin 150 Dexter Court Elgin, Illinois 60120-5566 • Sent to addressee via regular mail and facsimile to (847) 931-5610 . Re : Contract for Purchase of Lot 43 of Fox Bluff-Corporate- Center Seller: City of Elgin Buyers : Graziano Partners/Joseph: Graziano, Sr. Dear Mr. Moller: As you are aware, from the inception of the original negotiations between the City of Elgin and my client, Joseph C . Graziano, Sr. , it was the intent of my client to utilize the City of Elgin' s allocation from the State of Illinois of Industrial Revenue Bonds in the ultimate sum of $6 , 000 , 000 . 00 to finance the purchase and development of Lot 43 . The City has been most cooperative relative to passing the appropriate resolutions to designate and allocate • the IRB' s for the benefit of my client. However, due to the restrictions attendant to the issue of the bonds relative to a cap on expenditures including , among other things , moving expenses , and despite my client ' s efforts to reduce its initial development plans to bring their total anticipated expenditures which must be included under the cap to a level not exceeding the cap, my client has been unable to do so. To .effectively bring the anticipated expenditures below the cap requirement of the IRB' s , would essentially leave my client with a development project that would barely . meet their current needs and provide no basis for the anticipated and planned expansion thereof in the future . Accordin ly .on behalf of• Joseph C. Graziano, Sr. , the designated purchaser under the Sale/Purchase Agreement, we must advise you that we will not be in a position to utilize the bonds originally scheduled to be allocated in 1998 and/or 1999 . Mr. Raymond H. Moller Director of Business Services & Properties City of Elgin December 18 , 1997 Page Two However, my clients believe that based upon their review of their ultimate development plans and after discussions with their Bond Counsel , they would like to be able to avail themselves of IRB' s in late 2001 or early in the year 2002 (assuming that said program is still available from the State of Illinois and the City of Elgin receives an allocation of said bonds) in the approximate sum cf $4 , 000 , 000 . 00 . Can the City commit to such an allocation (again assuming the existence of the program and the availability of the bonds) ? I would appreciate it if you could advise us in that regard at your earliest convenience. In as much as the Sale/Purchase Agreement initially contemplated the use of the bonds , and we are not now going to be able to avail ourselves of those bonds , my client is pursuing conventional financing relative to paying the balance of the purchase price (plus or minus prorations) as contemplated in paragraph 3C of the Contract . In that regard, my client would still wish to execute a. note and first mortgage in favor of the City of Elgin to be paid by March 31 , 1998 (subject to the already agreed credits) . Cognizant of the substantial investment in time and money my client had already made relative to preparing the land for construction as well as the total sums that have been and will be paid at closing, there would appear to be little , if any, risk to the City with reference to the obligation. This is especially true in light of the fact that the City will have received 50% or more of the purchase price at the time of closing relative to the initial earnest money deposits and the balance to be paid at closing pursuant to the Contract. We would not expect this to create any difficulties relative to our ultimately closing this transaction. It would be appropriate that the parties enter into an Amendment to the Contract clarifying the situation with reference to my client foregoing the IRB' s and utilizing conventional financing for payment of the balance due pursuant to the note and mortgage. Please review the situation with Mr. Gehrman and contact me with reference to your thoughts . Any such Amendment could be signed at Mr. Raymond H. Moller Director of Business Services & Properties City of Elgin December 18 , 1997 Page Three the time of closing. I look forward to hearing from you as quickly as possible in order that we may clarify the situation. Very truly yours , Schulze, B ker & Associates , Ltd. • By: • _ DR W E. BAKER DEB:hr • PUBLIC FINANCE CONSULTANTS SINCE 195-4 4 SPEER FINANCIAL, INC. ELWOOD BARCE RICHARD A PAVIA KEVIN W McCANNA DAVID F PHILLIPS LARRY P BURGER DANIEL D F c ORB..S CNAIRMA EAIERrflS MAMMA%'EMERITUS PRESIDENT SR VKE YRLSID€XT VICE P*E_SIDEvT 'ICE•RtsIDEs^. 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 increas 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 P 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. SUITE 3435.55 EAST MONROE STREET•CHICAGO.ILLINOIS 60603•(312)346-3700•FAX(312)346-8833 SI rrrF snn•Sil CUMMERCIAL STREET•WATERL00.10WA 50701•(319)291-2077•FAX(319)291-6787 ,PEER 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 hhterest 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, /. / (evin 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 5531,370 5727,127 $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 $2,883,806 LIABILITIES: Current Debt $558,392 5611,230 S374,309 5498,154 $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 518,000 $18,000 518,000 $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) (150,000) (150,000) (150,000) (150,000) (150,0001 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 54,939,179 $4,958,833 53,827,148 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 51,175,017 $1,187,813 $1,067,873 $900,341 Operating Income $46,722 ($36,846) $56,486 $334,077 $165,569 Other Income (Expenses) ($51,362) ($8,396) ($32,524) ($58,150) ($58,648) Net Gain (Loss) ($4,640) ($45,242) $23,962 $275,927 $106,921