Travis County Commssioners Court
July 29, 2003
The Closed Caption log for this Commissioners Court agenda item is provided by Travis County Internet Services. Since this file is derived from the Closed Captions created during live cablecasts, there are occasional spelling and grammatical errors. This Closed Caption log is not an official record the Commissioners Court Meeting and cannot be relied on for official purposes. For official records please contact the County Clerk at (512) 854-4722.
Housing Finance Corporation
Let's call to order the Travis County housing finance corporation. One item of business consider possible event of default on lake view apartment bonds and take appropriate action.
>> good afternoon. In December of 2001, the corporation issued a little over $28 million for the acquisition of lake view apartments, which is located at 2401 lake shore drive. The owner is [inaudible] area housing corporation, which is a nonprofit chodo organization. As you know, on these bond issuances, there is a 10 basis points annual fee. The -- so the 10 basis points that was due on the bonds in December of 2002 was $28,105. The first thing I want to inform the board is we have not collected this money. We have made inquiries and sent invoices both to the owner and the trustee, who is bank one. And the trustee has informed us that the reason -- the reason the annual fee hasn't been paid is because the apartment complex is having financial difficulties and there is not enough money in the reserve funds that they use to pay this annual fee. They -- the trustee did inform me they are planning to declare an event of default and event of default would be telling the financial community that the -- that the bar is not adhering in some aspect to the trust indenture. And if event default is declared, then the trustee has more room to use the funds to cure the event of default, and he has not said that that would cause him to be able to pay the annual fee, but it would increase the likelihood of the annual fee being paid. So what we are recommending to the board is that we support the trustee declaring the event a default. We have informed the owners that, you know, we have this agenda item and so they are fully aware of these issues. I don't know, nobody has given any reasons that it would not be in the corporation's best interests not to procedure ahead -- proceed ahead with this event of default.
>> does any of this reflect, just for purposes of information, does any of this reflect on the corporation or is this reflecting on the bonds and the bond holders related to this kind of an event?
>> this is not -- the corporation has not done anything differently on this project than any other project. I mean, I'm not sure exactly what the problems are at that project. I know they've already changed managers once, but the occupancy is not where they needed it to be and hoped for it to be and it may be just part of the economy situation. But that's the cause of it, there's just not enough cash flow coming through the project. This expense and the issuer fee, the indenture sets it up to be funded in a particular way. That's not enough cash flow to fund that at this point. The event of default gives the trustee flexibility to pull money from other funds and remedy the default.
>> but it does not reflect on Travis County's bond rating. That's what I'm trying to make sure people who might be listening are understanding these are two very separate kinds of transactions.
>> yes, this is separate. This is Travis County housing finance corporation. The corporation or the county have any responsibility whatsoever either moral or financial and that's very clear in the disclosure documents prepared back in December 2001. So that's very clear.
>> that's $28,000?
>> $28,105, yes.
>> and for Travis County to not get the $28,105, harvey --
>> Travis County housing finance corporation.
>> the financing corporation, which is where we use the moneys out of. It obviously affects their numbers, but not Travis County. What leverage do we have other than what you are basically asking of us today? I mean, is this really our own opportunity to really force or to at least allow this to go to the trustee so that the trustee -- this opens it up easier for the trustee to get involved, right?
>> right. That's my understanding. And I think this is -- correct me if I am wrong, but I believe this is the most powerful step that we can take.
>> and this corporation is where we would have taken -- last week when we gave $50,000, this is the account, so that account has taken a $28,000 hit.
>> right. And the figure I gave you last week did not include this money. I've already discounted this money because of the problems in collection.
>> what money do -- right do we have to see other financial records?
>> I believe in the loan agreement we can ask the borrower to show us any records we would like to see.
>> we need to see them. Demand for 10 basis points to tip them over into bankruptcy. The trustee has a responsibility to, I guess, take the actions that are best from a fiduciary responsibility. It's the trustee's call, but shouldn't we see some -- it could be they are in bankruptcy already.
>> well, I believe we would have received notice of any bankruptcy filing had occurred. I'm not sure --
>> it could be that financially they are dead anyway, in which case this action wouldn't affect them one way or the other.
>> well, what I have done with the trustee is -- is of course requested that they pay this amount, sent them an invoice.
>> you requested that because it's due.
>> that's right.
>> regardless of financial [inaudible].
>> right. And I explained to the owners, well, that the trustee had talked about an event of default and this would increase the likelihood of us -- of the corporation receiving its annual fee. Can you give us any reasons why this would not be in our interest or any reasons why we should wait for not taking this step, and they really didn't have any. You know, i've not reviewed their financial situation as far as statements go. I know their occupancy rate when I -- you know, I did do a compliance audit, and their occupancy rate was in the low 70s. So even in this economy it was doing worse than other apartment complex. Certainly the occupancy percentages were not as good as the average.
>> if this were the first time that we had heard of these folks in terms of there's an issue, you know, in terms do we send the soft letter tore hard letter, this has been problematic from day one in terms of the community plan, in terms of what they were supposed to do to basically prove their chodo status, it's been problem after problem after problem. They are not jugs late, they are seven months late. They are getting close to doubling up on what they owe us. And, you know, we're not bank one. They need to go talk to bank one about getting some money.
>> please remember, being a chodo, they are not paying property taxes.
>> exactly. There's things in terms of cash flow they are not even having to deal with.
>> we've never been on record officially as encouraging bankruptcy. We have been on record as promoting affordable housing.
>> right.
>> as a board of the Travis County housing finance corporation whose primary purpose, I guess, is promoting affordable housing, shouldn't we have more facts than the trustee's promise that we will stand a better chance of getting our 10 basis points if they are in bankruptcy than not? Seems to me no matter where we stand on the $28,000, the trustee has a responsibility that he owes bondholders, not necessarily the board. Shouldn't we have more information? I have four or five questions myself. What's the cash flow. What occupancy rate do they need to go. Are the apartments on the market for sale. What's the owner trying to do to, you know, bring them back into good standing financially.
>> now, I would certainly be unable to answer any of those questions at this time.
>> I think we ought to try to get the answers before we move on this.
>> okay.
>> and I believe the --
>> I don't think we waive our $28,000 by getting more information.
>> no.
>> and I would think that if they really are financially in hard shape and file for bankruptcy, that -- are we in a better position than any other creditor?
>> yes, sir, because my understanding from the trustee, and i've not seen any statements, but that there are money -- there is money in other funds that would eventually be available to pay this fee. It's just as the documents are written, the trustee can't take the money out of those funds before a event of default.
>> so they are in a better position to access those funds than the average creditor.
>> that's correct.
>> and that might change in fact if they file for bankruptcy.
>> that I'm not positive about. And we don't know the rate at which they are burning through the other funds they have either.
>> how -- [inaudible] to take this action today?
>> I would say the trustee is going to take their action based on what they feel they need to do. I any part of this was just a informative discussion so you all would know how this is going. And really the only action is that harvey was requesting was that we encourage the trustee or tell them we would support their decision to declare an event of default, so I don't think failing to take that action affects it one way or the other at this point. We can certainly ask for more information and come back in a few weeks when we have it.
>> well, what if the board wants to see in writing the reasons why the trustee would like to be encouraged to pursue bankruptcy. Including the occupancy rate now, what the occupancy rate must be for the project to make it financially. What steps the owners are taking to recover financially. See what I'm saying? And tell them we need the information next week. If he needs encouragement, I'm not opposed to encouraging, but I don't know that our primary goal is to make corporations an additional $28,000. Seems to me the primary goal ought to be to promote affordable housing. But if it seems the best way to promote it here is encourage bankruptcy, I can live with that. But it does seem to me it would help to have some written documents that we can look at, some reasons that we are in in a better position to get 28,000 bucks that are owed us. I'm not waiving our $28,000.
>> correct.
>> the other thing, I would find more information about the fund. If it's like a dedicated fund we can access, feel a little bit better to take time to review. These are just my views. A motion and vote today won't discourage me. I still think we ought to get the same information and look at it as the board of directors, in my view.
>> well, I would agree with that. I mean, I think you brought up a good point. Let me clarify something. I mean, is it just our thinking that bankruptcy is inevitable? Is this something that bank one has -- nobody -- I mean the bankruptcy deal really came from this dais.
>> that's right.
>> okay, all right. [multiple voices]
>> we don't know that bankruptcy is the ultimate deal here. But sometimes you certainly fear that creating a situation like this for someone to protect themselves, that's how they would choose to deal with the issue. But I think the judge is right. I think we at least need some information as the board and, you know, have some sort of communication with the trustee. I mean, they are going to know the most about, you know, this corporation. I mean, or entity. So I would like to get that information before we -- because we may do something inadvertently here that we might be sorry that we did unless we get more information.
>> have we sent a letter to the trustee officially saying you are overdue on this account? What have we done on our end to document other than sending a bill and they haven't sent it back in?
>> we have sent a bill to the trustee and the owner. And we -- I have had several conversations with the trustee and a couple with the owner. Trying to get updates and --
>> because that's a middle position. Rather than it being in terms of the board supporting a declaration of default, maybe this needs to be a communication from this corporation basically saying your bill is overdue and we want communication as quickly as we can from the trustee as to how they are going to resolve this issue so that the affordable housing lives on and the corporation gets the money that it is due seven months ago. So maybe someplace in between the documents that we are concerned, we are aware of it and we expect some kind of corrective action and not take any kind of position about what that corrective action ought to be because that is the role of the trustee.
>> it would have to have a short outline of points enumerating what the board's responsibility is in the event of [inaudible].
>> that's a good idea.
>> to the owner, to the bondholders, to the trustee, to ourselves. This is [inaudible] from the bad times we were dealing with road districts. I remember on a couple of real bad ones we ended up doing a whole lot of work because there was nobody else out there to do it. And if there is default and the owners go away, the trustee is not being paid, what happens? What's our role?
>> I can certainly put something together.
>> your recommendation was a friendly note to the trustee indicating that the account is still overdue?
>> that we are aware -- that the board has been made aware this bill is overdue and we look forward to communication as quickly as possible from the trustee as to what their course of action is to get this situation resolved. And that way we're not taking --
>> give directions to do that and in the same memo ask those questions.
>> that would be a good thing. Because we are concerned about the affordable housing, but there's also a bill due and I'm just making sure that we have properly documented our concern so that we haven't missed a step somewhere along the line of giving them leeway and didn't actually officially say we've noticed the bill has not been paid. Kindly remit.
>> so this communication would come from the president of the board, it would seem.
>> we were hoping one of our favorite staff would --
>> I think mr. Divas could handle this in terms of he's communicated with our board.
>> if it has to come from me, I have no problem with it. I would reiterate that in the first paragraph and ask the other questions. I would contact the owner and say basically the board wants to know what you are trying to do to rectify the situation. We know the economy is tough right knew and your -- right now and your occupancy rate is lower than expected, what steps do you need to take to get there. I think we ought to add after apartment bonds an issues -- and related issues for next week and take appropriate action. That way we can have a full discussion, get the information we just requested out. It may well be that we end up doing this anyway, but I would rather do it a bit more informed.
>> .
>> the other question is what's our responsibility if a default does occur to the various participants? Owner, bondholders, us, Travis County government. If any. Brainstorm.
>> and then a related something, this is not for today and it's not even probably something for the next couple of weeks, it is my understanding the state law has substantially changed related to these chodos. Before they were basically able to come on in and there was not really much we could do about it, they were just happening. There's things that have changed and a briefing written at some point in the future would be very helpful to know because these guys have -- not just this particular one. We've raise add lot of questions about them being able to come in and get no property taxes and unchecked that was going to be problematic on a larger scale. So just whenever.
>> I would be glad to put a summary together because there are some changes.
>> any objection to those directions and post it for next week? We know it's kind of on a fast turn-around, but let's try to get it done between now and next meeting.
>> very good.
>> second.
>> all in favor? That passes by unanimous vote.
Last Modified:
Wednesday, July 30, 2003 12:31 PM